Swedbank Investor presentation

Transcription

1 Swedbank Investor presentation February 2018

2 Disclaimer Certain statements made in this presentation are forward looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results and performance to differ materially from any expected future results or performance, express or implied, by the forward looking statements. Factors that might cause forward looking statements to differ materially from actual results include, among other things, regulatory and economic factors. Swedbank AB assumes no responsibility to update any of the forward looking statements contained herein. No representation or warranty, express or implied, is made or given by or on behalf of Swedbank AB or its directors, officers or employees or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this presentation. None of Swedbank AB or any of its directors, officers or employees nor any other person accepts any liability whatsoever for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith. This presentation does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities of Swedbank AB, nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied on in connection with, any contract or investment decision. 2

3 Table of contents Executive summary 4 1. Swedbank overview 5 2. Quarterly financial update Capital considerations Liquidity and funding Cover pool data Swedish and Baltic economy Swedish housing and mortgage market Appendix 70 3

4 Executive summary Strong financial position Sweden s largest retail bank with a leading position in our three Baltic home markets ROE target of at least 15% Strong asset quality! Solid liquidity and funding position survival horizon more than 12 months One of the best capitalised banks in Europe* with significant buffers to both MDA and Loss absorption trigger levels Dividend policy of 75% - for six consecutive years *According to EBA stress test 2016 Swedbank Q (Q3 2017) Robust performance! ROE: 14.4% (15.0%) Top 10 shareholders 1. Sparbanksgruppen, 10.3% 2. Folksam, 7.0% 3. AMF, 5.5% 4. Alecta, 4.5% 5. Swedbank Robur, 4.1% 6. Sparbanksstiftelser, 3.3% 7. BlackRock, 2.5% 8. Vanguard, 2.4% 9. Norges Bank, 2.0% 10. SEB Fonder, 1.8% Swedish owners, 59.5% Int l owners, 40.5% Sweden Our four home markets Cost/income ratio: 0.42 (0.37) CET1 capital ratio: 24.6% (23.9%) with requirements of 21.9% (fully loaded CRD IV) Leverage ratio: 5.2% (4.7%) Credit impairment ratio: 0.08% (0.06%) Share of impaired loans: 0.55% (0.55%) Total provision ratio for impaired loans: 45% (45%) Liquidity and funding: LCR: 173%, NSFR: 110% Credit ratings: AA-(S)/AA-(S)/Aa3(S) from S&P/Fitch/Moody s Estonia Latvia Lithuania Dec

5 This is Swedbank 1. Swedbank overview

6 Swedbank Low-risk, cost efficient and well capitalised This is Swedbank Large and diversified customer base Leading retail bank in our 4 home markets 7m PRIVATE CUSTOMERS Focus on Mid-corp and SME segments 18% corporate lending market share in Sweden 600k CORPORATE CLIENTS Stable profitability Return on equity target of at least 15% 15.1% Low risk Credit impairment ratio 0.08% Market-leading cost efficiency Cost income ratio 39% Solid capitalisation 270bps buffer to regulatory requirement 24.6% Note: Numbers for full year 2017 Source: Swedbank Fact book 4Q

7 Market leading position in our home markets Loans (private)* Loans (corporate)* Deposits (private) Deposits (corporate) Payments** Funds This is Swedbank 23% 17% 21% 20% 36% 20% Sweden 77% 83% 79% 80% 64% 80% Estonia 37% 46% 45% 54% 63% 55% 56% 44% 41% 59% 58% 42% Latvia 69% 31% 82% 18% 68% 32% 84% 16% 50% 50% 58% 42% Lithuania 66% 34% 82% 18% 60% 40% 77% 23% 51% 49% 63% 37% * Excluding the Swedish National Debt Office and repurchase agreements ** Bank Giro for Sweden, domestic payment transactions (Estonia, Latvia, Lithuania) Swedbank Other Source: Swedbank Fact book 4Q

8 Strong financial position Low risk Stable earnings Market-leading cost efficiency Liquidity and capital ratios (%) Profit before impairments (SEK bn) Total expenses (SEK bn) NSFR LCR CET1 ratio, CRDIV (RHS) One-offs from disposals 0 Q4 12 Q4 13 Q4 14 Q4 15 Q4 16 Q4 17 Credit impairment (bps) Return on equity (%) Cost / income ratio (%) -10 Q4 12 Q4 13 Q4 14 Q4 15 Q4 16 Q Acquisition of Sparbanken This is Swedbank Target Source: Swedbank Fact book 4Q

9 Stable and profitable business mix - retail bank profile This is Swedbank Total income Net Interest Income Net Commission Income 100% 90% 80% 70% NII NCI NGL Other 86% of total loans in Sweden 51% Swedish mortgages Baltic banking very profitable 10% of Group lending Sweden s largest fund manager (SEK1.2trn AuM) 5 th largest card acquirer & 10 th largest card issuer in Europe 60% 50% 20% of Group operating profit, FY2017 Other 13% 40% 30% 20% 10% 0% Lending and deposits 63% 2017 Total income Asset Management 11% Payment, Cards 9% Treasury, Trading and Capital Markets 4% Source: Swedbank Fact book 4Q

10 Swedbank strategy Strategy An available full-service bank Low risk Sustainability and customer value through a responsible core business Offering based on customer need and expectations High cost efficiency 10

11 Key priorities Strategy Customer Interaction Savings Lending & Payment Seamless omni-channel customer journey Regain market share through high-quality digital savings offer Fully-digital mortgage process Proactive, tailor-made product offers and advice Increase focus on pension savings Enhance corporate relationships with our improved cash management solution One financial access point for customers Customer-centric Financial Planning Platform Most convenient payments solutions for consumers 11

12 Digitalisation cost and income opportunities 90% of our customers are happy or very happy with our digital services Strategy Increase revenue via digital banking Improve cost and sales efficiency Customers increasingly connected via our digital channels Higher transaction volumes More cross-selling opportunities Further potential in manual to digital sales transformation 100% 80% Digitally active customers 47% Customers w ithout Internet bank agreement 29% Connected customers (less than monthly usage) 24% 60% 40% 20% 0% Payments Savings & pensions Digital sales Lending Manual sales Insurance Note: Data relates to Swedish Banking 12

13 2017 Strategic achievements Strategy Launched in Sweden Already operating in the Baltics Fully digital consumer lending Retail channels Positive AuM inflows Strategic co-operation with Kepler Cheuvreux Enhanced equity capabilities Personal finance app for customers Mina Tjänster Fintech partnership SmartID launched in the Baltics Enables faster transaction process for customers Digital customer identification and authorisation PayEx acquisition Integration and new launches begun Enhanced merchant omnichannel payment solutions 13

14 Swedbank creates value Strategy % Return on Equity (LHS) CET1 capital ratio (LHS) Dividend per share (RHS) * Dividend proposal (for the financial year of 2017) - to be decided by the Annual General Meeting in March 2018 * SEK Return on Equity >15% target 15.1% FY 2017 Common Equity Tier 1 ratio One of the highest among European banks 24.6% Dividend per share 75% payout ratio for 6 th year in a row SEK Source: Swedbank Fact book 4Q

15 Quarterly financial update 2. Quarterly financial update

16 Swedish Banking Solid mortgage volume growth Quarterly financial update SEKm Q4 17 Q3 17 QoQ Net interest income Net commission income Other income Total income Total expenses Profit before impairments Credit impairments Ratios Q4 17 Q3 17 ROE, % C/I ratio Volumes, SEKbn Q4 17 Q3 17 QoQ Loans Deposits Net interest income Continued mortgage loan volume growth and stable back book margins Net commission income Benign stock market development supported asset management and brokerage income PayEx included for the full quarter Other income Higher contribution from Entercard and life insurance Solid asset quality Dec

17 Baltic Banking Record high profitability Quarterly financial update SEKm Q4 17 Q3 17 QoQ Net interest income Net commission income Other income Total income Total expenses Profit before impairments Credit impairments Ratios Q4 17 Q3 17 ROE, % C/I ratio Net interest income Lending to households continues to grow Stable margins Firm deposit growth Net commission income Benefited from annual performance fees Positive FX effects Stable asset quality Volumes, SEKbn Q4 17 Q3 17 QoQ Loans Deposits Dec

18 Large Corporates & Institutions Result reflected mixed market dynamics Quarterly financial update SEKm Q4 17 Q3 17 QoQ Net interest income Net commission income Net gains and losses Other income Total income Total expenses Profit before impairments Credit impairments Ratios Q4 17 Q3 17 ROE, % C/I ratio Volumes, SEKbn Q4 17 Q3 17 QoQ Loans Deposits Stable net interest income Net commission income PayEx contributed positively Positive stock market performance increased asset management and custody income Annual covered bond market maker fees Net gains and losses Low FX and fixed income trading activity Negative valuation effects Lower credit impairments Dec

19 Group results Robust performance SEKm Q4 17 Q3 17 QoQ Net interest income Net commission income Net gains and losses Other income Total income Total expenses Profit before impairments Credit impairments Other impairments Tax Net profit Ratios Q4 17 Q3 17 ROE, % C/I ratio CET1 capital ratio, % Mortgage volume growth strengthened net interest income Stock market performance and full quarter PayEx inclusion benefited net commission income FX effects and lower market activity impacted net gains and losses negatively Expenses Restructuring charge of SEK 300m PayEx included for the full quarter Solid asset quality Quarterly financial update Dec

20 Capital Strong capitalisation no excess capital Quarterly financial update 24.2% 24.6% 23.9% 24.6% 21.9% CET1 capital increased by SEK 0.4bn Positive effect from net profit of SEK 1.1bn excl. dividend Negative effect from IAS19 of SEK 0.6bn REA decreased by SEK 11.1bn Q Q Q Q CET1 capital ratio requirement Buffer above minimum requirements of around 270bps Dec

21 Capital Lower REA Quarterly financial update SEKbn REA decreased by SEK 11.1bn Received VISA-related proceeds reduced REA 415 Year-end effects reduced REA Q Credit risk Market risk CVA Other Q Dec

22 Group results FY 2017 Strong result SEKm FY 2017 FY 2016 YoY Net interest income Net commission income Net gains and losses Other income Total income Total expenses Profit before impairments Credit impairments Other impairments Tax Net profit Ratios FY 2017 FY 2016 ROE, % C/I ratio CET1 capital ratio, % ROE of 15.1% - target achieved Strong organic income generation One-off tax-free gains: SEK 2.1bn from VISA in 2016 SEK 0.7bn from Hemnet in 2017 FY financial update Underlying expenses in line with FY 2017 guidance of SEK 16.1bn Strong asset quality Lower-than-anticipated credit impairments Higher tax expense - changed dividend policy in Estonia and tax on subord. liabilities CET1 capital ratio of 24.6% Board proposal dividend of SEK per share 75% pay-out ratio: Six consecutive years Dec

23 Group Solid asset quality Quarterly financial update Credit impairments, SEKm Q4 17 Q3 17 QoQ Swedish Banking Baltic Banking Large Corporates & Institutions Swedbank Group Resilient asset quality in all business segments Lower-than-anticipated credit impairments for the full year (0.08%) Ratios Q4 17 Q3 17 Credit impairment ratio, % Share of impaired loans, gross % Total provision ratio for impaired loans, % Dec

24 ROE target of 15% remains Outlook 2018 Additional investments to further accelerate our digitisation and automation efforts Channel transformation Digital payment solutions and e-commerce Customer offerings Automation Investments will allow us to offset underlying cost inflation and over-time lead to net cost reductions The re-organisation of our IT and business development processes a key facilitator Total annual expenses for 2018 and 2019 will be below SEK 17bn ROE target of 15% remains No excess capital dividend policy of 75% remains 24

25 Capital fully loaded CRD IV 3. Capital considerations

26 Pillar 1 Pillar 2 Composition of Swedbank s CET1 and total capital ratio requirements Capital fully loaded CRD IV 270bp 30.7% 27.7% Systemic Risk charge in Pillar % 2.0% 25% REA Mortgage Floor 21.9% 2.0% 8.2% 15.9% Individual Pillar 2 charge Automatic MDA Restrictions 6.8% 1.8% 2.5% 1.3% 3.0% 13.3% 11.3% 2.3% 2.5% 1.3% 3.0% 3.5% 4.5% 4.5% 14.8% Capital Conservation Buffer Countercyclical buffer (2.0%) Systemic Risk Buffer Min. Additional T1 and T2 capital Minimum CET1 Requirement Available Distributable Items Swedbank AB (parent comp) FY 2016** FY 2017 Share premium reserve Retained earnings Available distributable items Dividend* Comprehensive income other 195 ADI Q * paid out in April 2017 ** Based on fully audited numbers Swedbank CET1 Requirements Swedbank CET1 Capital Ratio Swedbank Total Capital Requirements Swedbank Total Capital ratio ** The calculation of the ADI is based on the Annual report, why this exercise as per Q should be seen as an example based on changes during the year. Dec

27 Regulatory uncertainty remains Capital fully loaded CRD IV Basel proposal largely as expected Awaiting final details from EU and then Swedish regulator on new standardised approach Likely long phasing in period potentially until 2027 Comfortable buffers to current capital requirements Feel great comfort in our capital generation capacity No need to review current dividend policy on the back of the proposal IFRS 9 Limited impact on CET1 capital ratio of 6bps as per 1 Jan, 2018 Sep

28 MREL needs in line with expectations no imminent issuance plan Capital fully loaded CRD IV Requirements for 2018 set and published by the Swedish National Debt office (NDO) on 20 December % based on Total liabilities + Own funds 34.8% based on Risk Exposure Amount (REA) Transition period until 1 Jan, 2022 Already in compliance with current senior unsecured debt outstanding Issuance need to the equivalent of around SEK 87bn in subordinated MREL eligible securities to meet requirement by 1 Jan 2022 Sweden to adopt EU insolvency law Expected by year end 2018 SEKbn Loss absorption amount Recapitalisation amount Swedbank MREL requirements Based on Risk Exposure Amount 13.4% 30.7% 21.4% Swedbank total capital Senior unsecured debt >1Y* 14% 12% 10% 8% 6% 4% 2% 0% NDO requirement SREP 2017** *Nominal amount, ** Based on FY 2016 numbers, *** FY 2017, based on consolidated situation Based on total liabilities + own funds 31.8% 12.9% 7.3% Swedbank total liabilities + own funds*** Dec

29 Asset portfolios low risk Group loan book* Q4 2017, total SEK 1 502bn CET1 EBA stress test, 2016, % Hotels and restaurants, Retail Shipping and offshore, Transportation Manufacturing Other corporate lending Other property management Residential properties Agriculture and forestry 8% 7% 15% 25% 20% 15% 10% 5% Asset quality 0% SHB Nordea SEB Swedbank Household loans (90% mortgages) 70% Sweden Loan distribution Baltic banking 30% 70% Private Corporate 45% 55% Private Corporate Tenant ow ner associations * Loans to the public excl. loans to credit institutions and SNDO Dec

30 Liquidity and funding 4. Liquidity and funding

31 Core balance sheet structure SEKbn Assets SEKbn Liabilities Liquidity and funding Lithuania Latvia Estonia CET1 Suppl. capital Senior unsecured debt Simplified balance sheet Other corporate lending, Sweden & other Nordic countries Deposits 800 Other private, Sweden Swedish mortgage loans Covered bonds 0 Q Q Dec

32 Covered bond strategy Liquidity and funding Sweden Covered bond strategy Swedish households financial assets SEKbn SEK bn 100% % 80% % % EUR/USD SEK bn 50% 40% 30% Other SEK 20-50bn 20% 10% 0% <5Y 3-7Y >7Y Deposits, cash and retail bonds (LHS) Equities (LHS) Maturity, years Pension savings and mutual funds (LHS) Total financial assets (RHS) Other financial assets (LHS) Dec

33 Senior unsecured debt strategy Liquidity and funding SEKbn* 60 Senior unsecured debt maturity profile Senior unsecured debt *Nominal amount Dec

34 Conservative funding position LCR 173% (Swedish FSA definition FFFS 2012:6) Liquidity and funding NSFR 110% (Basel committee) Issued SEK 181bn of term funding FY 2017 Plan to issue around SEK 145bn in 2018 Term funding issuance completed and planned Prefunded for more than 12 months SEKbn SEKbn 100 Covered bonds Senior unsecured debt Planned, covered bonds Planned, senior unsecured debt Survival horizon Days forward Dec

35 Long-term funding maturity profile Liquidity and funding Long-term funding maturity profile, by funding source SEKbn Senior unsecured debt Covered bonds 200 Long-term funding maturity profile, by currency SEKbn Other GBP USD EUR SEK Dec

36 Private placements active in both covered bonds and senior unsecured debt Liquidity and funding All major currencies Bullet format, FRN or Fixed EUR 10m equivalent minimum size Sweet spots: Senior: 2.5-5Y Covered: 3-8Y Longer tenors also possible Open to larger placements with smaller investor groups Open to tap existing bonds Listing is optional FRN s (SEK and EUR) issued with a strike adjustment spread * Program formats available: Senior unsecured debt: MTN, NSV and potentially USD 144a format Covered bonds: MTN, RCB and Norwegian CB program *Spread added to the coupon to avoid negative coupon fixings. Bond issued above par to compensate for this. The above par value reflects the NPV of the adjusted spread 36

37 Liquidity reserve According to the template defined by the Swedish Bankers' Association Liquidity and funding Cash and holdings in central banks Deposits in other banks available overnight 3 Securities issued or guaranteed by sovereigns, central banks or multilateral development banks Securities issued or guaranteed by municipalities or public sector entities Covered bonds Issued by other institutions Own issued Securities issued by non-financial corporates 292 Securities issued by financial corporates (excl. covered bonds) 409 Other Total SEKm 1) Including loans to the Sw edish Ntional Debt Office 2) 95% of the securities in the liquidity reserve per Q are rated AAA. The rating requirement is AA-. Assets included in the liquidity reserve should comply w ith the follow ing: - assets shall be under the control of the Treasury function in the bank - assets can not be encumbered - market values are used for the assets - only unencumbered securities receiving 0-20% risk w eight under the standardised approach to credit risk of the Basel II framew ork can be included - securities received in reverse repo transactions shall be included in the liquidity reserve and securities used as collateral for repo transactions shall be excluded Dec

38 Rating Liquidity and funding On 1 September 2017, Moody s affirmed Swedbank's ratings at Aa3/P-1 with a stable outlook. The ratings reflect Swedbank s strong credit quality, solid regulatory capital and stable earnings, underpinned by its established franchise in Sweden. Swedbank is also expected to be broadly resilient to the risks in the residential housing market and household sector in Sweden. May 26, 2016, Fitch upgraded the rating to AA- from A+, with a stable outlook. The main drivers behind the upgrade are: Execution of the low risk strategy including conservative risk-returns and underwriting standards, strong retail franchise and continued strong capitalisation. November 24, 2017, S&P affirmed the rating of Swedbank at AA-/A-1+, with a stable outlook. The rating reflect Swedbank s strong business position, given the market-leading retail position, strong revenue performance, and efficiency, as well as prudent management and strategy. S&P also assess the capital and earnings as strong, reflecting the strong earnings capacity. The stable outlook on Swedbank resilient earnings and capital as Sweden's economy benefits from improvements in Europe's economic environment and the domestic housing market adjusts to higher volumes and stricter amortization requirements. S&P (Stable) Moody's (Stable) Fitch (Stable) Short Long SACP 1 Short Long BCA 1 Short Long VR 1 Swedbank A-1+ AA- a+ P-1 Aa3 a3 F1+ AA- AA- Swedbank Mortgage A-1+ AA- - P-1 Aa Covered bonds - AAA - - Aaa Standalone Rating Dec

39 Swedbank is a labeled issuer of the ECBC Covered Bond Label Foundation ( ) 5. Cover pool data

40 Cover pool data 1 Rating, S&P / Moody s AAA / Aaa Total pool size SEK 928.6bn Geographic distribution Sweden 100% Current OC-level 85.5% Weighted average seasoning 2 Average LTV 3, 4 66 months WA LTV on property level (Max LTV) 49% Non-performing loans 5 None Fixed /Floating interest loans 6 Fixed 29.3% Floating 70.7% Repayment structure 7 Amortising 68% Interest only 32% Average loan size SEK Number of loans outstanding Number of borrowers Number of properties Dynamic pool 1 As per 31 Dec, sector loans not included 3 Index valuation as per Sep, Maximum LTV: Residential 75%, Commercial 60%, Forest and Agriculture 70% 5 Past due loans > 60 days are not eligible for the cover pool 6 Floating interest loans < 365 days 7 Property level of cover pool Swedbank is a labeled issuer of the ECBC Covered Bond Label Foundation ( ) Yes Dec

41 Cover pool data Swedbank is a labeled issuer of the ECBC Covered Bond Label Foundation ( ) Type of loans (based on loan volume) Residentials 91.9% of w hich Single-family housing 56.9% of w hich Tenant ow ner rights 20.7% of w hich Tenant ow ner association 9.6% of w hich Multi-family housing 4.7% 0.7% Commercial 0.8% Forest & Agricultural 6.6% Population, Sep 2017 (thousands) 100.0% Sw eden Stockholm, county Västra Götaland, county (incl. Gothenburg) Skåne, county (incl. Malmoe) Geographical distribution, Sw eden, per cent 31 Dec (based on loan volume) 2017 North 6.5 Norrbotten county (BD) 1.4 Västerbotten county (AC) 2.4 Västernorrland county (Y) 1.5 Jämtland county (Z) 1.2 Middle (including Stockholm) 43.9 Dalarna county (W) 2.0 Gävleborg county (X) 2.1 Värmland county (S) 2.0 Örebro county (T) 2.5 Västmanland county (U) 2.4 Uppsala county ( C) 4.1 Södermanland county (D) 2.1 Stockholm county (including Stockholm) (AB) 26.7 South (including Göteborg and Malmö) 49.6 Västra götaland county (Including Göteborg) (O) 17.9 Östergötland county (E) 4.2 Jönköping county (F) 3.5 Halland county (N) 4.1 Kronoberg county (G) 2.1 Kalmar county (H) 2.9 Skåne county (including Malmö) (M) 12.9 Blekinge county (K) 1.4 Gotland county (I) Dec

42 Cover pool loan-to-value distribution Weighted average LTV on property level 49% Swedbank is a labeled issuer of the ECBC Covered Bond Label Foundation ( ) LTV distribution per property 1 LTV distribution by volume 1, 2 30% 30% 25% 25% 20% 20% 15% 15% 10% 10% 5% 5% 0% % loans of 0.7% of the cover pool are excluded as they are either guaranteed by a Swedish municipality or the government and have therefore no LTV assigned to them. 2 LTV distribution as defined by the Association of Swedish Covered Bond Issuers ( Sep

43 Cover pool loan type and loan-to-value distribution Swedbank is a labeled issuer of the ECBC Covered Bond Label Foundation ( ) WA LTV per property type 1 Percentage of the pool Average LTV per loan type 120% 120% 100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% Single-family homes Tenant ownertenant owner rights associations (apartments) Multi-family housing Commercial Forestry & Agricultural Total all types 1 0% 1 excluding public sector loans of 0.7% Dec

44 Over-collateralisation Strong resilience to house price changes 90% 80% 70% 60% 50% 40% 30% 20% 10% House price sensitivity of the cover pool OC, Q417 Min req. 2% Current OC-level of 85.5% 2% legal minimum requirement Swedbank is a labeled issuer of the ECBC Covered Bond Label Foundation ( ) Can withstand a severe house price drop and still be able to issue AAA-rated covered bonds 0% 0% -5% -10% -15% -20% -25% -30% -35% -40% -45% -50% House price drop Dec

45 Overview of the Swedish covered bond legislation The Covered Bond Act The Covered Bond Act entered into force on July 1, 2004 and is over-sighted by the Swedish FSA. Its main characteristics are: Dual recourse to the issuer and cover pool Dynamic, regulated pool of assets, frequently monitored by the Swedish FSA via appointment of an independent inspector Regulated valuation of cover pool assets which remain on the balance sheet The cover pool may consist of certain mortgage credits, public credits and supplemental assets. There is no requirement to segregate mortgage and public credits. Maximum LTVs: Residential 75%, Agricultural 70%, Commercial 60% Loan-to-value ratios and other limitations Maximum 10% commercial loans and 20% supplemental assets in cover pool Regular monitoring of the property values, revaluation of property prices in case of significant drop (generally interpreted as 15% drop) The S.O. Act amended, effective as of 21 June 2016, requires that the nominal value of the cover pool shall, at all times, be at least two per cent. higher than the aggregate nominal value of the liabilities relating to the covered bonds.. Regional constraint on collateral assets (Mortgage - EEA, - OECD) Matching requirements Benefit of a priority right over the cover pool Administration in event of bankruptcy The cover pool value shall always exceed the aggregate value of claims (including derivatives) A sound balance in terms of FX, interest rates and maturities must be achieved. It is deemed to exist when the present value of the cover pool at all times exceed the present value of liabilities (including derivatives), even on a stressed basis. Present value cover must hold even after 1% upward and downward shift in the yield curve and a 10% change in the currency Non-performing assets in the cover pool which are more than 60 days overdue must be disregarded for the purposes of the matching tests Holders of covered bonds and relevant derivative counterparties benefit from a priority claim over the cover pool should the institution be declared bankrupt and rank pari passu ahead of unsecured creditors and all other creditors of the institution in respect of assets in the cover pool The registered assets in the cover pool, the covered bonds and any relevant derivative contracts are required to be maintained as a unit and kept segregated from other assets and liabilities of the bankruptcy estate of the institution. The administrators-in-bankruptcy are then required to procure the continued timely service of payments due under the covered bonds and any relevant derivative contracts Source: 45

46 Swedish and Baltic macro 6. Swedish and Baltic economies

47 Sweden - Strong growth gradually slowing Key economic indicators 1, Most recent E 2018F 2019F Real GDP (calendar adjusted) 2.9 (Q3) CPI growth, average 1.7 (Dec) CPIF growth, average 1.9 (Dec) Unemployment rate (15-74), % of labor force 6.5 (Dec) Savings ratio (households),% of disp. income Real disposable income (households) Kingdom of Sweden rated Aaa/AAA/AAA Swedish and Baltic macro Sources: Statistics Sweden & Swedbank Research 1 Annual percentage growth in percent unless indicated otherwise. 2 Seasonally adjusted and smoothed Domestic demand drives growth Sentiments remain elevated Feb

48 The Swedish economy Households remain cautious Housing investments to be replaced by other investments Percentage points of GDP Swedish and Baltic macro Overall investments are trending higher Exports picking up Feb

49 The Swedish economy, con t Strong employment; wages and unemployment lag Solid public finances % of GDP Swedish and Baltic macro Budget balance forecast debt (Maastrict), rhs forecast Sources: Swedbank Research & Macrobond. Gradually increasing inflation Stable krona Feb

50 The Swedish credit market Lending to households dampens Interest rates remain low; while margins are stable Swedish and Baltic macro A gradual tightening of monetary policy Quantitative easing formally ended in 2017 Feb

51 Baltics continued growth albeit at slower rates Swedish and Baltic macro Key economic indicators 1, Most recent E 2018F 2019F Real GDP Estonia 4.2 (Q3) ,0 Latvia 4.2 (Q4) Lithuania 3.6 (Q4) CPI growth, average Estonia 3.4 (Dec) ,0 2.5 Latvia 2.2 (Dec) Lithuania 3.9 (Dec) Unemployment rate (15-74), % of labor force Estonia 5.2 (Q3) 6.8 6,0 7,0 7.2 Latvia 8.5 (Q3) Lithuania 6.6 (Q3) Ratings Republic of Estonia: A1/AA-/A+ Republic of Latvia: A3/ A-/A- Republic of Lithuania: A3/ A-/A- 1 % growth rate unless indicated otherwise, Y/Y growth for the most recent data Real economic growth peaked in 2017 Unemployment is declining 51

52 Estonia: Growth to slow after peak Economic growth expanded in the fastest pace in five years in 2017 Swedish and Baltic macro Domestic demand and export the main drivers Export and manufacturing output accelerate 52

53 Latvia: Solid growth to continue Supported by strong confidence, pro-cyclical fiscal policy, rapid wage growth, global tailwinds Swedish and Baltic macro Sharp cyclical pick up in growth to moderate in 2019 Sentiments are strengthening 53

54 Lithuania: GDP growth will revert to potential Weaker household consumption and export growth, but investments to pick up Swedish and Baltic macro Growth has peaked and start to ease Capacity constrains will limit export growth 54

55 Swedish housing and mortgage market 7. Swedish housing and mortgage market

56 The decline in prices is not unexpected Strong price increases in recent years due to high demand and limited supply Supply has increased on the back of a surge in housing investments Stricter borrowing criteria both by lenders and authorities Swedish housing and mortgage market Home prices and macroprudential measures % Valueguard HOX Sweden house price index y/y 15% 10% 5% 0% -5% -10%

57 Price developments have varied across the country and type of housing Swedish housing and mortgage market Price increases, and recent falls, have been most pronounced in the Stockholm area Prices of apartments most volatile, again in the Stockholm area Single-family houses are holding up better Flats +177%, houses +104% since ) Trends and average house prices, December ) Tenant owner rights 1 month 3 months 12 months SEK/sqm Sweden total -3% -7% -2% Stockholm greater area -3% -7% -6% Gothenburg greater area -2% -6% +4% Malmoe greater area -2% -8% +8% Single-family homes 1 month 3 months 12 months SEK Sweden total -2% -3% +5% Stockholm greater area -3% -6% -1% Gothenburg greater area -1% -3% +4% Malmoe greater area -1% -3% +7% ) Source: Valueguard (HOX index) 2) Source: Mäklarstatistik 57

58 Supply increase puts pressure on prices, but supports transaction volumes Swedish housing and mortgage market Following recent years investment increase, supply will continue to grow Demand and number of transactions is still high, especially in large city areas Housing shortages still persist, in particular in the larger cities Housing investments support continued supply Transactions increase, as well as supply Source: Statistics Sweden Housing starts (lagged 2 yr) Finished housing Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Number of transactions Newly added for sale on Hemnet Newly added for sale incl new production Source: Mäklarstatistik and Hemnet

59 Household borrowing dampens while financing costs remain low Mortgage volume growth benefitting from new housing supply, housing turnover and higher mortgage amounts by existing borrowers Housing financing costs at historically low level Reasonable to expect some slowdown from last year s 7.4% market growth Swedish housing and mortgage market Mortgage growth and housing prices Low mortgage costs 59

60 Structural foundation for the housing and mortgage market Swedish housing and mortgage market Full recourse (very limited debt forgiveness possibilities) No securitisation (on balance sheet), no sub-prime market, no 3 rd party origination Restricted buy-to-let market limited speculation 64% home ownership Rental market is regulated Transparent credit information (credit information agency, ly available information regarding income, debt, payment track record etc. Consumer credit legislation requires affordability calculations including stress test of higher interest rate and conservative cost of living Strong social security and generous unemployment benefit system 60

61 Household fundamentals support the housing market Population growth and urbanisation trends continue Solid labour market developments Solid balance sheets among households Swedish housing and mortgage market High population growth and urbanisation Solid labour market Strong household balance sheets The overcrowding rate is defined as the percentage of the population living in an overcrowded household. 61

62 Overall indebtedness among Swedish households remains low Swedish housing and mortgage market Of appr. 4 million households less than 50% carry a mortgage Median debt-to-income ratio of mortgage holders less than 300% Less than 15% of mortgage holders have a debt to income ratio of more than 600% Debt ratios of Swedish households Distribution of debt ratios in 2016 Total debt as % of gross income 100% 80% 60% 40% 20% 0% Source: Riksbank > No mortgages No. of households w/ mortgages >700 Source: Riksbank Total debt as % of post tax income 62

63 The Swedish economy underpins the housing market Fiscal policy will be supportive and public debt is at a historic low level Monetary policy to remain expansionary Economic growth expected to continue at solid rates despite weakening housing investments Swedish housing and mortgage market Expansionary fiscal policy Gradually tightened monetary policy Slowdown in growth from high rates % of GDP %points Budget balance forecast debt (Maastrict), rhs forecast Sources: Swedbank Research & Macrobond Market pricing Swedbank forecast Outcome Riksbank forecast December 2017 Sources: Swedbank Research & Macrobond 63

64 Swedbank and the real estate market Swedish housing and mortgage market Swedbank has a low risk residential property portfolio Origination discipline and profitability have been prioritised over volume Engagement in low risk projects with well-known residential property developers will continue 64

65 Swedbank has a low risk residential property portfolio Swedish housing and mortgage market Real estate lending, net loans in Sweden, SEKbn Total real estate portfolio 21 Of which: Residential property development Private mortgages: SEK 759bn, average LTV 54% Tenant Owner Associations ( TOA ): SEK 109bn SEK 95bn existing TOA, average LTV 40% SEK 14 bn TOA under construction Property Management: SEK 187bn, average LTV 58% SEK 64bn in residential property management (rental apartment properties) SEK 123bn in other property management Construction SEK 16bn SEK 7bn residential property development SEK 9bn infrastructure, groundwork, craftsmen Swedbank has pursued a low risk strategy by tightening origination standards, and prioritised price and risk over volume growth Bulk of assets in low risk segments Average LTVs in lower ranges Exposures towards residential property developers of SEK 21bn 65

66 1% 4% 7% 10% 13% 16% 19% 22% 25% 28% 31% 34% 37% 40% 43% 46% 49% 52% 55% 58% 61% 64% 67% 70% 73% 76% 79% 82% 85% 88% 91% 94% 97% 100% Private mortgages a low risk portfolio Low average LTVs (54%) Low historic losses (0.04% on average during the last 25 years) About 73% of total loans to single family homes Swedbank has grown, but at a slower rate than the market Swedish housing and mortgage market Growth but lower than the market Loan growth in % Q3 Loan growth Swedbank Loan growth total market High diversification Loans net1) by geography 26% 27% SEK 759bn Stockholm region Malmö region < inhabitants 7% 28% 12% Gothenburg region > inhabitants Only 1% above 75% LTV Loans1) to Private Mortgage by LTV-bucket SEKbn 87% with LTV <50% 99% with LTV <75% 1) As of 31 December

67 1% 5% 9% 13% 17% 21% 25% 29% 33% 37% 41% 45% 49% 53% 57% 61% 65% 69% 73% 77% 81% 85% 89% 93% 97% >100% Tenant Owner Associations low leverage Total loan portfolio SEK 109bn, of which SEK 14bn is construction loan for new development: 50-80% needs to be pre-sold and before final financing 100% needs to be sold When the construction is finalised about 60% of construction loans will be repaid through equity from the TOA members Low historic losses (average 0.17% over the last 25 years) Swedish housing and mortgage market Growth but lower than the market Portfolio reflects market Average LTV of only 40% Loan growth in % Q3 Loans net1) by geography 30% 12% SEK 109bn 10% 11% 37% Loans1) to Tenant Owner Associations by LTV-bucket 4 SEKbn 95% with 100% with LTV <50% LTV <75% Loan growth Swedbank Loan growth total market Stockholm region Malmö region < inhabitants Gothenburg region > inhabitants 0 1) As of 31 Dectember

68 Residential property developers - low exposure Total exposures of SEK 21bn, more than half of it to the larger listed construction firms, with which Swedbank has long-term relations SEK 14bn of the exposures are related to tenant-owner rights projects through loans to Tenant Owner Associations backed by residential property developers 99% of these projects will be finalised in 2018 and 2019 SEK 7bn of the exposures are related to residential rental housing and other non-residential projects Pre-sale level of tenant owner rights close to 90% Swedish housing and mortgage market Mainly exposures to the larger construction firms Loans1), SEKbn Large building firms New developers Smaller building firms ) As of 31 December 2017 Tenant owner rights related construction loans 1) the risk is highly mitigated By geography 25% 4% 9% 7% SEK 14bn Stockholm region Gothenburg region Malmö region 55% Finalisation year 29% 1% 70% Average % pre-sold by finalisation year2)

69 1% 4% 7% 10% 13% 16% 19% 22% 25% 28% 31% 34% 37% 40% 43% 46% 49% 52% 55% 58% 61% 64% 67% 70% 73% 76% 79% 82% 85% 88% 91% 94% 97% 100% Residential property management stable cash-flow generation Swedish housing and mortgage market Total exposures of SEK 64bn towards residential property management companies Financing of rental apartment properties Well-known companies with solid finances and high collateralization Strong and stable cash-flow generation, no speculation and low vintage risk Slower growth in Loan growth, % Q3-2 Regional cities dominate Loans net1) by geography 25% 41% Stockholm region Malmö region < inhabitants SEK 64bn 19% 8% 7% Gothenburg region > inhabitants Average LTV of 58% Loans1) to Residential Prop Mgmt by LTV-bucket SEKbn 86% with LTV <50% 99.7% with LTV <75% 1) As of 31 December

70 Appendix

71 Swedbank largest retail bank in our four home markets This is Swedbank Sweden Population 10.0m Private customers 4.1m Corporate customers Organisations Branches 218 Cards 4.2m Number of card purchases 323m Digitally active customers* 3.1m Latvia Population 2.0m Private customers 0.9m Corporate customers Branches 36 Cards 1.0m Number of card purchases 38.5m Digitally active customers* 0.7m Estonia Population 1.3m Private customers 0.9m Corporate customers Branches 34 Cards 1.1m Number of card purchases 50.9m Digitally active customers* 0.6m ~86%* * Share of loan book ~10%* Lithuania Population 2.9m Private customers 1.5m Corporate customers Branches 63 Cards 1.7m Number of card purchases 36.3m Digitally active customers* 0.7m Source: Swedbank Factbook 4Q 2017 * Number of customers that have made a payment, transfer, application, investments or lending activity in the last month 71

72 Swedbank low-risk bank with strong capital base Low risk a Board of Directors strategic priority ensures access to funding markets and low funding cost Retail profile and four home markets a key feature 86% of total loans originated in Sweden - Swedish mortgages account for 50% of total loans 91% of total loans are collateralised (78.5% real estate and 12.5% other collateral) Strong capital position Board of Directors decision to maintain a buffer above prevailing SFSA capital requirements to have operational flexibility current buffer around 270bp Conservative funding and liquidity position survival horizon longer than 12 months assuming closed funding markets, NSFR 110% and LCR 173% Baltic operations self-funded loan-to-deposit ratio < 100% NSFR LCR CET1 ratio, CRDIV (RHS) Liquidity & capital, % This is Swedbank Credit impairment ratio, bps Q4 12 Q4 13 Q4 14 Q4 15 Q4 16 Q4 17 Dec

73 Swedbank strong and stable earnings capacity This is Swedbank Four home markets Sweden, Estonia, Latvia and Lithuania Strong and stable economies Market-leading position in all home markets Largest customer base in all home markets Retail profile ensures stable earnings with low volatility High cost efficiency a strategic priority ensures good profitability Stable earnings support a low risk profile and a strong capital position Profit before impairments, SEKbn 10 One-offs from disposals Q4 12 Q4 13 Q4 14 Q4 15 Q4 16 Q4 17 Dec

74 Swedbank market leader in cost efficiency This is Swedbank Best-in-class cost efficiency an executive management strategic priority Executive management strongly focused on cost and change management Integrated in corporate culture Focus on straight-through-processing Evolving household banking model digitisation trend Retail profile a key feature Four home markets Sweden, Estonia, Latvia and Lithuania reduce complexity Largest private and SME customer base High degree of digitisation in home markets Total expenses, SEKm Acquisition of Sparbanken Target 18 C/I ratio, % Dec

75 Focus on sustainable business Improved sustainability scores First green bond issued in October (5yr EUR 500m) Dow Jones Sustainability Index Swedbank Robur s sustainability funds Swedbank issued its first Green Bond Proceeds will Finance sustainable real-estate Renewable energy Reduction of carbon emissions Contribute to several of the UN Sustainable Development Goals. Eligible green assets Approximately 72% of the amount was allocated to investors with dedicated green funds. With our established Green Bond framework Swedbank intends to be a regular issuer in the green bond market. Sustainable Development Goal Nordic Swan Ecolabel Since October 2017, five of Swedbank Robur's active managed sustainability funds have the Nordic Swan Ecolabel. Sustainability work is also further progressing in the management of the Access Index-based funds. Renewable energy Energy efficiency Sustainable management of living natural resources SDG7 and SDG13 SDG7, SDG11 and SDG13 SDG15 Stronger Environmental Management System (EMS) ISO Swedbank is included in The Sustainability Yearbook 2018 The Sustainability Yearbook Swedbank s upgraded Environmental Management System was certified with the new and more rigorous standard ISO14001:2015. The Sustainability Yearbook lists the world s most sustainable companies in each industry as determined by their score in RobecoSAM s annual Corporate Sustainability Assessment. Pollution prevention and control Clean transportation SDG6 and SDG11 SDG9 and SDG11, SDG13 Sustainability Indicators: towards the 2030 Agenda Swedbank has developed a new methodology, Sustainability Indicators, to review the progress towards the UN 2030 Agenda for Sustainable Development. The aim is to support the business looking at ESG (environmental, social, governance) criteria and help to identify weaknesses and strengths in Sweden and the Baltic countries operations. Progress towards UN SDGs, % of benchmark* Estonia Latvia Lithuania Sweden Sustainable medium-term grow th (SDGs #4, 8, 9) Social inclusion (SDGs # 1, 3, 5, 10) Environmental protection (SDGs # 6, 7, 11, 12, 13) Governance and institutions (SDGs # 16, 17) Dow nw ard/stable trend during last 5 years (4 years for governance) * Benchmark is 90 or 10th percentile of the EU 28 in In total 40 indicators covering 14 from 17 SDGs, aggregated to four pillars. Traffic lights - Sw eden: >90% for green, 70-90% for yellow 0-70% for red; Baltics: >80% for green, 60-80% for yellow, 0-60% for red. 75

76 Our objective Strategy Daily banking is fully digital 100% self service Meet our customers with relevant offerings, in our own or external channels Data and knowledge automation to foresee needs, provide proactive offering and advice. This will generate loyalty as well as increased sales Have an attractive financial platform for customers and 3rd party suppliers, providing valueadded and competitive edge Branches attract new customers - build the brand and increasingly focus on corporate customers 76

77 Sweden the dominating home market Total lending to the public amounts to SEK 1 502bn (as per Q4 2017), out of which around 86% is originated in Sweden Estonia makes up 48% of total lending in the Baltics This is Swedbank Lending distributed by countries Sweden 85.8% SEK 1 288bn Estonia 4.7% Swedish Mortgage loans (private+corp) Latvia 2.1% Other corporate (incl. LC&I, Sweden) Lithuania 3.1% Other* 4.3% * Mostly Norway and Finland Dec

78 Oil sector still under pressure Asset quality Loan portfolio negatively impacted by lower oil price, SEK 13.4bn Less than 1% of total loans gross Derivatives exposures of SEK 1.0bn (incl. collateral) Net, unchanged provisions* in Q LC&I Shipping & Offshore, loans gross, SEK 24bn % of the portfolio is negatively impacted by lower oil price Oil-related, exposure by risk grade, SEKbn Def * Total provisions of SEK 1 358m for the whole Shipping and Offshore sector with a provision ratio (for impaired loans) of 30%. 78

79 No automatic sanctions for breaching the Pillar 2 capital requirements Capital fully loaded CRD IV It is particularly important that FI has the possibility of giving due consideration to the specific situation in which a firm in financial stress finds itself For example, certain risks included in the assessment of the Pillar 2 basic requirement might have materialized, which might mean there are no longer grounds for requiring the firm to hold capital for them. 21.9% 10.6% It ought to be positive for financial stability that a firm has the possibility to restore its capital without the firm necessarily becoming subject to priory specified and automatic legal restrictions. In other words, firms are hence given the possibility of re-establishing their capital in a strained situation without automatic restrictions on distributions or, depending on the size of the capital shortage, a formal resolution phase being activated." Automatic MDA Restrictions 11.3% Pillar 2 CET1 requirements Pillar 1 CET1 requirements Hence a firm may freely choose the most suitable way of restoring the capital in that specific situation. For example, the firm is not obliged to halt or limit dividends or interest payments on Tier 1 capital contributions, if the firm can identify other and more appropriate ways of restoring the capital sufficiently quickly. Swedbank CET1 requirements Dec