Rating Scorecard - Key Financial Ratios. Asset Risk: Problem Loans/ Gross Loans. Capital: Tangible Common Equity/Risk-Weighted Assets

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1 CREDIT OPINION SEB Update following downgrade of high-trigger AT1 rating Update Summary We assign an a baseline credit assessment (BCA) and long-term (LT) senior unsecured debt and deposit ratings to SEB. We also assign a Counterparty Risk Assessment (CRA) of (cr)/prime(cr), and LT and ST Counterparty Risk Ratings (CRR) of /Prime. RATINGS SEB Domicile Sweden Long Term CRR Type LT Counterparty Risk Rating - Fgn Curr Not Assigned Long Term Debt Type Senior Unsecured - Fgn Curr Stable Long Term Deposit Type LT Bank Deposits - Fgn Curr Stable SEB's a BCA reflects the bank's strong credit quality, solid capitalisation and improved recurring earnings, to which the bank's focus on corporate banking could add earnings cyclicality. However, similarly to many Nordic peers, the BCA is constrained by the bank s high reliance on market funding. SEB's LT deposit and senior unsecured debt ratings incorporate Moody s expectations of the bank s issuance of additional loss-absorbing debt in response to its Minimum Requirements for own funds and Eligible Liabilities (MREL). They include a three-notch uplift in our advanced Loss Given Failure (LGF) analysis, reflecting our view that the bank s junior depositors and senior creditors face an extremely low loss given failure. Our moderate assessment of government support translates into a further notch uplift included in these ratings. Please see the ratings section at the end of this report for more information. The ratings and outlook shown reflect information as of the publication date. The bank's high trigger Additional Tier 1 (AT1) rating of Ba1(hyb) is due to the expected lower future CET1 ratio, following the Swedish FSA s (SFSA) decision to move the 25% risk-weight floor for Swedish mortgages to Pillar I from Pillar II. This will lower the bank's capital metrics, including the Common Equity Tier 1 (CET1) ratio, thereby reducing the distance to the 8% threshold, a breach of which would trigger a full or partial write-down or equity conversion. Contacts Exhibit 1 Jean-Francois Tremblay Associate Managing Director jean-francois.tremblay@moodys.com Sean Marion MD-Financial Institutions sean.marion@moodys.com SEB (BCA: a) Median a-rated banks % 25% 25% 2% 2% 15% 15% 1% 1% 5% 5%.5% 2.%.7% 27.2% 19.2% Asset Risk: Problem Loans/ Gross Loans Capital: Tangible Common Equity/Risk-Weighted Assets Profitability: Net Income/ Tangible Assets Funding Structure: Market Funds/ Tangible Banking Assets Liquid Resources: Liquid Banking Assets/Tangible Banking Assets % % Solvency Factors (LHS) Source: Moody's Banking Financial Metrics Liquidity Factors (RHS) Liquidity Factors Niclas Boheman AVP-Analyst niclas.boheman@moodys.com Rating Scorecard - Key Financial Ratios Solvency Factors Louise Lundberg VP-Sr Credit Officer louise.lundberg@moodys.com

2 Credit strengths» SEB s credit quality is strong although its focus on large corporate banking implies a degree of concentration risk» Solid capitalisation underpinned by a strong earnings generation capacity» Good profitability, which is nevertheless under negative pressure in the current low interest-rate environment. Focus on corporate banking could add earnings cyclicality Credit challenges» Elevated risks in the residential housing market and household sector in Sweden, although broadly contained by underwriting standards, high wealth levels and a very strong repayment culture» High reliance on confidence-sensitive market funding, which is partly mitigated by proven access to capital markets, a resilient domestic covered bond market and good liquidity The outlook on SEB's ratings is stable, as we expect the bank to continue to report resilient financial performance in the context of a moderate slowdown in economic growth. The stable outlook also reflects the bank's robust capital and profitability buffers balancing the ongoing risks related to high household leverage and the housing market. Factors that could lead to an upgrade» We do not expect any immediate upward pressure on SEB's ratings, as implied by the stable outlook on the bank's ratings. However, the bank's outlook could be revised to positive if SEB were to significantly improve its leverage ratio, and/or funding and liquidity profiles in a sustainable way going forward.» If the bank's future CET1 ratio strengthens significantly compared to our expectations, there could be upward pressure on the bank's AT1 rating. Factors that could lead to a downgrade» We do not expect any immediate downward pressure on the deposit and senior unsecured debt ratings of SEB, as implied by the stable outlook on these ratings. However, the bank's BCA and ratings could be downgraded if the bank s (1) operating environment deteriorates beyond our current expectations, (2) asset risk increases for example due to higher exposures to cyclical sectors or higher reliance on capital markets activities, () reliance on confidence sensitive market funding increases; and/or (4) profitability reduces sharply or earnings volatility rises.» The LT deposit and senior unsecured debt ratings could also be downgraded if the Swedish subordination requirements under MREL would decline, for instance, due to EU harmonisation. This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on for the most updated credit rating action information and rating history. 2

3 Key indicators Exhibit 2 SEB (Consolidated Financials) [1] Total Assets (SEK million) Total Assets (EUR million) Total Assets (USD million) Tangible Common Equity (SEK million) Tangible Common Equity (EUR million) Tangible Common Equity (USD million) Problem Loans / Gross Loans (%) Tangible Common Equity / Risk Weighted Assets (%) Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) Net Interest Margin (%) PPI / Average RWA (%) Net Income / Tangible Assets (%) Cost / Income Ratio (%) Market Funds / Tangible Banking Assets (%) Liquid Banking Assets / Tangible Banking Assets (%) Gross Loans / Due to Customers (%) ,666, ,22 298,1 146,9 14,16 16, ,45,7 249,54 299,64 145,29 14,77 17, ,4,56 25, ,547 15,49 14,14 14, ,279, ,92 27,44 11,228 14,29 15, CAGR/Avg. 2,64,7 249,69 2,77 12,611 12,7 15, [1] All figures and ratios are adjusted using Moody's standard adjustments [2] Basel III - fully-loaded or transitional phase-in; IFRS [] May include rounding differences due to scale of reported amounts [4] Compound Annual Growth Rate (%) based on time period presented for the latest accounting regime [5] Simple average of periods presented for the latest accounting regime. [6] Simple average of Basel III periods presented Source: Moody's Financial Metrics Profile Skandinaviska Enskilda Banken (SEB) is a Sweden-based bank that provides a broad range of products and services, including deposits, loans and other credit, insurance, pensions, asset management, and trading in fixed-income products, foreign exchange and equities. Whereas the bank serves retail and SME clients, it has a focus on large corporates. SEB distributed its products through approximately 11 domestic and 1 international branches or subsidiaries. SEB is operating through subsidiaries in the Baltic states, and through branches in most of the other countries where it is present. SEB was founded in 1856 as Stockholm's first private bank and one of the first commercial banks in Sweden. Its shares are listed on the NASDAQ OMX Stockholm Stock Exchange (Ticker: SEB). As of June-end 218, its largest shareholder was Investor AB, which held 2% of the bank s total share capital. Detailed credit considerations SEB's BCA is supported by Sweden's 'strong+' Macro Profile SEB has the majority of its operations in the Nordic countries (around 8% of credit portfolio at end-217) with the vast majority in Sweden. SEB s Macro Profile is 'strong+', in line with that of Sweden. SEB's credit quality is strong, although its focus on large corporate banking implies a degree of concentration risk SEB's credit quality is supported by its strong franchise and good underwriting standards. SEB is the second largest Swedish (Aaa stable) bank, with reported total assets of SEK2.82 trillion (EUR269.8 billion) at end-june 218. It has strong domestic market positions in retail banking, wealth management and commercial banking. SEB is also one of the largest financial groups in the Nordic region, where it has a leading market position in corporate and, albeit to a lesser extent, in investment banking. Our a1 score for Asset Risk reflects a low and reducing level of non-performing loans (NPLs), as evidenced by the gradual reduction in the problem loan ratio to.5% at end-june 218 (IFRS9 stage, gross loans) compared to 1.5% at YE 211 (problem loans, our definition; see Exhibit ). The score incorporates the bank s stronger focus on corporate and investment banking compared to its Swedish peers, as building and maintaining long-term relationships with large corporates is an important foundation for the

4 bank. Although it introduces a degree of concentration risk, SEB's large corporate clients are diversified both across industries and geographies. Exhibit SEB has reduced its problem loans over the past years Problem loans over gross loans 1.6% 1.4% 1.2% 1.% %.6%.4%.2%.% Q2 218 Source: Moody's Financial Metrics and company reports SEB is exposed to the Baltic countries (around 8% of the credit portfolio at end-june 218), which was the main driver of the bank's deterioration in asset quality due to the Baltic financial crisis in On 19 January 218, SEB announced that the planned transformation in Germany had taken place as planned at year-end. Moody's considers that the streamlining of SEB's German operations leads to greater integration with its parent, also for SEB AG, and therefore aligned the German subsidiary's ratings with those of its Swedish parent. SEB's loan book has high borrower and sector concentrations, due to the bank's corporate banking business, which is focussed on large companies. Corporate and property-management exposures accounted for around 52% and 16% of SEB's credit portfolio respectively, at end-june 218. However, a large portion of the bank's property-management exposure relate to housing cooperatives and residential real-estate management (47% at end-june 218), which we view as less risky than commercial property lending. We believe that SEB's high single-borrower concentrations result from the limited number of large domestic enterprises in Sweden, but recognise that these companies are diversified across industries and geographies, and acknowledge the bank's comprehensive risk management framework in this area. Solid capitalisation underpinned by a strong earnings generation capacity We consider SEB's capitalisation to be solid relative to its risk profile, and acknowledge that it is supported by a strong earnings generation capacity. At end-june 218, SEB's Common Equity Tier 1 (CET1) ratio under Basel III/CRD IV was 19.%. The bank's capital headroom (i.e. excess of CET1 capital above the regulatory requirement) stood at 2.6% at end-june 218, above management's target of around 1.5%. Similarly to the other Nordic peers, we apply a downward adjustment to SEB s capital score in our BCA scorecard to take into account slightly lower risk-weights compared to the average for similarly rated peers. SEB's leverage ratio (tangible common equity / tangible assets) stood at 5.5% at end-june 218. Our capital score reflects the expected capital ratio after the SFSA has moved the mortgage risk-weight floor to Pillar I, which will take effect at year-end 218. We expect SEB to be able to meet future capital requirements mainly through retained profits. 4

5 Good profitability which is nevertheless under negative pressure in the prolonged low interest-rate environment. Focus on corporate banking may add to earnings cyclicality SEB's profitability has stabilized in recent years, as evidenced by a net income/tangible assets of.7%1 in the first half of 218 (217: %). Going forward, we expect profitability to remain under pressure due to competition, prolonged low interest rates and challenging market conditions, over the next few quarters. The bank s earnings are well diversified by activity (see Exhibit 4) although a large portion (around 4%) originates from Large Corporates & Financial Institutions, the performance of which is more dependent on market conditions. For this reason, we consider earnings from these activities as potentially more volatile than more traditional retail and commercial banking, even though SEB has shown a high degree of earnings stability over the recent past. Exhibit 4 SEB: operating income by division and activity in H1 218 (SEK million) Net interest income Net fee and commission income Net financial income Net other income Large Corporates & Financial Institutions Corporate & Private Customers Baltic Life & Investment Management Source: Bank's financial statements SEB's cost-to-income ratio has traditionally been higher than its Swedish peers, reflecting its business mix, which is more reliant on Large Corporates & Financial Institutions. These activities are characterised by higher personnel costs that recognises the degree of employee specialisation. While SEB has made significant efforts to improve its cost efficiency in recent years, cost-to-income ratio was 48% in the first half of 218, which remains slightly higher than domestic peers albeit lower in comparison to many European peers. High reliance on confidence sensitive market funding, which is mitigated by access to diverse capital markets and strong liquidity Similar to many of its Nordic peers and despite reducing its dependence in recent years (see Exhibit 5), SEB continues to have a relatively high share of wholesale funding, which we consider as a key credit weakness. This is evidenced by a relatively high market funding/tangible banking assets of 5% at end-june 218 (27% at YE 217). 5

6 Exhibit 5 SEB has reduced its reliance on market funding over the past few years Market funds over tangible banking assets 6% 5% 4% % 2% 1% % Q2 218 Source: Moody's Financial Metrics In our view, SEB's overall liquidity and funding profiles are adequate. SEB s funding comes from retail and corporate deposits, senior unsecured debt and mortgage covered bonds. SEB is more reliant than its Nordic peers on corporate deposits, which we generally view as more volatile than retail deposits because these tend to be larger and more sensitive to changes in market yields. However, we note that SEB's corporate deposits have been fairly stable in the past, helped by the bank's strong market position in the cash management and custody business, which tend to be less volatile than other corporate deposits. SEB reported a strong Liquidity Coverage Ratio (LCR) in all currencies of 16% at end-june 218. As indicated in our banks methodology, we reflect the greater stability of covered bonds compared to unsecured market funding through a standard adjustment to the Funding Structure ratio. Given the long history of the Swedish covered bond markets, local currency and deep domestic investor base, we make additional (positive) adjustments for local currency (LC) denominated covered bonds issued in this market. SEB s liquid banking assets/tangible banking assets was 28% at end-june 218 (19% at YE 217), which corresponds to a score for Liquid Resources in our BCA scorecard. In our view, the bank s strong liquidity position largely mitigate refinancing risk from the dependence on wholesale funding. Support and structural considerations Loss Given Failure analysis We apply our advanced Loss Given Failure (LGF) analysis to SEB as the bank is incorporated in Sweden, which we consider to be an operational resolution regime because it is subject to the EU Bank Recovery and Resolution Directive (BRRD). For this analysis we assume residual tangible common equity of % and losses post-failure of 8% of tangible banking assets, a 25% run-off in junior wholesale deposits, a 5% run-off in preferred deposits, and assign a 25% probability to deposits being preferred to senior unsecured debt. These are in line with our standard assumptions. For calibrating our LGF analysis, we use the deposit split as provided by SEB in its Q2 218 financials (71% of deposits are junior). Our advanced LGF analysis indicates an extremely low loss given failure for junior depositors and senior unsecured creditors, resulting in a three notch uplift in the relevant ratings, from the bank's a adjusted BCA. For the purpose of the LGF analysis, we exclude the bank's Baltic subsidiaries. Since Q1 218, we incorporate SEB AG, which we consider highly integrated its Swedish parent, in this analysis. The assigned LGF notching for long-term deposit and senior unsecured bank debt is positioned one notch higher than the corresponding LGF notching guidance. This reflects our expectation that SEB will issue non-preferred senior debt in order to comply with the Swedish MREL requirements. Moody's expects that SEB will fulfil the requirements, add a buffer, and that the bank will continue to have good access to the capital markets. 6

7 We have also taken into account the SFSA's decision to move the 25% risk-weight floor for Swedish mortgages from pillar II to pillar I. This would lower future MREL recapitalisation requirements as the Swedish National Debt Office (SNDO) currently includes the combined buffer related to the 25% risk-weight floor Swedish mortgages in pillar II, but this will be deducted once the capital held for the risk-weight floor will be transferred to Pillar I. The lower MREL recapitalisation amount is expected to come into effect when the SNDO recalculates updated MREL, by year-end 219. We attach a high degree of confidence to the likelihood that the bank will fulfil the regulatory MREL, along with a buffer, with the subordination required as of 222, and therefore apply a forward looking time-horizon as per our methodology. In particular we expect that depositors and senior unsecured creditors of SEB would benefit from sufficient subordination in the liability structure by year-end 221, which would likely reduce the loss given failure, resulting in a notches uplift. Government support considerations We assess a moderate probability of government support for SEB s long-term senior unsecured and junior depositors, resulting in a further one-notch uplift incorporated in the relevant ratings as well as in the CRR and CRA. For junior securities, we continue to believe that potential government support is low and these ratings do not include any related uplift. Counterparty Risk Assessment Counterparty Risk Assessments (CRAs) are opinions of how counterparty obligations are likely to be treated if a bank fails and are distinct from debt and deposit ratings in that they (1) consider only the risk of default rather than both the likelihood of default and the expected financial loss suffered in the event of default and (2) apply to counterparty obligations and contractual commitments rather than debt or deposit instruments. The CRA is an opinion of the counterparty risk related to a bank's covered bonds, contractual performance obligations (servicing), derivatives (e.g., swaps), letters of credit, guarantees and liquidity facilities. SEB's CRA is positioned at (cr)/prime(cr). The CRA is positioned four notches above the Adjusted BCA of a, based on the substantial cushion against default provided to the senior obligations represented by the CRA by subordinated instruments, along with one notch of government support. The main difference with our Advanced LGF approach used to determine instrument ratings is that the CRA captures the probability of default on certain senior obligations, rather than expected loss, therefore we focus purely on subordination and take no account of the volume of the instrument class. Counterparty Risk Ratings (CRR) Counterparty Risk Ratings are opinions of the ability of entities to honour the uncollateralized portion of non-debt counterparty financial liabilities (CRR liabilities) and also reflect the expected financial losses in the event such liabilities are not honoured. CRR liabilities typically relate to transactions with unrelated parties. Examples of CRR liabilities include the uncollateralized portion of payables arising from derivatives transactions and the uncollateralized portion of liabilities under sale and repurchase agreements. CRRs are not applicable to funding commitments or other obligations associated with covered bonds, letters of credit, guarantees, servicer and trustee obligations, and other similar obligations that arise from a bank performing its essential operating functions. SEB's CRR is positioned at /Prime. The CRR, prior to government support, is positioned three notches above the adjusted BCA of a, reflecting the extremely low lossgiven failure from the high volume of instruments that are subordinated to CRR liabilities. SEB's CRR benefits from one notch of rating uplift based on government support, in line with our assumptions on senior debt and deposits. 7

8 About Moody's bank scorecard Our scorecard is designed to capture, express and explain in summary form our rating committee's judgment. When read in conjunction with our research, a fulsome presentation of our judgment is expressed. As a result, the output of our scorecard may materially differ from that suggested by raw data alone (though it has been calibrated to avoid the frequent need for strong divergence). The scorecard output and the individual scores are discussed in rating committees and may be adjusted up or down to reflect conditions specific to each rated entity. Rating methodology and scorecard factors Exhibit 6 SEB Macro Factors Weighted Macro Profile Strong + Factor Historic Ratio Initial Score Expected Trend Assigned Score Key driver #1 Key driver #2 Solvency Asset Risk Problem Loans / Gross Loans.5% aa2 a1 Single name concentration Sector concentration Capital TCE / RWA 2.% aa1 aa Risk-weighted capitalisation Profitability Net Income / Tangible Assets.7% Return on assets Combined Solvency Score Liquidity Funding Structure Market Funds / Tangible Banking Assets 27.2% Market funding quality Liquid Resources Liquid Banking Assets / Tangible Banking Assets 19.2% Stock of liquid assets Combined Liquidity Score Financial Profile Business Diversification Opacity and Complexity Corporate Behavior Total Qualitative Adjustments Sovereign or Affiliate constraint: Scorecard Calculated BCA range Assigned BCA Affiliate Support notching Adjusted BCA Balance Sheet Other liabilities Deposits Preferred deposits Junior Deposits Senior unsecured bank debt Junior senior unsecured bank debt Dated subordinated bank debt Equity Total Tangible Banking Assets 8 1% aa a2 in-scope (SEK million) 898,9 964,99 279, ,51 21,1 6, 19,2 65,51 2,184,56 Deposit quality a Aaa a2-baa1 a a % in-scope 41.1% 44.1% 12.8% 1.% 1.6%.%.9%.% 1% at-failure (SEK million) 1,8,2 778, ,69 51,8 21,1 6, 19,2 65,51 2,184,56 % at-failure 49.6% 5.7% 12.2% 2.5% 1.6%.%.9%.% 1%

9 Debt class De Jure waterfall De Facto waterfall Notching LGF Assigned Additional Preliminary LGF notching Rating Instrument Sub- Instrument SubDe Jure De Facto Notching Guidance notching Assessment volume + ordination volume + ordination vs. subordination subordination Adjusted BCA Counterparty Risk Rating 8.% 8.% 8.% 8.% aa Counterparty Risk Assessment 8.% 8.% 8.% 8.% aa (cr) Deposits 8.% 4.2% 8.% 14.7% 2 2 aa Senior unsecured bank debt 8.% 4.2% 14.7% 4.2% aa Dated subordinated bank debt.9%.%.9%.% baa1 Junior subordinated bank debt.%.%.%.% Non-cumulative bank preference shares.%.%.%.% - ba1 (hyb) Instrument class Counterparty Risk Rating Counterparty Risk Assessment Deposits Senior unsecured bank debt Dated subordinated bank debt Junior subordinated bank debt Non-cumulative bank preference shares Loss Given Failure notching Additional Preliminary Rating Notching Assessment - aa aa (cr) aa aa baa1 ba1 (hyb) Government Support notching Local Currency Rating (cr) Foreign Currency Rating - Baa1 (P)Baa2 Ba1 (hyb) [1] Where dashes are shown for a particular factor (or sub-factor), the score is based on non-public information. Source: Moody's Financial Metrics Ratings Exhibit 7 Category SEB Counterparty Risk Rating Bank Deposits Baseline Credit Assessment Adjusted Baseline Credit Assessment Counterparty Risk Assessment Issuer Rating Senior Unsecured Subordinate Jr Subordinate MTN Pref. Stock Non-cumulative Commercial Paper Moody's Rating Stable /P /P a a (cr)/p(cr) Baa1 (P)Baa2 Ba1 (hyb) P SEB AG Counterparty Risk Rating Bank Deposits Baseline Credit Assessment Adjusted Baseline Credit Assessment Counterparty Risk Assessment Stable /P /P a a (cr)/p(cr) Source: Moody's Investors Service Endnotes 1 Moody's adjusted figure which also excludes the effect of non-recurring items 9

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