Highlights of annual report January December

Transcription

1 20 10 Highlights of annual report January December

2 Highlights of Stadshypotek s annual report January December SUMMARY Income for the January December period was SEK 5,612 million (5,942). Income for the fourth quarter was SEK 1,573 million, compared to SEK 1,341 million for the third quarter. Operating profit for the period January December was SEK 5,408 million (5,761). Operating profit for the fourth quarter was SEK 1,507 million, compared to SEK 1,297 million for the third quarter. Recoveries exceeded loan losses for the period. Lending increased by SEK 74 billion (70) in, to SEK 759 billion. The advanced IRB approach is to be applied with effect from ember for medium-sized companies, housing co-operative associations and property companies.

3 Highlights of Stadshypotek s annual report January December FINANCIAL PERFORMANCE Full year compared with full year Operating profit for decreased by SEK 353 million to SEK 5,408 million (5,761), which can be attributed to a decrease in net interest income of SEK 566 million. The decrease is mainly due to higher funding costs, partly since Stadshypotek opted to extend the maturities of its funding during the year. Covered bonds for a total of SEK 160 billion were issued during the year. Net interest income amounted to SEK 5,501 million (6,067), with the branch in Norway accounting for SEK 438 million (491) and the branch in Denmark, which was established on 1 May, accounting for SEK 24 million (-). Net gains/ losses on financial items at fair value amounted to SEK 129 million (-101). Expenses rose by SEK 30 million to SEK 242 million (212), mainly due to an increase of SEK 22 million in administrative expenses. This increase was mainly related to the cost of establishing the loan scheme for covered bonds in the US and of services purchased from the parent company. Recoveries exceeded new loan losses and the net amount recovered was SEK 38 million (31), which corresponds to a loan loss ratio of per cent (-0.00) of lending. Before deduction of the provision for probable loan losses, the volume of impaired loans was SEK 108 million (116). Of this amount, non-performing loans account for SEK 49 million (61), while SEK 59 million (55) relates to loans on which the borrowers pay interest and amortisation, but which are nevertheless considered impaired. There were also non-performing loans of SEK 509 million (591) that are not regarded as being impaired loans. After deductions for specific provisions totalling SEK -41 million (-55) and collective provisions of SEK -6 million (-11) for probable loan losses, impaired loans totalled SEK 61 million (50). compared with Stadshypotek s operating profit for the fourth quarter of was SEK 1,507 million (1,297), an increase of SEK 210 million. The higher operating profit was chiefly due to an increase of SEK 176 million in net interest income, to SEK 1,486 million (1,310), with the branch in Norway accounting for SEK 113 million (103) and the branch in Denmark accounting for SEK 20 million (3). The increase in net interest income was chiefly due to an increase in lending volume and to a lower funding cost. The average margin for the private market in Sweden during the fourth quarter was about 0.68 per cent (0.67). Net gains/losses on financial items at fair value were SEK 92 million (34). GROWTH IN LENDING During the year, loans to the public increased by SEK 74 billion or 11 per cent to SEK 759 billion (685). On 1 October, Stadshypotek s branch in Denmark acquired a loan portfolio of around DKK 3 billion from the parent company s branch in Denmark. Stadshypotek s share of the private market in Sweden was approximately 25 per cent (25) and its share of the corporate market in Sweden was approximately 32 per cent (30). CAPITAL ADEQUACY The capital ratio according to Basel II was 48.9 per cent (39.9) while the Tier 1 ratio calculated according to Basel II was 36.8 per cent (28.4). Following approval from the Swedish Financial Supervisory Authority, the advanced IRB approach is applied for medium-sized companies, housing co-operative associations and property companies with effect from ember. Further information on capital adequacy is provided in the Capital base and capital requirement section on page 15. RATING Stadshypotek s rating remained unchanged during the year, with a stable outlook. Stadshypotek Covered bonds Long-term Short-term Moody s Aaa P-1 Standard & Poor s AA- A-1+ Fitch AA- F1+ Stockholm, 9 February 2011 Lars Kahnlund Chief executive HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER 1

4 Stadshypotek Group Consolidated income statement Interest income 5,791 4, , ,353 21,944-7 Interest expense -4,305-3, , ,852-15,877-6 Net interest income Note 3 1,486 1, , ,501 6,067-9 Net gains/losses on financial items at fair value Note Fee and commission income Fee and commission expense Net fee and commission income Total income 1,573 1, , ,612 5,942-6 Staff costs Other administrative expenses Note Depreciation and amortisation Total expense Profit before loan losses 1,499 1, , ,370 5,730-6 Net loan losses Note Operating profit 1,507 1, , ,408 5,761-6 Tax ,423-1,521-6 Profit for the period 1, ,985 4,240-6 Net earnings per share, before and after dilution, SEK 6,856 6,089 5,905 24,600 26,176 Consolidated statement of comprehensive income Profit for the period 1, ,985 4,240-6 Other comprehensive income (translation differences for the period) Total comprehensive income for the period 1, ,938 4,254-7 Consolidated quarterly earnings performance Q2 Q1 Interest income 5,791 5,148 4,730 4,684 4,800 Interest expense -4,305-3,838-3,457-3,252-3,386 Net interest income 1,486 1,310 1,273 1,432 1,414 Net gains/losses on financial items at fair value Net fee and commission income Total income 1,573 1,341 1,283 1,415 1,396 Staff costs Other administrative expenses Depreciation and amortisation Total expense Profit before loan losses 1,499 1,284 1,226 1,361 1,338 Loan losses Operating profit 1,507 1,297 1,231 1,373 1,341 2 HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER

5 Consolidated summary balance sheet Assets Loans to credit institutions 11,092 10,578 Loans to the public Note 7 758, ,920 Value change of interest hedged item in portfolio hedge 4,744 2,979 Derivative instruments Note 8 17,348 17,416 Other assets 4,642 6,897 Total assets 796, ,790 Liabilities and equity Due to credit institutions 294, ,983 Issued securities 448, ,535 Derivative instruments Note 8 8,189 3,433 Other liabilities and provisions 12,644 17,347 Subordinated liabilities 8,800 8,800 Total liabilities 772, ,098 Equity 24,431 21,692 Total liabilities and equity 796, ,790 Statement of changes in equity Share capital* Translation reserve Retained earnings Total Equity at ember , ,972 20,018 Profit for the year 4,240 4,240 Other comprehensive income Total comprehensive income Group contributions provided Tax effect on group contributions Equity at ember 4, ,632 21,692 Profit for the year 3,985 3,985 Other comprehensive income Total comprehensive income -47 3,985 3,938 Group contributions provided -1,628-1,628 Tax effect on group contributions Equity at ember 4, ,418 24,431 * Average number of shares, before and after dilution 162,000. HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER 3

6 Consolidated summary cash flow statement Jan Dec Jan Dec Cash flow from operating activities 8,175 2,491 Cash flow from investing activities -4,099 0 Cash flow from financing activities -3,500-3,480 Cash flow for the period Liquid funds at beginning of year 490 1,439 Cash flow for the year Exchange rate difference on liquid funds Liquid funds at end of year 1, Liquid funds consist of funds available with banks and equivalent institutions, excluding funds in blocked account. Liquid funds with banks and equivalent institutions 1, Funds in blocked account with banks relating to issuance of covered bonds 10,043 10,088 Loans to credit institutions 11,092 10,578 Acquisition of mortgage loans On 1 October, Stadshypotek s branch in Denmark (Handelsbanken Kredit, Filial af Stadshypotek Ab, Sverige) acquired mortgage loans from Svenska Handelsbanken s branch in Denmark. The acquired assets had the following carrying amounts. Loans to the public 4,099 4 HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER

7 Key figures Jan Dec Net interest margin, C/I ratio before loan losses, C/I ratio after loan losses, Return on equity, Capital ratio according to Basel II, Tier 1 ratio according to Basel II, TURNOVER OF OWN DEBT INSTRUMENTS Stadshypotek issues and repurchases debt instruments which it has issued on its account. This is for the purposes of financing its operations. Turnover during the period was as follows: Issued (sold) SEK 261 billion (381) Repurchased SEK 71 billion (107) Matured SEK 165 billion (253) Segment reporting January December Private Corporate Group Private Corporate Group Net interest income 3,836 1,665 5,501 4,238 1,829 6,067 Net gains/losses on financial items at fair value Net fee and commission income Total income 3,912 1,700 5,612 4,152 1,790 5,942 Expenses Profit before loan losses 3,739 1,631 5,370 4,002 1,728 5,730 Loan losses Operating profit 3,760 1,648 5,408 4,015 1,746 5,761 Loans to the public 524, , , , , ,920 Private market is defined as lending secured by mortgages in single-family or two-family houses, second homes, housing co-operative apartments, owner-occupied apartments or residential farms. Corporate market is defined as lending secured by mortgages in multi-family dwellings, family farms, commercial and office buildings, or state and municipal loans. Geographical breakdown of business segments January December Sweden Norway Denmark Group Sweden Norway Denmark Group Income 5, ,612 5, ,942 Total assets 741,436 48,676 6, , ,650 51, ,790 HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER 5

8 Parent company Income statement parent company Interest income 5,791 4, , ,353 21,944-7 Interest expense -4,305-3, , ,852-15,877-6 Net interest income Note 3 1,486 1, , ,501 6,067-9 Fee and commission income Fee and commission expense Net fee and commission income Net gains/losses on financial operations Note Total income 1,573 1, , ,612 5,942-6 Staff costs Other administrative expenses Note Depreciation and amortisation Total expense Profit before loan losses 1,499 1, , ,370 5,730-6 Net loan losses Note Operating profit 1,507 1, , ,408 5,761-6 Appropriations Profit/loss before tax 1,507 1, , ,408 5,809-7 Tax ,423-1,533-7 Profit for the period 1,110 1, ,985 4,276-7 Statement of comprehensive income parent company Profit for the period 1,110 1, ,985 4,276-7 Other comprehensive income (translation differences for the period) Total comprehensive income for the period 1,113 1, ,938 4, HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER

9 Summary balance sheet parent company Assets Loans to credit institutions 11,092 10,578 Loans to the public Note 7 758, ,920 Value change of interest hedged item in portfolio hedge 4,744 2,979 Derivative instruments Note 8 17,348 17,416 Other assets 4,642 6,897 Total assets 796, ,790 Liabilities and equity Due to credit institutions 294, ,983 Issued securities 448, ,535 Derivative instruments Note 8 8,189 3,433 Other liabilities and provisions 12,644 17,347 Subordinated liabilities 8,800 8,800 Total liabilities 772, ,098 Untaxed reserves - - Equity 24,431 21,692 Total liabilities and equity 796, ,790 Memorandum items Pledged assets for own debt* 498, ,327 Other pledged assets None None Contingent liabilities None None Undertakings 4, * Pledged assets for own debt relates to collateral for covered bonds, which comprises loans against mortgages in single-family dwellings, second homes, multi-family dwellings and housing co-operative apartments with a loan-to-value ratio of up to 75 per cent of the market value, as well as office and commercial properties with a loan-to-value ratio of up to 60 per cent of the market value, and additional collateral in the form of cash funds on a blocked account. HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER 7

10 Notes The information in these notes relates to both the Group and the parent company. NOTE 1 Accounting policies The information concerning the Group has been stated in accordance with IAS 34. The contents of the report also comply with the applicable provisions of the Swedish Act on Annual Reports in Credit Institutions and Securities Companies, the Swedish Financial Supervisory Authority s regulations and general guidelines FFFS 2008:25 on annual reports in credit institutions and securities companies and recommendations from the Swedish Financial Reporting Board. The new IFRS 3 Business Combinations and the amended IAS 27 Consolidated and Separate Financial Statements apply in the consolidated accounts as of the financial year. Since no acquisitions have been made during the financial year, the new IFRS 3 has not had an impact on the financial reports. There have not been any ownership changes in subsidiaries that are affected by the amended provisions in IAS 27. The application of RFR 2 Accounting for Legal Entities means that as of the financial year, the parent company presents changes in equity not deriving from transactions with the owner in a separate statement of other comprehensive income in the same way as already applies for the Group. In all other respects, the reports of the Group and of the parent company have been prepared in accordance with the same accounting policies and calculation methods that were applied in the annual report for. None of the other changes in standards or new interpretative communications which came into force during the financial year are deemed to have a material impact on the financial reports of the parent company or the Group. NOTE 2 Disclosures RISK Stadshypotek s operations are conducted with a controlled low level of risk. Stadshypotek s risks are credit risk, market risk, liquidity risk, operational risk and business risk. Credit risk is the risk that an individual borrower cannot fulfil his or her commitments. Market risk is the risk of price changes in the financial markets. The market risks affecting Stadshypotek are interest rate risk and exchange rate risk. Liquidity risk is the risk that Stadshypotek will not be able to meet its payment obligations when they fall due. Operational risk is the risk of processing errors in procedures and systems, and business risk is the risk of unexpected changes in financial performance. Credit risk is the most significant risk for Stadshypotek. The Stadshypotek board establishes policy documents and instructions describing how various risks should be managed and reported. These policy documents and instructions have been based on the policy documents that the Handelsbanken board has adopted for managing and reporting risks within the Handelsbanken Group as a whole. Stadshypotek s risk management aims to safeguard the strict approach to risk established by the board. Stadshypotek s lending operations and treasury function are integrated with those of Handelsbanken, which means that Stadshypotek s lending is carried out via the Bank s branch network. A collaboration agreement regulates the overall relationship between the parties and specifies the services which Handelsbanken is to perform on behalf of Stadshypotek. Thus, the business operations at Stadshypotek are conducted according to the same fundamental principles which apply at Handelsbanken. The Bank s culture is centred around the principle of delegating responsibility to the employees who make business decisions. The person who is most familiar with the customer and the market conditions is also the best person to assess the risk. In Handelsbanken s decentralised organisation, the positive and negative outcomes of each branch are evaluated, which provides a natural risk limitation and caution in business operations. In addition to the accountability of decision-makers, control procedures are in place to ensure that excessive risks are not taken in individual transactions or local operations. In lending, this means that limits are set for large loans and these loans are assessed in a special credit organisation. Decisions on limits are made at the branch, regional or central level, depending on the size of the credit limit. Procedures also exist to limit market risk and liquidity risk at Stadshypotek. Here, the company s board establishes limits. However, the limits set by the board of Stadshypotek may not exceed the limits for market risks and liquidity risks assigned by Handelsbanken to Stadshypotek. There is also risk control independent of the treasury function at Stadshypotek s Control and Accounting Department, which is responsible for the regular follow-up and monitoring of market risks, liquidity risks and counterparty risks. The risk control function carries out daily measurements and checks to ensure that risk exposure remains within the set limits. Limit utilisation is reported internally within the company, and to the parent company s central risk control function. In addition, limit utilisation is reported regularly to the chief executive and board of Stadshypotek as well as to the group chief executive, CFO and board of Handelsbanken. Stadshypotek is also covered by the central risk control at Handelsbanken, which is designed to identify the Handelsbanken Group s risks, gauge them, and ensure that management of these risks complies with the Group s low risk tolerance. Moreover, Stadshypotek has a procedure for continual capital planning to ensure that it has a sufficient amount of capital to secure the company s survival if a serious loss were to occur, despite the measures taken to manage the risks. The method for calculating economic capital ensures that all risks are considered in a uniform manner when the need for capital is assessed. Information about credit risks regarding loan losses and about non-performing loans and impaired loans can be found in notes 6 and 7 of this report. At ember, Stadshypotek s interest rate risk in the case of a parallel increase in the yield curve of one percentage point was SEK -123 million (-308), which was well within the limit set by the board. CAPITAL-RELATED MATTERS At the start of the transition to Basel II, Stadshypotek entered into a guarantee facility relating to mortgages for housing cooperative properties, to speed up the transition. In June 2008, Stadshypotek utilised the guarantee, which had a 0.22 percentage point effect on the Tier 1 ratio as at ember. This transaction affects only capital adequacy in accordance with the transitional rules. 8 HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER

11 NOTE 3 Net interest income Interest income Loans to the public 5,722 4, , ,149 21,677-7 Loans to credit institutions Total 5,791 4, , ,353 21,944-7 Interest expense Due to credit institutions -1, ,419-3,460-1 Issued securities -3,705-3, , ,244-15,388-1 Subordinated loans Derivatives* 666 1, , ,992 3, Fee to the Swedish Stabilisation Fund Other Total -4,305-3, , ,852-15,877-6 Net interest income 1,486 1, , ,501 6,067-9 In the parent company, interest expenses for liabilities to credit institutions amounted to SEK -606 million for the fourth quarter of and SEK -3,657 million for the whole of. Interest expenses for issued securities in the parent company were SEK -3,879 million for the fourth quarter of, and SEK -15,191 million for the whole of. In, interest expenses for liabilities to credit institutions and issued securities were the same in the parent company as in the Group. * Net interest income from derivative instruments. These instruments are recognised at fair value and derived from Stadshypotek s funding and can have both a positive and a negative impact on interest expenses for derivatives. NOTE 4 Net gains/losses on financial items at fair value Jan Dec Hedge accounting, fair value hedges of which hedged items 3, , of which hedging -3, , Loans, valued at cost Financial liabilities, valued at cost Derivatives not recognised as hedges Total The profit/loss item Fair value hedges includes the net result of unrealised and realised fair value changes on financial assets and liabilities which are subject to hedge accounting. Interest income and interest expenses for these instruments are recognised under net interest income. Derivatives not recognised as hedges are included in the held-for-trading category. NOTE 5 Other administrative expenses Jan Dec IT costs Cost of premises Purchased services Other administrative expenses Total HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER 9

12 NOTE 6 Loan losses Jan Dec Specific provision for individually assessed loans Provision for the period Write-back of previous provisions Total Collective provision Collective provision for individually assessed loans Write-offs Actual loan losses for the period Utilised share of previous provisions Write-back of actual loan losses in previous years Total Net loan losses Impaired loans Impaired loans Specific provision for individually assessed loans Collective provision for individually assessed loans Net impaired loans Proportion of impaired loans, Reserve ratio for impaired loans, Loan loss ratio, Non-performing loans which are not impaired loans HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER

13 NOTE 7 Loans to the public Loans to the public, by borrower category ember Loans before provisions Provisions for probable loan losses Loans after provisions Loans before provisions Provisions for probable loan losses Loans after provisions Households 547, , , ,932 Public sector, municipal companies 21,208-21,208 15,801-15,801 Housing co-operative associations 97, ,793 92, ,872 Other legal entities 91, ,908 80, ,326 Total loans to the public before collective provision 758, , , ,931 Collective provision Total loans to the public 758, , , ,920 of which in operations outside Sweden Households 47,641-47,641 39,299-39,299 Public sector, municipal companies Housing co-operative associations 5,756-5,756 6,172-6,172 Other legal entities 1,724-1,724 3,458-3,458 Total loans to the public in operations outside Sweden 55,121-55,121 48,929-48,929 Loans to the public, by type of collateral ember Loans before provisions Provisions for probable loan losses Loans after provisions Loans before provisions Provisions for probable loan losses Loans after provisions Single-family housing 402, , , ,370 Housing co-operative apartments 117, , , ,676 Owner-occupied apartments* 4,318-4,318 5,100-5,100 Private market 524, , , ,146 Multi-family housing 185, , , ,038 Offices and commercial buildings 48, ,923 34, ,747 Corporate market 234, , , ,785 Total loans to the public before collective provision 758, , , ,931 Collective provision Total loans to the public 758, , , ,920 of which in operations outside Sweden Single-family housing 43,325-43,325 34,184-34,184 Housing co-operative apartments Owner-occupied apartments* 4,318-4,318 5,100-5,100 Private market 47,650-47,650 39,299-39,299 Multi-family housing 6,998-6,998 8,930-8,930 Offices and commercial buildings Corporate market 7,471-7,471 9,630-9,630 Total loans to the public in operations outside Sweden 55,121-55,121 48,929-48,929 *Owner-occupied apartments entail individual ownership of a specific apartment in a multi-family dwelling and a share in an association for joint management of the property. HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER 11

14 NOTE 7 Loans to the public, cont. Non-performing loans by borrower category ember Non-performing loans which are not impaired loans Non-performing loans which are included in impaired loans Non-performing loans which are not impaired loans Non-performing loans which are included in impaired loans Households Public sector, municipal companies Housing co-operative associations Other legal entities Total of which in operations outside Sweden Households Public sector, municipal companies Housing co-operative associations Other legal entities Total non-performing loans in operations outside Sweden Non-performing loans by type of collateral ember Non-performing loans which are not impaired loans Non-performing loans which are included in impaired loans Non-performing loans which are not impaired loans Non-performing loans which are included in impaired loans Single-family housing Housing co-operative apartments Owner-occupied apartments* Private market Multi-family housing Offices and commercial buildings Corporate market Total of which in operations outside Sweden Single-family housing Housing co-operative apartments Owner-occupied apartments* Private market Multi-family housing Offices and commercial buildings Corporate market Total non-performing loans in operations outside Sweden * For a definition, see page HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER

15 NOTE 7 Loans to the public, cont. Impaired loans by borrower category ember Impaired loans Provisions for probable loan losses Net impaired loans Impaired loans Provisions for probable loan losses Net impaired loans Households Public sector, municipal companies Housing co-operative associations Other legal entities Total Impaired loans by type of collateral ember Impaired loans Provisions for probable loan losses Net impaired loans Impaired loans Provisions for probable loan losses Net impaired loans Single-family housing Housing co-operative apartments Owner-occupied apartments * Private market Multi-family housing Offices and commercial buildings Corporate market Total * For a definition, see page 11. Impaired loans relate in their entirety to the Swedish operations. The reserved amount for probable losses in the tables showing impaired loans consists of a specific provision for individually assessed receivables. NOTE 8 Derivative instruments Market value as at Market value as at Positive values Interest rate instruments 16,363 14,340 Currency instruments 985 3,076 Total 17,348 17,416 Negative values Interest rate instruments 1,374 2,089 Currency instruments 6,815 1,344 Total 8,189 3,433 Net 9,159 13,983 Stadshypotek uses fair value hedges to protect the Group against undesirable impact on profit/loss due to changes in the market prices of reported assets or liabilities. Hedged risks in hedging packages at fair value comprise interest rate risk on lending and funding at fixed interest rates and currency risk on funding in foreign currency. The hedging instruments in these hedging packages consist of interest rate swaps and cross-currency interest rate swaps. Fair value hedges are also applied for portfolios of financial instruments. The hedged risk in these portfolio hedges is the interest rate risk for lending where the original interest rate was fixed for three months and interest rate caps for lending with a fixed-interest period of three months. The hedging instruments in these portfolio hedges consist of interest rate swaps and interest rate options (caps). Interest rate swaps and currency swaps are also used as hedges for changes in market value without hedge accounting being applied. HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER 13

16 Related-party transactions Group claims/group liabilities Group Parent company BALANCE SHEET Group claims Loans to credit institutions 11,092 10,551 11,092 10,551 Derivative instruments 16,895 17,277 16,895 17,277 Other assets 49 1, ,681 Total 28,036 29,509 28,036 29,509 Group liabilities Due to credit institutions 292, , , ,036 Derivative instruments 8,008 3,317 8,008 3,317 Other liabilities 2,034 3,680 2,034 3,680 Subordinated loans 8,800 8,800 8,800 8,800 Total 311, , , ,833 INCOME STATEMENT Interest income Interest expense -3,429-3,537-3,429-3,734 Fee and commission expense Other administrative expenses Total -3,391-3,430-3,391-3,627 Inter-company transactions are reported under the above headings in the balance sheet and income statement, either between the companies in the Stadshypotek Group or between these and other companies in the Handelsbanken Group. The business operations of Stadshypotek are highly decentralised. The basic principle is that organisation and working practices are determined by the branch offices of the Handelsbanken Group, which are responsible for all the business of individual customers. One consequence of this approach is that Stadshypotek s lending operations are run via Handelsbanken s Swedish branch operations and the lending operations in Stadshypotek s branches in Norway and Denmark are run via Handelsbanken s branch operations in Norway and Denmark respectively. Lending is to be carried out to the extent and on the terms stated in guidelines for granting credits, established annually by the board of Stadshypotek. These guidelines include the maximum permitted loan-to-value ratio for various property types, as well as the decision limits which apply to the branches lending. In addition, for loan amounts in excess of a certain limit, an advance examination of the case is to be conducted by Stadshypotek s credit department before the loan can be disbursed. Stadshypotek s treasury function is also integrated with Handelsbanken s treasury department. Functions necessary for management and control of the company remain within Stadshypotek. Those services which Handelsbanken performs on behalf of Stadshypotek are regulated in a collaboration agreement between the parties. Most of the inter-company transactions are thus with the parent company, Handelsbanken. The services that Stadshypotek purchases from the parent company, which are included in other administrative expenses, consist primarily of IT services and the treasury function. As in previous years, no payments have been made to the parent company in respect of the services performed by the latter in relation to the sale and administration of mortgage loans. In addition, inter-company transactions consist of funding from the parent company, derivative transactions and lending to the parent company. 14 HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER

17 Capital base and capital requirement Capital base Equity 24,431 21,692 Deduction for intangible assets Special deduction for IRB institutions Tier 1 capital 24,301 21,633 Perpetual subordinated loans 5,300 5,300 Dated subordinated loans 2,800 3,500 Special deduction for IRB institutions Tier 2 capital 7,981 8,756 Capital base 32,282 30,389 Capital requirement Credit risk according to standardised approach Credit risk according to IRB approach 4,669 5,543 Operational risk Total capital requirement according to Basel II 5,286 6,097 Adjustment according to transitional rules 23,227 17,594 Capital requirement according to Basel II, transitional rules 28,513 23,691 Risk-weighted assets according to Basel I 449, ,552 Capital requirement according to Basel I (8 of risk-weighted assets) 35,939 29,724 Risk-weighted assets in accordance with transitional rules 356, ,142 Transitional rules result in lowest permitted capital requirement 28,513 23,691 Risk-weighted assets according to Basel II (capital requirement/8) 66,075 76,213 Capital adequacy analysis Capital requirement in Basel II compared with Basel I Capital requirement in Basel II compared with transitional rules Capital ratio according to Basel II Capital ratio according to Basel I Capital ratio according to transitional rules Tier 1 ratio according to Basel II Tier 1 ratio according to Basel I Tier 1 ratio according to transitional rules Capital base in relation to capital requirement Basel II Capital base in relation to capital requirement Basel I Capital base in relation to capital requirement according to transitional rules The figures reported in this section refer to the minimum capital requirements under Pillar 1 of the new capital adequacy rules in Basel II. Table references marked According to Basel II mean that the figures are based on the minimum capital requirements after the transitional rules have ceased to apply. In December, the Swedish Financial Supervisory Authority decided that the transitional rules would apply for a further two years, that is, until the end of Since 1 January 2007, Stadshypotek has applied the advanced IRB approach for retail exposures (households and small companies) and the foundation approach for corporate exposures. Following approval from the Swedish Financial Supervisory Authority, the advanced IRB approach is to be applied for medium-sized companies, housing cooperative associations and property companies with effect from ember. Credit risks ember Standardised approach Capital requirement Exposure after credit risk protection (EAD) IRB approach Average risk weight Capital requirement Institutions Companies - 207, ,671 advanced approach 205, ,635 foundation approach 2, Households 9 529, ,998 Other Total , ,669 Credit risks ember Standardised approach Capital requirement Exposure after credit risk protection (EAD) IRB approach Average risk weight Capital requirement Institutions Companies (foundation approach) - 188, ,398 Households , ,145 Other Total , ,543 The capital requirement according to Basel II is 85 per cent (79) lower than the requirement in accordance with Basel I. Houesholds represent some 77 per cent (80) of the reduction and companies approximately 23 per cent (20). A large proportion of credits to households with property as collateral are the main reason for the lower capital requirement. HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER 15

18 Facts about the company Registered name: Stadshypotek AB (publ). Corporate identity number: Ownership: A subsidiary of Svenska Handelsbanken AB (publ), corporate identity number The Bank publishes consolidated annual accounts in which Stadshypotek AB is included. The next interim report: will be published on 27 April The annual report: will be available on Stadshypotek s website ( at the beginning of March. ADDRESS Stadshypotek AB Office address: Torsgatan 12 Postal address: SE Stockholm, Sweden Tel: +46 (0) Fax: +46 (0) Website: 16 HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER

19 +46 (0) SE Stockholm, Sweden Production: Hallvarsson & Halvarsson.