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Annual Report • Feb 19, 2020
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Annual Report
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Risk Management and Capital Adequacy Report Pillar 3 Annual Report 2019
Contents
| 1. Risk governance | Page 4 |
|---|---|
| 2. Capital position | 10 |
| 3. Credit risk |
23 |
| 4. Market risk | 60 |
| 5. Liquidity risk |
66 |
| 6. Operational and compliance risk |
74 |
| 7. Stress tests and Economic Capital | 79 |
| Page | |
|---|---|
| Appendix A - Consolidated Situation |
84 |
| Swedbank's legal entity structure and business activities | |
| Terminology and abbreviations | |
| Swedbank CS: Own funds disclosure | |
| Swedbank CS: Capital instruments' main features | |
| Appendix B - Large Subsidiaries |
92 |
| Swedbank Estonia Consolidated Situation | |
| Swedbank Latvia Consolidated Situation |
Swedbank Lithuania Consolidated Situation Swedbank Mortgage AB
Introduction
This Risk Management and Capital Adequacy Report Q4 2019 (Pillar 3 Annual Report 2019) provides information on Swedbank's risk management and capital adequacy. The report is based on regulatory disclosure requirements set out in the Regulation (EU) 575/2013 "Capital Requirements Regulation" (CRR) and the Swedish Financial Supervisory Authority (SFSA) regulation FFFS 2014:12.
Information in this report pertains to the conditions for Swedbank Consolidated Situation (see the Swedbank Consolidated Situation table in Appendix A) as of 31 December 2019 if not otherwise stated. Disclosures are made annually in conjunction with the publication of Swedbank's Annual Report and quarterly in conjunction with the quarterly reports.
Unless otherwise stated, the reports of Q1 and Q3 follow the quarterly disclosure format, the report for Q2 follows the semi-annual format, and the report for Q4 follows the annual format and includes the most comprehensive details. In this report Swedbank Consolidated Situation is referred to as Swedbank, unless otherwise stated.
Furthermore, this report includes information for large subsidiaries (Estonia, Latvia, and Lithuania each on a consolidated basis as well as Swedbank Mortgage) in accordance with Article 13 in the CRR.
The report is part of the capital adequacy framework that builds on three pillars:
Pillar 1 provides rules for how to calculate minimum capital requirements for credit risk, market risk and operational risks. The calculations can be done either by using prescribed standardised risk measures or by using the bank's own internally used risk measures. Swedbank must fulfil certain requirements in order to apply its own internal risk measures and must seek approval from the SFSA and local supervisors in other countries where Swedbank operates.
Pillar 2 requires institutions to prepare and document their own internal capital and liquidity adequacy assessment processes (ICAAP and ILAAP respectively). All significant sources of risk must be taken into account in the ICAAP, that is, not only those already included when calculating the minimum capital requirement for credit, market and operational risks. Similarly, the analysis in the ILAAP should go beyond the minimum liquidity requirements. The SFSA will, together with the regulatory supervisory college, assess the banks' ICAAP and ILAAP and may impose additional capital or liquidity requirements for Pillar 2 risks, meaning risks not covered by the Pillar 1 capital requirement.
Pillar 3 requires institutions to disclose comprehensive information about their risks, risk management and associated capital. This report constitutes the required disclosure for Swedbank.
Information on Swedbank's corporate governance structure and measures undertaken to manage the operations in the consolidated situation, is presented in Swedbank's Corporate Governance Report. Furthermore, that report also presents information regarding Swedbank's Board of Directors including directorships and the recruitment policy. Information concerning risk implications of the remuneration process (and aggregate as well as granular quantitative information on remuneration) is disclosed in the document "Information regarding remuneration in Swedbank", which is published in conjunction with the Annual General Shareholders Meeting. All documents mentioned above, as well as the Policy on Gender Equality and Diversity, are available on www.swedbank.com.
This report is submitted by Swedbank AB, incorporated in Sweden, a public limited liability company with registration number 502017-7753. This document has not been audited and does not form part of Swedbank AB's audited financial statements.
Swedbank in brief
Swedbank is a full-service bank, available to households and businesses in its home markets, having 7.3 million private customers and 600 000 corporate and organisational customers across its operations. The customers are served by 316 branches in Swedbank's four home markets – Sweden, Estonia, Latvia and Lithuania – and by a presence in neighbouring markets such as Denmark, Finland and Norway. Swedbank also operates in financial hubs such as the United States, China, and South Africa.
Swedbank consists of three main business segments: (i) Swedish Banking, (ii) Baltic Banking, and (iii) Large Corporates & Institutions.
Strengthening the overall risk management of the bank
Swedbank continues to be well capitalised with healthy buffers towards regulatory requirements and, as communicated in the ICAAP and SREP of 2019, the Swedish FSA considers the capital position of Swedbank to be adequate. During 2019, the dividend pay-out policy was adjusted from 75% to 50% of annual profit and, to further strengthen the capital position, a capital buffer target of 100-300 basis points above the capital requirement was introduced. This, together with a robust profitability, makes Swedbank well positioned to grow its business, meet future capital requirements and withstand changes in the economic environment.
We aim for low risk in all aspects of our operations, and to earn the trust of all our stakeholders. During 2019 Swedbank had a few but extraordinary incidents of fraud against the bank that increased the operational losses compared to previous years. Incidents that affected the availability of online services prompted several actions aimed at improving the resilience of the operations. Swedbank continues to implement tools and practises that will further improve governance, processes and controls concerning operational risk.
In the AML/CTF area, Swedbank is addressing gaps in internal governance and controls. Regarding deficiencies related to the alleged money laundering, the ongoing work to remediate the identified shortcomings strives to ensure that the bank follows industry-leading best practice when it comes to AML/CTF measures. There have been changes to management and to the organisation, and a remedial program on processes, systems and controls with continuous deliveries has been launched. In addition, the CEO has initiated a cultural assessment to align the Bank with its core values. Deficiencies related to customer protection has also led to unwanted compliance risks and work is initiated to remediate the identified shortcomings.
Within credit risk, risks related to climate change and to commercial real estate were in focus during 2019. To clarify Swedbank's exposure to climate risks in the lending portfolio, an analysis of sectors with increased risks according to the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations was performed. A pilot project with climate-related scenario analysis was carried out during 2019 for the energy sector and will be followed in 2020 by scenario analysis for other sectors where risks from climate change are material.
The Swedish FSA is concerned about increased risks in the Swedish commercial real estate market after a long period of very low interest rates and increasing real estate prices and will increase the capital requirements for bank loans for commercial real estate from September 2020. The new requirements are expected to raise Swedbank's total capital requirement by 0.7 percentage points of risk-weighted assets, which is in line with the average of the major banks. Swedbank has a low-risk portfolio in property management and applies strict lending criteria focused on the long-term repayment capacity. The stability in the portfolio is confirmed by stress tests.
Despite recession worries and unpredictable trade talks between the United States and China, 2019 was characterised by calmer markets with rising equity prices and falling volatility. Interest rates declined and stabilised at lower levels. In this environment, Swedbank's low-risk profile was achieved through a pro-active yet cautious management of the portfolios carrying market risk. During the year, Swedish housing prices stabilised and Riksbanken abandoned the negative rate policy. The overall picture by the end of 2019 is a trend of a further reduction of geopolitical uncertainties. Volatility is at a multi-year low, which suggests that the markets expect a stable 2020.
Swedbank's liquidity position remained strong due to proactive funding activities and a stable demand from debt investors. Furthermore, the liquidity position is strong according to indicators such as the Survival Horizon, the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR) and showed strong resilience even under hypothetical adverse scenarios.
Gunilla Domeij Hallros Acting Chief Risk Officer
1. Risk governance
Swedbank's structure for risk management consists of three lines of defence. With well-established processes, the risk organisation's purpose is to ensure a professional risk management protecting Swedbank from unintentional and unnecessary risk taking.
Risk profile
Swedbank defines risk as a potential negative impact on the value of the Group that may arise from current internal processes or from internal or external future events. The concept of risk combines the probability of an event occurring with the impact that event would have on profit and loss, equity and the value of the Group.
The Policy on Enterprise Risk Management (ERM), established by the Board of Directors, contains the fundamental principles for the Group´s risk management. Swedbank's strategy is to maintain a low-risk profile. The Board of Directors' attitude towards risk is expressed by its risk appetite, according to which targets are set for the type and level of risk that Swedbank may expose itself to through its business activities. These risks include: market risk, credit risk, liquidity and funding risk, insurance risk, operational risk, legal risk, compliance risk, conduct risk, money laundering and terrorist financing risks, and reputational risk.
Swedbank's customer base, which mainly consists of private individuals and small and medium-sized companies in Sweden and in the Baltic countries, but also large corporates in the Nordic countries, is the foundation for the low risk. During 2019 the bulk of the credit impairments emanated from oilrelated exposures. In the other portfolios, consisting of loans to customers with generally strong repayment capabilities deemed to be resilient to an economic downturn, the credit quality remained strong, safe-guarding the low-risk profile of the Bank. Market risks continued to be limited, despite increased geopolitical risks. Swedbank's liquidity position remained strong, due to proactive funding activities and stable demand from debt investors. In terms of operational risks, in 2019 Swedbank saw an increase in incidents and losses compared to 2018. Availability and accessibility as a full-service bank in our four home markets remains a key priority for Swedbank and several initiatives to lower the risk and to improve processes and controls are under way, both short and medium term. Internal and external stress tests resulted in a clear picture of adequate capitalization and strong capacity to manage severe negative scenarios. Swedbank remains one of the best capitalized financial institutions globally and is among the most resilient banks according to the EBA 2018 stress test.
In order to continuously secure a low risk level, Swedbank's operations are based on professional risk management and
control. A risk framework has been developed to ensure risk awareness and business acumen within all parts of Swedbank. This framework is aligned with Swedbank's strategy and business planning process, in which risk-based planning is an integrated part. Internal regulations and guidelines are developed to secure strong risk control and steering. Swedbank's risk framework includes risk limits applied for individual risk types, starting from the Board of Directors down to the business areas for appropriate steering. The framework also includes well-developed origination standards for prudent lending.
After media allegations of money laundering in Swedbank's Estonian operations in early 2019, regulatory authorities in Sweden, Estonia and the U.S. initiated investigations of the Bank's ML-related compliance. These investigations of Swedbank's work to prevent money laundering have continued throughout 2019, and shortcomings have been found in routines, systems and processes. The established remedial program includes measures to combat money laundering and terrorist financing that will ensure that Swedbank follows industry-leading best practice.
Internal control and framework
Risk arises in all financial operations, hence a profound understanding and solid management of risk is central for any successful business. The risk culture throughout Swedbank is important for efficient risk management and, consequently, for a strong risk-adjusted return.
The Board of Directors has the ultimate responsibility for Swedbank's risk-taking and capital assessment. Through the ERM Policy, the Board provides the key principles on risk management and risk control in order to support the business strategy. Furthermore, the ERM Policy stipulates Swedbank's risk appetite, the concept of three lines of defence, the fundamental principles of risk management as well as roles and responsibilities for the risk organisation. The Board has established a Risk and Capital Committee (RCC), an Audit Committee (AC), a Remuneration Committee (RC) and, starting from January 2020, a Governance Committee (GC). The committees support in matters related to risk management, governance, capital requirements and remuneration. For further information on these committees, see the Swedbank Corporate Governance Report available on:
www.swedbank.com/about-swedbank/management-andcorporate-governance/.
Swedbank's risk organisation is responsible for ensuring that key risks are identified, analyzed and properly managed. Decisions made on an aggregated level should always be in line with Swedbank's risk appetite. The Board, as well as the CEO, is regularly informed on the overall and specific risk profile. Furthermore, the Board and the CEO are also regularly provided with information regarding changes in Swedbank's risk limit framework structure and, in case of a breach, the actions needed to be taken to mitigate the breach. Swedbank's risk organization is responsible for providing the business operations with guidance and support by developing and maintaining, for example, internal regulations and guidelines.
The CEO has overall operational responsibility for the management and control of Swedbank's risks including the responsibility for reporting to the Board of Directors. The CEO is responsible for communicating and implementing the Board's approach regarding risk management and risk control and to ensure that there is an implemented and wellfunctioning internal control within the organisation. Based on the Board's overall governing documents, the CEO issues more detailed regulations for the operational management and control of Swedbank's risks. The CEO also has delegated parts of the operational responsibility for risk management to Swedbank's unit managers. The CEO has established the Group Executive Committee to support in the effective management and governance of the Group.
The Group Risk and Compliance Committee (GRCC), chaired by the CRO, gives recommendations to the Board and CEO and supports senior management in risk and compliance matters. This includes reviewing, monitoring, and challenging of the Group's risks in terms of significant exposures, risk trends, losses, findings, management actions, and performance versus risk appetite, which includes observance of the risk limit framework. The GRCC secures that internal audit, risk and compliance findings are accurately managed. In order to further strengthen the risk management arrangements, in both group functions and business areas, the GRCC is supported by Business Area Risk and Compliance Committees (BARCCs). Individual BARCCs are established in all business areas and relevant group functions and have similar setup as the GRCC. Escalation routines are implemented from the BARCCs to the GRCC in order to secure solid and efficient risk management.
The Group Asset Allocation Committee (GAAC), chaired by the CFO, gives recommendations to the Board and CEO and supports senior management in matters related to the management of assets, liabilities, capital and the balance sheet structure, in order to ensure a robust system of financial control. GAAC is responsible of ensuring that the Group's financial risk exposures stay within the risk appetite and the distributed risk limits as well as ensuring that the risk appetite framework and the level, type and allocation of internal capital adequately cover the underlying risks. Furthermore, GAAC manage and allocate capital, liquidity, funding and tax position, in order to support the implementation of business objectives. Each BA has established a Business Area Asset Allocation Committee (BAAC). BAAC assists the BA Head in discharging his/her duties in the BAAC scope. This includes pre-approval of annual targets on BA level for Lending Volume and/or total REA growth, partake in tasks concerning the internal capital assessment, provide recommendations regarding choice of scenarios and evaluate the results of simulations and stress prior to GAAC approval. Furthermore, BAAC ensures BAs are compliant with the business steering principles decided by the Group in GAAC.
Three lines of defence
Successful risk management requires a strong risk culture and a common approach. Swedbank has built its approach to risk
management on the concept of three lines of defence, with clear division of responsibilities between the risk owners and control functions, i.e. Group Risk, Swedbank Compliance and Group Internal Audit.
Swedbank's risk management
Board of Directors
CEO
Risk Management First line of defence
Owns and manages risks
- Business and operations (line)
- Support functions
Control Second line of defence
Establishes infrastructure and monitors risks
• Risk
• Compliance
Evaluation Third line of defence
Evaluates and validates the effectiveness of the first and second lines of defence • Internal Audit
First line of defence
First line of defence refers to all risk management activities carried out by the business areas, product areas and group functions. The first line management take risks and are responsible for the continuous and active risk management. Management owns the risk within their respective area of responsibility and are responsible to ensure that there are appropriate processes and internal control structures in place that aim to ensure that risks are identified, analysed, measured, monitored, reported and kept within limits and the Group´s risk appetite. First line responsibilities also include establishing relevant governance and internal controls to secure that activities are in compliance with external and internal requirements.
Second line of defence
Second line of defence consists of the function for risk control (Group Risk) and the compliance function (Swedbank Compliance). These control functions are responsible for independent control as well as independent reporting of Swedbank's risks. It develops and maintains principles and frameworks for risk management as well as conducts independent validation of methods and models for risk measurement and control. The second line of defence also challenges and validates the first line's risk management activities. The second line of defence is organisationally independent from first line and shall not be involved in operational activities in the business or the unit they monitor and control.
Third line of defence
Third line of defence is the part of the organisation that is responsible for the independent evaluation (review) of the work in both first and second line of defence. Internal audit is the third defence line. Internal audit is wholly independent, a reviewing and, to a certain extent, an advisory function, which
has the task of evaluating and thereby improving operations in Swedbank.
The internal audit function is a direct subordinate to the Board of Swedbank and is organisationally separated from the bank's other activities.
Risk appetite and framework
The ERM Policy states that Swedbank shall maintain a lowrisk profile. The long-term risk profile shall be managed so that a severely stressed scenario, as defined in the annual Internal Capital Adequacy Assessment Process (ICAAP), should not result in an impact on the CET1 capital ratio that exceeds the Group's established risk appetite. If the impact exceeds the risk appetite, preventive measures must be taken. The Board of Directors establishes the fundamental principles for Swedbank's risk management and decides on the overall risk appetite. In order to ensure the approach to risk in different operations, the Board has also formulated risk appetites for each main risk type (see below). The risk appetites are further substantiated by limits set by the CEO and complemented by CRO limits with the purpose to identify potential limit breaches at an early stage. The risk appetite and limits are designed to secure that Swedbank sustains its low-risk profile, taking into account Swedbank's business operations. The risk limit framework structure includes escalation principles in the event of any breaches of the risk appetite or limits.
ALM and capital management
In addition to the Policy on Enterprise Risk Management, there is a Board's policy on Swedbank's Asset, Liability, and Liquidity. This policy specifies the fundamental principles that shall apply for Swedbank's processes and structures in order to identify and manage Swedbank's assets and liabilities, hence enabling the maintenance of an optimised balancesheet structure that meets liabilities, absorbs losses, safeguards shareholder returns, and maintains public confidence. Swedbank's capital, funding, and liquidity shall be managed so that it does not create disproportionate constraints on the governance or management of Swedbank.
Credit risk
Swedbank maintains a well-diversified credit portfolio with a low-risk profile. All credit activities strive for a long-term customer relationship and rest on strong business acumen to achieve solid profitability and a sound credit expansion for long-term stability. A basic principle in Swedbank's lending operations is that each business unit carries full responsibility for its transactions and its associated credit risks. Each business unit strives to develop and maintain a balanced credit risk level for the respective credit portfolio, which is achieved by lending to customers with high debt-service capabilities, by maintaining a strong collateral position and by portfolio diversification within and between sectors and geograhpies.
Counterparty risk
Counterparty risk arises as a result of hedging of own market risk and from customer-related trading activities. Swedbank has a conservative approach when choosing interbank counterparts. In the derivatives business, International Swaps and Derivatives Association (ISDA), or similar agreements, are in general established with Swedbank's customers. Furthermore, Swedbank restricts the extent of its counterparty risk exposure through several actions such as setting counterparty limits and FX settlement limits.
Market risk
According to Swedbank's ERM Policy, and the concept of three lines of defence, market risk-taking shall only be conducted by units granted permission by Swedbank's CEO. The risk-taking is limited by a certain risk appetite, established by Swedbank's Board of Directors. Originating from the risk appetites, respectively, risk limit structures have been created in order to ensure a low risk profile and protect Swedbank against unintentional losses and excessive levels of market risk.
Liquidity risk and Funding
Swedbank strives to maintain a conservative risk profile with resilience to both short-term and long-term external stress and to maintain an adequate buffer of high-quality liquid assets to enable the Group to withstand a prolonged period of liquidity stress without relying on forced asset sales or government intervention. Swedbank shall have a long-term, stable, well-diversified funding and investor base with a wholesale funding that is well diversified across markets, instruments and currencies. Furthermore, it shall strive to avoid maturity mismatch risk in assets funded by unsecured funding. All non-liquid assets, not eligible for covered bond issuance, shall be funded, either through customer deposits, or through wholesale funding with a maturity, to the largest extent, matching or exceeding that of the assets.
Group Treasury has the overall responsibility to manage the Group's liquidity, which includes securing that the Group's liquidity risk is kept within the mandates provided by the Board of Directors, the CEO and the CRO. Group Treasury is responsible for the first line risk management including identifying, measuring, analysing, reporting, monitoring and management of the liquidity risk exposure across Swedbank. Group Risk constitutes the second line risk management control function and is responsible for ensuring that liquidity risks are identified and properly managed by Group Treasury. For this purpose, Group Risk has the responsibility to develop, maintain and provide internally developed Group-wide methods, measurements and a governance framework.
Operational risk
Swedbank strives to maintain a low-risk profile in operational risk, with the aim to not experience operational risk-related losses or incidents that have materially negative impact on Swedbank's funding, capitalisation, or third-party credit rating. The maximum level of operational risk is further defined in the risk limits by a stated level of unexpected financial loss, tolerable errors in the financial statement and as specific qualitative statements which relate directly to Swedbank.
Operational risks are to be kept at the lowest possible level taking into account business strategy, market sentiment, regulatory requirements, rating ambitions, and the capacity to absorb losses through earnings and capital. They shall be considered in business decisions and as far as possible in the pricing of products and services. Managers shall ensure that the operational risks inherent in their respective areas are identified, assessed, and properly managed in the day-to-day operations.
Compliance
According to Swedbank's Policy on Enterprise Risk Management, the Group shall not implement or maintain products, services, processes, systems, relationships that result in systematic non-compliance with laws regulations and external rules that apply for different licenses that the Group operates under. For governing, controlling and supporting the proper handling of compliance matters, Swedbank has established a Compliance organisation that is responsible for providing assurance to the CEO and the Board of Directors that Swedbank's business is being conducted in accordance with the compliance risk appetite. The focus key regulatory areas for the Compliance function are internal governance, customer protection, market conduct, ethics, conflicts of interest, anti-money laundering activities, counter-terrorist financing activities, and data protection.
The Board´s risk statement and risk declaration
The Board has decided on the following risk statement and risk declaration.
Risk statement
Swedbank is a full-service bank, having 7.3 million private customers and 600 000 corporate and organisational customers across its operations. The market capitalization reaches above SEK 150bn and total assets amount to SEK 2 408bn.
Swedbank's roots are firmly entrenched in Sweden's savings bank history, the cooperative agricultural bank tradition and our major role in the Baltic countries.
Swedbank strives to meet our stakeholders' expectations and financial needs. High cost efficiency is crucial to continue developing a competitive offering. Swedbank has, and will maintain, a robust balance sheet that can withstand business cycle fluctuations. Evaluating and managing risks is part of the daily work, and Swedbank's broad customer base of individuals and companies in many different sectors diversifies risk while generating stable results. Swedbank´s Board of Directors determines the Bank´s risk appetite and the risk exposure is controlled and monitored regularly.
To ensure that Swedbank is well capitalized in relation to the risks and has a good liquidity situation, the Board stipulates the Bank's risk appetite for capitalisation and liquidity. The risk tolerance for capitalisation considers both statutory requirements and Swedbank's assessed capital requirement based on the Bank's model for economic capital (EC). The CET1 capital ratio stood at 17.0% at end-2019 and the total capital ratio at 21.8% while the leverage ratio reached 5.4%. Swedbank´s risk appetite for liquidity risk implies that the Bank maintains a conservative liquidity risk profile with resilience to both short-term and long-term external stress. In the ERM Policy the Board of Directors stipulates a risk appetite regarding the internal Survival Horizon metric. The risk appetite is measured by the number of days with a positive future cumulative net cash flow given a stressed scenario. Moreover, Swedbank calculates and monitors the Bank's liquidity risk using a number of different risk measures such as Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). Throughout 2019 Swedbank maintained a strong liquidity position with all metrics remaining well above regulatory requirements. Also, capital and liquidity stress tests were conducted to increase the preparedness for possible disruptions in the financial markets. These stress tests focus on both Swedbank specific and market related disruptions. These analyses also take into account the combined effects if all these disruptions would occur at the same time.
In the credit risk appetite it is stated that Swedbank shall have a well-diversified credit portfolio with a low risk profile, regarding all credit risks. Diversification is obtained by avoiding undesirable risk concentrations in sectors, instruments and counterparties.
Swedbank's credit exposures have low risk, which is confirmed by internal and external stress tests and 85% of all risk classified exposures have an internal rating corresponding to investment grade. The bank's customer base, which mainly consists of private individuals and small and medium-sized companies in Sweden and in the Baltic countries, but also large corporates in the Nordic countries, is the foundation for the low risk. Private mortgage is Swedbank's largest loan segment, amounting at end of 2019 to SEK 905bn, 56% of Swedbank's total loans to the public. The risks in household mortgage lending are low and the customers repayment capacity is good, proved by low historical losses. The diversification in terms of number of customers is high and the geographical distribution in Sweden is high, whereas in the Baltic countries the capital regions dominate.
During 2019 the bulk of the credit impairments emanated from oil-related exposures due to the pro-longed weak situation for some subsegments in the offshore sector. In the other portfolios, consisting of customers with a general strong repayment ability deemed to be resilient to an economic downturn, the credit quality remains strong, safe-guarding the low-risk profile. In 2019, net credit impairment was 0.09 % (0.03% in 2018). Downside risks consist of economic business cycle, geopolitical risks such as trade war and transition risks such as e-commerce and climate change. Swedbank works pro-actively to mitigate risks such as these at an early stage through an active risk management and risk control.
Market Risk comprise 2.5% of the total REA for the Bank. The Bank shall keep a low risk profile including limited risks in the financial markets. The Bank's activity in these markets is designed firstly to satisfy the long-term needs of its customers. The low risk profile is manifested through the risk appetites for Trading Book and Banking Book respectively, combined with a comprehensive limit structure. For the Banking Book, there are additional risk appetite levels expressed as the negative impact on economic value, markto-market and net interest income due to adverse stressed interest rate risk movements. To safeguard the risk appetite, limits are placed on VaR as well as asset class specific risk measures on bank level. Using a top-down principle, these limits are cascaded down to detailed levels to contain any concentration risks.
Operational risk is the second largest risk type for Swedbank, from a capital adequacy perspective. As a bank for the many households and companies key operational risks are often those related to the availability of Swedbank's services and the integrity and confidentiality of the data entrusted to Swedbank. The Board of Directors express a risk appetite for operational risk in terms of tolerance for levels and types of risks with respect to Swedbank's overall low risk profile. During 2019, total losses due to operational risks were SEK 153m. However, several operational risks have risen in importance during 2019, including cyber risks, outsourcing and third-party risks and technology risks that affect availability. Several initiatives to mitigate risks and to improve processes and controls are under way, both short and medium term.
The ongoing investigations of Swedbank's work to prevent money laundering are continuing. Shortcomings have been found in routines, systems and processes to combat money laundering and other financial crime. The Board has initiated substantial changes of the management of the Bank and as a result a remedial program has been established that includes measures to combat money laundering and terrorist financing to ensure that Swedbank follows industry-leading best practice.
No transactions of material enough nature to impact Swedbank´s risk profile has taken place during 2019. However, observations and preliminary conclusions of shortcomings related to suspected money laundering have negatively impacted the market value and reputation of Swedbank beyond the risk appetite set by the Board of Directors. Deficiencies related to money laundering and customer protection has also led to compliance risks materialised beyond the risk appetite statement set by the Board of Directors. In other areas, the risk profile is within the risk appetite set by the Board of Directors.
Risk declaration
Swedbank has through established risk management processes, including strengthened governance, organisational changes, increased resources and the remedial program to combat money laundering and terrorist financing, adequate arrangements for risk management considering the Bank's risk appetite and the Bank´s chosen strategy of being the leading Bank for the many households and businesses in our home markets.
Swedbank Group capital and liquidity key ratios
| 2019 | 2018 | |
|---|---|---|
| Capital | ||
| Common Equity Tier 1 capital, SEKm | 110 073 | 103 812 |
| Tier 1 capital, SEKm | 126 226 | 114 761 |
| Total capital, SEKm | 141 554 | 136 993 |
| Capital ratios | ||
| Common Equity Tier 1 ratio, % | 17.0% | 16.3% |
| Tier 1 ratio, % | 19.4% | 18.0% |
| Total capital ratio, % | 21.8% | 21.5% |
| Risk Exposure Amount (REA), SEKm | 649 237 | 637 882 |
| CET1 Capital buffer requirements1 | ||
| CET1 capital requirement including buffer requirements, % | 12.0% | 11.6% |
| Of which minimum capital requirement, % | 4.5% | 4.5% |
| Of which capital conservation buffer requirement, % | 2.5% | 2.5% |
| Of which countercyclical buffer requirement, % | 2.0% | 1.6% |
| Of which systemic risk buffer, % | 3.0% | 3.0% |
| CET1 capital available to meet buffer requirement2 | 12.5% | 11.8% |
| Liquidity ratios | ||
| Leverage ratio exposure, SEKm | 2 353 631 | 2 241 604 |
| Leverage ratio, % | 5.4% | 5.1% |
| Total High Quality Liquid Assets (HQLA), SEKbn | 376 | 310 |
| Liquidity Coverage Ratio (LCR), % | 182% | 144% |
| Net Stable Funding Ratio (NSFR), (CRR2), % | 120% | 119% |
1) According to Swedsh implementation of CRD IV
2) Total CET1 capital ratio less minimum capital requirement
2. Capital position
Swedbank continues to be well capitalised with healthy buffers towards regulatory requirements, enabling the bank to grow with its customers and withstand changes in the economic environment. Combined with its robust profitability, Swedbank is well positioned to meet future changes in capital requirements.
Capital requirements
Capital adequacy rules express the regulatory requirement for how much capital a bank must hold in relation to the risk the bank faces.
Highlights 2019
Swedbank's Common Equity Tier 1 (CET1) capital ratio was 17.0% as of year-end, which represents a buffer towards the Swedish Financial Supervisory Authority's (SFSA) requirement of 1.9 percentage points. Swedbank is well-positioned to meet both current and future capital requirements.
In Q2 2019, the Board of Directors decided to revise the dividend pay-out policy from 75% to 50% of annual profit in order to further strengthen the capital position. Swedbank also introduced a capital target where the CET1 capital ratio shall exceed the Swedish FSA's requirement by 100 to 300bps. This makes Swedbank well positioned to meet future capital requirements and withstand changes in the economic environment. The measures will also ensure that Swedbank remains one of the strongest banks financially in Europe while continuing to support our customers' growth.
During 2019, Swedbank has issued USD 0.5bn in Additional Tier 1 capital to optimise its capital structure. Swedbank has also commenced issuance of non-preferred senior debt in anticipation of forthcoming requirements for instruments eligible as recapitalisation amount under the Minimum Requirement of Own Funds and Eligible Liabilities (MREL) to be subordinated to senior liabilities. In 2019 Swedbank issued EUR 0.8bn and NOK 2.8bn of non-preferred senior debt.
Capital requirements
The capital adequacy rules stipulate the regulatory requirement for how much capital a bank must hold in relation to the risk that the bank faces. When assessing its capital needs, Swedbank takes into consideration its current and future risk profile, internal risk measurement and assessment of the risk capital needed. In addition to capital requirements for credit, market, and operational risks (i.e. Pillar 1), all other significant risks, such as interest rate risk in the banking book, concentration risks, pension risks, earnings volatility risk, and strategic risk must be taken into account when assessing the total capital need (i.e. as part of the Pillar 2 assessment). In recent years, the Pillar 2 capital charges have increased in importance as a supervisory tool. In particular, the SFSA has introduced both a systemic risk buffer and a risk-weight floor for Swedish mortgages within the Pillar 2 framework. The risk-weight floor for Swedish mortgages within the Pillar 2 framework was moved to Pillar 1 from the 31 of December 2018. In 2016, the SFSA also imposed a temporary additional Pillar 2 capital charge related to revised requirements on banks' internal models for credit risk, requiring the banks to anticipate a higher frequency of economic downturns in their estimates of probability of default, as described below. The capital charge will be imposed until the SFSA has approved the banks' updates to their models in response to the revised requirements.
Other laws and regulations are also relevant for Swedbank; for example, the Swedish Banking and Finance Business Act require a minimum initial capital of EUR 5m. Furthermore, the CRR includes rules regarding large exposures, i.e. the limitation of exposures to individual customers or groups of customers in relation to total capital.
In brief, the total capital is the sum of the CET1 capital, the Additional Tier 1 (AT1) capital, and the Tier 2 (T2) capital. The CET1 capital is mainly comprised of shareholder equity after various adjustments, while the Additional Tier 1 capital and the Tier 2 capital are mainly constituted by subordinated debt. A reconciliation of shareholders' equity (according to International Financial Reporting Standards, IFRS) and the regulatory total capital is presented below in Figure 2.1.
Key figures
At year-end 2019, the CET1 capital ratio (i.e. the CET1 capital in relation to the risk weighed assets), was 17.0% (31 December 2018: 16.3%). This can be compared with the capital requirement of 15.1% (14.6%).
During 2019, Swedbank's CET1 capital increased by SEK 6.3bn, to SEK 110.1bn. The change was mainly attributable to earnings, net of proposed dividend. The accounting for employee benefits (IAS 19) created volatility in the estimated pension liabilities and decreased the CET1 capital by approximately SEK 3.2bn. The changes in the CET1 capital are shown in Figure 2.2 below.
The risk weighted assets (RWA) increased during 2019 by SEK 11.3bn to SEK 649.2bn (31 December 2018: SEK 637.9bn). Credit risk RWA increased during 2019 by SEK 11.2bn. Increased exposures, mainly towards corporates within LC&I and towards retail and corporates in Baltic Banking, has increased RWA by SEK 7.7bn. Furthermore, one-offs during 2019 have increased credit risk RWA by SEK 4.8bn, compiled by RWA increase due to implementation of IFRS 16 and PD substitution offset by RWA decrease due to the transition of Sparbanken Öland AB from subsidiary to associated company. Additional RWA for article 458 (mortgage floor) has contributed with an increase of RWA by SEK 5.2bn during 2019.
Improved loss given default (LGD) levels resulting from increasing collaterals, mainly for corporate customers within LC&I, decreased credit risk RWA by SEK 3.9bn. Other credit risk decreased RWA by SEK 3.2bn mainly due to shorter maturities as well as provisions of defaulted customers, both towards corporates within LC&I.
RWA for market risks increased by SEK 3.3bn in 2019. Most of the increase was derived from the input to the internal model used when calculating market risk RWA.
In 2019, RWA for credit valuation adjustment increased by SEK 0.9bn. The main driver was higher total EAD.
The yearly update of the operational risk calculation increased RWA by SEK 3.7bn during the first quarter of 2019, mainly due to increased income levels. This impacted the capital requirement for operational risks, since it is calculated based on a rolling three-year average of revenues.
The additional risk exposure amounts for article 3 in the CRR resulted in an RWA decrease of SEK 7.9bn, primarily due to changes in the portfolio and yearly update of SREP for IRBmodels.
On 31 December 2019, Swedbank's leverage ratio was 5.4% (31 December 2018: 5.1%). The Tier 1 capital increased by SEK 11.5bn to SEK 126.2bn. The change was mainly attributable to earnings, net of proposed dividend, and the issuance of Additional Tier 1 capital in August 2019. The exposures included in the calculation of the leverage ratio increased by SEK 112.0bn. Please see Tables 2.5 and 2.6 for a full reconciliation of the leverage ratio.
Figure 2.1: Link between shareholders' equity and total capital
Increase Decrease
Figure 2.3: RWA, changes during 2019, Swedbank Consolidated Situation
*As the new capital regulations came into force in January 2014, Swedbank's capital adequacy reporting under Basel II ceased from that date. **2011-2013 according to Swedbank's calculation based on the proposed regulations.
Capital planning
All banks are affected by macroeconomic changes that cannot be fully mitigated by a strong risk culture and risk management. Swedbank is well capitalised and has sufficient capital buffers above the requirements to ensure operations on a going concern basis even under adverse conditions. Such
buffers are also necessary to absorb fluctuations of capital under normal conditions due to parameters such as volatility in the estimated pension liabilities and variation in foreign currency exchange rates and interest rates.
During the year, the dividend pay-out policy has been adjusted by the Board of Directors from 75 to 50 percent of annual profit to further strengthen the bank's capital position. Swedbank has also introduced a capital target where the CET1 capital ratio shall exceed the Swedish FSA's requirement by 100-300bps. Swedbank is thereby well positioned to withstand changes in the economic environment, meet upcoming changes in capital requirements while continuing to support our customers' growth.
Swedbank conducts stress tests to identify the potential effects of possible, though unlikely, negative scenarios and to assess whether the capital buffer is satisfactory at any given point in time. Capital planning, and efforts to sustain satisfactory capitalisation, are critical for Swedbank's ability to maintain the market's confidence, and consequently to retain access to cost-efficient funding in the capital market, thus enabling Swedbank to support its customers.
The financial crisis in 2008 and 2009 dramatically changed the way regulators, rating agencies and debt investors perceive banks' capitalisation. A large number of regulatory changes that have been implemented in recent years, or are about to be implemented, collectively aim at raising both the size and quality of the banks' total capital. Stable earnings and strong capitalisation provide Swedbank with a stable position, both today and for the future. Swedbank's capital position is robust with a buffer relative to the Swedish Financial Supervisory Authority's requirement of approximately 1.9 percentage points at year-end 2019.
Swedbank's capital objective is to hold, at all times, a strong capital position to maintain confidence and access to costefficient funding in the capital markets, even under adverse market conditions. At the same time, Swedbank should uphold an efficient total capital which, by its size and structure, ensures a high return on shareholder equity.
Swedbank takes the risk of excessive leverage into account in the forward-looking capital planning process which is performed at least on a quarterly basis. Other business steering or asset-and-liability management tools are also considered as means to affect the total exposure measure and may be accessed should such a need arise. Swedbank assesses if the entire Group, as well as the parent company and its subsidiaries, are adequately capitalised. In case of a potential shortfall, a capital injection to support subsidiaries or measures to reduce risk exposure amount may be performed. In addition to the injection of equity capital, the total capital in a subsidiary may also be strengthened through subordinated loans within the Group. To the extent that non-restricted equity is available in subsidiaries, funds can be transferred back to the parent company as dividends. Swedbank regularly reviews the capitalisation of the Group and the individual legal entities. The outcome of such reviews may trigger adjustments deemed necessary to ensure compliance with regulatory requirements and an efficient capital management
within the Group. Further, there are no current or foreseen material practical or legal impediments to the prompt transfer of own funds or repayment of liabilities to or from the parent company and its subsidiaries.
Adequate and comprehensive capital allocation is an essential tool in measuring profitability, from the level of the business area and all the way through to each customer. At Swedbank, shareholder value is seen as an excess return over the cost of capital and is measured by economic profit and risk-adjusted return on capital (RAROC). The principles of capital allocation reflect Swedbank's risk tolerance and capital strategy. Consolidated shareholders' equity is allocated to each business area based not only on regulatory requirements, but also on an internal assessment of risk in individual transactions.
Regulatory environment – impact on Swedbank
The regulatory environment of banks is changing as a consequence of the financial crisis that began in 2008. These efforts are coordinated globally by the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS). In Europe, there is a focus on harmonising regulations and supervisory practices through the development of a single rulebook and the introduction of pan-European supervisory institutions. Starting from 2014, the European Central Bank (ECB) began to supervise directly the largest banks in the euro area; national supervisors continue to monitor the remaining banks. As of 1 January 2015, the ECB's supervision includes Swedbank in Estonia, Latvia and Lithuania. An additional feature that has emerged is that the European capital adequacy legislation includes a framework for macro prudential supervision, aimed at detecting and mitigating systemic risk. As a consequence, the banks' capital requirements may be revised rather frequently by the national authorities, when deemed necessary to contain systemic risk.
Swedish capital requirements
The Basel III framework for bank regulation was introduced in the EU in 2014 through the EU's Capital Requirements Regulation (CRR) and the EU Capital Requirements Directive IV (CRD IV). In 2014, the SFSA also decided what capital requirements that would apply to Swedish banks beyond the minimum level of a 7% CET1 capital as stipulated by the EU rules. The SFSA's requirements can be summarised as follows:
- As of 1 January 2015, the four major Swedish banks are assigned a systemic risk buffer of 3% in CET1 capital within the framework of Pillar 1 and a further 2% systemic risk charge within the framework of Pillar 2.
- A risk-weight floor for Swedish mortgages of 25% applied through Pillar 1 RWA, starting from 31 December 2018. Previously the requirement was applied through Pillar 2.
- On 13 September 2015, the Swedish countercyclical buffer rate was 1%, a figure that was raised to 1.5% in
June 2016, further increased to 2.0% in March 2017, and in September 2019 it was increased to 2.5%.
• On 28 November 2019 the SFSA announced a proposal to introduce a risk-weight floor for corporate real-estate exposures in Pillar 2 of 35% and 25% for corporate residential real-estate exposures to be decided in the 2020 SREP.
During 2015, the SFSA clarified its view on the capital requirements for Pillar 2 risks. In its overall supervisory capital assessment during the course of the annual supervisory review and evaluation process (SREP), the SFSA uses the methods it had presented in May 2015 for assessing capital requirements within the framework of Pillar 2 for creditrelated concentration risk, interest rate risk in the banking book, and pension risk. On this basis, Swedbank's CET1 capital requirement for these Pillar 2 risks is estimated to be 1.1% of RWA, calculated as per 31 December 2019.
The SFSA has previously stated that it does not intend to make a formal decision on the capital requirement for individual institutions in Pillar 2. As long as a formal decision has not been made, the capital requirement under Pillar 2 does not affect the level at which automatic restrictions on dividend and coupon payments take effect (due to a breach of the combined buffer requirements). In January 2016, the SFSA reiterated its view in a response to an EBA document on this topic.
The capital requirement for Swedbank, calculated as per 31 December 2019, was equivalent to a CET1 capital requirement of 15.1% and a total capital requirement of 18.9%. At the end of 2018, Swedbank's CET1 capital requirement and total capital requirement were 14.6% and 18.4% respectively. On a nominal basis, the amount of CET1 capital Swedbank must hold to be compliant with the capital requirements was approximately SEK 98 billion by 31 December 2019 and it was approximately SEK 93 billion by 31 December 2018. The increase is mainly driven by underlying business growth, consequential growth in RWAs, and the hike of the Countercyclical capital buffer rate in Sweden from 2% to 2.5%.
The Basel Committee's review of capital requirements
On 7 December 2017, the Basel Committee and Group of Governors and Heads of Supervision (GHOS) presented the finalisation of the Basel III regulatory framework, also referred to as Basel IV. The finalisation of Basel III includes several policy and supervisory measures that aim to enhance the reliability and comparability of risk-weighted capital ratios and to reduce the potential for undue variation in capital requirements for banks across the globe. The measures comprise revisions to the standardised approaches and the introduction of an aggregate RWA output floor of 72.5%. The changes also include a review of the role of internal model based (IRB) method in the credit risk requirement framework and an introduction of a leverage ratio buffer requirement, only for global systemically important banks (G-SIBs). The new rules will be applied from 2022 with a long transitional period for the output floor up until 2027.
The standardised approach (SA) for credit risk will be updated with a risk sensitivity measure where, for example, loan to value (LTV) will determine the risk weight for credit to residential real estate. This can be compared to the previous standardised approach where all credits of the same credit type were allocated the same risk weight. The update of the standardised approach will therefore increase the risk sensitivity of the credit risk RWA. Other adjustments that aim to increase the risk sensitivity in credit risk RWA is a new framework for more granular classification of unrated exposures, corporates and specific risk-weights for small and medium sized enterprises (SMEs). Changes to the internal ratings-based models for credit risk will be implemented, for example a removal of the advanced IRB models for some asset classes. Moreover, input floors for factors in the calculations such as probability of default (PD) and loss given default (LGD) will be implemented to ensure a minimum level of conservatism when calculating IRB credit risk RWA.
The amendments to the CVA risk framework aim to enhance risk sensitivity by increasing the exposure component in the calculation of the risk exposure amount. Furthermore, the purpose of the amendments is to harmonise and strengthen the measure and the use of the internal model-based approach will be removed and the measures applicable will be a new standardised approach and a basic approach. Additionally, the framework has been aligned with the revision of the standardised approach for market risk.
In the revised Basel III, the operational risk framework has been simplified to a great extent where the previous advanced measurement approaches (AMA) and the existing three standardised approaches will be replaced with one new risk-sensitive standardised approach for all banks.
The leverage ratio is a non-risk-based solvency requirement introduced through Basel III. It is described as a backstop to the risk-based capital requirements. It is intended to constrain excess leverage in the banking system and to provide an extra layer of protection against model risk and measurement error. Since 2014, banks have been required to report the leverage ratio to regulators, and a formal disclosure requirement was introduced as from Q1 2015. The minimum leverage ratio is 3% for all banks which was implemented in the CRR II and applies from 28 June 2021. In the finalisation of Basel III, the minimum leverage ratio is expanded with a buffer framework only to be a regulatory requirement for G-SIB´s, consequently not affecting Swedbank. Still, Swedbank needs to disclose the leverage ratio due to previous regulatory requirements and will eventually have to meet the minimum leverage ratio requirement of 3%.
In January 2016, the Basel Committee completed the Fundamental Review of the Trading Book (FRTB), a comprehensive revision of the capital adequacy standard for market risk also included in the European Commission's proposals. The new standard implies substantial revisions to both the standardised approach and the internal model approach. In January 2019 the GHOS endorsed a set of revisions to the FRTB framework, intended to enhance its design and calibration in certain areas. The revised framework will form part of Basel III framework, with 1 January 2022 as application date.
The time frame for the implementation of the finalisation of the Basel III framework is still uncertain as most of the requirements from the framework are yet to be implemented into EU legislation. It also remains unclear how the finalisation of the Basel III framework will affect the regulatory capital requirements for Swedish banks until the implementation into Swedish law is finalised and the SFSA have communicated their intended application. For more risk-specific information regarding the Basel Committee's review of capital requirements, see Chapter 3 (Credit risk), Chapter 4 (Market risk), and Chapter 6 (Operational risk) of this report.
EBA guidelines on IRB models
In November 2018 the Swedish FSA published a memorandum explaining that Swedish banks using an internal ratings-based (IRB) approach to calculate their credit risk must analyse their risk classification systems to be compliant with changed guidelines to come from the European Banking Authority (EBA). The new guidelines are supposed to be fully phased in by year-end 2021.
Bank Recovery and Resolution Directive (BRRD)
The BRRD, which allows authorities to manage banks in distress, was established in the EU in 2014. It was implemented in Sweden in February 2016, through the Swedish Resolution Act. The crisis management framework set out in the BRRD is intended to prevent crisis situations and improve the ability to manage crises that may arise. The aim is to reduce the risk that taxpayers will have to bear the cost of a banking crisis. This is to be accomplished through bail-in, which means that shareholders and creditors bear the costs to a greater extent.
According to the directive, EU member states shall appoint one or several resolution authorities in each member state. The Swedish government has designated the Swedish National Debt Office (SNDO) as the Swedish resolution authority.
The Single Resolution Mechanism (SRM) regulation, which is applicable in the Baltic countries, establishes a centralised resolution approach with a Single Resolution Board (SRB) being responsible for the overall framework, while national resolution authorities are in charge of implementing the resolution decisions.
The resolution authorities' tasks include drawing up resolution plans, determining when a bank shall enter into resolution, and applying the resolution tools. To ensure that banks always have sufficient loss-absorbing capacity, the BRRD also provides for the resolution authorities to set minimum requirements for own funds and eligible liabilities (MREL) for each bank, based on, amongst other criteria, its size, risk and business model.
On 2 February 2017, the SNDO published its decision memorandum detailing its plans for implementing the Minimum Requirement of Own Funds and Eligible Liabilities
(MREL) on Swedish banks. The MREL requirement for systemically important banks in Sweden, such as Swedbank, is the sum of a loss absorption amount and a recapitalisation amount. The loss absorption amount equals the current total capital requirement excluding the combined buffer requirement and macro-prudential elements within Pillar 2. The recapitalisation amount equals the total current capital requirement less the combined buffer requirement.
The loss absorption amount can be met with own funds instruments (Common Equity Tier 1, Additional Tier 1 and Tier 2), while the recapitalisation amount can only be met with eligible liabilities; essentially senior unsecured bonds or term deposits from large corporates, having a remaining maturity of at least one year.
Moreover, the BRRD requires that the MREL eligible liabilities shall in the future be subordinated to senior liabilities. The subordination should be, according to the SNDO, a requirement as of January 2022. The SNDO has stated that they will follow the development and issue pace of the subordinated senior unsecured in the affected institutions closely, making sure that they will reach the required levels in time for the requirement. The SNDO's estimates of Swedbank's current MREL position shows that Swedbank on a consolidated level already has enough capital and eligible liabilities to meet the MREL requirements (excluding any subordination requirement). On 21 November 2018, the Swedish parliament passed an update of laws regulating the insolvency hierarchy – the changes came into effect in the end of 2018 and it enabled Swedish banks to start issuing the new type of bond that is needed to meet the recapitalisation amount by 2022.
The Swedish Government's focus in its implementation of the BRRD is to build up resilience in the financial system, thereby reducing the likelihood of banks entering into resolution. In accordance with the BRRD, the Government introduced a resolution reserve as a new financing arrangement together with the existing deposit insurance fund and the stability fund, which is intended for the banking system as a whole. The new resolution reserve is financed by fees paid by the banks that could be subject to resolution. Therefore, no fee to the stability fund will be charged going forward while a fee has to be paid to the resolution reserve instead.
The Government has decided that the target level for the Swedish resolution reserve should be 3% of the total stock of covered deposits in Sweden. The fee for an individual bank is determined by the bank's size and its risk profile based on a methodology defined in the BRRD regime. In 2019, Swedbank paid an amount of SEK 1 117m to the Swedish resolution reserve. Swedbank is also liable to pay fees to the resolution reserves in the Baltic countries. These fees totalled SEK 55.7m in 2019.
As part of the crisis management framework, banks need to submit recovery plans annually to their regulators. Swedbank submitted its initial plan to the SFSA in 2013 and has since then submitted updated plans annually.
Enactment of the CRR II, the CRD V and the BRRD II
On 23 November 2016, the European Commission published legislative proposals for amendments to the CRR (CRR II), the CRD IV (CRD V), the BRRD (BRRD II) and the single resolution mechanism (the Proposals). Amendments to the latter include the introduction of a new asset class of "non-preferred" senior debt. The Proposals are also known as the Banking Package.
The Banking Package covers multiple areas, including the Pillar 2 framework, a binding leverage ratio minimum requirement, mandatory restrictions on distributions, permission for reducing own funds and eligible liabilities, macro-prudential tools, the Basel Committee's new standardised approach for measuring counterparty credit risk exposures, the Basel Committee's Fundamental Review of the Trading Book, a new category of "non-preferred" senior debt, the MREL framework and the integration of the (Total Loss-Absorbing Capacity) TLAC standard into EU legislation as mentioned above.
The Banking Package has been amended by the European Parliament and the Council of the European Union. The final package of new legislation does not include all elements of the initial proposals and new amended elements were introduced through the course of the legislative process. Although the Banking Package has been adopted on an EU level, until Swedish legislators and authorities have decided on how the proposals would be applied in Sweden, it is uncertain how the new legislation will affect Swedbank.
Overview of parameters for RWA and institutional specific countercyclical capital buffer
The risk weighted assets (RWA) decreased during the last quarter of 2019 by SEK 7.3bn to SEK 649.2bn (30 September 2019: SEK 656.5bn), mainly due to decreases in credit risk and re-calculation of the article 3 add-on.
Credit risk RWA decreased by SEK 5.0bn. Volume growth, including mortgage floor adjustments, increased RWA for credit risk by SEK 2.9bn, mainly driven by business areas LC&I and Baltic Banking. Non-lending assets in credit risk decreased RWA by SEK 2.4bn, primarily explained by decreased counterparty credit risk within LC&I. Effects from FX and shorter maturities for corporates decreased RWA by SEK 3.1bn and 1.0bn respectively.
The quarterly reassessment of the article 3 add-on decreased RWA by SEK 2.5bn, mainly due to decreases in exposures subject to the add-on. Amounts held under article 3 are additional RWA amounts that covers deficiencies in IRB models until the models have been updated.
Table 2.1: Overview of RWAs (EU OV1), 31 December 2019
| RWA | Minimum capital requirements | ||
|---|---|---|---|
| SEKm | 31.12.2019 | 30.09.2019 | 31.12.2019 |
| Credit risk (excluding Counterparty credit risk (CCR)) | 284 519 | 288 010 | 22 762 |
| - of which the standardised approach (SA) | 25 764 | 26 306 | 2 061 |
| - of which the foundation IRB (FIRB) approach | 68 967 | 72 573 | 5 517 |
| - of which the advanced IRB (AIRB) approach | 189 788 | 189 131 | 15 183 |
| - of which equity IRB under the simple risk- weighted approach or the IMA | |||
| Counterparty credit risk | 18 194 | 20 401 | 1 456 |
| - of which mark to market | 11 221 | 12 741 | 898 |
| - of which original exposure | |||
| - of which the standardised approach | |||
| - of which internal model method (IMM) | |||
| - of which financial collateral comprehensive method (for SFTs) | 1 659 | 1 817 | 133 |
| - of which risk exposure amount for contributions to the default fund of a CCP | 584 | 1 000 | 47 |
| - of which CVA | 4 730 | 4 843 | 378 |
| Settlement risk | |||
| Securitisation exposures in the banking book (after the cap) | |||
| - of which IRB approach | |||
| - of which IRB supervisory formula approach (SFA) | |||
| - of which internal assessment approach (IAA) | |||
| - of which standardised approach | |||
| Market risk | 16 350 | 16 318 | 1 308 |
| - of which the standardised approach | 3 588 | 4 253 | 287 |
| - of which IMA | 12 762 | 12 065 | 1 021 |
| Large exposures | |||
| Operational risk | 68 514 | 68 514 | 5 481 |
| - of which basic indicator approach | |||
| - of which standardised approach | 68 514 | 68 514 | 5 481 |
| - of which advanced measurement approach | |||
| Amounts below the thresholds for deduction (subject to 250% risk weight) | 17 260 | 16 636 | 1 381 |
| Floor adjustment | |||
| Other risk exposure amount | 244 400 | 246 651 | 19 552 |
| Total | 649 237 | 656 530 | 51 939 |
Table 2.2: Capital adequacy (parameters for RWA and capital req., incl. fully implemented buffers and Pillar 2 req.)
Information regarding the capital requirements is enclosed in the Fact Book as of Q4 2019 on pages 47-54, available on: https://www.swedbank.com/investor-relations/financial-information-and-publications/.
Table 2.3a: Capital buffers (amount) - Commission Delegated Regulation (EU) 2015/1555
| SEKm | 31.12.2019 |
|---|---|
| Total risk exposure amount | 649 237 |
| Institution-specific countercyclical buffer rate | 2.02% |
| Institution-specific countercyclical buffer requirement | 13 119 |
Table 2.3b: Geographical distribution of credit exposures relevant for the calculation of the countercyclical capital buffer, 31 December 2019
| Securitisation | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| General credit exposures | Trading book exposure | exposures | Own funds requirements | |||||||||
| SEKm | Exposure value for SA |
Exposure value for IRB |
Sum of long and short position of trading book |
Value of trading book exposure for internal models |
Exposure value for SA |
Exposure value for IRB |
of which General credit exposures |
of which Trading book exposures |
of which Securitisation exposures |
Total | Own funds requirement weights |
Countercyclical capital buffer rate |
| Sweden | 36 236 | 1 439 759 | 20 857 | 31 134 | 166 | 31 300 | 75.37% | 2.50% | ||||
| Estonia | 5 864 | 84 859 | 11 | 2 536 | 1 | 2 538 | 6.11% | |||||
| Latvia | 1 079 | 40 270 | 1 752 | 1 752 | 4.22% | |||||||
| Lithuania | 4 014 | 65 147 | 86 | 1 970 | 1 | 1 971 | 4.75% | 1.00% | ||||
| Norway | 10 681 | 41 688 | 1 960 | 1 255 | 12 | 1 267 | 3.05% | 2.50% | ||||
| Finland | 952 | 27 362 | 2 192 | 710 | 14 | 724 | 1.74% | |||||
| Denmark | 7 095 | 4 826 | 235 | 408 | 1 | 409 | 0.99% | 1.00% | ||||
| USA | 1 304 | 6 237 | 364 | 364 | 0.88% | |||||||
| Great | ||||||||||||
| Britain | 132 | 1 744 | 72 | 72 | 0.17% | 1.00% | ||||||
| Other | ||||||||||||
| countries | 2 714 | 29 208 | 485 | 1 127 | 6 | 1 132 | 2.72% | 0.00% | ||||
| Total | 70 071 | 1 741 100 | 25 826 | 41 328 | 201 | 41 529 | 100.00% | 2.02% |
Table 2.4: Capital requirements, 31 December 20191
| SEKm | % of RWA | |
|---|---|---|
| Capital requirement Pillar 1 | 100 766 | 15.5 |
| -of which Buffer requirements2 | 48 827 | 7.5 |
| Total capital requirement Pillar 23 | 22 140 | 3.4 |
| Total capital requirement Pillar 1 and 2 | 122 906 | 18.9 |
| Own funds | 141 554 |
1 Swedbank's calculation based on the Swedish FSA's announced capital requirements, including Pillar 2 requirements.
2 Buffer requirements include the systemic risk buffer, the capital conservation buffer and the countercyclical capital buffer.
3 Systemic buffer as of 31 December 2019. The individual Pillar 2 charge items are as of 30 September 2019, according to the Swedish FSA's SREP report of 30 September 2019 in relation to RWA as of 31 December 2019.
Leverage ratio disclosure
Swedbank monitors and discloses its leverage ratio according to the regulatory requirements and will in the future eventually have to meet a minimum leverage ratio requirement of 3%. On 31 December 2019, Swedbank's leverage ratio was 5.4% (31 December 2018: 5.1%). The
change from end of 2018 is mainly due to an increase in Tier 1 capital. The Tier 1 capital has increased by SEK 11.5bn mainly attributable to earnings, net of proposed dividend, and the issuance of Additional Tier 1 capital during 2019. Values as of Q4 2019 can be found in Tables 2.5 and 2.6.
Table 2.5: Summary reconciliation of accounting assets and leverage ratio exposures (LRSum), 31 December 2019
| Summary reconciliation of accounting assets and leverage ratio exposures, | |
|---|---|
| SEKm | Applicable Amounts |
| Total assets as per published financial statements | 1 852 028 |
| Adjustment for entities which are consolidated for accounting purposes but are outside the scope of regulatory consolidation | 331 475 |
| (Adjustment for fiduciary assets recognised on the balance sheet pursuant to the applicable accounting framework but excluded | |
| from the leverage ratio exposure measure in accordance with Article 429(13) of Regulation (EU) No 575/2013 "CRR") | |
| Adjustments for derivative financial instruments | -8 623 |
| Adjustments for securities financing transactions "SFTs" | 54 267 |
| Adjustment for off-balance sheet items (i.e. conversion to credit equivalent amounts of off-balance sheet exposures) | 143 117 |
| (Adjustment for intragroup exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (7) of | |
| Regulation (EU) No 575/2013) | |
| (Adjustment for exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (14) of Regulation | |
| (EU) No 575/2013) | |
| Other adjustments | -18 633 |
| Total leverage ratio exposure | 2 353 631 |
Table 2.6: Leverage ratio common disclosure (LRCom), 31 December 2019
| Leverage ratio common disclosure | CRR leverage ratio exposures |
|---|---|
| On-balance sheet items (excluding derivatives, SFTs and fiduciary assets, but including collateral) | 2 092 401 |
| (Asset amounts deducted in determining Tier 1 capital) | -18 633 |
| Total on-balance sheet exposures (excluding derivatives, SFTs and fiduciary assets) (sum of lines 1 and 2) | 2 073 768 |
| Derivative exposures | |
| Replacement cost associated with all derivatives transactions (i.e. net of eligible cash variation margin) | 12 185 |
| 46 888 | |
|---|---|
| Add-on amounts for PFE associated with all derivatives transactions (mark-to-market method) Exposure determined under Original Exposure Method |
|
| Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the applicable accounting | |
| framework | |
| (Deductions of receivables assets for cash variation margin provided in derivatives transactions) | -15 286 |
| (Exempted CCP leg of client-cleared trade exposures) | -7 984 |
| Adjusted effective notional amount of written credit derivatives | |
| (Adjusted effective notional offsets and add-on deductions for written credit derivatives) | |
| Total derivative exposures (sum of lines 4 to 10) | 35 803 |
| Securities financing transaction exposures | |
| Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions | 97 585 |
| (Netted amounts of cash payables and cash receivables of gross SFT assets) | |
| Counterparty credit risk exposure for SFT assets | 3 359 |
| Derogation for SFTs: Counterparty credit risk exposure in accordance with Article 429b (4) and 222 of Regulation (EU) No 575/2013 | |
| Agent transaction exposures | |
| (Exempted CCP leg of client-cleared SFT exposure) | |
| Total securities financing transaction exposures (sum of lines 12 to 15a) | 100 944 |
| Other off-balance sheet exposures | |
| Off-balance sheet exposures at gross notional amount | 345 720 |
| (Adjustments for conversion to credit equivalent amounts) | -202 604 |
| Other off-balance sheet exposures (sum of lines 17 to 18) | 143 116 |
| Exempted exposures in accordance with CRR Article 429 (7) and (14) (on and off balance sheet) | |
| (Exemption of intragroup exposures (solo basis) in accordance with Article 429(7) of Regulation (EU) No 575/2013 (on and off | |
| balance sheet)) | |
| (Exposures exempted in accordance with Article 429 (14) of Regulation (EU) No 575/2013 (on and off balance sheet)) | |
| Capital and total exposures | |
| Tier 1 capital | 126 226 |
| Total leverage ratio exposures (sum of lines 3, 11, 16, 19, EU-19a and EU-19b) | 2 353 631 |
| Leverage ratio | |
| Leverage ratio | 5.36% |
| Choice on transitional arrangements and amount of derecognised fiduciary items | |
| Choice on transitional arrangements for the definition of the capital measure | |
| Amount of derecognised fiduciary items in accordance with Article 429(11) of Regulation (EU) NO 575/2013 | |
Table 2.7: Split-up of on BS exposures (excluding derivatives, SFTs and exempted exposures) (LRSpl), 31 December 2019
| Split-up of on balance sheet exposures (excluding derivatives, SFTs and exempted exposures) | CRR leverage ratio exposures |
|---|---|
| Total on-balance sheet exposures (excluding derivatives, SFTs, and exempted exposures), of which | 2 092 402 |
| Trading book exposures | 49 319 |
| Banking book exposures | 2 043 083 |
| of which covered bonds | 19 855 |
| of which exposures treated as sovereigns | 336 077 |
| of which exposures to regional governments, MDB, international organisations and PSE not treated as sovereigns | 2 504 |
| of which institutions | 17 288 |
| of which secured by mortgages of immovable properties | 1 071 280 |
| of which retail exposures | 97 453 |
| of which corporate | 436 366 |
| of which exposures in default | 8 925 |
| of which other exposures (e.g. equity, securitisations, and other non-credit obligation assets) | 53 335 |
Differences between accounting and regulatory exposure amounts
Table 2.8: Differences between accounting and regulatory scopes of consolidation and the mapping of financial statement categories with regulatory risk categories (EU LI1), 31 December 2019
| Carrying values of items | |||||||
|---|---|---|---|---|---|---|---|
| Assets, SEKm |
Carrying values as reported in published financial statements |
Carrying values under scope of regulatory consolidation |
Subject to credit risk framework |
Subject to counterparty credit risk framework |
Subject to the securitisation framework |
Subject to the market risk framework |
Not subject to capital requirements or subject to deduction from capital |
| Cash and balances with central banks | 195 286 | 195 286 | 195 286 | 0 | 0 | 0 | 0 |
| Bonds and other interest-bearing securities, | 194 461 | 194 265 | 152 771 | 0 | 0 | 41 494 | 0 |
| treasury bills and other bills eligible for refinancing with central banks, etc. |
|||||||
| Loans to public and credit institutions | 1 697 748 | 1 697 634 | 1 637 379 | 60 135 | 0 | 0 | 120 |
| Value change of interest hedged item in | 271 | 271 | 271 | 0 | 0 | 0 | 0 |
| portfolio hedge | |||||||
| Financial assets for which the customers bear the investment risk |
224 893 | 0 | 0 | 0 | 0 | 0 | 0 |
| Shares and participating interests | 6 568 | 6 453 | 2 542 | 0 | 0 | 3 911 | 0 |
| Investments in associates | 6 679 | 3 642 | 3 642 | 0 | 0 | 0 | 0 |
| Investments subsidiaries | 0 | 3 768 | 3 059 | 0 | 0 | 0 | 709 |
| Derivatives | 44 424 | 44 424 | 0 | 44 424 | 0 | 19 887 | 0 |
| Intangible fixed assets | 17 864 | 17 275 | 0 | 0 | 0 | 0 | 17 275 |
| Tangible assets | 5 572 | 5 638 | 5 638 | 0 | 0 | 0 | 0 |
| Current tax assets | 2 408 | 2 408 | 2 408 | 0 | 0 | 0 | 0 |
| Deferred tax assets | 170 | 161 | 53 | 0 | 0 | 0 | 108 |
| Other assets | 8 858 | 9 156 | 2 579 | 0 | 0 | 0 | 6 576 |
| Prepaid expenses and accrued income | 3 025 | 3 142 | 3 142 | 0 | 0 | 0 | 0 |
| Total assets | 2 408 228 | 2 183 523 | 2 008 770 | 104 560 | 0 | 65 292 | 24 788 |
| Total liabilities | 2 269 596 | 2 045 650 | 0 | 50 931 | 0 | 0 | 0 |
|---|---|---|---|---|---|---|---|
| assets classified as held for sale | |||||||
| Liabilities directly associated with group of | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Subordinated liabilities | 31 934 | 31 934 | 0 | 0 | 0 | 0 | 0 |
| Accrued expenses and prepaid income | 4 383 | 4 508 | 0 | 0 | 0 | 0 | 0 |
| Other liabilities and provisions | 29 051 | 28 695 | 0 | 0 | 0 | 0 | 0 |
| Insurance provisions | 1 894 | 0 | 0 | 0 | 0 | 0 | 0 |
| Pension provisions | 8 798 | 8 917 | 0 | 0 | 0 | 0 | 0 |
| Deferred tax liabilities | 1 571 | 1 446 | 0 | 0 | 0 | 0 | 0 |
| Current tax liabilities | 836 | 934 | 0 | 0 | 0 | 0 | 0 |
| Derivatives | 40 977 | 40 977 | 0 | 0 | 0 | 0 | 0 |
| Short positions securities | 34 103 | 34 103 | 0 | 0 | 0 | 0 | 0 |
| Debt securities in issue | 855 754 | 855 754 | 0 | 0 | 0 | 0 | 0 |
| the investment risk | |||||||
| Financial liabilities for which the customers bear | 225 792 | 0 | 0 | 0 | 0 | 0 | 0 |
| Deposits and borrowings from the public | 954 013 | 957 890 | 0 | 50 931 | 0 | 0 | 0 |
| Amounts owed to credit institutions | 69 686 | 69 687 | 0 | 0 | 0 | 0 | 0 |
| Liabilities |
Explanation of differences between accounting and Regulatory exposure amounts
This section identifies the differences between regulatory and accounting consolidation. The regulatory consolidation for Swedbank as of 31 December 2019 comprised the Swedbank Group with the exception of insurance companies and a different consolidation method for EnterCard Group. The EnterCard Group is included through the proportionate consolidation method for regulatory purposes, compared to the equity method in Swedbank Group. The total difference between the regulatory and accounting consolidation is SEK 224.7bn. The difference between Swedbank Group and Swedbank Consolidated Situation (CS) is shown in more detail in the outline of the differences in the scopes of consolidation. Carrying values under regulatory scope of consolidation are then allocated to applicable risk frameworks. The trading book of derivatives is subject to both the CCR and the market risk framework, which is why the sum of these columns is more than the carrying value under regulatory scope of consolidation.
Table 2.9: Main sources of differences between regulatory exposure amounts and carrying values in financial statements (EU LI2), 31 December 2019
| Items subject to | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| SEKm | Total | Credit risk framework |
Counterparty credit risk framework |
Securitisation framework |
Market risk framework |
||||
| Asset carrying value amount under scope of regulatory consolidation (as per template LI1) |
2 178 622 | 2 008 770 | 104 560 | 0 | 65 292 | ||||
| Liabilities carrying value amount under regulatory scope of consolidation (as per template LI1) |
50 931 | 0 | 50 931 | 0 | 0 | ||||
| Total net amount under regulatory scope of consolidation | 2 229 552 | 2 008 770 | 155 491 | 0 | 65 292 | ||||
| Off-balance sheet amounts | 345 721 | 345 721 | 0 | 0 | 0 | ||||
| Differences due to reversal of IFRS netting | 99 794 | 0 | 99 794 | 0 | 0 | ||||
| Differences due to potential future exposure | 45 403 | 0 | 45 403 | 0 | 0 | ||||
| Differences due to different netting rules, other than those already included in row 2 |
-72 363 | 0 | -72 363 | 0 | 0 | ||||
| Differences due to consideration of provisions | 6 612 | 6 612 | 0 | 0 | 0 | ||||
| Exempted CCP exposures from client trades | -1 546 | -1 546 | |||||||
| Difference due to sundry balances and other differences | -1 438 | -545 | -893 | 0 | 0 | ||||
| Difference due to impact of collaterals | -160 877 | 0 | -160 877 | 0 | 0 | ||||
| Difference between accounting and regulatory treatment of positions subject to market risk |
-1 677 | 0 | 0 | 0 | -1 677 | ||||
| Exposure amounts considered for regulatory purposes | 2 489 181 | 2 360 558 | 65 008 | 0 | 63 615 |
The differences that arise between the regulatory and accounting framework are explained by different rules set out in IFRS and in the CRR. The exposure amounts considered for regulatory purposes are original exposures before credit risk mitigation. The main differences for the items subject to the credit risk framework are as following:
- Off-balance sheet amounts are not part of carrying values of asset items, but are included in regulatory exposure amounts.
- Provisions are not part of risk-weighting in the IRB framework, therefore are re-integrated to be comparable to carrying amounts that are net of provisions.
• Other differences are due to certain manual adjustments to accounting balances that are not eliminated from regulatory exposures due to late data delivery.
Instruments under the Counterparty credit risk framework in Swedbank include repurchase transactions, security lending and derivatives. The differences arise due to different netting rules between risk and accounting frameworks, as well as different treatment and rules on recognition of collaterals. Additionally, capital has to be set aside for potential future exposure of listed instruments.
Table 2.10: Outline of the differences in the scopes of consolidation (entity by entity) (EU LI3), 31 December 2019
| Method of regulatory consolidation | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Method of accounting |
Full | Consolidation according to the |
Proportional | Neither consolidated |
|||||||
| Name of the entity | consolidation | consolidation | equity method | consolidation | nor deducted | Deducted | Description of the entity | ||||
| Swedbank AB | Credit institution | ||||||||||
| Swedbank Mortgage AB | Full consolidation | X | Credit institution | ||||||||
| Swedbank Robur AB Swedbank Robur Fonder AB |
Full consolidation Full consolidation |
X X |
Financial institution Mutual fund company |
||||||||
| Swedbank Investeerimisfondid AS | Full consolidation | X | Investment firm | ||||||||
| Swedbank leguldijumu Parvaldes Sabierdiba AS | Full consolidation | X | Investment firm | ||||||||
| Swedbank investiciju valdymas UAB | Full consolidation | X | Investment firm | ||||||||
| Cerdo Bankpartner AB | Full consolidation | X | Ancillary company - IT | ||||||||
| SwedLux S A | Full consolidation | X | Credit institution | ||||||||
| Sparfrämjandet AB | Full consolidation | X | |||||||||
| Sparia Group Insurance Company Ltd | Full consolidation | X | Insurance company | ||||||||
| Swedbank Fastighetsbyrå AB | Full consolidation | X | Financial institution | ||||||||
| Fastighetsbyran The Real Estate Agency S L | Full consolidation | X | Ancillary company - Real Estate | ||||||||
| Svensk Mäklarstatistik AB | Equity method | X | Ancillary company - Other | ||||||||
| Bankernas Kontantkort CASH Sverige AB | Full consolidation | X | |||||||||
| Swedbank PayEx Holding AB | Full consolidation | X | Financial institution | ||||||||
| PayEx Norge AS | Full consolidation | X | Ancillary company - Payments | ||||||||
| PayEX Danmark AS Swedbank PayEx Collection AB |
Full consolidation Full consolidation |
X X |
Ancillary company - Payments | ||||||||
| PayEx Sverige AB | Full consolidation | X | Ancillary company - Payments | ||||||||
| PayEx Solutions OY | Full consolidation | X | |||||||||
| PayEx Suomi OY | Full consolidation | X | Ancillary company - Payments | ||||||||
| PayEx Invest AB | Full consolidation | X | Ancillary company - Real estate | ||||||||
| Faktab B1 AB | Full consolidation | X | Ancillary company - Real estate | ||||||||
| Faktab V1 AB | Full consolidation | X | Ancillary company - Real estate | ||||||||
| Faktab S1 AB | Full consolidation | X | Ancillary company - Real estate | ||||||||
| Ektornet AB | Full consolidation | X | Holding company | ||||||||
| Swedbank Försäkring AB | Full consolidation | X | Insurance company | ||||||||
| ATM Holding AB | Full consolidation | X | Financial institution | ||||||||
| Bankomat AB | Equity method | X | Ancillary company - Other | ||||||||
| FRoR Invest AB | Full consolidation | X | Ancillary company - Other | ||||||||
| Swedbank Newco AB Swedbank Securities US LLC |
Full consolidation Full consolidation |
X X |
Ancillary company - Other Financial institution |
||||||||
| First Securities AS | Full consolidation | X | Financial institution | ||||||||
| Swedbank Management Company SA ManCo | Full consolidation | X | Financial institution | ||||||||
| Swedbank AS Latvia | Full consolidation | X | Credit institution | ||||||||
| Swedbank Lizings SIA | Full consolidation | X | Financial institution - Leasing | ||||||||
| Swedbank Atklatais Pensiju Fonds AS | Full consolidation | X | Investment firm | ||||||||
| Swedbank AB Lithuania | Full consolidation | X | Credit institution | ||||||||
| Swedbank Lizingas UAB | Full consolidation | X | Financial institution - Leasing | ||||||||
| Swedbank valda UAB | Full consolidation | X | Ancillary company - Real estate | ||||||||
| Swedbank AS Estonia | Full consolidation | X | Credit institution | ||||||||
| Swedbank Liising AS | Full consolidation | X | Financial institution - Leasing | ||||||||
| Swedbank Life Insurance SE | Full consolidation | X | Insurance company | ||||||||
| Swedbank PoC Insurance AS Swedbank Support OU |
Full consolidation Full consolidation |
X | X | Insurance company Ancillary company - IT |
|||||||
| SK ID Solutions AS | Equity method | X | Ancillary company - Other | ||||||||
| EnterCard Group AB | Equity method | X | Financial institution | ||||||||
| Sparbanken Sjuhärad AB | Equity method | X | Credit institution | ||||||||
| Sparbanken Rekarne AB | Equity method | X | Credit institution | ||||||||
| Sparbanken Skåne AB | Equity method | X | Credit institution | ||||||||
| Vimmerby Sparbank AB | Equity method | X | Credit institution | ||||||||
| Ölands Bank AB | Equity method | X | Credit institution | ||||||||
| Finansiell IDTeknik BID AB | Equity method | X | Ancillary company - IT | ||||||||
| BGC Holding AB | Equity method | X | Ancillary company - Payments | ||||||||
| Getswish AB | Equity method | X | Ancillary company - Payments | ||||||||
| VISA Sweden, ek för | Equity method | X | Ancillary company - Other | ||||||||
| USE Intressenter AB | Equity method | X | Holding company | ||||||||
| P27 Nordic Payments Platform AB Nordic KYC Utility AB |
Equity method Equity method |
X X |
Ancillary company - Payments Ancillary company - Other |
||||||||
Prudent valuation adjustment
Prudent valuation is a regulatory requirement which takes into account uncertainties in the valuation of assets and liabilities carried at fair value. The Prudent valuation adjustment is deducted from the CET1 capital in accordance with the CRR Article 105. In addition to the Fair value adjustments made in the accounts (see next section), Swedbank calculates Additional valuation adjustments (AVAs) for fair valued positions in the trading and banking book. The basis for the calculation of AVAs is valuation input data used in the independent valuation process. The purpose of the Prudent valuation adjustment is to ensure, with an appropriate degree of certainty, that the valuations are sufficiently prudent, taking into account factors such as market price uncertainty, close-out-costs, unearned credit spreads, investing and funding costs, model risk, future administrative costs and operational risk. The prudent value is equal to or lower than the fair value for assets, and equal to or higher than the fair value for liabilities.
Fair value adjustments
Swedbank applies the following Fair value adjustments in the accounts;
- Credit and Debit valuation adjustments (CVA/DVA)
- Bid/Ask adjustment
Credit and Debit valuation adjustments (CVA/DVA)
CVA and DVA are features incorporated in derivative valuation that reflect the impact on fair value of counterparty credit risk and Swedbank's own credit quality respectively. CVA is calculated on a portfolio (counterparty) basis for uncollateralised and collateralised derivatives. Where a strong credit support annex (CSA) exists to mitigate the counterparty credit risk, the exposure will have a limited impact on the CVA. The purpose of the adjustment is to reflect the fair value taking the counterparty credit risk inherent in derivate exposures into account.
Bid/Ask adjustment
Where mid-prices are retrieved for the purpose of valuation, Swedbank applies a Bid/Ask adjustment to fair valued positions. The Bid/Ask adjustment is calculated on individual positions, or portfolio level for derivative exposures. The approach for calculating the Bid/Ask adjustment for derivatives involves determining the net risk exposure by offsetting long and short positions. The Bid/Ask spreads are generally derived from market quotes.
Valuation governance and independent price verification (IPV)
The responsibility for the independent valuation process rests within Group Finance. The Valuation Policy Group, chaired by the Head of Group Finance, is the decision forum for principal valuation issues and decides on independent valuation models/techniques, Fair value adjustments and Prudent valuation adjustment methodologies. The Prudent valuation and Fair value adjustments are calculated by Group Finance. For the trading and banking books, independent review and verification of prices and inputs into the valuations are conducted regularly by Group Finance. In general, market quotes and model parameters used for valuation are verified for accuracy on a daily basis by Group Finance. For financial instruments where input parameters are set by the trading units, review and verification of valuations, market quotes and model inputs are performed by Group Finance on a regular basis and amendments are made if necessary.
Valuation methodology
Swedbank uses various methods to determine the fair value of financial instruments depending on the degree of observable quotes and activity in the market. The fair value of financial instruments is derived directly from observable market quotes wherever possible. For instruments where directly observable market quotes are unavailable, valuation models are used to determine fair value. In accordance with IFRS 13, Swedbank classifies all assets and liabilities measured at fair value according to the fair value hierarchy, see G46 of the Annual Report 2019. The classification is carried out by Group Finance. Swedbank uses standard methods and models for valuation of financial instruments, see G46 of the Annual Report 2019 for details.
Swedbank's credit portfolio is concentrated to stable low-risk segments such as private mortgage and real estate companies in the four home markets. Conservative lending standards and close dialogue with customers are keys to a sustainable high quality in the credit portfolio.
Credit risk
The risk that a borrower will fail to meet its contractual obligations to Swedbank and the risk that pledged collateral will not cover the claim.
Credit risk also includes concentration risk, which means large individual exposures as well as significant exposures to groups of counterparties whose probability of default is driven by common underlying factors, such as sector, economy, geographical location, or type of instrument.
Counterparty credit risk is the risk that a counterparty to a trading transaction will not meet its financial obligations towards Swedbank and that collateral held will not be enough to cover the claims. This definition encompasses repurchase agreements, derivatives and securities financing transactions.
Developments in credit risk in 2019
Swedbank's credit quality remained solid in 2019. The credit impairment ratio increased to 0.09% (0.03%), mainly due to provisions for a few oil-related exposures, in sectors Shipping and offshore and Manufacturing. The loss levels in the rest of the credit portfolio remained low.
Swedbank's credit risk exposure (EAD) increased to SEK 2 353bn (SEK 2 235bn), of which increased placements in central banks explained SEK 68bn. The increase in corporate exposures (SEK 17bn) was mainly explained by growth in property management in Sweden and growth in several sectors in Baltic Banking. The increase in retail exposures (SEK 25bn) was mainly driven by increased mortgage lending in Sweden. The Baltic portfolio exposures grew by SEK 16bn in 2019, mainly in private mortgage, but also in several corporate sectors.
Swedbank's loan portfolio is concentrated to segments where forthcoming risks are predicted to stay low. The largest portfolios, private mortgage and property management, are commented on the following page.
Swedbank's oil-related exposure is small and the ongoing restructuring and reduction of the portfolio continued in 2019. Investments in the sector have begun to recover, but there is still surplus capacity in some segments. These segments performed more poorly than expected in 2019 and are still over-leveraged despite previous reconstructions, which led to additional provisions.
The agricultural sector which was adversely affected by the summer drought in 2018 has now recovered after more favourable summer weather and good harvests in 2019, Swedbank's credit impairments in the agricultural portfolio remains on a low level.
The Swedish housing market recovered in 2019, with transactions at normal levels and prices almost back at the level of 2017, supported by high demand, lower inflow of new supply and low interest rates. The weaker housing construction market however continued, due to decreased demand for new tenant-owner rights and reduced willingness to sign purchase agreements during the construction phase. Swedbank's credit exposure to housing developers is limited and lending is primarily to large, established companies with which Swedbank has long-term relationships.
The focus on climate related risks increased both in the society and in Swedbank during 2019. To understand climate change and associated risks is central for financial stability but also to take advantage of the business opportunities arising during the transition phase. Within the credit risk area, several actions were carried out during 2019. To identify Swedbank's exposure to climate risks in the lending portfolio a review of sectors with increased risks according to the TCFD recommendations was performed and disclosed in the annual report. A pilot project with climate-related scenario analysis was carried out during 2019 for the energy sector and will be followed in 2020 by scenario analysis for other sectors where risks from climate change are material. In the yearly forwardlooking credit risk analysis, the climate perspective was enhanced and transition as well as physical risks were identified in different sectors. The sustainability risk assessment for large corporate lending was updated, climate risk is a core component and an action plan should always be developed for customers considered high risk.
Private mortgages
Private mortgage loans constitute Swedbank's largest loan segment. Exposures (EAD) amounted to SEK 906bn at the end of the year, 38% of Swedbank's total credit exposures. However, from a balance sheet perspective the private mortgage loans constituted 56% of Swedbank's total loan portfolio, distributed with 90% in Sweden and 10% in the Baltic countries. In Sweden the diversification in terms of number of customers and geographical distribution is high. In the Baltic countries the capital regions dominate. Swedbank's market share in private mortgage lending is 24% in Sweden and 46-50% in the three Baltic countries.
The portfolio is of high quality with low historical losses and sound LTV ratios (volume weighted average 55% in Sweden, 47% in Estonia, 75% in Latvia and 60% in Lithuania). Lending is based on the borrower's repayment capacity, including the ability to manage a significantly increased interest rate and still afford relevant amortisation, fees and other costs of living. The lending criteria is continuously reviewed and updated. The mortgage portfolio undergoes regular stress tests which have proven the low risk profile with robust solvency among customers and an average LTV ratio supporting a resilient portfolio with low credit impairments.
The 2019 portfolio growth in Sweden was 2%, which was lower than market growth (5%), explained by increased competition and Swedbank's strict lending criteria and lowrisk focus. The annual growth in the Baltic countries was 10% (in local currencies), driven by rising wages, low interest rates and increased housing prices.
The recovery of the Swedish housing market continued in 2019, with transactions at normal levels and prices almost back at the top level of 2017, supported by high demand and low interest. rates. The reduction in new housing production after the price drop in 2017, has contributed to increased demand in the existing stock. In the Baltic markets supply and demand are in balance.
Figure 3.1: LTV distribution
Property management
The property management portfolio constitutes the second largest risk concentration in Swedbank and amounted to SEK 307bn (EAD) and 13% of the total exposures at the end of the year. The major part of the lending portfolio, 82%, is in Sweden, while 9% in the Baltic countries and 9% in other Nordic countries than Sweden. The geographic distribution within Sweden is good, while the Baltic portfolio is concentrated to the capital regions.
The portfolio is dominated by low-cyclical segments with low risk, such as residential and community-service properties, and office properties in prime locations in growing regions. The lending to retail properties is limited and represents a small part of the property management portfolio.
The high credit quality is demonstrated by low historical losses and few customers with payment problems. Swedbank's lending is mainly to companies with strong finances and good collateral. The average LTV ratio is low, for example 58% for the portfolio in Sweden. Swedbank's underwriting criteria is focused on the long-term ability to pay stressed interest rates and proper amortisations with a special attention to future cash flow. The low risk is confirmed in internal and external stress tests.
The portfolio grew by 4% in Sweden in 2019, while the growth in the Baltic portfolio was 8% (in local currencies).
The transaction market for commercial real estate in Sweden continued to be strong in 2019, with increased market prices, high sales volume and somewhat declining yield requirements. Office, residential and logistic properties attracted the largest interest and share of transactions, while the interest in retail properties was lower than in recent years. Office market rents increased in the large city areas. The activity in the commercial real estate market in the Baltic countries increased in 2019 along with rising rent levels and lower vacancy rates. Due to decreasing interest rates, exit yields were pushed downwards and prices upwards.
The commercial real estate markets in Sweden and the Baltic countries are expected to perform well in the coming years, with some concern for the retail property market affected by increasing e-commerce. Supply is still low, and demand is high for both rental apartments in Sweden and for modern office premises in good locations in the larger city areas, which will hold back vacancy rates.
The Swedish FSA in December 2019 decided on an additional capital requirement for commercial real estate exposures. This new risk weight floor shall be applied for corporate exposures collateralised by Swedish commercial real estate (35% RW) and Swedish commercial housing properties (25% RW). From 2020 the measure is expected to increase the major Swedish banks' total capital requirement by on average 0.7 percentage points of risk-weighted assets per bank. Swedbank's expected increase is in line with the average.
Portfolio overview
Swedbank's credit portfolio is stable and well diversified with a customer base consisting of a large number of private households and corporates in several different sectors. The focus is on customers in the four home markets and 89% of the exposures are towards customers in Sweden, Estonia, Latvia and Lithuania, whereas 76% is to customers in Sweden. The retail exposure is dominated by private mortgage loans in Sweden, a portfolio of high quality with very low and stable historical losses. The largest corporate sector concentration is Property management in Sweden, which is also a portfolio of high quality and with low historical losses.
Table 3.1: Key parameters by business area, 31 December 2019
| - of | - of | - of | - of which | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Swedish Banking |
Baltic Banking |
which Estonia |
which Latvia |
which Lithuania |
Investment and Other |
LC&I | Group Functions |
Total 2019 |
Total 2018 |
|
| Retail - mortgages | ||||||||||
| Exposure, in SEKm | 983 438 | 86 579 | 37 825 | 15 724 | 33 030 | 12 | 250 1 070 279 | 1 047 939 | ||
| Exposure weighted avg. PD (excl. def.), % | 0.21 | 1.78 | 1.58 | 2.83 | 1.51 | 0.17 | 0.22 | 0.34 | 0.35 | |
| Exposure weighted avg. LGD, % | 10.3 | 14.7 | 12.9 | 20.5 | 14.0 | 30.1 | 44.0 | 10.7 | 10.6 | |
| Average risk weight, % | 3.3 | 19.6 | 15.9 | 35.0 | 16.6 | 7.6 | 2.7 | 4.6 | 4.7 | |
| Retail - other | ||||||||||
| Exposure, in SEKm | 83 741 | 29 552 | 13 218 | 7 800 | 8 534 | 846 | 21 | 114 160 | 117 069 | |
| Exposure weighted avg. PD (excl. def.), % | 0.95 | 3.20 | 2.73 | 4.47 | 2.78 | 0.73 | 2.77 | 1.54 | 1.54 | |
| Exposure weighted avg. LGD, % | 31.5 | 34.8 | 29.2 | 42.2 | 36.7 | 45.7 | 22.9 | 32.4 | 32.6 | |
| Average risk weight, % | 20.2 | 37.2 | 28.5 | 51.9 | 37.2 | 17.3 | 27.5 | 24.6 | 24.5 | |
| Corporate - Advanced IRB | ||||||||||
| Exposure, in SEKm | 163 600 | 293 690 | 93 | 457 383 | 445 689 | |||||
| Exposure weighted avg. PD (excl. def.), % | 1.06 | 0.48 | 0.04 | 0.69 | 0.79 | |||||
| Exposure weighted avg. LGD, % | 16.8 | 20.1 | 24.8 | 19.0 | 19.3 | |||||
| Average risk weight, % | 28.5 | 24.1 | 4.7 | 25.6 | 27.8 | |||||
| Corporate - Foundation IRB | ||||||||||
| Exposure, in SEKm | 5 017 | 68 945 | 31 807 | 14 819 | 22 319 | 11 341 | 785 | 86 088 | 86 138 | |
| Exposure weighted avg. PD (excl. def.), % | 1.04 | 1.26 | 1.10 | 2.09 | 0.92 | 0.42 | 0.44 | 1.13 | 0.98 | |
| Exposure weighted avg. LGD, % | 40.8 | 44.6 | 44.6 | 44.6 | 44.4 | 45.0 | 44.9 | 44.4 | 43.8 | |
| Average risk weight, % | 54.6 | 60.6 | 54.0 | 72.6 | 61.9 | 55.9 | 64.5 | 59.6 | 57.7 | |
| Corporate - specialised lending | ||||||||||
| Exposure, in SEKm | 609 | 331 | 174 | 104 | 609 | 739 | ||||
| Average risk weight, % | 118.3 | 140.1 | 103.9 | 73.1 | 118.3 | 116.1 | ||||
| Sovereigns | ||||||||||
| Exposure, in SEKm | 20 478 | 3 408 | 1 441 | 1 292 | 675 | 25 532 | 312 962 | 362 380 | 296 418 | |
| Exposure weighted avg. PD (excl. def.), % | 0.00 | 0.02 | 0.01 | 0.03 | 0.01 | 0.01 | 0.00 | 0.00 | 0.00 | |
| Exposure weighted avg. LGD, % | 45.0 | 44.8 | 45.0 | 44.4 | 45.0 | 44.8 | 45.0 | 45 | 45 | |
| Average risk weight, % | 3.7 | 9.0 | 4.1 | 14.7 | 8.4 | 2.7 | 1.0 | 1.4 | 1.6 | |
| Institutions | ||||||||||
| Exposure, in SEKm | 6 430 | 546 | 176 | 135 | 235 | 22 856 | 23 634 | 53 466 | 49 183 | |
| Exposure weighted avg. PD (excl. def.), % | 0.07 | 0.08 | 0.07 | 0.07 | 0.09 | 0.06 | 0.03 | 0.05 | 0.06 | |
| Exposure weighted avg. LGD, % | 45.0 | 45.0 | 45.0 | 45.0 | 45.0 | 45.0 | 14.0 | 31.3 | 32.2 | |
| Average risk weight, % | 24.4 | 31.4 | 28.9 | 31.3 | 33.3 | 28.0 | 7.2 | 18.4 | 19.5 | |
| Other IRB exposure classes | ||||||||||
| Exposure, in SEKm | 1 479 | 6 502 | 2 282 | 1 870 | 2 350 | 515 | 4 085 | 12 581 | 8 508 | |
| Average risk weight, % | 92.5 | 37.7 | 35.1 | 48.9 | 31.3 | 86.6 | 94.4 | 64.6 | 56.5 | |
| Total IRB approach | ||||||||||
| Exposure, in SEKm | 1 264 184 | 196 140 | 87 079 | 41 814 | 67 247 | 354 792 | 341 830 2 156 946 | 2 051 683 | ||
| Exposure weighted avg. PD (excl. def.), % | 0.37 | 1.77 | 1.55 | 2.77 | 1.46 | 0.42 | 0.01 | 0.44 | 0.48 | |
| Exposure weighted avg. LGD, % | 13.4 | 29.4 | 28.0 | 34.6 | 28.0 | 24.4 | 42.8 | 21.3 | 20.7 | |
| Average risk weight, % | 8.1 | 37.4 | 32.5 | 51.7 | 34.9 | 23.9 | 2.7 | 12.5 | 13.2 | |
| Standardised approach | ||||||||||
| Exposure, in SEKm | 30 311 | 11 584 | 6 083 | 1 114 | 3 835 | 552 | 30 373 | 7 243 | 79 511 | 64 111 |
| Average risk weight, % | 102.3 | 56.4 | 42.1 | 40.7 | 55.7 | 250.0 | 16.1 | 37.8 | 56.8 | 64.9 |
| Total exposures | ||||||||||
| Exposure, in SEKm | 1 294 495 | 207 724 | 93 162 | 42 928 | 71 082 | 552 | 385 165 | 349 073 2 236 457 | 2 115 794 | |
| Average risk weight, % | 10.3 | 38.5 | 33.1 | 51.5 | 36.0 | 250.0 | 23.3 | 3.5 | 14.1 | 14.8 |
Note: Average risk weights and capital requirements is presented for Pillar 1. The risk weight floor of 25 percent for the Swedish mortgage portfolio has been moved from Pillar 2 to Pillar 1. The figures above are presented without the risk weight floor of 25 per cent.
Management of credit risk
Credit risk governance
In the Policy on Enterprise Risk Management, the Board of Directors has established a risk management and control process (see Chapter 1 for further information on Risk governance). In the credit area this details as follows;
The business units are responsible for the operational credit management of their customers and own all credit risks that arise within their area of operation. The head of each unit is fully responsible for the credit operation, including application of the credit process as well as the credit risks stemming from all borrowers within the unit. The head of the unit shall ensure that all credits are assessed, decided, administrated, and followed-up in accordance with the credit framework, including establishing an integrated internal control of high quality in the credit process. The head of each business unit shall also make sure that the credit transactions are in line with Swedbank's strategies, policies, and instructions. The business unit is furthermore accountable for the profitability connected to the credit decision.
The Group Credit organisation is responsible for the credit risk governance and guidance. Group Credit sets the framework for credit governance principles as well as for the qualitative standards in the credit process. It contributes with credit risk management competence through the credit process by guidance and support. As part of credit risk governance, decision-makers representing Group Credit take part in upper credit decision-making bodies in order to ensure that risk considerations are taken into account appropriately, but also to contribute with credit business knowledge and experience. The responsibility for the credit decisions remains, however, with the business unit.
The Group Risk organisation is responsible for independent monitoring and control of credit risk management. Group Risk has also the primary responsibility to maintain, develop and monitor the risk limits and the risk classification systems. The risk limit framework identifies areas where restrictions need to be set, in order to make sure that the credit portfolio will stay within the decided risk appetite.
Group Risk also performs independent controls of the operations carried out by the business units including verification that internal rules and processes are complied with in the credit process.
The Internal Audit function performs independent periodic reviews of the credit governance and the system of internal control.
To safeguard that business operations conform to the risk appetite, decided by the Board of Directors, and that Swedbank maintains a well-diversified credit portfolio with a low-risk profile, the CEO, CRO and Chief Credit Officer issue steering documents and limits for the credit portfolio. Risk limits are set for different sectors, geographies and products, but also for borrowers and groups of connected borrowers. As a part of the business strategy each business area develops their credit strategy in line with decided risk appetite, low-risk profile and the various limits and framework set by CEO, CRO or Chief Credit Officer.
Credit risk assessment
When Swedbank considers a credit application, a thorough analysis is performed which includes the counterparty's capacity and willingness to repay the new credit as well as other credits. A borrower's cash flow, solvency, and collateral are always key variables when lending and Swedbank always strives to obtain adequate collateral. Swedbank continuously monitors borrowers and carries out additional periodic credit reviews of corporate customers, financial institutions and sovereigns at least once per year.
Swedbank's credit exposures are risk-classified in accordance with an internal credit risk framework. All counterparties are risk-classified before a credit limit is established, and thereafter at least once every 12 months. A new risk classification is always made if Swedbank receives information indicating that the risk has changed in such a way that the risk grade established is no longer considered relevant.
Duality and segregation of duties in the risk classification process is applied to ensure well-founded decisions. Any risk grade proposed for sovereigns, financial institutions and corporate customers (including segments SME and Large Corporates) is approved individually by a credit decisionmaking body in accordance with the established decision mandates. In addition, on every proposed risk grade for large corporates it is performed a second opinion by Group Credit before the decision is made. Risk classification concerning credits to the retail segment is performed in automated subsystems.
A sustainability risk analysis is carried out in all large and medium-sized corporate lending and covers (i) social responsibility, (ii) ethics, and (iii) environment. The sustainability analysis is an integrated part of the credit analysis. The aim is to assess whether the customers' sustainability approaches are in line with Swedbank's values and how risks related to these areas could affect Swedbank's and its customers' profitability, repayment ability, collateral security value, and reputation.
Credit risk monitoring
The risk profile of the credit portfolio is continuously analysed. For portfolio segments and individual customers where the risk of default appears higher, reviews are performed more frequently.
Each business unit is responsible for monitoring signals and conditions that might suggest that the level of credit risk in individual exposures has increased, e.g. by using information from integrated early warning systems. If a customer's risk profile has deteriorated, a number of corrective measures are considered and implemented. A part of the credit risk management of borrowers with material increased risk is e.g. the watch list process.
Financial Restructuring and Recovery (FR&R) is a special unit within the Group Credit organisation that may support the
business units when the risk associated with a certain exposure has increased. FR&R provides expertise in managing insolvency and restructuring cases. This organisation is built up with knowledge and expertise from previous crises.
A thorough and comprehensive stress test of the entire Group (see Chapter 7 of this report for further information on Groupwide stress tests) which includes the total credit portfolio is conducted at least annually.
Specific stress tests, portfolio analysis or ad-hoc reviews are
also conducted to further evaluate Swedbank's loan portfolio and credit risk. These tests provide additional understanding and information on specific segments or exposure types that may be perceived as having a high or increased risk or a high potential impact on Swedbank. By identifying increased risk levels at an early stage, swift and appropriate actions can be taken for relevant exposures or segments of exposures. Credit portfolio trends and findings from stress tests constitute an important part of the monthly risk reports that are presented to Swedbank's senior management and Board of Directors.
Credit risk exposures
Table 3.2: Total and average net amount of exposures (EU CRB-B), 31 December 2019
| Average net | ||
|---|---|---|
| Net exposure at the | exposure over | |
| SEKm | end of the period | the period |
| Central governments or central banks | 358 947 | 387 343 |
| Institutions | 38 652 | 38 948 |
| Corporates | 643 325 | 642 113 |
| - of which Specialised Lending | 673 | 713 |
| - of which SME | 182 812 | 186 183 |
| Retail | 1 225 426 | 1 226 653 |
| - Secured by real estate property | 1 071 718 | 1 067 484 |
| ---SME | 103 321 | 104 944 |
| ---Non-SME | 968 397 | 962 540 |
| - Qualifying Revolving | ||
| - Other Retail | 153 708 | 159 169 |
| --- SME | 41 896 | 43 359 |
| --- Non-SME | 111 812 | 115 810 |
| Equity | ||
| Other exposures | 12 581 | 12 788 |
| Total IRB approach | 2 278 931 | 2 307 845 |
| Central governments or central banks | 64 | 471 |
| Regional governments or local authorities | 2 626 | 2 538 |
| Public sector entities | 1 926 | 1 957 |
| Multilateral Development Banks | 1 395 | 1 792 |
| International Organisations | 239 | |
| Institutions | 491 | 244 |
| Corporates | 5 660 | 5 928 |
| - of which SME | 1 902 | 1 747 |
| Retail | 41 874 | 41 612 |
| - of which SME | 5 159 | 5 128 |
| Secured by mortgages on immovable property | 6 608 | 6 313 |
| - of which SME | 3 | 2 |
| Exposures in default | 736 | 687 |
| Items associated with particularly high risk | ||
| Covered bonds | 564 | 327 |
| Claims on institutions and corporates with a short-term credit assessment | ||
| Collective investments undertakings (CIU) | 6 | 7 |
| Equity exposures | 9 237 | 8 817 |
| Other exposures | 3 230 | 3 611 |
| Total SA approach | 74 417 | 74 543 |
| Total | 2 353 348 | 2 382 388 |
In 2019, Swedbank's total exposure increased by SEK 118bn. The main drivers of the change were increased placements in central banks by SEK 68bn. Retail exposures rose by SEK 25bn, driven by mortgage loans in Sweden and the Baltic countries. Corporate exposures increased by SEK 17bn, driven by growth in property management in Sweden and several sectors in the Baltic countries.
Net exposures as of 31 December 2019 were SEK 29bn lower than the annual average due to lower balances with central governments and central banks at the year end.
Table 3.3: Geographical breakdown of exposures (EU CRB-C), 31 December 2019
| Net carrying values | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Significant area: |
Significant area: |
Rest of | Other geographical |
||||||||||
| SEKm | Nordic | Sweden | Norway | Denmark | Finland | Baltic | Estonia | Latvia | Lithuania | the world | USA | areas | Total |
| Central governments or central banks | 250 026 | 183 533 | 139 | 87 | 66 267 | 88 895 | 23 832 | 21 614 | 43 449 | 20 026 | 19 945 | 81 | 358 947 |
| Institutions | 31 288 | 29 191 | 431 | 530 | 1 136 | 16 | 0 | 0 | 16 | 7 348 | 1 736 | 5 612 | 38 652 |
| Corporates | 521 627 | 428 704 | 50 580 | 4 491 | 37 852 | 77 117 | 35 514 | 17 060 | 24 543 | 44 581 | 8 681 | 35 900 | 643 325 |
| Retail | 1 104 044 | 1 103 080 | 473 | 300 | 191 | 120 658 | 53 026 | 24 506 | 43 126 | 724 | 48 | 676 | 1 225 426 |
| Equity | |||||||||||||
| Other exposures | 5 983 | 5 981 | 0 | 2 | 6 498 | 2 278 | 1 870 | 2 350 | 100 | 70 | 30 | 12 581 | |
| Total IRB approach | 1 912 968 1 750 489 | 51 623 | 5 408 | 105 448 | 293 184 | 114 650 | 65 050 | 113 484 | 72 779 | 30 480 | 42 299 2 278 931 | ||
| Central governments or central banks | 58 | 2 | 56 | 6 | 6 | 64 | |||||||
| Regional governments or local authorities | 711 | 567 | 144 | 1 915 | 1 854 | 24 | 37 | 2 626 | |||||
| Public sector entities | 1 074 | 31 | 1 043 | 246 | 192 | 54 | 606 | 606 | 1 926 | ||||
| Multilateral Development Banks | 1 395 | 1 395 | 1 395 | ||||||||||
| International Organisations | |||||||||||||
| Institutions | 440 | 298 | 0 | 142 | 0 | 1 | 0 | 0 | 1 | 50 | 50 | 491 | |
| Corporates | 3 503 | 1 874 | 93 | 1 187 | 349 | 1 924 | 917 | 122 | 885 | 233 | 13 | 220 | 5 660 |
| Retail | 37 995 | 24 780 | 10 063 | 3 152 | 3 732 | 3 053 | 365 | 314 | 147 | 0 | 147 | 41 874 | |
| Secured by mortgages on immovable property | 2 235 | 5 | 3 | 2 227 | 0 | 2 954 | 528 | 2 426 | 1 419 | 2 | 1 417 | 6 608 | |
| Exposures in default | 665 | 305 | 339 | 21 | 0 | 68 | 0 | 12 | 56 | 3 | 3 | 736 | |
| Items associated with particularly high risk | |||||||||||||
| Covered bonds | 564 | 564 | 564 | ||||||||||
| Claims on institutions and corporates with a short-term credit assessment | |||||||||||||
| Collective investments undertakings (CIU) | 6 | 6 | 6 | ||||||||||
| Equity exposures | 6 924 | 6 251 | 93 | 580 | 684 | 678 | 3 | 3 | 1 629 | 1 288 | 341 | 9 237 | |
| Other exposures | 1 687 | 1 572 | 81 | 11 | 23 | 1 543 | 1 215 | 7 | 321 | 3 230 | |||
| Total SA approach | 55 856 | 36 249 | 10 816 | 6 796 | 1 995 | 13 067 | 7 717 | 1 253 | 4 097 | 5 494 | 1 303 | 4 191 | 74 417 |
| Total | 1 968 824 1 786 738 | 62 439 | 12 204 | 107 443 | 306 251 | 122 367 | 66 303 | 117 581 | 78 273 | 31 783 | 46 490 2 353 348 |
The significant countries disclosed are Swedbank's four home markets Sweden, Estonia, Latvia, and Lithuania; Sweden's neighbouring countries Norway, Denmark and Finland in the Nordic region; and the US, where Swedbank has an international branch. The Other column includes 90 countries, most of them with small exposures and all of them with exposures less than 0.5% of Swedbank's total exposure.
The largest exposure changes in 2019 were in the Nordic countries, with increases of SEK 87bn in Sweden and SEK 24bn in Finland, mainly driven by increased central bank placements. The increased exposure in the Baltic countries by SEK 21bn, is explained by growth in lending to both private individuals and corporates, but partly also by the depreciation of the Swedish krona compared to the euro. In the US, exposures to the central bank decreased.
| SEKm | Private mortgage | wner associations Tenant o |
Private other | Agriculture, forestry, fishing | Manufacturing | Public sector and utilities | Construction | Retail | Transportation | Shipping and offshore | Hotels and restaurants | munication Information and com |
Finance and insurance | Property management | Residential properties | properties Commercial |
warehouse Industrial and |
Other property management | Professional services | Other corporate lending | Credit institutions, incl Central banks |
Other exposures | Total |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Central governments or | 0 | 0 | 0 | 0 | 32 808 | 0 | 0 | 0 | 0 | 0 | 0 | 2 199 | 459 | 0 | 0 | 0 | 459 | 0 | 0 | 323 314 | 167 | 358 947 | |
| central banks | |||||||||||||||||||||||
| Institutions Corporates |
- 723 |
0 8 406 |
0 493 |
0 12 775 |
0 87 117 |
0 36 989 |
0 24 693 |
0 43 586 |
0 15 836 |
0 21 954 |
0 8 875 |
0 17 936 |
300 33 681 |
0 282 232 |
0 76 658 |
0 124 856 |
0 52 314 |
0 28 404 |
0 29 262 |
0 14 611 |
38 352 3 631 |
- 525 |
38 652 643 325 |
| Retail | 898 292 | 93 696 | 110 540 | 56 165 | 5 815 | 2 183 | 9 750 | 9 544 | 3 572 | 33 | 2 092 | 1 273 | 1 114 | 19 679 | 9 803 | 3 676 | 1 544 | 4 656 | 7 089 | 4 589 | - | - | 1 225 426 |
| Equity | - | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Other exposures | - | 2 835 | 918 | 42 | 104 | 63 | 156 | 230 | 83 | 0 | 21 | 42 | 10 | 41 | 0 | 10 | 0 | 31 | 188 | 3 059 | - | 4789 | 12 581 |
| Total IRB approach | 899 015 104 937 111 951 | 68 982 | 93 036 | 72 043 34599 | 53 360 | 19 491 | 21 987 | 10 988 | 19 251 | 37 304 302 411 | 86 461 128 542 | 53 858 | 33 550 | 36 539 | 22 259 | 365 297 | 5 481 | 2 278 931 | |||||
| Central governments or central banks |
- | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 6 | 58 | 64 |
| Regional governments or local authorities |
- | 0 | 0 | 0 | 0 | 2 571 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 10 | 0 | 0 | 0 | 10 | 0 | 0 | - | 45 | 2 626 |
| Public sector entities | - | 0 | 0 | 0 | 0 | 208 | 0 | 0 | 73 | 0 | 0 | 0 | 438 | 0 | 0 | 0 | 0 | 0 | 1 | 1 039 | 167 | - | 1 926 |
| Multilateral development banks |
- | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1 395 | - | 1 395 |
| International organisations |
- | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Institutions | - | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 491 | - | 491 |
| Corporates | - | 0 | 0 | 45 | 514 | 9 | 129 | 903 | 37 | 0 | 4 | 77 | 2 272 | 767 | 301 | 198 | 216 | 52 | 122 | 118 | - | 663 | 5 660 |
| Retail | 98 | 0 | 38 176 | 13 | 116 | 47 | 24 | 109 | 6 | 0 | 0 | 12 | 0 | 3 110 | 136 | 11 | 0 | 2 963 | 141 | 22 | - | - | 41 874 |
| Secured by mortgages on immovable property |
6 607 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | - | - | 6 608 |
| Exposures in default | 66 | 0 | 670 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | - | - | 736 |
| Items associated with particularly high risk |
- | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Covered bonds | - | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 564 | - | 564 |
| Claims on institutions and corporates with a short term credit assessment |
- | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | - | - | - |
| Collective investments undertakings (CIU) |
- | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 6 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | - | - | 6 |
| Equity exposures | - | 0 | 0 | 0 | 0 | 3 | 0 | 0 | 0 | 0 | 0 | 0 | 8 820 | 175 | 0 | 0 | 0 | 175 | 0 | 180 | 59 | - | 9 237 |
| Other exposures | - | 0 | 0 | 0 | 0 | 10 | 0 | 0 | 0 | 0 | 0 | 0 | 709 | 279 | 0 | 0 | 0 | 279 | 0 | 337 | - | 1 895 | 3 230 |
| Total SA approach | 6 771 | 0 | 38 846 | 58 | 630 | 2 848 | 153 | 1 012 | 116 | 0 | 4 | 89 | 12 246 | 4 341 | 437 | 209 | 216 | 3 479 | 264 | 1 696 | 2 682 | 2 661 | 74 417 |
| Total | 905 786 104 937 150 797 | 69 040 | 93 666 | 74 891 | 34 752 | 54 372 | 19 607 | 21 987 | 10 992 | 19 340 | 49 550 306 752 | 86 898 128 751 | 54 074 | 37 029 | 36 803 | 23 955 | 367 979 | 8 142 | 2353348 |
Table 3.4: Concentration of exposures by industry or counterparty type (EU CRB-D), 31 December 2019
Private mortgage lending continued to increase during 2019, rising by SEK 28bn of which SEK 19bn in Sweden. In the corporate portfolio the growth was mainly in Property management, increasing by SEK 16bn and Public sector and utilities, increasing by SEK 8bn, while the largest declines were in sectors Finance and insurance, SEK 7bn, and Shipping and offshore, SEK 5bn. Increased placements in central banks increased exposures to Credit institutions by SEK 68bn.
| Private mortgage | wner | Private other | Agriculture, forestry, | Manufacturing | Public sector and | Construction | Transportation | Shipping and offshore | Hotels and restaurants | Information and munication |
Finance and insurance | Property management | Residential properties | Commercial properties | Industrial and | Other property | Professional services | Other corporate | Credit institutions, incl central banks |
|||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| associations Tenant o |
fishing | utilities | Retail | com | warehouse | management | lending | Total | ||||||||||||||
| Exposure (SEKm) | ||||||||||||||||||||||
| Swedish Banking | 813 463 101 573 53 942 61 760 12 853 20 181 15 742 14 795 | 5 969 | 87 | 4 508 | 1 880 | 4 094 120 784 57 030 | 31 255 19 625 12 874 13 474 11 676 | 7 403 1 264 184 | ||||||||||||||
| Baltic Banking | 85 184 | 0 18 026 | 5 365 13 026 | 8 280 | 2 914 10 079 | 7 356 | 0 | 4 359 | 1 729 | 636 | 23 649 | 65 | 16 662 | 3 272 | 3 650 | 4 001 | 476 | 10 452 | 195 532 | |||
| of which Estonia of which Latvia |
36 900 15 582 |
0 0 |
7 736 4 434 |
2 737 2 134 |
5 897 2 509 |
3 387 1 506 |
1 647 642 |
2 977 2 187 |
3 600 1 730 |
0 0 |
2 022 1 287 |
242 455 |
597 14 |
12 671 4 792 |
44 9 |
7 760 3 697 |
1 968 785 |
2 899 302 |
2 341 1 007 |
94 61 |
3 899 3 297 |
86 749 41 640 |
| of which Lithuania | 32 701 | 0 | 5 856 | 493 | 4 620 | 3 386 | 626 | 4 914 | 2 025 | 0 | 1 050 | 1 032 | 24 | 6 186 | 12 | 5 205 | 519 | 449 | 654 | 321 | 3 256 | 67 144 |
| Large Cororates & Inst. | 0 | 2 011 | 35 | 1 000 40 459 19 763 | 8 316 19 051 | 4 071 23 786 | 2 184 11 941 18 978 139 243 28 085 | 67 587 28 247 15 323 12 738 15 434 | 35 782 | 354 792 | ||||||||||||
| Group Functions | 250 | 4 041 | 5 | 5 | 21 | 2 969 | 3 | 51 | 79 | 0 | 1 | 0 | 2 825 | 47 | 0 | 35 | 8 | 4 | 6 | 4 331 521 | 341 830 | |
| Total | 898 897 107 624 72 008 68 131 66 360 51 192 26 975 43 976 17 475 23 873 11 053 15 550 26 534 283 723 85 181 115 539 51 152 31 851 30 219 27 591 385 159 2 156 338 | |||||||||||||||||||||
| Average PD (%) | ||||||||||||||||||||||
| Swedish Banking | 0.16 | 0.22 | 0.33 | 0.86 | 1.44 | 0.28 | 1.65 | 1.47 | 1.36 | 1.56 | 1.97 | 1.33 | 0.92 | 0.90 | 0.76 | 0.96 | 1.07 | 1.06 | 1.43 | 1.48 | 0.18 | 0.37 |
| Baltic Banking | 1.73 | - | 2.19 | 3.78 | 1.79 | 0.67 | 3.85 | 2.53 | 1.60 | - | 2.45 | 1.43 | 0.92 | 0.84 | 5.66 | 0.56 | 0.54 | 2.31 | 3.37 | 2.57 | 0.01 | 1.70 |
| of which Estonia | 1.51 | - | 1.72 | 2.88 | 1.85 | 1.00 | 3.65 | 2.12 | 1.27 | - | 0.82 | 3.27 | 0.84 | 0.78 | 6.16 | 0.39 | 0.41 | 2.00 | 3.68 | 3.33 | 0.01 | 1.50 |
| of which Latvia | 2.77 | - | 3.31 | 4.66 | 2.71 | 0.82 | 3.96 | 4.28 | 2.34 | - | 5.99 | 1.36 | 2.90 | 1.31 | 10.41 | 1.02 | 0.71 | 6.11 | 2.81 | 3.70 | 0.01 | 2.63 |
| of which Lithuania | 1.48 | - | 1.98 | 4.96 | 1.22 | 0.27 | 4.25 | 2.00 | 1.55 | - | 1.27 | 1.03 | 1.82 | 0.60 | 0.35 | 0.48 | 0.82 | 1.80 | 3.15 | 2.14 | 0.01 | 1.40 |
| Large Cororates & Inst. | - | 0.51 | 0.10 | 0.23 | 0.32 | 0.16 | 1.32 | 1.08 | 0.30 | 1.12 | 0.21 | 0.50 | 0.17 | 0.34 | 0.32 | 0.29 | 0.37 | 0.48 | 0.39 | 0.12 | 0.08 | 0.40 |
| Group Functions | 0.22 | 0.00 | 0.48 | 1.50 | 0.98 | 0.00 | 1.20 | 0.35 | 0.03 | - | 0.42 | - | 0.10 | 0.72 | - | 0.59 | 0.23 | 3.03 | 6.65 | 0.00 | 0.00 | 0.01 |
| Total | 0.31 | 0.22 | 0.79 | 1.08 | 0.82 | 0.28 | 1.78 | 1.54 | 1.21 | 1.12 | 1.81 | 0.70 | 0.30 | 0.62 | 0.62 | 0.51 | 0.65 | 0.92 | 1.25 | 0.74 | 0.02 | 0.44 |
| Average risk weight (%) | ||||||||||||||||||||||
| Swedish Banking | 2.18 | 8.84 | 12.45 | 13.68 | 41.49 | 11.29 | 36.20 | 41.85 | 33.03 | 42.57 | 38.97 | 37.29 | 31.26 | 19.58 | 19.36 | 20.49 | 17.00 | 22.26 | 35.46 | 40.15 | 24.02 | 8.07 |
| Baltic Banking | 19.30 | - | 40.46 | 69.20 | 62.33 | 35.97 | 70.13 | 67.83 | 48.14 | - | 61.92 | 65.14 | 68.18 | 48.99 | 32.90 | 48.07 | 47.65 | 54.67 | 68.70 | 50.07 | 27.97 | 37.19 |
| of which Estonia | 15.18 | - | 30.21 | 58.27 | 55.24 | 40.75 | 66.31 | 49.66 | 37.14 | - | 47.41 | 35.87 | 68.57 | 43.98 | 36.60 | 41.51 | 41.51 | 52.37 | 76.49 | 47.75 | 23.37 | 32.11 |
| of which Latvia | 34.85 | - | 62.75 | 77.27 | 75.23 | 37.76 | 68.01 | 83.75 | 59.35 | - | 84.29 | 38.64 | 75.68 | 58.58 | 52.28 | 57.44 | 58.96 | 71.80 | 56.85 | 72.46 | 34.78 | 51.53 |
| of which Lithuania | 16.55 | - | 37.13 | 94.93 | 64.37 | 30.38 | 82.38 | 71.74 | 58.10 | - | 62.45 | 83.71 | 54.00 | 51.82 | 5.37 | 51.19 | 53.86 | 57.98 | 59.05 | 46.46 | 26.59 | 34.87 |
| Large Cororates & Inst. | - | 50.75 | 20.65 | 27.61 | 29.10 | 20.04 | 41.33 | 42.20 | 30.55 | 38.91 | 31.29 | 42.97 | 24.26 | 14.92 | 15.80 | 13.40 | 16.95 | 16.26 | 39.08 | 12.27 | 21.19 | 23.86 |
| Group Functions Total |
2.73 3.80 |
92.05 12.75 |
7.20 19.47 |
71.33 | 51.08 18.26 38.03 |
18.48 | 8.27 104.23 41.45 |
41.62 47.96 |
5.13 38.68 |
- | 55.98 38.93 46.50 |
- 44.75 |
18.41 25.77 |
48.79 19.75 |
- 18.20 |
55.19 20.33 |
37.68 18.94 |
13.01 23.09 |
62.75 100.00 41.39 24.73 |
1.44 4.43 |
2.74 12.46 |
Table 3.5: Exposure, exposure-weighted average PD and average risk weight by industry and business area, IRB approach, 31 December 2019
Table 3.6: Maturity1) of exposures (EU CRB-E), 31 December 2019
| On demand | <= 1 year | > 1 year <= 5 years |
> 5 years | No stated maturity |
Total |
|---|---|---|---|---|---|
| 97 720 | 229 032 | 3 981 | 970 | 2 198 | 333 901 |
| 7 614 | 8 190 | 13 463 | 4 | 256 | 29 527 |
| 15 475 | 166 924 | 93 166 | 72 993 | 92 367 | 440 925 |
| 4 900 | 42 213 | 30 194 | 1 067 580 | 165 | 1 145 052 |
| 10 | 12 567 | 12 577 | |||
| 125 709 | 446 369 | 140 804 | 1 141 547 | 107 553 | 1 961 982 |
| 2 | 56 | 6 | 64 | ||
| 2 475 | |||||
| 831 | |||||
| 1 306 | |||||
| 455 | 0 | 1 | 19 | 475 | |
| 577 | 150 | 800 | 391 | 0 | 1 918 |
| 273 | 8 978 | 7 444 | 2 986 | 19 681 | |
| 1 334 | 43 | 121 | 4 220 | 5 718 | |
| 24 | 24 | 43 | 645 | 736 | |
| 565 | 565 | ||||
| 6 | 6 | ||||
| 9 237 | |||||
| 3 230 46 242 |
|||||
| 2 008 224 | |||||
| 282 2 921 128 630 |
64 225 437 1 768 11 697 458 066 |
1 186 606 869 11 672 152 476 |
Net exposure value 1 201 59 8 900 1 150 447 |
24 9 178 1 180 11 052 118 605 |
1) Maturity is the remaining contractual maturity as of 31 December 2019.
The maturity structure is largely the same as of December 2018.
Credit quality of exposures
Past due loans
Past-due loans refer to overdrawn accounts and loans where amounts due for payment have not been paid in accordance with the terms of the loan agreements.
Credit impaired loans
Impaired loans are loans for which it is unlikely that the payments will be received in accordance with the contractual terms and where there is a risk that Swedbank will not receive full payment. A loan is considered credit-impaired when there is objective proof that an event has occurred on an individual level following the first reporting date of the loan, and that a risk of loss arises when the loan's anticipated future cash flows differ from the contractual cash flows. A loan in default is also always considered as an impaired loan, and vice versa.
Events on an individual level arise, implying an impairment test, e.g., when:
- A borrower incurs significant financial difficulties.
- It is likely that the borrower will enter into bankruptcy, liquidation or financial restructuring.
- Or there is a breach of contract, such as materially delayed or non–payment of interest or principal.
Exposures that are overdue by more than 90 days, or exposures where the terms have changed in a significant manner due to the borrower's financial difficulties, are considered as credit-impaired and as being in default. Impaired loans are moved to stage 3 according to the accounting framework IFRS 9. The provisioning level in stage 3 can either be assessed automatically by systems implemented by the bank or through individual assessment and decisions from authorised credit committee according to the bank's established principles.
Provisions
All loans, performing as well as non-performing, will carry a loss allowance (provision). It is not necessary for a loss event to occur before an impairment loss is recognised. This can also be described as the expected credit loss approach, i.e. all exposures in the Group's accounts will have an expected credit loss recognised directly after their origination, which is in line with the accounting standards IFRS 9.
All loans are subject to stage allocation and will carry a provision based on that allocation at each reporting date. The exposures are allocated to one of three stages:
- Stage 1 Performing exposures where the credit risk has not increased significantly since initial recognition.
- Stage 2 Performing exposures where the risk of default has increased significantly since initial recognition, but the asset is still not classified as credit-impaired.
- Stage 3 Credit-impaired exposures.
Regardless of which stage a loan is allocated to, the provisions will be calculated according to Swedbank's models. For some large exposures in stage 3, the provisioning will be assessed manually by using scenario-based cash flows and then decided by the relevant credit decision-making body.
Forborne loans
Forborne loans refer to loans where the contractual terms have been changed due to the customer's financial difficulties. The purpose of the forbearance measure is to enable the borrower to make full payments again and to avoid foreclosure, or when this is not considered possible, to maximise the repayment of outstanding loans. Changes in contractual terms include various forms of concessions such as amortisation suspensions, reductions in interest rates to below market rate, forgiveness of all or part of the loan, or issuance of new loans to pay overdue amounts.
Depending on when the forbearance measures are done and the severity of the financial difficulties of the borrower, the forborne loan could either be treated as a performing forborne loan or a non-performing forborne loan.
Table 3.7: Credit quality of exposures by exposure classes and instruments (EU CR1-A), 31 December 2019
| Gross carrying values of which |
Credit risk | ||||||
|---|---|---|---|---|---|---|---|
| Defaulted | Non defaulted |
Specific credit risk |
General credit risk |
Accumulated | adjustment charges of the |
||
| SEKm | exposures | exposures | adjustment | adjustment | write-offs | period | Net values |
| Central governments or central banks | 358 948 | 1 | 358 947 | ||||
| Institutions | 38 658 | 6 | 38 652 | ||||
| Corporates | 11 743 | 637 644 | 6 062 | 2 010 | 639 | 643 325 | |
| - of which Specialised Lending | 77 | 613 | 17 | 240 | 673 | ||
| - of which SME | 1 182 | 182 251 | 621 | 591 | 3 | 182 812 | |
| Retail | 2 298 | 1 224 268 | 1 140 | 3 914 | -7 | 1 225 426 | |
| - Secured by real estate property | 1 464 | 1 070 864 | 610 | 2 404 | -46 | 1 071 718 | |
| --- SME | 92 | 103 288 | 59 | 110 | -10 | 103 321 | |
| --- Non-SME | 1 372 | 967 576 | 551 | 2 294 | -36 | 968 397 | |
| - Qualifying revolving | |||||||
| - Other Retail | 834 | 153 404 | 530 | 1 510 | 39 | 153 708 | |
| --- SME | 442 | 41 682 | 229 | 160 | -12 | 41 895 | |
| --- Non-SME | 392 | 111 722 | 301 | 1 350 | 51 | 111 813 | |
| Equity | |||||||
| Other exposures | 12 581 | 12 581 | |||||
| Total IRB approach | 14 041 | 2 272 099 | 7 209 | 5 924 | 632 | 2 278 931 | |
| Central governments or central banks | 64 | 64 | |||||
| Regional governments or local authorities | 2 626 | 2 626 | |||||
| Public sector entities | 1 926 | 1 926 | |||||
| Multilateral development banks | 1 395 | 1 395 | |||||
| International organisations | |||||||
| Institutions | 491 | 491 | |||||
| Corporates: | 5 695 | 35 | 67 | 3 | 5 660 | ||
| - of which SME | 1 901 | 31 | 1 901 | ||||
| Retail | 42 354 | 480 | 3 515 | 21 | 41 874 | ||
| - of which SME | 5 161 | 3 | 6 | 5 158 | |||
| Secured by mortgages on immovable | 6 619 | 11 | 0 | -11 | 6 608 | ||
| - of which SME | 0 | ||||||
| Exposures in default | 1 396 | 660 | 55 | -5 | 736 | ||
| Items associated with particularly high risk | |||||||
| Covered bonds | 564 | 564 | |||||
| Claims on institutions and corporates with a | |||||||
| short- term credit assessment | |||||||
| Collective investments undertakings (CIU) | 6 | 6 | |||||
| Equity exposures | 9 237 | 9 237 | |||||
| Other exposures | 3 230 | 3 230 | |||||
| Total SA approach | 1 396 | 74 207 | 1 186 | 3 637 | 8 | 74 417 | |
| Total | 15 437 | 2 346 306 | 8 395 | 9 561 | 640 | 2 353 348 | |
| - of which Loans | 14 305 | 1 632 109 | 7 796 | 9 561 | 724 | 1 638 618 | |
| - of which Debt Securities | 152 771 | 152 771 | |||||
| - of which Off-balance sheet exposures | 1 132 | 344 590 | 599 | -84 | 345 123 | ||
Total defaulted exposures increased by SEK 1.4bn compared to June 2019, mainly in the corporate exposure class, in which also credit risk adjustment increased by SEK 0.6bn.
Table 3.8: Credit quality of exposures by industry or counterparty type (EU CR1-B), 31 December 2019
| Gross carrying values of which | Specific credit | General credit | Credit risk | ||||
|---|---|---|---|---|---|---|---|
| Defaulted | Non-defaulted | risk | risk | Accumulated | adjustment | ||
| SEKm | exposures | exposures | adjustment | adjustment | write-offs | charges | Net values |
| Private mortgage | 1 338 | 904 935 | 487 | 2 436 | -28 | 905 786 | |
| Tenant owner associations | 136 | 104 825 | 24 | 0 | -15 | 104 937 | |
| Private other | 1 708 | 150 481 | 1 392 | 4 689 | 15 | 150 797 | |
| Agriculture, forestry, fishing | 159 | 69 017 | 136 | 88 | -13 | 69 040 | |
| Manufacturing | 1 208 | 93 461 | 1 003 | 337 | 269 | 93 666 | |
| Public sector and utilities | 32 | 74 906 | 47 | 13 | -2 | 74 891 | |
| Construction | 347 | 34 701 | 296 | 172 | 153 | 34 752 | |
| Retail | 443 | 54 448 | 519 | 544 | -173 | 54 372 | |
| Transportation | 44 | 19 597 | 34 | 211 | -2 | 19 607 | |
| Shipping and offshore | 7 916 | 17 237 | 3 166 | 328 | 583 | 21 987 | |
| Hotels and restaurants | 81 | 10 955 | 44 | 140 | 24 | 10 992 | |
| Information and communication | 17 | 19 413 | 90 | 6 | -129 | 19 340 | |
| Finance and insurance | 13 | 49 569 | 32 | 13 | 0 | 49 550 | |
| Property management | 1 384 | 305 942 | 574 | 379 | 38 | 306 752 | |
| - Residential properties | 154 | 86 930 | 186 | 184 | -4 | 86 898 | |
| - Commercial | 1 044 | 127 946 | 239 | 75 | 4 | 128 751 | |
| - Industrial and Warehouse | 51 | 54 098 | 75 | 22 | 11 | 54 074 | |
| - Other property management | 135 | 36 968 | 74 | 98 | 27 | 37 029 | |
| Professional services | 181 | 36 749 | 127 | 109 | -19 | 36 803 | |
| Other corporate lending | 430 | 23 938 | 413 | 96 | -59 | 23 955 | |
| Credit institutions | 367 990 | 11 | 0 | -2 | 367 979 | ||
| Other exposures | 8 142 | 0 | 0 | 8 142 | |||
| Total | 15 437 | 2 346 306 | 8 395 | 9 561 | 640 | 2 353 348 |
The increase in defaulted exposures compared to June 2019 is mainly driven by increases in sectors Shipping and offshore and Property management. The increase in specific credit risk adjustments is mainly in some larger corporate customers in oil-related segments of sectors Shipping and offshore and Manufacturing.
Table 3.9: Credit quality of exposures by geography (EU CR1-C), 31 December 2019
| Gross carrying values of | |||||||
|---|---|---|---|---|---|---|---|
| Credit risk | |||||||
| Defaulted | Non-defaulted | Specific credit | General credit | Accumulated | adjustment | ||
| SEKm | exposures | exposures | risk adjustment | risk adjustment | write-offs | charges | Net values |
| Significant area: Nordic | 9 999 | 1 964 999 | 6 174 | 5 331 | 642 | 1 968 824 | |
| - Sweden | 4 024 | 1 785 672 | 2 958 | 3 003 | -431 | 1 786 738 | |
| - Norway | 5 657 | 59 472 | 2 690 | 1 781 | 939 | 62 439 | |
| - Denmark | 311 | 12 207 | 314 | 545 | 8 | 12 204 | |
| - Finland | 7 | 107 648 | 212 | 2 | 126 | 107 443 | |
| Significant area: Baltic | 1 504 | 305 381 | 634 | 4 184 | -9 | 306 251 | |
| - Estonia | 449 | 122 121 | 203 | 369 | 7 | 122 367 | |
| - Latvia | 331 | 66 177 | 205 | 3 104 | -17 | 66 303 | |
| - Lithuania | 724 | 117 083 | 226 | 711 | 1 | 117 581 | |
| Rest of the world | 3 934 | 75 926 | 1 587 | 46 | 7 | 78 273 | |
| - USA | 104 | 31 769 | 90 | 0 | 15 | 31 783 | |
| - Other geographical areas | 3 830 | 44 157 | 1 497 | 46 | -8 | 46 490 | |
| Total | 15 437 | 2 346 306 | 8 395 | 9 561 | 640 | 2 353 348 |
The increase in defaulted exposures compared to June 2019 is mainly seen in Norway (SEK 1.3bn) and Other geographical areas (SEK 0.9bn) and is partly counteracted by decreases in Sweden and Denmark.
| Gross carrying amount/nominal amount | Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions |
Collateral and financial guarantees received |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Performing exposures | Non-performing exposures | Performing exposures – accumulated impairment and provisions |
Non-performing exposures – accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions |
Accumulated partial write off |
On performing |
On non performing |
|||||||||
| SEKm | Of which stage 1 |
Of which stage 2 |
Of which stage 2 |
Of which stage 3 |
Of which stage 1 |
Of which stage 2 |
Of which stage 2 |
Of which stage 3 |
exposures | exposures | |||||
| Loans and advances | 1 844 398 1 738 005 | 106 394 | 15 157 | 316 | 14 838 | 2 289 | 947 | 1 342 | 5 382 | 4 | 5 377 | 1 441 053 | 8 780 | ||
| Central banks | 191 827 | 191 827 | |||||||||||||
| General governments | 4 999 | 4 942 | 57 | 0 | 0 | 0 | 1 | 1 | 0 | 0 | 0 | 0 | 532 | ||
| Credit institutions | 30 082 | 30 009 | 73 | 4 | 3 | 1 | |||||||||
| Other financial corporations | 23 836 | 22 839 | 998 | 2 | 0 | 2 | 7 | 7 | 0 | 0 | 0 | 0 | 2 742 | 1 | |
| Non-financial corporations Of which SMEs |
545 655 275 990 |
494 854 245 609 |
50 801 30 381 |
11 530 1 818 |
146 55 |
11 385 1 763 |
1 371 362 |
393 84 |
978 278 |
4 353 441 |
1 1 |
4 352 440 |
446 691 259 427 |
7 038 1 287 |
|
| Households | 1 047 999 | 993 534 | 54 465 | 3 625 | 170 | 3 451 | 906 | 543 | 363 | 1 029 | 3 | 1 025 | 991 088 | 1 741 | |
| Debt securities | 150 609 | 120 251 | |||||||||||||
| Central banks | 120 251 | 120 251 | |||||||||||||
| General governments | 7 048 | ||||||||||||||
| Credit institutions | 1 954 | ||||||||||||||
| Other financial corporations | 21 278 | ||||||||||||||
| Non-financial corporations | 78 | ||||||||||||||
| Off-balance-sheet exposures Central banks |
359 603 | 344 383 | 15 219 | 1 097 | 41 | 1 012 | 302 | 136 | 166 | 297 | 0 | 297 | 45 | ||
| General governments | 24 029 | 24 022 | 7 | 0 | 0 | 0 | |||||||||
| Credit institutions | 10 300 | 10 137 | 163 | 4 | 3 | 1 | |||||||||
| Other financial corporations | 9 355 | 8 398 | 957 | 0 | 0 | 2 | 1 | 1 | 0 | ||||||
| Non-financial corporations | 221 174 | 210 751 | 10 422 | 1 094 | 41 | 1 009 | 273 | 114 | 159 | 297 | 0 | 297 | 45 | ||
| Households | 94 745 | 91 075 | 3 670 | 3 | 0 | 3 | 23 | 18 | 5 | 0 | 0 | 0 | |||
| Total | 2 354 610 2 202 639 | 121 613 | 16 254 | 357 | 15 850 | 2 591 | 1 083 | 1 508 | 5 679 | 4 | 5 674 | 1 441 053 | 8 825 |
Table 3.10: Performing and non-performing exposures and related provisions, 31 December 2019
New table in accordance with EBA guidelines on disclosures of non-performing and forborne exposures EBA/GL/2018/10 (Template 4).
The performance of Swedbank's portfolio remains on a high stable level with less than 1% of non-performing exposures. Most of the defaults (stage 3) are within non-financial corporations in sectors Shipping and offshore, Property management and Manufacturing. Stage 2 (significantly increased credit risk) exposures remain on a low level of 5%, where real estate companies in non-financial corporations and mortgages in households contribute the most.
Table 3.11: Credit quality of performing and non-performing exposures by past due days, 31 December 2019
| Gross carrying amount/nominal amount | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Performing exposures | Non-performing exposures | |||||||||||
| SEKm | Not past due or past due ≤ 30 days |
Past due > 30 days ≤ 90 days |
Unlikely to pay that are not past due or are past due ≤ 90 days |
Past due > 90 days ≤ 180 days |
Past due > 180 days ≤ 1 year |
Past due > 1 year ≤ 2 years |
Past due > 2 years ≤ 5 years |
Past due > 5 years ≤ 7 years |
Past due > 7 years |
Of which defaulted |
||
| Loans and advances | 1 844 398 | 1 843 358 | 1 040 | 15 157 | 11 569 | 791 | 1 068 | 935 | 512 | 132 | 149 | 14 672 |
| Central banks | 191 827 | 191 827 | ||||||||||
| General governments | 4 999 | 4 999 | 0 | 0 | ||||||||
| Credit institutions | 30 082 | 30 082 | ||||||||||
| Other financial corporations | 23 836 | 23 836 | 2 | 1 | 0 | 0 | 0 | 1 | ||||
| Non-financial corporations | 545 655 | 545 573 | 82 | 11 530 | 10 114 | 273 | 537 | 157 | 325 | 86 | 38 | 11 376 |
| Of which SMEs | 275 990 | 275 908 | 82 | 1 818 | 884 | 135 | 414 | 141 | 182 | 23 | 38 | 1 755 |
| Households | 1 047 999 | 1 047 041 | 958 | 3 625 | 1 454 | 518 | 531 | 778 | 187 | 46 | 111 | 3 295 |
| Debt securities | 150 609 | 150 609 | ||||||||||
| Central banks | 120 251 | 120 251 | ||||||||||
| General governments | 7 048 | 7 048 | ||||||||||
| Credit institutions | 1 954 | 1 954 | ||||||||||
| Other financial corporations | 21 278 | 21 278 | ||||||||||
| Non-financial corporations | 78 | 78 | ||||||||||
| Off-balance-sheet exposures | 359 603 | 1 097 | 1 012 | |||||||||
| Central banks | 0 | |||||||||||
| General governments | 24 029 | |||||||||||
| Credit institutions | 10 300 | |||||||||||
| Other financial corporations | 9 355 | 0 | 0 | |||||||||
| Non-financial corporations | 221 174 | 1 094 | 1 009 | |||||||||
| Households | 94 745 | 3 | 3 | |||||||||
| Total | 2 354 610 | 1 993 967 | 1 040 | 16 254 | 11 569 | 791 | 1 068 | 935 | 512 | 132 | 149 | 15 684 |
New table in accordance with EBA guidelines on disclosures of non-performing and forborne exposures EBA/GL/2018/10 (Template 3), replacing table "Ageing of past-due exposures (EU CR1-D)". The total exposures that are past due is low. Less than 1% of total exposures are past due more than 30 days. Most of the exposures that are non-performing are less than 90 days past due.
Table 3.12: Credit quality of forborne exposures, 31 December 2019
| Gross carrying amount/nominal amount | Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions |
Collateral received and financial guarantees received on forborne exposures |
|||||||
|---|---|---|---|---|---|---|---|---|---|
| Performing forborne |
Non-performing forborne | On performing forborne exposures |
On non performing forborne exposures |
Of which collateral and financial guarantees received on non |
|||||
| SEKm | Of which defaulted |
Of which impaired |
performing exposures with forbearance measures |
||||||
| Loans and advances | 2 945 | 7 248 | 6 772 | 6 814 | 232 | 2 900 | 6 171 | 4 514 | |
| Central banks | |||||||||
| General governments | 0 | ||||||||
| Credit institutions | |||||||||
| Other financial corporations | 0 | ||||||||
| Non-financial corporations | 2 399 | 6 522 | 6 243 | 6 243 | 226 | 2 781 | 5 169 | 3 937 | |
| Households | 546 | 726 | 529 | 571 | 6 | 119 | 1 002 | 577 | |
| Debt Securities | |||||||||
| Loan commitments given | 90 | 88 | 2 | 2 | 8 | 1 | 62 | 42 | |
| Total | 3 035 | 7 336 | 6 774 | 6 816 | 240 | 2 901 | 6 233 | 4 556 |
New table in accordance with EBA guidelines on disclosures of non-performing and forborne exposures EBA/GL/2018/10 (Template 1), replacing table "Non-performing and forborne exposures (EU CR1-E)".
During the second half of 2019 there was a decrease in performing forborne loans for non-financial corporations of SEK 3.5bn, mainly due to some large customers in Shipping and offshore, Manufacturing and Information and communication industries that were taken out from performing forborne because of the end of probation period. There was also a decrease in non-performing forborne exposures by SEK 1.4bn, mainly attributable to write-offs (one major case in the Retail sector) and decrease in exposures due to FX effect.
Table 3.13: Changes in stock of general and specific credit risk adjustments (EU CR2-A), 31 December 2019
| SEKm | Accumulated Specific credit risk adjustment |
Accumulated General credit risk adjustment |
|---|---|---|
| Opening balance | 7 908 | |
| Increases due to amounts set aside for estimated loan losses during the period | 1 779 | |
| Decreases due to amounts reversed for estimated loan losses during the period | -477 | |
| Decreases due to amounts taken against accumulated credit risk adjustments | -543 | |
| Transfers between credit risk adjustments | ||
| Impact of exchange rate differences | 4 | |
| Business combinations, including acquisitions and disposals of subsidiaries | -10 | |
| Other adjustments | -266 | |
| Closing balance | 8 395 | |
| Recoveries on credit risk adjustments recorded directly to the statement of profit | -118 | |
| or loss. | ||
| Specific credit risk adjustments recorded directly to the statement of profit or loss. | 237 |
The total amount of specific credit risk adjustments increased by SEK 0.5bn during the second half of the year and ended at SEK 8.4bn. The major increase came from new and updated individual assessments of larger customers in oil-related segments in stage 3, and also from a few new defaults (transfer from stage 2), mainly within oil-related in sector Shipping and offshore. This was counteracted by changed maturities and amortisation schedules and some improved ratings (Decreases due to amounts reversed) and by write-offs, mainly in the Retail sector (Decreases due to amounts taken against accumulated credit risk adjustments).
Table 3.14: Changes in stock of defaulted and impaired loans and debt securities (EU CR2-B), 31 December 2019
| SEKm | Gross carrying value defaulted exposures |
|---|---|
| Opening balance | 14 019 |
| Loans and debt securities that have defaulted or impaired since the last reporting period | 4 101 |
| Returned to non-defaulted status | -621 |
| Amounts written off | -781 |
| Other changes | -1 282 |
| Closing balance | 15 436 |
The increase in defaulted (stage 3) loans during the second half of 2019 was mainly in oil-related segments in Shipping and offshore and Manufacturing sectors, and in Property management in Norway. Other changes relate to decrease in existing exposures due to FX effect.
Table 3.15: Collateral obtained by taking possession and execution processes, 31 December 2019
| Collateral obtained by taking possession | ||||
|---|---|---|---|---|
| Value at initial recognition |
Accumulated negative changes |
|||
| 177 | -49 | |||
| 15 | -1 | |||
| 101 | -42 | |||
| 58 | -6 | |||
| 3 | 0 | |||
| 177 | -49 | |||
New table in accordance with EBA guidelines on disclosures of non-performing and forborne exposures EBA/GL/2018/10 (Template 9). The number of properties that are taken over is low and mostly concentrated to the Baltic countries (Latvia and Lithuania).
Mitigation of credit risk
Swedbank strives to obtain adequate collateral. Collateral is considered from a risk perspective even if the collateral cannot be recognised for capital adequacy purposes. The collateral, its value and risk mitigating effect are considered throughout the credit process.
The term collateral covers pledges and guarantees. The most common types of pledges are real estate, apartments, floating charge, and financial instruments. Netting agreements or covenants are not considered as collateral.
In special circumstances, Swedbank may buy credit derivatives or financial guarantees to hedge the credit risk, but this is not part of Swedbank's normal lending operations. Main types of guarantors and counterparties in credit derivatives and their creditworthiness are described later in this chapter under Counterparty credit risk.
Credits without collateral are mainly granted for small loans to private customers or loans to large companies with very solid repayment capacity. For the latter, special loan covenants are commonly created which entitle Swedbank to renegotiate or terminate the agreement if the borrower's repayment capacity deteriorates, or if the covenants are otherwise breached.
Collateral valuation
The valuation of collateral is based on a thorough review and analysis of the pledged assets and is an integrated part in the credit risk assessment of the borrower. The establishment of the collateral value is part of the credit decision. The value of the collateral is reassessed within periodic credit reviews of the borrower and in situations where Swedbank has reason to believe that the value has deteriorated, or the exposure has become a problem loan.
The established value of the collateral shall correspond to the most likely sales price at the date of valuation estimated in a qualitative process and characterised by prudence. For financial collateral, such as debt securities, equities and collective investment undertakings (CIUs), valuation is normally monitored on a daily basis.
Concentrations within mitigation instruments
Approximately 56% of Swedbank's total loans have private housing mortgages as collateral indicating a high concentration risk. However, the composition of the portfolio, with a large number of customers in all four home markets and a variation between customers in larger city areas and countryside as well as relatively small amounts on each borrower, mitigates the risks. Another 22% of the loans have other real estate as collateral. This portfolio is spread over a large number of customers, several geographies and different property segments.
Table 3.16: Credit risk mitigation techniques – overview (EU CR3), 31 December 2019
| SEKm | Exposures unsecured: Carrying amount |
Exposures secured: Carrying amount |
Exposures secured by collateral |
Exposures secured by financial guarantees |
Exposures secured by credit derivatives |
|---|---|---|---|---|---|
| Total loans | 225 043 | 1 413 575 | 1 348 430 | 65 144 | |
| Total debt securities | 152 771 | ||||
| Other | 216 835 | 1 | 1 | ||
| Total all exposures | 594 649 | 1 413 576 | 1 348 431 | 65 144 | |
| - of which defaulted | 5 921 | 2 955 | 2 444 | 511 |
The amount of unsecured exposures decreased compared to June 2019 due to decreased placements in central banks. Otherwise there are no major changes in the composition of exposures by CRM techniques.
Measurement of credit risk
Swedbank uses three methods to calculate capital requirements for credit risk: the advanced IRB approach, the foundation IRB approach, and the standardised approach. The IRB approach is applied for a vast majority, 96%, of Swedbank's credit risk exposures.
For the retail exposure class in Sweden and the Baltic countries, Swedbank has approval to use the IRB approach. For corporate exposures in Sweden and Norway, Swedbank has approval to use the advanced IRB approach. For other IRBapproved exposure classes (corporate exposures outside the advanced IRB scope, institutions, and sovereign exposures) in the Nordic countries and in the Baltic countries, Swedbank uses the foundation IRB approach, and hence calculates its own PD estimates, but uses prescribed levels for the parameters LGD and credit conversion factor (CCF) in calculating capital requirements.
For non-IRB approved parts of Swedbank's credit portfolio, and also where an exception has been granted by the regulatory supervisory college, Swedbank uses the standardised approach to calculate capital requirements for credit risks.
Table 3.17: Exposure by capital adequacy approach, 31 December 2019
| Advanced IRB approach | Foundation IRB approach | Standardised approach | |||||||
|---|---|---|---|---|---|---|---|---|---|
| SEKm | EAD | RWA | Portfolios | EAD | RWA | Portfolios | EAD | RWA | Portfolios |
| Swedish Banking | 1 230 779 | 95 585 | Retail and corporate exposures |
33 404 | 6 441 | Institutions and sovereign exposures |
30 311 | 31 016 | EnterCard and smaller portfolios |
| Baltic Banking | 116 131 | 28 045 | Retail exposures | 80 010 | 45 399 | Corp., Inst. and sovereign exposures |
11 584 | 6 531 | Smaller portfolios |
| Large Corporate & Institutions |
294 548 | 70 783 | Corporate exposures | 60 244 | 13 878 | Institutions and sovereign exposures |
30 373 | 4 890 | Smaller portfolios |
| Group Functions | 364 | 17 | Retail exposures | 341 466 | 9 337 | Institutions and sovereign exposures |
7 243 | 2 737 | Smaller portfolios |
| Swedbank CS | 1 641 822 | 194 430 | 515 124 | 75 055 | 79 511 45 174 |
Table 3.18: Share of exposure and RWA by exposure class and capital adequacy approach, 31 December 2019
| Exposure | RWA | |||||
|---|---|---|---|---|---|---|
| Advanced | Foundation | Advanced | ||||
| % | Standardised | Foundation IRB | IRB | Standardised | IRB | IRB |
| Central governments or central banks | 0.0 | 16.2 | 0.0 | 1.6 | ||
| Regional governments or local authorities | 0.1 | 0.1 | ||||
| Public sector entities | 0.1 | 0.1 | ||||
| Multilateral development banks | 0.1 | 3.4 | ||||
| International organisations | 0.0 | 0.0 | ||||
| Institutions | 1.3 | 2.4 | 0.2 | 3.1 | ||
| Corporates | 0.2 | 3.9 | 20.5 | 1.6 | 16.5 | 37.3 |
| of which Specialised lending | 0.0 | 0.2 | ||||
| of which SME | 0.1 | 0.4 | 7.1 | 0.4 | 1.9 | 13.7 |
| of which Non-SME | 3.5 | 13.4 | 14.4 | 23.6 | ||
| Retail | 0.9 | 53.0 | 4.5 | 24.5 | ||
| Secured by real estate property | 47.9 | 15.6 | ||||
| SME | 4.6 | 2.2 | ||||
| Non-SME | 43.3 | 13.4 | ||||
| Qualifying revolving | ||||||
| Other retail | 5.1 | 8.9 | ||||
| SME | 1.8 | 4.6 | ||||
| Non-SME | 3.3 | 4.4 | ||||
| Secured by mortgages on immovable property | 0.3 | 0.7 | ||||
| of which SME | 0.0 | 0.8 | ||||
| Equity | 0.4 | 6.1 | ||||
| Exposures in default | 0.0 | 0.2 | ||||
| Items associated with particularly high risk | ||||||
| Covered bonds | 0.0 | 0.0 | ||||
| Claims on institutions and corporates with a short-term credit assessment | ||||||
| Collective investments undertakings (CIU) | 0.0 | 0.0 | ||||
| Other exposures | 0.1 | 0.6 | 0.8 | 2.6 | ||
| Total | 3.0 | 20.8 | 76.1 | 13.3 | 22.2 | 64.5 |
External ratings used in the standardised approach
In the standardised approach, fixed risk weights are applied to each exposure class split into credit quality steps, based on ratings assigned by external credit rating agencies. Swedbank uses ratings assigned by Standard & Poor's, and in the Baltic subsidiaries also ratings assigned by Moody's and Fitch. These ratings are used in the calculation of risk weights for central
Table 3.19: Credit quality steps and external credit ratings
governments and central banks, regional governments and local authorities, institutions, and corporate exposure classes.
Each exposure is assigned to a credit quality step, and then based on exposure class, a risk weight associated with the credit quality step. The risk weights are in some cases also affected by maturity. When an external credit rating is not available, a default treatment is applied.
| External credit ratings | |||||
|---|---|---|---|---|---|
| Credit quality step | S&P | Moody's | Fitch | ||
| Step 1 | AAA to AA- | Aaa to Aa3 | AAA to AA | ||
| Step 2 | A+ to A- | A1 to A3 | A+ to A | ||
| Step 3 | BBB+ to BBB- | Baa1 to Baa3 | BBB+ to BBB | ||
| Step 4 | BB+ to BB- | Ba1 to Ba3 | BB+ to BB | ||
| Step 5 | B+ to B- | B1 to B3 | B+ to B | ||
| Step 6 | CCC+ and below | Caa1 and below | CCC+ and below |
Table 3.20: Credit quality steps and risk weights
| Exposure classes | |||||
|---|---|---|---|---|---|
| Central governments and central | Regional and local authorities, | ||||
| Credit quality step | Corporates | banks | Institutions | ||
| Step 1 | 20% | 0% | 20% | ||
| Step 2 | 50% | 20% | 50% | ||
| Step 3 | 100% | 50% | 100% | ||
| Step 4 | 150% | 100% | 100% | ||
| Step 5 | 150% | 100% | 100% | ||
| Step 6 | 150% | 150% | 150% | ||
| Unrated | 100% | 100% | 100% |
Internal risk classification system used in the IRB approach
Swedbank's internal risk classification system is a central component in the credit process. It comprises several different systems, working methods and decision-making processes for lending operations, credit monitoring, and quantification of credit risk. The system aims to measure the risk that a customer or a contract will default and, in that case, what the losses would be for Swedbank.
Swedbank's internal risk classification system is a proprietary system that is approved by the regulatory supervisory college. The system, and the results it produces, are based on Swedbank's experience and expertise in assessing and managing credit risks. Swedbank's internal risk classification system serves as a basis for:
• risk assessments and credit decisions (automated and in committees)
- calculating risk-adjusted return (including RAROC)
- credit impairment provisions
- monitoring and managing credit risk (including migrations)
- reporting credit risks to Swedbank's Board of Directors, CEO and senior management
- developing credit strategies and associated risk management activities
- calculating capital requirements and capital allocation
| Portfolio | Definition | Application | PD dimension Portfolio |
LGD dimension | CF dimension |
|---|---|---|---|---|---|
| Credit institutions | All | Rating System for Countries, Bank Systems and Banks | – | – | |
| Sovereigns | All | Rating System for Central Governments and Central Banks, Regional Governments and Local Authorities* |
– | – | |
| Insurance Companies | All | Rating System for Insurance Companies | – | – | |
| Large corporates | Asset > 1 bn SEK or Revenue > 0.5 bn SEK |
Corporate Rating System | |||
| Medium-sized companies | Corporate LGD Models | Corporate CF Models | |||
| (SMEs) | Exposure >1 m SEK | SME Application and Portfolio Scoring System | |||
| Small-sized companies (SSEs) |
Exposure < 1 m SEK | SSE Application Scoring System |
SSE Portfolio Scoring System |
Retail LGD Models |
Retail CF Models |
| Private persons | All | Application Scoring System for Private Persons |
Portfolio Scoring System for Private Persons |
System relying on expert models System relying on statistical models
Figure 3.4: Risk classification systems in Baltic countries
| Portfolio | Definition | Application | PD dimension Portfolio |
LGD dimension | CF dimension |
|---|---|---|---|---|---|
| Credit institutions | All | Rating System for Countries, Bank Systems and Banks | – | – | |
| Sovereigns | All | Rating System for Central Governments and Central Banks |
– | – | |
| Large corporates | Exposure > € 0.8 m | Corporate Rating System | – | – | |
| Medium-sized companies (SMEs) |
Exposure > € 0.2 m and <= € 0.8 | SME Application Scoring SME Portfolio Scoring |
– | – | |
| m | System* | System | |||
| Small-sized | Exposure <= € 0.2 m | SSE Application | SSE Portfolio | ||
| companies (SSEs) | Scoring System | Scoring System | Retail LGD | Retail CF | |
| Private persons | All | Application Scoring System for Private Persons |
Portfolio Scoring System for Private Persons |
Models | Models |
System relying on expert models
System relying on statistical models
* SME PD Models are not pure statistical models, but also incorporate expert judgement
Rating systems
A rating system derives a risk rating for counterparty with the help of an expert-based system, in which values for selected criteria are weighted and converted into a risk grade. Rating systems are mainly used for large exposures where a thorough understanding of the risks is needed to ensure sound credit decisions. In these cases, Swedbank always conduct an extensive individual analysis before granting credits and update the ratings at least annually.
Swedbank's rating systems can be described as follows:
- Sovereigns: The rating is based on an assessment of a number of parameters that, combined, describe the level of development, stability, and financial strength of the sovereign (government) in question.
- Credit Institutions: The rating is based on a total appraisal of the sovereign's (government's) rating and the level of risk in the banking system and the specific bank. The level of risk in the banking system is determined by weighing a number of parameters that reflect the development,
stability, and financial strength of the banking system. The level of risk of the specific bank is calculated by weighing the financial strength, strategy, and risk level of its operations.
- Large corporates: The rating is based on a total appraisal of a quantitative component that assesses the company's financial strength, and a qualitative component that assesses the position of the industry, as well as the company's market position and strategy.
- Insurance companies: Insurance companies are rated by business-independent analysts. The risk classification is an expert based assessment of variables such as financial key ratios, management of and access to capital, market position, country risk and regulatory compliance risk. The assessment is done for life and non-life insurance companies.
Scoring systems
In a scoring system, the risk grade of the counterparty (or contract) is based on the statistical relation between a number of selected variables and defaults. Scoring systems are mainly used in portfolios with large numbers of smaller exposures where statistical relationships between different variables and default help to identify potential high-risk customers. When granting loans to counterparties in this type of portfolio, a credit process with a highly automated risk evaluation process is applied.
Swedbank's scoring systems are organised as follows:
- Medium-sized companies: represents a combination of a number of different scoring models and an expert system. In the statistical component, the risk assessment is based on information regarding the borrower's financial status and behaviour. Market conditions and the borrower's strategy are assessed in the model's expert component.
- Retail exposures (private individuals and small companies): comprises a number of different statistical scoring models where each model is designed to provide an effective instrument in its particular area. The risk assessment is based on information regarding the borrower's financial status and behaviour.
Credit risk estimation
When calculating capital requirements and expected loss using the IRB approach, the concepts Probability of default, Loss given default, and Credit conversion factor are central.
Probability of default (PD) estimates the risk that a counterparty or contract will default within a 12-month period. PD is measured through Swedbank's different rating and scoring systems. In order to use the most relevant information for assessment of PD, Swedbank has developed a number of different methods ranging from individual expert assessments (rating) to quantitative methods and models based on statistical analysis of large numbers of customers and related customer information (scoring).
When calculating capital requirements, Swedbank generally takes a through-the-cycle (TtC) perspective, aiming at producing PD values that indicate the average 12-month default frequency across a full business cycle. PD values also include a safety margin to account for the statistical uncertainty in the estimates. Thus, TtC-adjusted PD figures should remain stable across a business cycle at the portfolio level, while reflecting underlying long-term trends in the risk profile of the portfolio and taking a conservative view in estimated level of defaults.
Figure 3.5: PD over economic cycles
Swedbank uses a scale of 23 grades to classify the risk that a customer defaults, where grade 21 represents the lowest risk of default and grade 0 represents the highest risk. In addition, there is a default grade. Based on the PD estimate calculated using the TtC method, Swedbank assigns the customer, or exposure, a value on this risk scale. Using this risk scale, customers or exposures are ranked from those with the highest risk, to those with the lowest. The risk is also quantified.
Table 3.21: Risk scale in IRB approach
| Internal | PD,% | Indicative rating Standard & Poor's |
|---|---|---|
| Default | 100 | D |
| 0 to 5 | >5.7 | C to B |
| 6 to 8 | 2.0 - 5.7 | B+ to BB |
| 9 to 12 | 0.5-2.0 | BB to BB+ |
| 13 to 21 | <0.5 | BBB- to AAA |
Loss given default (LGD) measures what proportion of the exposure amount would be lost in case of default. Swedbank uses its own LGD estimates for retail exposures. Swedbank has an approval to apply its own LGD estimates to corporate exposures in Sweden and Norway. These estimates are in turn based on internal historical data on extent of loss. The extent of loss depends on factors such as the counterparty's financial status, the value of the collateral, and on assumptions of amounts recovered through the sale of any collateral based on historical outcomes and other factors.
For corporate exposures not covered by the advanced IRB approval as well as for institutions and sovereign exposures, prescribed LGD values are used.
Capital requirements are based on LGD estimates which are representative for a severe economic downturn. This means that they correspond to a degree of loss incurred under economic stress and cannot be directly compared to the current affirmed loss levels. The LGD values also include a safety margin that takes into account the statistical uncertainty in the estimates.
Figure 3.6: LGD over economic cycles
Credit conversion factor (CCF) is used when calculating capital requirement for off-balance exposures and typically estimates the percentage of some type of credit limit that is utilised by the time an obligor goes into default.
Internal models for CCF are applied on all portfolios with an advanced IRB permit (similar to LGD) whereas all other portfolios use prescribed CCF values. Safety margins and downturn adjustments are managed similarly to LGD and the measure should be conservative enough to capture a severe economic downturn.
Governance and control of risk classification systems
Swedbank defines its risk classification system in its governing documents. The overarching rules are established by the Board of Directors, with more detailed regulations issued by the CEO, CRO, or Chief Credit Officer, respectively. These regulations contain rules as to how models should be structured and validated and stipulate regular quality controls.
Swedbank performs regular (at least yearly) quantitative and qualitative validations of the system. The validation of the models is prepared by the unit Model Risk and Validation within Group Risk. All validation reports shall be approved by CRO. The outcome of the annual validation shall be reported by the CRO to Swedbank's senior management and Board of Directors. The validation tests conducted to date have shown that the models are on an overall level functional. Where shortcomings have been identified, applications for model updates are submitted for supervisory approval or are included in the modelling plan of prioritised improvements.
All new risk models, and changes to existing risk models, are approved by the CRO with an independent review made by Model Risk and Validation prior to approval.
Group Internal Audit performs independent audits on the risk classification system (acting as the third line of defence) at least on an annual basis and in specific cases related to model updates and applications.
The European Banking Authority (EBA) has clarified significant parts in CRR by issuing additional regulation, such as new guidelines for PD and LGD estimation, including margin of conservatism (MoC). As a result, Swedbank's IRBmodels will be updated to reflect the new regulatory requirements.
Upcoming regulatory changes
On 7 December 2017, the Basel Committee published the final Basel III regulatory framework also known as Basel IV. Revisions have been made to the standardised approach for credit risk and the use of the IRB approaches has been constrained. These revisions should apply from 1 January 2022, however, since Basel frameworks are not binding rules, they need to be transposed into EU regulation in order to be binding.
One of the Committee's aims with the revisions to the standardised approach for credit risk is to enhance the regulatory framework by improving its granularity and risk sensitivity. For example, the Basel II standardised approach assigns a flat risk weight to all residential mortgages. In the revised standardised approach mortgage risk weights depend on the LTV ratio of the mortgage. Another key revision is that a more granular approach has been developed for unrated exposures to banks and corporates and for rated exposures in jurisdictions where the use of credit ratings is permitted. The Committee has also reduced the mechanistic reliance on credit ratings, by requiring banks to conduct sufficient due diligence.
The Committee removed the option to use the advanced IRB (A-IRB) approach for large and mid-sized corporates belonging to a group with total consolidated annual revenues greater than EUR 500m and exposures to banks and other financial institutions. Banks may instead use the foundation IRB (F-IRB) approach for these exposures. The revised IRB framework also introduces minimum "floor" values for bank-estimated IRB parameters that are used as inputs to the calculation of RWA. These include PD floors for both the F-IRB and A-IRB approaches, and LGD and EAD floors for the A-IRB approach. The Committee also provides greater specification of parameter estimation practices to reduce RWA variability.
EBA's ongoing work on limiting undue RWA variability by introducing a common taxonomy and by limiting the degrees of freedom in credit risk modelling is expected to be finalised in 2020. Several guidelines, regulatory technical standards, and implementation technical standards have been or is about to be adopted for this purpose. Introduction of a common taxonomy is best illustrated by the definition of default which has been clarified, including what constitutes a material amount past due. The EBA Guideline on PD estimation, LGD estimation, and treatment of defaulted assets provides a clearer view on modelling compared to CRR and limits how models can be constructed. It is expected that most banks in EU will have to adjust their IRB models in accordance with the new definition of default.
Credit risk exposures in the standardised approach
Table 3.22: Credit risk exposure and credit risk mitigation (CRM) effects (EU CR4), 31 December 2019
| RWA and RWA | ||||||
|---|---|---|---|---|---|---|
| Exposures before CCF and CRM | and CRM | density | ||||
| Exposure classes, | On-balance | Off-balance | On- balance | Off- balance | RWA | |
| SEKm | sheet amount | sheet amount | sheet amount | sheet amount | RWAs | density |
| Central governments or central banks | 64 | 64 | 0.00% | |||
| Regional government or local authorities | 2 475 | 152 | 2 505 | 50 | 366 | 14.32% |
| Public sector entities | 834 | 1 092 | 834 | 533 | 162 | 11.85% |
| Multilateral development banks | 1 306 | 89 | 1 308 | 18 | 3 | 0.23% |
| International organisations | ||||||
| Institutions | 476 | 15 | 476 | 15 | 101 | 20.57% |
| Corporates | 1 918 | 3 742 | 1 809 | 1 401 | 2 949 | 91.87% |
| Retail | 19 679 | 22 195 | 19 355 | 220 | 14 101 | 72.04% |
| Secured by mortgages on immovable property | 5 717 | 891 | 5 717 | 891 | 2 312 | 34.99% |
| Exposures in default | 736 | 736 | 749 | 101.77% | ||
| Higher-risk categories | ||||||
| Covered bonds | 565 | 565 | 57 | 10.09% | ||
| Institutions and corporates with a short term credit | ||||||
| assessment | ||||||
| Collective investment undertakings | 6 | 6 | 6 | 100.00% | ||
| Equity | 9 237 | 9 237 | 19 293 | 208.87% | ||
| Other items | 3 230 | 3 230 | 2 365 | 73.22% | ||
| Total | 46 243 | 28 176 | 45 842 | 3 128 | 42 464 | 86.71% |
The exposure in the standardised approach is a minor part of Swedbank CS credit risk exposure. The total exposure in standardised approach is almost unchanged since June 2019, where the increase in Equity is counteracted by the decrease in Multilateral development banks.
Risk Weight Total Of which Unrated Exposure classes, SEKm 0% 2% 4% 10% 20% 35% 50% 70% 75% 100% 150% 250% 370% 1250% Others Deducted Central governments or central banks 64 64 Regional government or local authorities 728 1 827 2 555 Public sector entities 728 526 113 1 367 Multilateral development banks 1 309 17 1 326 International organisations Institutions 15 456 20 491 Corporates 3 211 3 211 Retail 19 575 19 575 Secured by mortgages on immovable property 6 608 6 608 Exposures in default 710 26 736 Higher-risk categories Covered bonds 564 564 Institutions and corporates with a short term credit assessment Collective investment undertakings 6 6 Equity exposures 2 554 6 680 3 9 237 Other items 713 190 2 327 3 230 Total 3 557 564 3 016 6 608 133 19 575 8 808 26 6 680 3 48 970
Table 3.23: Standardised approach – Exposures by exposure class and risk weights (EU CR5), 31 December 2019
The exposure in the standardised approach is a minor part of Swedbank CS credit risk exposure. The largest changes are seen in risk weight 0%, mainly explained by decreased exposures in Multilateral development banks and International organisations exposure classes; in risk weight 20% driven by increased exposures in Regional governments and Institutions; and by risk weight 250%, driven by increased Equity exposures.
Credit risk exposures in the IRB approach
Table 3.24: IRB approach – Credit risk exposures by exposure class and PD range (EU CR6), 31 December 2019
| Original on balance sheet |
Off- balance sheet |
Value adjustments |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| gross | exposures | Average CCF, | EAD post CRM | Average PD, | Number of | Average LGD, | Average | and | |||||
| SEKm | PD scale | exposure | pre CCF | % | and post- CCF | % | obligors | % | maturity | RWA | RWA density | EL | Provisions |
| Exposure classes | |||||||||||||
| AIRB | |||||||||||||
| Corporates | |||||||||||||
| 0.00 to <0.15 | 40 879 | 70 055 | 42.8 | 73 423 | 0.09 | 237 | 21.8 | 2.7 | 10 013 | 13.64% | 14 | 27 | |
| 0.15 to <0.25 | 71 109 | 37 306 | 46.5 | 90 834 | 0.19 | 401 | 18.0 | 2.6 | 15 780 | 17.37% | 30 | 81 | |
| 0.25 to <0.50 | 118 736 | 36 076 | 45.0 | 136 294 | 0.34 | 1 519 | 16.8 | 2.8 | 30 767 | 22.57% | 79 | 166 | |
| 0.50 to <0.75 | 34 972 | 8 258 | 50.4 | 38 224 | 0.60 | 1 158 | 19.1 | 3.4 | 12 997 | 34.00% | 44 | 84 | |
| 0.75 to <2.50 | 79 126 | 11 888 | 55.4 | 79 722 | 1.31 | 2 787 | 18.2 | 3.1 | 30 318 | 38.03% | 191 | 444 | |
| 2.50 to <10.00 | 14 302 | 1 633 | 68.6 | 12 255 | 4.81 | 906 | 18.3 | 3.1 | 6 523 | 53.23% | 114 | 201 | |
| 10.00 to <100.00 | 2 873 | 356 | 46.2 | 2 668 | 18.31 | 112 | 26.3 | 2.1 | 3 456 | 129.54% | 128 | 535 | |
| 100.00 (Default) | 9 830 | 1 099 | 86.0 | 10 715 | 100.00 | 59 | 27.1 | 2.4 | 2 880 | 26.88% | 4 045 | 4 057 | |
| Corporates - Sub total |
371 827 | 166 671 | 45.8 | 444 135 | 3.10 | 7 179 | 18.7 | 2.8 | 112 734 | 25.38% | 4 645 | 5 595 |
of which SME
| SME - Sub total | 103 358 | 22 | 67.3 | 102 310 | 0.41 | 26 783 | 19.3 | 7 051 | 6.89% | 85 | 59 | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 100.00 (Default) | 92 | 92 | 100.00 | 49 | 26.7 | 129 | 140.22% | 17 | 17 | ||||
| 10.00 to <100.00 | 154 | 2 | 67.8 | 155 | 19.30 | 214 | 19.8 | 137 | 88.39% | 6 | 4 | ||
| 2.50 to <10.00 | 1 858 | 12 | 65.9 | 1 855 | 4.69 | 1 251 | 20.5 | 971 | 52.35% | 18 | 14 | ||
| 0.75 to <2.50 | 6 672 | 7 | 68.5 | 6 533 | 1.33 | 3 633 | 21.6 | 1 690 | 25.87% | 18 | 18 | ||
| 0.50 to <0.75 | 3 550 | 3 435 | 0.60 | 1 019 | 23.2 | 570 | 16.59% | 5 | 2 | ||||
| 0.25 to <0.50 | 8 998 | 1 | 72.4 | 8 759 | 0.37 | 3 018 | 21.5 | 962 | 10.98% | 7 | 2 | ||
| 0.15 to <0.25 | 8 784 | 8 645 | 0.18 | 2 155 | 23.1 | 601 | 6.95% | 4 | |||||
| 0.00 to <0.15 | 73 250 | 72 836 | 0.07 | 15 444 | 18.2 | 1 991 | 2.73% | 10 | 2 | ||||
| SME | |||||||||||||
| total | Secured by real estate property - Sub | 1 067 343 | 4 984 | 80.2 | 1 070 279 | 0.47 | 1 841 165 | 10.7 | 49 096 | 4.59% | 794 | 609 | |
| 100.00 (Default) | 1 465 | 74.8 | 1 465 | 100.00 | 3 339 | 14.9 | 639 | 43.62% | 293 | 293 | |||
| 10.00 to <100.00 | 4 310 | 102 | 52.7 | 4 364 | 24.95 | 9 671 | 13.9 | 3 505 | 80.32% | 153 | 74 | ||
| 2.50 to <10.00 | 14 656 | 393 | 66.5 | 14 906 | 5.09 | 24 120 | 14.8 | 7 245 | 48.60% | 111 | 94 | ||
| 0.75 to <2.50 | 62 636 | 1 024 | 80.5 | 63 255 | 1.32 | 97 487 | 15.0 | 14 220 | 22.48% | 124 | 108 | ||
| 0.50 to <0.75 | 22 787 | 261 | 79.1 | 22 879 | 0.60 | 34 456 | 15.5 | 3 153 | 13.78% | 22 | 9 | ||
| 0.25 to <0.50 | 55 435 | 710 | 71.0 | 55 699 | 0.35 | 86 710 | 14.3 | 4 886 | 8.77% | 29 | 10 | ||
| 0.15 to <0.25 | 61 029 | 1 059 | 76.3 | 61 699 | 0.17 | 102 457 | 13.8 | 3 060 | 4.96% | 15 | 4 | ||
| 0.00 to <0.15 | 845 025 | 1 435 | 97.7 | 846 012 | 0.05 | 1 482 925 | 9.6 | 12 388 | 1.46% | 47 | 17 | ||
| Secured by real estate property | |||||||||||||
| Retail - Sub total | 1 146 160 | 80 406 | 50.2 | 1 184 232 | 0.64 | 3 701 256 | 12.8 | 77 056 | 6.51% | 1 677 | 1 140 | ||
| 100.00 (Default) | 2 270 | 28 | 94.2 | 2 284 | 100.00 | 12 635 | 25.3 | 2 010 | 88.00% | 560 | 561 | ||
| 10.00 to <100.00 | 6 609 | 374 | 60.7 | 6 785 | 24.37 | 45 012 | 21.6 | 5 277 | 77.77% | 354 | 145 | ||
| 2.50 to <10.00 | 25 045 | 2 288 | 70.3 | 26 048 | 5.09 | 357 497 | 24.0 | 12 608 | 48.40% | 316 | 188 | ||
| 0.75 to <2.50 | 87 434 | 8 866 | 72.9 | 93 213 | 1.38 | 541 416 | 21.6 | 25 349 | 27.19% | 285 | 168 | ||
| 0.50 to <0.75 | 29 961 | 3 335 | 63.0 | 31 874 | 0.60 | 153 191 | 20.1 | 5 280 | 16.57% | 39 | 17 | ||
| 0.25 to <0.50 | 65 909 | 7 685 | 60.7 | 70 240 | 0.36 | 303 466 | 18.6 | 7 857 | 11.19% | 48 | 24 | ||
| 0.15 to <0.25 | 69 313 | 9 110 | 49.7 | 73 652 | 0.17 | 295 299 | 17.4 | 4 712 | 6.40% | 23 | 14 | ||
| 0.00 to <0.15 | 859 619 | 48 720 | 43.0 | 880 136 | 0.05 | 1 992 740 | 10.3 | 13 963 | 1.59% | 52 | 23 | ||
| Retail | |||||||||||||
| of which SME - Sub total | 157 413 | 15 426 | 69.1 | 157 342 | 1.80 | 6 505 | 16.0 | 3.3 | 42 733 | 27.16% | 579 | 583 | |
| 100.00 (Default) | 862 | 85 | 75.0 | 797 | 19.61 | 107 | 23.0 | 3.5 | 817 | 102.51% | 34 | 34 | |
| 10.00 to <100.00 | 12 448 | 1 276 | 70.1 | 10 242 | 4.49 | 891 | 17.1 | 3.4 | 4 818 | 47.04% | 81 | 98 | |
| 2.50 to <10.00 | 56 908 | 5 639 | 65.3 | 54 332 | 1.36 | 2 683 | 16.2 | 3.3 | 17 534 | 32.27% | 122 | 137 | |
| 0.75 to <2.50 | 24 025 | 1 942 | 67.6 | 24 300 | 0.60 | 1 065 | 16.6 | 3.4 | 6 415 | 26.40% | 24 | 13 | |
| 0.50 to <0.75 | 38 622 | 3 179 | 69.0 | 41 040 | 0.36 | 1 352 | 15.0 | 3.3 | 7 935 | 19.33% | 22 | 6 | |
| 0.25 to <0.50 | 16 474 | 3 035 | 75.0 | 18 654 | 0.20 | 266 | 15.6 | 3.2 | 2 873 | 15.40% | 6 | 2 | |
| 0.15 to <0.25 | 6 950 | 242 | 66.6 | 6 838 | 0.09 | 98 | 15.5 | 3.9 | 751 | 10.98% | 1 | 3 | |
| 0.00 to <0.15 | 7 067 | 303 | 71.6 | 7 077 | 0.08 | 72 | 12.3 | 3.5 | 557 | 7.87% | 1 | 3 | |
| Non-SME | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 to <0.15 | 771 775 | 1 435 | 97.7 | 773 176 | 0.05 | 1 467 481 | 8.8 | 10 397 | 1.34% | 37 | 15 | ||
| 0.15 to <0.25 | 52 245 | 1 059 | 76.3 | 53 054 | 0.17 | 100 302 | 12.3 | 2 459 | 4.63% | 11 | 4 | ||
| 0.25 to <0.50 | 46 437 | 709 | 71.0 | 46 940 | 0.35 | 83 692 | 13.0 | 3 924 | 8.36% | 22 | 8 | ||
| 0.50 to <0.75 | 19 237 | 261 | 79.1 | 19 444 | 0.60 | 33 437 | 14.2 | 2 583 | 13.28% | 17 | 7 | ||
| 0.75 to <2.50 | 55 964 | 1 017 | 80.6 | 56 722 | 1.32 | 93 854 | 14.2 | 12 530 | 22.09% | 106 | 90 | ||
| 2.50 to <10.00 | 12 798 | 381 | 66.5 | 13 051 | 5.15 | 22 869 | 14.0 | 6 274 | 48.07% | 93 | 80 | ||
| 10.00 to <100.00 | 4 156 | 100 | 52.4 | 4 209 | 25.16 | 9 457 | 13.7 | 3 368 | 80.02% | 147 | 70 | ||
| 100.00 (Default) | 1 373 | 74.8 | 1 373 | 100.00 | 3 290 | 14.1 | 510 | 37.14% | 276 | 276 | |||
| Non-SME - Sub total | 963 985 | 4 962 | 80.2 | 967 969 | 0.48 | 1 814 382 | 9.7 | 42 045 | 4.34% | 709 | 550 | ||
| Other Retail | |||||||||||||
| 0.00 to <0.15 | 14 594 | 47 285 | 41.3 | 34 124 | 0.06 | 509 815 | 25.7 | 1 575 | 4.62% | 5 | 6 | ||
| 0.15 to <0.25 | 8 284 | 8 051 | 46.2 | 11 953 | 0.18 | 192 842 | 36.1 | 1 652 | 13.82% | 8 | 10 | ||
| 0.25 to <0.50 | 10 474 | 6 975 | 59.7 | 14 541 | 0.38 | 216 756 | 35.1 | 2 971 | 20.43% | 19 | 14 | ||
| 0.50 to <0.75 | 7 174 | 3 074 | 61.6 | 8 995 | 0.60 | 118 735 | 31.7 | 2 127 | 23.65% | 17 | 8 | ||
| 0.75 to <2.50 | 24 798 | 7 842 | 71.9 | 29 958 | 1.51 | 443 929 | 35.7 | 11 129 | 37.15% | 161 | 60 | ||
| 2.50 to <10.00 | 10 389 | 1 895 | 71.1 | 11 142 | 5.08 | 333 377 | 36.3 | 5 363 | 48.13% | 205 | 94 | ||
| 10.00 to <100.00 | 2 299 | 272 | 63.7 | 2 421 | 23.31 | 35 341 | 35.6 | 1 772 | 73.19% | 201 | 71 | ||
| 100.00 (Default) | 805 | 28 | 94.4 | 819 | 100.00 | 9 296 | 44.0 | 1 371 | 167.40% | 267 | 268 | ||
| Other Retail - Sub total | 78 817 | 75 422 | 48.4 | 113 953 | 2.24 | 1 860 091 | 32.5 | 27 960 | 24.54% | 883 | 531 | ||
| Total all exposures AIRB | 1 517 988 | 247 076 | 47.2 | 1 628 366 | 1.31 | 3 708 435 | 14.4 | 2.8 | 189 788 | 11.66% | 6 323 | 6 735 | |
| Exposure classes FIRB banks |
Central governments or central | ||||||||||||
| 0.00 to <0.15 | 333 807 | 25 045 | 67.6 | 359 514 | 0.00 | 271 | 45.0 | 1.2 | 4 904 | 1.36% | 4 | 1 | |
| 0.15 to <0.25 | |||||||||||||
| 0.25 to <0.50 | |||||||||||||
| 0.50 to <0.75 | |||||||||||||
| 0.75 to <2.50 | |||||||||||||
| 2.50 to <10.00 | 96 | 75.0 | 96 | 3.09 | 14 | 45.0 | 2.5 | 15 | 15.63% | ||||
| 10.00 to <100.00 | |||||||||||||
| 100.00 (Default) | |||||||||||||
| Sub total | Central governments or central banks - | 333 903 | 25 045 | 67.6 | 359 610 | 0.00 | 285 | 45.0 | 1.2 | 4 919 | 1.37% | 4 | 1 |
| Institutions | |||||||||||||
| 0.00 to <0.15 | 29 251 | 8 603 | 66.3 | 35 185 | 0.04 | 198 | 24.2 | 2.5 | 4 415 | 12.55% | 4 | 2 | |
| 0.15 to <0.25 | |||||||||||||
| 0.25 to <0.50 | 268 | 427 | 34.8 | 462 | 0.30 | 42 | 45.0 | 2.5 | 291 | 62.99% | 1 | 4 | |
| 0.50 to <0.75 | 7 | 87 | 20.0 | 25 | 0.60 | 12 | 45.0 | 2.5 | 21 | 84.00% | |||
| 0.75 to <2.50 | 3 | 3 | 1.00 | 2 | 45.0 | 2.5 | 4 | 133.33% | |||||
| 2.50 to <10.00 | 2 | 10 | 20.0 | 4 | 4.80 | 12 | 45.0 | 2.5 | 7 | 175.00% | |||
| 10.00 to <100.00 | |||||||||||||
| 100.00 (Default) | 29 251 | 8 603 | 66.3 | 35 185 | 0.04 | 198 | 24.2 | 2.5 | 4 415 | 12.55% | 4 | 2 | |
| Institutions - Sub total | 29 531 | 9 127 | 64.3 | 35 679 | 0.04 | 266 | 24.5 | 2.5 | 4 738 | 13.28% | 5 | 6 |
| Corporates | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 to <0.15 | 16 883 | 8 899 | 28.3 | 18 639 | 0.08 | 166 | 44.7 | 2.5 | 4 823 | 25.88% | 7 | 1 | |
| 0.15 to <0.25 | 20 998 | 6 990 | 29.6 | 22 974 | 0.21 | 294 | 44.7 | 2.5 | 9 967 | 43.38% | 21 | 2 | |
| 0.25 to <0.50 | 14 388 | 10 339 | 52.0 | 19 771 | 0.40 | 457 | 44.3 | 2.5 | 11 804 | 59.70% | 35 | 3 | |
| 0.50 to <0.75 | 1 674 | 3 305 | 21.3 | 2 235 | 0.60 | 194 | 41.2 | 2.5 | 1 453 | 65.01% | 6 | 9 | |
| 0.75 to <2.50 | 12 216 | 3 767 | 43.1 | 13 124 | 1.10 | 1 382 | 44.2 | 2.5 | 10 745 | 81.87% | 64 | 28 | |
| 2.50 to <10.00 | 6 129 | 2 570 | 43.1 | 7 036 | 5.31 | 600 | 44.2 | 2.5 | 9 852 | 140.02% | 165 | 35 | |
| 10.00 to <100.00 | 1 149 | 155 | 45.6 | 1 149 | 24.80 | 103 | 44.6 | 2.5 | 2 376 | 206.79% | 127 | 31 | |
| 100.00 (Default) | 714 | 23 | 29.6 | 717 | 100.00 | 28 | 44.4 | 2.5 | 8 | 1.12% | 319 | 340 | |
| Corporates - Sub total | 74 151 | 36 048 | 37.4 | 85 645 | 1.96 | 3 224 | 44.4 | 2.5 | 51 028 | 59.58% | 744 | 449 | |
| of which SME | |||||||||||||
| 0.00 to <0.15 | 246 | 17 | 38.3 | 147 | 0.09 | 14 | 37.8 | 2.5 | 23 | 15.65% | |||
| 0.15 to <0.25 | 694 | 131 | 24.5 | 656 | 0.20 | 49 | 42.3 | 2.5 | 200 | 30.49% | 1 | ||
| 0.25 to <0.50 | 1 129 | 242 | 33.6 | 1 208 | 0.38 | 166 | 41.5 | 2.5 | 475 | 39.32% | 2 | ||
| 0.50 to <0.75 | 1 373 | 223 | 32.5 | 1 352 | 0.60 | 156 | 38.8 | 2.5 | 695 | 51.41% | 3 | 1 | |
| 0.75 to <2.50 | 3 823 | 679 | 37.2 | 3 492 | 1.29 | 993 | 42.8 | 2.5 | 2 445 | 70.02% | 19 | 22 | |
| 2.50 to <10.00 | 1 439 | 254 | 47.3 | 1 471 | 5.28 | 405 | 44.0 | 2.5 | 1 586 | 107.82% | 34 | 8 | |
| 10.00 to <100.00 | 270 | 45 | 49.2 | 270 | 24.99 | 78 | 44.3 | 2.5 | 483 | 178.89% | 30 | 4 | |
| 100.00 (Default) | 24 | 7 | 33.4 | 26 | 100.00 | 9 | 45.0 | 2.5 | 8 | 30.77% | 12 | 3 | |
| of which SME - Sub total | 8 998 | 1 598 | 36.9 | 8 622 | 2.67 | 1 870 | 42.1 | 2.5 | 5 915 | 68.60% | 101 | 38 | |
| Total all exposures FIRB | 437 585 | 70 220 | 51.8 | 480 934 | 0.35 | 3 775 | 43.4 | 1.5 | 60 685 | 12.62% | 753 | 456 | |
| Exposure classes Total banks |
Central governments or central | ||||||||||||
| 0.00 to <0.15 | 333 807 | 25 045 | 67.6 | 359 514 | 0.00 | 271 | 45.0 | 1.2 | 4 904 | 1.36% | 4 | 1 | |
| 0.15 to <0.25 | |||||||||||||
| 0.25 to <0.50 | |||||||||||||
| 0.50 to <0.75 | |||||||||||||
| 0.75 to <2.50 | |||||||||||||
| 2.50 to <10.00 | 96 | 75.0 | 96 | 3.09 | 14 | 45.0 | 2.5 | 15 | 15.63% | ||||
| 10.00 to <100.00 | |||||||||||||
| 100.00 (Default) | |||||||||||||
| Sub total | Central governments or central banks - | 333 903 | 25 045 | 67.6 | 359 610 | 0.00 | 285 | 45.0 | 1.2 | 4 919 | 1.37% | 4 | 1 |
| Institutions | |||||||||||||
| 0.00 to <0.15 | 29 251 | 8 603 | 66.3 | 35 185 | 0.04 | 198 | 24.2 | 2.5 | 4 415 | 12.55% | 4 | 2 | |
| 0.15 to <0.25 | |||||||||||||
| 0.25 to <0.50 | 268 | 427 | 34.8 | 462 | 0.30 | 42 | 45.0 | 2.5 | 291 | 62.99% | 1 | 4 | |
| 0.50 to <0.75 | 7 | 87 | 20.0 | 25 | 0.60 | 12 | 45.0 | 2.5 | 21 | 84.00% | |||
| 0.75 to <2.50 | 3 | 3 | 1.00 | 2 | 45.0 | 2.5 | 4 | 133.33% | |||||
| 2.50 to <10.00 | 2 | 10 | 20.0 | 4 | 4.80 | 12 | 45.0 | 2.5 | 7 | 175.00% | |||
| 10.00 to <100.00 | |||||||||||||
| 100.00 (Default) | |||||||||||||
| Institutions - Sub total | 29 531 | 9 127 | 64.3 | 35 679 | 0.04 | 266 | 24.5 | 2.5 | 4 738 | 13.28% | 5 | 6 |
| Corporates | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 to <0.15 | 57 762 | 78 954 | 41.2 | 92 062 | 0.09 | 388 | 26.4 | 2.7 | 14 836 | 16.12% | 21 | 28 | |
| 0.15 to <0.25 | 92 107 | 44 296 | 43.9 | 113 808 | 0.19 | 670 | 23.4 | 2.6 | 25 747 | 22.62% | 51 | 83 | |
| 0.25 to <0.50 | 133 125 | 46 555 | 46.6 | 156 065 | 0.35 | 1 944 | 20.3 | 2.8 | 42 571 | 27.28% | 115 | 169 | |
| 0.50 to <0.75 | 36 646 | 11 563 | 42.0 | 40 459 | 0.60 | 1 326 | 20.3 | 3.4 | 14 450 | 35.72% | 50 | 93 | |
| 0.75 to <2.50 | 91 342 | 15 655 | 52.2 | 92 846 | 1.28 | 4 102 | 21.9 | 3.0 | 41 063 | 44.23% | 255 | 472 | |
| 2.50 to <10.00 | 20 431 | 4 203 | 51.5 | 19 291 | 4.99 | 1 495 | 27.7 | 2.9 | 16 375 | 84.88% | 279 | 236 | |
| 10.00 to <100.00 | 4 022 | 511 | 46.0 | 3 817 | 20.26 | 214 | 31.8 | 2.2 | 5 832 | 152.79% | 255 | 566 | |
| 100.00 (Default) | 10 544 | 1 122 | 84.8 | 11 432 | 100.00 | 83 | 28.2 | 2.4 | 2 888 | 25.26% | 4 364 | 4 397 | |
| Corporates - Sub total | 445 979 | 202 859 | 44.3 | 529 780 | 2.92 | 10 222 | 22.8 | 2.8 | 163 762 | 30.91% | 5 390 | 6 044 | |
| of which SME | |||||||||||||
| 0.00 to <0.15 | 7 196 | 259 | 64.6 | 6 985 | 0.09 | 112 | 16.0 | 3.9 | 774 | 11.08% | 1 | 3 | |
| 0.15 to <0.25 | 17 168 | 3 166 | 73.0 | 19 310 | 0.20 | 306 | 16.5 | 3.2 | 3 073 | 15.91% | 7 | 2 | |
| 0.25 to <0.50 | 39 751 | 3 421 | 66.8 | 42 248 | 0.36 | 1 507 | 15.8 | 3.3 | 8 410 | 19.91% | 24 | 6 | |
| 0.50 to <0.75 | 25 398 | 2 165 | 63.6 | 25 652 | 0.60 | 1 204 | 17.8 | 3.3 | 7 110 | 27.72% | 27 | 14 | |
| 0.75 to <2.50 | 60 731 | 6 318 | 61.6 | 57 824 | 1.36 | 3 629 | 17.8 | 3.2 | 19 979 | 34.55% | 141 | 159 | |
| 2.50 to <10.00 | 13 887 | 1 530 | 65.1 | 11 713 | 4.59 | 1 286 | 20.4 | 3.3 | 6 404 | 54.67% | 115 | 106 | |
| 10.00 to <100.00 | 1 132 | 130 | 64.9 | 1 067 | 20.97 | 184 | 28.4 | 3.3 | 1 300 | 121.84% | 64 | 38 | |
| 100.00 (Default) | 1 148 | 35 | 69.0 | 1 165 | 100.00 | 50 | 27.3 | 3.3 | 1 598 | 137.17% | 301 | 293 | |
| of which SME - Sub total | 166 411 | 17 024 | 65.8 | 165 964 | 1.84 | 8 278 | 17.4 | 3.3 | 48 648 | 29.31% | 680 | 621 | |
| Retail | |||||||||||||
| 0.00 to <0.15 | 859 619 | 48 720 | 43.0 | 880 136 | 0.05 | 1 992 740 | 10.3 | 13 963 | 1.59% | 52 | 23 | ||
| 0.15 to <0.25 | 69 313 | 9 110 | 49.7 | 73 652 | 0.17 | 295 299 | 17.4 | 4 712 | 6.40% | 23 | 14 | ||
| 0.25 to <0.50 | 65 909 | 7 685 | 60.7 | 70 240 | 0.36 | 303 466 | 18.6 | 7 857 | 11.19% | 48 | 24 | ||
| 0.50 to <0.75 | 29 961 | 3 335 | 63.0 | 31 874 | 0.60 | 153 191 | 20.1 | 5 280 | 16.57% | 39 | 17 | ||
| 0.75 to <2.50 | 87 434 | 8 866 | 72.9 | 93 213 | 1.38 | 541 416 | 21.6 | 25 349 | 27.19% | 285 | 168 | ||
| 2.50 to <10.00 | 25 045 | 2 288 | 70.3 | 26 048 | 5.09 | 357 497 | 24.0 | 12 608 | 48.40% | 316 | 188 | ||
| 10.00 to <100.00 | 6 609 | 374 | 60.7 | 6 785 | 24.37 | 45 012 | 21.6 | 5 277 | 77.77% | 354 | 145 | ||
| 100.00 (Default) | 2 270 | 28 | 94.2 | 2 284 | 100.00 | 12 635 | 25.3 | 2 010 | 88.00% | 560 | 561 | ||
| Retail - Sub total | 1 146 160 | 80 406 | 50.2 | 1 184 232 | 0.64 | 3 701 256 | 12.8 | 77 056 | 6.51% | 1 677 | 1 140 | ||
| Secured by real estate property | |||||||||||||
| 0.00 to <0.15 | 845 025 | 1 435 | 97.7 | 846 012 | 0.05 | 1 482 925 | 9.6 | 12 388 | 1.46% | 47 | 17 | ||
| 0.15 to <0.25 | 61 029 | 1 059 | 76.3 | 61 699 | 0.17 | 102 457 | 13.8 | 3 060 | 4.96% | 15 | 4 | ||
| 0.25 to <0.50 | 55 435 | 710 | 71.0 | 55 699 | 0.35 | 86 710 | 14.3 | 4 886 | 8.77% | 29 | 10 | ||
| 0.50 to <0.75 | 22 787 | 261 | 79.1 | 22 879 | 0.60 | 34 456 | 15.5 | 3 153 | 13.78% | 22 | 9 | ||
| 0.75 to <2.50 | 62 636 | 1 024 | 80.5 | 63 255 | 1.32 | 97 487 | 15.0 | 14 220 | 22.48% | 124 | 108 | ||
| 2.50 to <10.00 | 14 656 | 393 | 66.5 | 14 906 | 5.09 | 24 120 | 14.8 | 7 245 | 48.60% | 111 | 94 | ||
| 10.00 to <100.00 | 4 310 | 102 | 52.7 | 4 364 | 24.95 | 9 671 | 13.9 | 3 505 | 80.32% | 153 | 74 | ||
| 100.00 (Default) | 1 465 | 74.8 | 1 465 | 100.00 | 3 339 | 14.9 | 639 | 43.62% | 293 | 293 | |||
| total | Secured by real estate property - Sub | 1 067 343 | 4 984 | 80.2 | 1 070 279 | 0.47 | 1 841 165 | 10.7 | 49 096 | 4.59% | 794 | 609 |
| SME | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 to <0.15 | 73 250 | 72 836 | 0.07 | 15 444 | 18.2 | 1 991 | 2.73% | 10 | 2 | ||||
| 0.15 to <0.25 | 8 784 | 8 645 | 0.18 | 2 155 | 23.1 | 601 | 6.95% | 4 | |||||
| 0.25 to <0.50 | 8 998 | 1 | 72.4 | 8 759 | 0.37 | 3 018 | 21.5 | 962 | 10.98% | 7 | 2 | ||
| 0.50 to <0.75 | 3 550 | 3 435 | 0.60 | 1 019 | 23.2 | 570 | 16.59% | 5 | 2 | ||||
| 0.75 to <2.50 | 6 672 | 7 | 68.5 | 6 533 | 1.33 | 3 633 | 21.6 | 1 690 | 25.87% | 18 | 18 | ||
| 2.50 to <10.00 | 1 858 | 12 | 65.9 | 1 855 | 4.69 | 1 251 | 20.5 | 971 | 52.35% | 18 | 14 | ||
| 10.00 to <100.00 | 154 | 2 | 67.8 | 155 | 19.30 | 214 | 19.8 | 137 | 88.39% | 6 | 4 | ||
| 100.00 (Default) | 92 | 92 | 100.00 | 49 | 26.7 | 129 | 140.22% | 17 | 17 | ||||
| SME - Sub total | 103 358 | 22 | 67.3 | 102 310 | 0.41 | 26 783 | 19.3 | 7 051 | 6.89% | 85 | 59 | ||
| Non-SME | |||||||||||||
| 0.00 to <0.15 | 771 775 | 1 435 | 97.7 | 773 176 | 0.05 | 1 467 481 | 8.8 | 10 397 | 1.34% | 37 | 15 | ||
| 0.15 to <0.25 | 52 245 | 1 059 | 76.3 | 53 054 | 0.17 | 100 302 | 12.3 | 2 459 | 4.63% | 11 | 4 | ||
| 0.25 to <0.50 | 46 437 | 709 | 71.0 | 46 940 | 0.35 | 83 692 | 13.0 | 3 924 | 8.36% | 22 | 8 | ||
| 0.50 to <0.75 | 19 237 | 261 | 79.1 | 19 444 | 0.60 | 33 437 | 14.2 | 2 583 | 13.28% | 17 | 7 | ||
| 0.75 to <2.50 | 55 964 | 1 017 | 80.6 | 56 722 | 1.32 | 93 854 | 14.2 | 12 530 | 22.09% | 106 | 90 | ||
| 2.50 to <10.00 | 12 798 | 381 | 66.5 | 13 051 | 5.15 | 22 869 | 14.0 | 6 274 | 48.07% | 93 | 80 | ||
| 10.00 to <100.00 | 4 156 | 100 | 52.4 | 4 209 | 25.16 | 9 457 | 13.7 | 3 368 | 80.02% | 147 | 70 | ||
| 100.00 (Default) | 1 373 | 74.8 | 1 373 | 100.00 | 3 290 | 14.1 | 510 | 37.14% | 276 | 276 | |||
| Non-SME - Sub total | 963 985 | 4 962 | 80.2 | 967 969 | 0.48 | 1 814 382 | 9.7 | 42 045 | 4.34% | 709 | 550 | ||
| Other Retail | |||||||||||||
| 0.00 to <0.15 | 14 594 | 47 285 | 41.3 | 34 124 | 0.06 | 509 815 | 25.7 | 1 575 | 4.62% | 5 | 6 | ||
| 0.15 to <0.25 | 8 284 | 8 051 | 46.2 | 11 953 | 0.18 | 192 842 | 36.1 | 1 652 | 13.82% | 8 | 10 | ||
| 0.25 to <0.50 | 10 474 | 6 975 | 59.7 | 14 541 | 0.38 | 216 756 | 35.1 | 2 971 | 20.43% | 19 | 14 | ||
| 0.50 to <0.75 | 7 174 | 3 074 | 61.6 | 8 995 | 0.60 | 118 735 | 31.7 | 2 127 | 23.65% | 17 | 8 | ||
| 0.75 to <2.50 | 24 798 | 7 842 | 71.9 | 29 958 | 1.51 | 443 929 | 35.7 | 11 129 | 37.15% | 161 | 60 | ||
| 2.50 to <10.00 | 10 389 | 1 895 | 71.1 | 11 142 | 5.08 | 333 377 | 36.3 | 5 363 | 48.13% | 205 | 94 | ||
| 10.00 to <100.00 | 2 299 | 272 | 63.7 | 2 421 | 23.31 | 35 341 | 35.6 | 1 772 | 73.19% | 201 | 71 | ||
| 100.00 (Default) | 805 | 28 | 94.4 | 819 | 100.00 | 9 296 | 44.0 | 1 371 | 167.40% | 267 | 268 | ||
| Other Retail - Sub total | 78 817 | 75 422 | 48.4 | 113 953 | 2.24 | 1 860 091 | 32.5 | 27 960 | 24.54% | 883 | 531 | ||
| Total all exposures | 1 955 573 | 317 437 | 48.3 | 2 109 301 | 1.09 | 3 712 029 | 21.0 | 2.2 | 250 475 | 11.87% | 7 076 | 7 191 |
Changes are only effects of normal business activity with lending growth, outflow and inflow of customers. In addition, the PD migrations have been normal and mainly in small steps.
Table 3.25: IRB approach – Effect on the RWAs of credit derivatives used as CRM techniques (EU CR7)
Credit derivatives are not used as CRM techniques in the capital requirement reporting of Swedbank. Hence, no table is presented.
Table 3.26: RWA flow statements of credit risk exposures under IRB (EU CR8)
| SEKm | RWA amounts | Capital requirements |
|---|---|---|
| RWA as at end of previous reporting period |
261 703 | 20 936 |
| Asset size | 1 124 | 90 |
| Asset quality | -34 | -3 |
| Model updates | ||
| Methodology and policy | ||
| Acquisitions and disposals | ||
| Foreign exchange movements | -2 975 | -238 |
| Other | -1 063 | -88 |
| RWA as at end of reporting period | 258 755 | 20 697 |
In the fourth quarter 2019, RWA for credit risk reported under IRB decreased by SEK 2.9bn, reaching SEK 259bn at year-end. The main changes were:
(1) Asset size increased RWA by SEK 1.1bn, driven by increased lending within Baltic Banking and relatively higher risk-weights on new lending within LC&I, mitigated by decreased corporate lending within Swedish Banking.
(2) Foreign exchange movements decreased RWA by SEK 3.0bn, mainly driven by appreciation of SEK towards EUR.
(3) The RWA decrease in Other by SEK 1.1bn is mainly explained by shorter maturities for corporates within business area LC&I.
Table 3.27: IRB approach – Backtesting of PD per exposure class (EU CR9), 31 December 2019
| Number of obligors External Arithmetic Defaulted defaulted rating Weighted average PD obligors in End of End of the obligors in Exposure class PD Range equivalent average PD by obligors previous year the year the year year Foundation IRB |
annual default rate 0.0% * |
|---|---|
| Sovereigns >5.7 C to B 0 0 0 0 |
|
| 2-5.7 B+ to BB- 3.09 3.14 1 1 0 0 |
|
| 0.5-2 BB to BB+ 0 0 0 0 |
|
| <0.5 BBB- to AAA 0.00 0.00 384 436 0 0 |
0.0% * |
| Institutions >5.7 C to B 6.79 6.79 2 2 0 0 |
0.0% |
| 2-5.7 B+ to BB- 2.45 3.74 19 21 0 0 |
0.8% |
| 0.5-2 BB to BB+ 0.85 0.92 13 14 0 0 |
0.0% |
| <0.5 BBB- to AAA 0.05 0.10 351 357 0 0 |
0.0% |
| Corporate >5.7 C to B 12.93 13.12 330 347 7 0 |
6.0% |
| 2-5.7 B+ to BB- 3.92 3.73 757 799 1 0 |
1.4% |
| 0.5-2 BB to BB+ 1.02 1.06 1 691 1 766 4 0 |
0.3% |
| <0.5 BBB- to AAA 0.23 0.25 1 149 1 168 0 0 |
0.2% |
| - of which SME >5.7 C to B 11.65 13.07 189 204 3 0 |
7.7% |
| 2-5.7 B+ to BB- 3.58 3.51 491 524 1 0 |
1.9% |
| 0.5-2 BB to BB+ 1.09 1.08 920 968 0 0 |
0.3% |
| <0.5 BBB- to AAA 0.31 0.32 144 149 0 0 |
0.2% |
| - of which specialised 12 12 0 0 >5.7 C to B lending |
1.9% |
| 2-5.7 B+ to BB- 9 9 0 0 |
1.1% |
| 0.5-2 BB to BB+ 23 23 0 0 |
0.0% |
| <0.5 BBB- to AAA 4 4 0 0 |
0.0% |
| Advanced IRB | |
| Corporate >5.7 C to B 12.14 13.72 464 506 43 1 |
10.8% |
| 2-5.7 B+ to BB- 3.26 3.21 1 753 2 223 31 2 |
1.8% |
| 0.5-2 BB to BB+ 0.92 1.00 5 138 5 865 31 0 |
1.0% |
| <0.5 BBB- to AAA 0.23 0.25 3 020 3 255 4 0 |
0.3% |
| - of which SME >5.7 C to B 13.22 12.52 399 438 37 1 |
6.7% |
| 2-5.7 B+ to BB- 3.29 3.24 1 562 1 982 26 2 |
1.9% |
| 0.5-2 BB to BB+ 0.10 1.05 4 678 5 321 25 0 |
0.6% |
| <0.5 BBB- to AAA 0.31 0.33 2 148 2 299 3 0 |
0.2% |
| - of which specialised >5.7 C to B lending |
|
| 2-5.7 B+ to BB |
|
| 0.5-2 BB to BB+ |
|
| <0.5 BBB- to AAA |
|
| Retail - Mortgage >5.7 C to B 16.08 17.39 19 042 23 148 1 026 13 |
8.0% |
| 2-5.7 B+ to BB- 3.22 3.22 31 749 38 403 257 6 |
1.8% |
| 0.5-2 BB to BB+ 1.01 1.01 118 389 130 320 192 9 |
0.4% |
| <0.5 BBB- to AAA 0.08 0.08 1 654 044 1 825 857 455 26 |
0.0% |
| - of which SME | >5.7 | C to B | 12.77 | 13.15 | 1 152 | 1 402 | 39 | 0 | 7.5% |
|---|---|---|---|---|---|---|---|---|---|
| 2-5.7 | B+ to BB- | 3.27 | 3.35 | 4 253 | 4 720 | 8 | 0 | 1.4% | |
| 0.5-2 | BB to BB+ | 0.94 | 1.11 | 14 121 | 15 742 | 1 | 1 | 0.5% | |
| <0.5 | BBB- to AAA | 0.11 | 0.13 | 21 095 | 22 642 | 5 | 0 | 0.1% | |
| Retail - Other | >5.7 | C to B | 14.71 | 15.93 | 80 054 | 117 152 | 6 607 | 284 | 9.5% |
| 2-5.7 | B+ to BB- | 3.23 | 3.37 | 195 854 | 278 271 | 1 728 | 20 | 1.9% | |
| 0.5-2 | BB to BB+ | 1.05 | 1.01 | 458 033 | 547 625 | 1 421 | 18 | 0.5% | |
| <0.5 | BBB- to AAA | 0.16 | 0.16 | 970 594 | 1 092 148 | 973 | 19 | 0.1% |
Table 3.28: Backtesting of EL., PD., LGD. and CCF. per business area, 31 December 2019
| EL. in % | PD. in % | LGD. in % | CCF. in %* | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Estimated on total |
Estimated on the |
||||||||
| Estimated | Realised | Estimated | Realised*** | portfolio | defaults | Realised**** | Estimated | Realised | |
| Swedbank CS | |||||||||
| Retail - mortgages | 0.04 | 0.00 | 0.35 | 0.10 | 10.60 | 9.60 | 4.95 | 87.88 | 0.00 |
| Retail - other | 0.50 | 0.08 | 1.54 | 0.72 | 32.60 | 44.33 | 10.51 | 71.87 | 32.14 |
| Corporate** | 0.19 | 0.32 | 0.82 | 1.02 | 23.27 | 24.55 | 30.66 | 54.42 | 28.03 |
| Institutions | 0.02 | n.a | 0.06 | 0.00 | 32.20 | n.a | n.a. | n.a | n.a |
| Sovereign | 0.00 | n.a | 0.00 | 0.00 | 45.00 | n.a | n.a. | n.a | n.a |
| Swedish Banking | |||||||||
| Retail - mortgages | 0.02 | 0.00 | 0.23 | 0.08 | 10.30 | 7.26 | 3.09 | n.a | n.a |
| Retail - other | 0.31 | 0.07 | 0.99 | 0.68 | 31.60 | 44.92 | 9.67 | n.a | n.a |
| Corporate** | 0.22 | 0.04 | 1.18 | 0.63 | 18.75 | 23.06 | 6.58 | 70.33 | 38.74 |
| Institutions | 0.03 | n.a | 0.07 | 0.00 | 45.00 | n.a. | n.a. | n.a | n.a. |
| Sovereign | 0.00 | n.a | 0.01 | 0.00 | 44.80 | n.a. | n.a. | n.a | n.a. |
| Baltic Banking | |||||||||
| Retail - mortgages | 0.28 | 0.04 | 1.92 | 0.34 | 14.50 | 16.70 | 10.58 | 71.25 | 0.00 |
| Retail - other | 1.15 | 0.21 | 3.26 | 0.86 | 35.20 | 34.60 | 24.24 | 58.62 | 32.14 |
| Corporate | 0.48 | 0.04 | 1.07 | 0.20 | 44.50 | 42.51 | 19.69 | n.a | n.a |
| Institutions | 0.04 | n.a | 0.09 | 0.00 | 43.00 | n.a | n.a. | n.a | n.a. |
| Sovereign | 0.01 | n.a | 0.02 | 0.00 | 44.90 | n.a | n.a. | n.a | n.a. |
| LC&I | |||||||||
| Retail - mortgages | 0.03 | n.a | 0.16 | 0.00 | 19.10 | n.a. | n.a. | n.a | n.a |
| Retail - other | 1.04 | 0.00 | 2.30 | 0.00 | 45.40 | 38.30 | 0.00 | n.a | n.a |
| Corporate** | 0.12 | 0.53 | 0.55 | 1.43 | 21.11 | 24.37 | 37.40 | 49.65 | 27.77 |
| Institutions | 0.04 | n.a | 0.09 | 0.00 | 45.00 | n.a. | n.a. | n.a | n.a. |
| Sovereign | 0.01 | n.a | 0.02 | 0.00 | 45.00 | n.a. | n.a. | n.a | n.a. |
| Group Functions | |||||||||
| Retail - mortgages | 0.04 | n.a | 0.26 | 0.00 | 15.20 | n.a. | n.a. | n.a. | n.a. |
| Retail - other | 0.42 | n.a | 2.62 | 0.00 | 16.00 | n.a. | n.a. | n.a. | n.a. |
| Corporate | 0.65 | n.a | 1.83 | 0.00 | 35.53 | n.a. | n.a. | n.a. | n.a. |
| Institutions | 0.00 | n.a | 0.03 | 0.00 | 14.90 | n.a. | n.a. | n.a. | n.a. |
| Sovereign | 0.00 | n.a | 0.00 | 0.00 | 45.00 | n.a. | n.a. | n.a. | n.a. |
* For previous four years. please visit www.swedbank.com. .
** Swedbank applies own estimates for most of the corporate exposures in Swedish Banking and Large Corporates & Institutions. For the business areas Baltic Banking and Group Functions and the institution exposure class. Swedbank applies prescribed LGD and CCF values.
*** In Swedbank Group, a credit exposure is regarded to be in default if any of the following criteria are fulfilled:
a. There has been an assessment indicating that the counterpart is unlikely to pay its credit obligations as agreed or
b. The counterpart is past due more than 90 days on any material credit obligation to Swedbank and Swedbank will have to claim collateral or take other similar action.
**** LGD is defined as the portion exposure amount that is lost in the event of default. Realised LGD is based on all available data as of 31 December for defaulted counterparties/accounts. For defaults that still have an ongoing workout process, provisioning amount is used instead of established loss. The outcome for these will be adjusted as additional information becomes available ***** For CCF. only internal estimates are presented. This differs from the approach used for LGD, where prescribed values are presented in order to support the EL estimates.
In 2019 the strained situation for some segments of the oilrelated sector continued. Some large exposures defaulted in 2019, resulting in a higher than normal share of defaults in the corporate exposure class. Thus, the realised Expected loss (EL), and all underlying parameters, are below the estimates at the start of the year. The figures in the table do not take into account the Article 3 add-on for the Large Corporate segment which would, should it be taken into account, increase the average PD level substantially.
For all other exposure classes, the level of realised losses in 2019 were below the EL for Swedbank CS as well as for the separate business areas due to conservatism in models and in rating and due to regulatory buffers.
The stable economic development in the Baltic countries continued in 2019 with low numbers of new defaults. This resulted in realised losses on low levels compared to the expected loss levels. The average PD's are recalibrated and mapped to historical observed default frequencies. With each additional year of normalised loss data, the difference between the realised loss level and the estimated level is reduced, which can be seen in decreasing estimated EL in the graph for corporate exposures below.
Since the estimates in each risk dimension are adjusted to the business cycle and include safety margins. PD, LGD, and EL estimates will normally be more conservative than actual outcome. In the graphs below the regulatory values are used for estimates made at 1 January 2019. The graph shows the calculated loss according to the capital requirement framework as EL-ratio = PD * LGD with FSA regulatory addons and downturn adjustments. Realised LGD is based on all available data as of 31 December 2019 for defaulted counterparties/accounts. For defaults that still have an ongoing workout process, provisioning amount is used instead of established loss.
Figure 3.7: Estimated loss versus realised loss (Retail mortgage, Retail other and Corporate)
Table 3.29: IRB (specialised lending and equities) (EU CR10), 31 December 2019
| Specialised lending | |||||||
|---|---|---|---|---|---|---|---|
| Regulatory categories, | On- balance | Off-balance | Exposure | Expected | |||
| SEKm | Remaining maturity | sheet amount | sheet amount | Risk weight | amount | RWAs | losses |
| Category 1 | Less than 2.5 years | 1 | 58 | 50% | 30 | 15 | 0 |
| Equal to or more than 2.5 years | 20 | 0 | 70% | 20 | 14 | 0 | |
| Category 2 | Less than 2.5 years | 0 | 108 | 70% | 76 | 53 | 0 |
| Equal to or more than 2.5 years | 208 | 0 | 90% | 208 | 187 | 2 | |
| Category 3 | Less than 2.5 years | 0 | 83 | 115% | 58 | 68 | 4 |
| Equal to or more than 2.5 years | 78 | 0 | 115% | 83 | 94 | 0 | |
| Category 4 | Less than 2.5 years | 0 | 0 | 250% | 0 | 0 | 0 |
| Equal to or more than 2.5 years | 115 | 0 | 250% | 116 | 289 | 9 | |
| Category 5 | Less than 2.5 years | 0 | 0 | - | 0 | 0 | 0 |
| Equal to or more than 2.5 years | 2 | 0 | - | 18 | 0 | ||
| Total | Less than 2.5 years | 1 | 249 | 164 | 136 | 4 | |
| Equal to or more than 2.5 years | 423 | 0 | 445 | 584 | 20 | ||
| Equities under the simple risk-weighted approach | |||||||
| Private equity exposures | 190% | ||||||
| Exchange-traded equity exposures | 290% | ||||||
| Other equity exposures | 370% | ||||||
| Total |
The total exposure in specialised lending decreased somewhat compared to 30 June 2019.
Counterparty credit risk (CCR)
Counterparty credit risk is the risk related to a counterparty defaulting before the final settlement of a transaction's cash flows. The majority of Swedbank's counterparty credit risk arises in the trading operations in Sweden and emanates primarily from two units: Group Treasury and Large Corporates & Institutions. Counterparty credit exposure arises mainly as a result of hedging of own positions in market risk in foreign exchange, interest rate and equity risk and from customerrelated trading activities. As for products, most counterparty credit risk derives from interest rate swaps, basis swaps, and currency forwards. In nominal terms, forward rate agreements comprise a large share of the derivatives trading. However, since these contracts to a large extent are centrally cleared and have short maturities, the counterparty credit risk inherent in these derivatives is low.
Measurement of counterparty credit risk
Measuring the risk arising from instruments such as loans and interest bearing securities is straightforward as the exposure is known for any point in the future. Derivatives and securities financing transactions, on the other hand, require a more advanced approach, as future exposure is unknown, fluctuates over time and therefore needs to be estimated. The exposure value is equal to the net present value of the contract plus an add-on to reflect future potential positive market value changes. Positive derivative values generate counterparty credit risk for Swedbank and consequently the claim towards the counterparty increases when/if the positive derivative market value increase. Based on conservative estimation, an add-on factor is attached to the market value of the derivative to reflect future potential positive market value changes. For capital adequacy purposes, Swedbank uses the mark-to-market method to calculate the exposure for counterparty risk.
Counterparty credit risk limits
Limits for counterparty credit exposures are assessed and allocated in the regular credit process using the calculated estimates of maximum potential future exposure after recognition of netting agreements and collateral as appropriate. In the process of setting and approving counterparty's risk exposure limits, a number of factors have to be taken into account; included but not limited to guidance from the core credit policies, procedures and standards, and judgement and experience of credit risk professionals, the credit quality and rationale for the trading activity. Limits are also established for exposure in specific countries and/or areas and for FX settlement risk in trading operations. Moreover, relevant credit risk limits that include counterparty credit risk are allocated to certain customer segments. Limits are reviewed at least annually.
Risk measurement and evaluation
Risk measurement and evaluation is an ongoing process and Swedbank makes regular assessments, for example by specifying detailed internal add-ons for different risk types and their maturities. The internal risk add-on factors are reviewed at least annually and more often if deemed necessary. The addon factors are based on simulations of various asset price volatilities. The follow-up and measurement of counterparty credit risk exposure against approved limits is performed in a system specific to the task, and factors such as legal agreements as well as collateral held are also taken into consideration.
Swedbank maintains an independent control on Group level with responsibility to identify, quantify, follow-up, analyse and report the counterparty credit risk inherent in the business. This unit also proposes preventive actions, implements policies, works with early warning indicators, and addresses relevant mitigating actions. New products and processes are reviewed in the New Product Approval Process (NPAP) before becoming operational.
Stress tests
In addition to the standard measurements, Swedbank conducts stress tests to estimate the effects of tail events. The portfolio of stress tests being carried out includes a monthly stress test of extreme exchange rate and interest rate movements as well as a stress test on downgrades on deals covered by agreements with rating triggers. On quarterly basis a deeper qualitative analysis of monthly stress test results is performed, where Swedbank examines the scenarios with significant losses and outlines results development. Swedbank also conducts various ad-hoc stress tests pertaining to political, market or other macro events. Effects on counterparty exposures, credit losses, RWA, collateral flows and market values are considered.
Foreign exchange settlement risk
For foreign exchange (FX) settlement risk, the amount at risk is equal to the nominal transfer amount. All decision-making bodies within Swedbank that decide on counterparty limits need to establish limits for bilateral FX Settlement risk in addition to credit limits for CCR for each legal counterparty.
Wrong Way Risk
Wrong way risk (WWR) is divided into specific and general WWR. Existence of Specific WWR is detected by monitoring CCR generating trades to capture any trade where there is a legal connection between the counterparty and the underlying Issuer. General WWR is typically measured via a range of stress test scenarios. For Swedbank, it makes sense to examine sectors and/or counterparties individually to detect relationships and significant correlation between exposures and counterparties' probabilities of default.
New regulations
In March 2014, the Basel Committee finalised the standardised approach for measuring counterparty credit risk exposures (SA-CCR), it proposed new non-modelled approach for measuring counterparty credit risk for capital adequacy purposes. A draft EU proposal to implement the SA-CCR, based on the Basel Committee's methodology, was released in November 2016 as a part of an extensive package of proposed amendments to the current capital requirements regulation. The revised regulation was finalised during 2019 and the SA-CCR will apply from end of June 2021.
The approach will replace both the mark-to-market method (the approach currently employed by Swedbank) and the standardised method in the currently applicable regulatory framework.
Another regulatory initiative concerning counterparty credit risk is the Basel Committee's proposal on a new framework for Credit Value Adjustment (CVA) Risk. CVA is an adjustment to the fair value of derivative contracts to account for counterparty credit risk, and has been subject to regulatory capital requirements since January 2014. The proposed framework is closely aligned with the market risk framework 'Minimum Capital Requirements for Market Risk (commonly referred to as the 'Fundamental Review of the Trading Book' (FRTB) framework). It aims to capture CVA risks more effectively than the current framework and introduces better recognition of CVA exposure hedges. The proposal, which was revised during 2016, is divided into two parts. The first being the 'FRTB-CVA framework', which will be available to banks that satisfy a number of specified conditions related to the calculation and risk management of their CVA. The second part of the proposal, the 'Basic-CVA framework', is available to banks that do not meet the aforementioned eligibility criteria. This is essentially an enhanced version of the current framework's standardised method which Swedbank currently uses. A consultation on revisions to the new Basel CVA framework is currently under way, and the framework is expected to be implemented in the EU in the next set of revisions of the capital requirements regulation as part of the final Basel III reforms.
Mitigating counterparty credit risks
Swedbank uses a variety of methods to mitigate counterparty credit risk of which the most important is close-out netting agreements and collateral management as outlined below. Other actions include steering exposure and risks to clearing houses, which is standard procedure and mandatory for a range of products, to reduce bilateral counterparty credit risk. Risk can also be closed out through various portfolio compression activities.
Swedbank conducts credit derivative transactions primarily in connection with counterparty credit risk and mainly trades with counterparties where an ISDA CSA agreement has been established. Rather than using credit derivatives to mitigate counterparty credit risk in its trading operations. Swedbank prefers to make use of collateral arrangements.
Swedbank mitigates settlement risk through Delivery-vs-Payment (DVP) or Payment-vs-Payment (PVP) arrangements when possible. One such settlement vehicle is the global FX clearing that is conducted through CLS Group (originally Continuous Linked Settlement), where Swedbank is a member. They eliminate settlement risk in FX transactions with counterparties that are eligible for CLS clearing.
Derivative netting and collateral arrangements
Swedbank actively mitigates its counterparty credit risk mainly by establishing close-out netting agreements whereby derivatives with the same counterparties can be offset. All netting agreements need to be legally documented accordingly with the Group policy. Swedbank strives to have ISDA Master Agreements with CSA agreements in place with all financial counterparties concerned to ensure a well-functioning netting and collateral management process. As part of the credit process, the credit memos provided to credit committees specify what collateral is accepted for each individual counterparty. The vast majority of the current received and pledged collateral is cash. Financial collateral is subject to daily monitoring and an independent valuation.
Swedbank has a limited number of netting and collateral agreements with rating triggers. In the event of a credit rating downgrade, the rating triggers require various actions such as additional collateral posting, procurement of a third counterparty to step in between Swedbank and the original counterparty, or early termination of derivatives at market value. Rating triggers may apply to the ratings of one or both parties in the agreement.
The effects of a potential rating downgrade do not pose a threat to Swedbank's balance sheet. A three-notch downgrade by Standard & Poor's of Swedbank AB's long-term credit rating to 'A-' would lead to SEK 915m in collateral being posted. A three-notch downgrade by Moody's of Swedbank AB's longterm credit rating to 'A2' would cause the posting of SEK 1.772m in collateral. In a limited number of cases, terminations could occur in the event of a two-notch downgrade by Standard & Poor's of Swedbank AB's long-term credit rating to 'A'.
Table 3.30: Credit derivative exposures (EU CCR6), 31 December 2019
| Credit derivative hedges | |||||
|---|---|---|---|---|---|
| SEKm | Protection bought | Protection sold | Other credit derivatives |
||
| Notionals | |||||
| Single-name credit default swaps Index credit default swaps Total return swaps |
522 | ||||
| Credit options Other credit derivatives Total notionals |
522 | ||||
| Fair values Positive fair value (asset) Negative fair value (liability) |
13 |
Table 3.31 Impact of netting and collateral held on exposure values (EU CCR5-A), 31 December 2019
| Gross positive fair | |||||
|---|---|---|---|---|---|
| value or net carrying | Netted current credit | ||||
| SEKm | amount | Netting benefits | exposure | Collateral held | Net credit exposure |
| Derivatives | 92 552 | 72 363 | 20 189 | 12 420 | 7 769 |
| SFTs | 148 842 | 0 | 148 842 | 145 475 | 3 367 |
| Cross-product netting | |||||
| Total | 241 394 | 72 363 | 169 031 | 157 895 | 11 136 |
Figure 3.8: Netting and collateral effects for derivatives, 31 December 2019
Table 3.32: Composition of collateral for exposures to CCR (EU CCR5-B), 31 December 2019
| Collateral used in SFTs | ||||||
|---|---|---|---|---|---|---|
| Fair value of collateral received | Fair value of posted collateral | Fair value of | Fair value of | |||
| SEKm | Segregated | Unsegregated | Segregated | Unsegregated | collateral received |
posted collateral |
| IM cleared house deals cash | 1 642 | |||||
| IM cleared house deals non-cash | 1 846 | |||||
| IM cleared client deals cash | 3 140 | 3 455 | ||||
| IM cleared client deals non-cash | 3 710 | |||||
| IM not cleared derivatives cash | ||||||
| IM not cleared derivatives non-cash | ||||||
| VM cleared house deals cash | 2 763 | 5 222 | ||||
| VM cleared house deals non-cash | ||||||
| VM cleared client deals cash | 1 484 | 39 | ||||
| VM cleared client deals non-cash | ||||||
| VM not cleared derivatives cash | 8 180 | 9 225 | ||||
| VM not cleared derivatives non-cash | 12 | 518 | ||||
| SFT collaterals | ||||||
| Total | 3 140 | 12 439 | 5 556 | 20 101 |
Table 3.33: Analysis of CCR exposure by approach (EU CCR1), 31 December 2019
| Replacement cost/ Current |
Potential future |
EAD post | |||||
|---|---|---|---|---|---|---|---|
| SEKm | Notional | market value | exposure | EEPE | Multiplier | CRM | RWA |
| Mark to market | 18 643 | 22 311 | 34 417 | 11 221 | |||
| Original exposure | |||||||
| Standardised approach | |||||||
| IMM (for derivatives and SFTs) | |||||||
| of which securities financing transactions | |||||||
| of which derivatives and long settlement transactions | |||||||
| of which from contractual cross-product netting | |||||||
| Financial collateral simple method (for SFTs) | |||||||
| Financial collateral comprehensive method (for SFTs) | 3 014 | 1 659 | |||||
| VaR for SFTs | |||||||
| Total | 12 880 |
Table 3.34: CVA capital charge (EU CCR2), 31 December 2019
| SEKm | Exposure value | RWAs |
|---|---|---|
| Total portfolios subject to the advanced method | ||
| (i) VaR component (including the 3× multiplier) | ||
| (ii) SVaR component (including the 3× multiplier) | ||
| All portfolios subject to the standardised method | 19 004 | 4 730 |
| Based on the original exposure method | ||
| Total subject to the CVA capital charge | 19 004 | 4 730 |
Table 3.35: Exposures to CCPs (EU CCR8), 31 December 2019
| SEKm | EAD post CRM | RWAs |
|---|---|---|
| Exposures to QCCPs (total) | 551 | |
| Exposures for trades at QCCPs (excluding initial margin and default fund contributions); of which | 25 334 | 507 |
| (i) OTC derivatives | 24 984 | 500 |
| (ii) Exchange-traded derivatives | ||
| (iii) SFTs | 350 | 7 |
| (iv) Netting sets where cross-product netting has been approved | ||
| Segregated initial margin | 5 556 | |
| Non-segregated initial margin | 5 096 | 102 |
| Prefunded default fund contributions | 653 | 584 |
| Alternative calculation of own funds requirements for exposures | ||
| Exposures to non-QCCPs (total) | ||
| Exposures for trades at non-QCCPs (excluding initial margin and default fund contributions); of which | ||
| (i) OTC derivatives | ||
| (ii) Exchange-traded derivatives | ||
| (iii) SFTs | ||
| (iv) Netting sets where cross-product netting has been approved | ||
| Segregated initial margin | ||
| Non-segregated initial margin | ||
| Pre-funded default fund contributions | ||
| Unfunded default fund contributions |
Table 3.36: Standardised approach – CCR exposures by regulatory portfolio and risk (EU CCR3), 31 December 2019
| Risk Weight | Of | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Exposure classes, SEKm |
0% | 2% | 4% | 10% | 20% | 50% | 70% | 75% | 100% | 150% | Others | Total | which unrated |
| Central governments or central banks | |||||||||||||
| Regional government or local authorities | 28 | 28 | |||||||||||
| Public sector entities | 32 | 32 | |||||||||||
| Multilateral development banks | 735 | 735 | |||||||||||
| International organisations | |||||||||||||
| Institutions | 27 568 | 32 | 0 | 27 600 | |||||||||
| Corporates | 2 146 | 2 146 | |||||||||||
| Retail | |||||||||||||
| Institutions and corporates with a short-term | |||||||||||||
| credit assessment | |||||||||||||
| Other items | |||||||||||||
| Total | 767 | 27 568 | 60 | 0 | 2 146 | 30 541 | |||||||
| Exposure classes IRB, SEKm |
EAD post CRM |
Average PD | Number of obligors |
Average LGD |
Average maturity |
RWAs | RWA density |
|---|---|---|---|---|---|---|---|
| Central governments or central banks | |||||||
| 0.00 to <0.15 | 2 733 | 0.00 | # 53 | 45.00 | 1.9 | 85 | 3.11% |
| 0.15 to <0.25 | 38 | 0.19 | # 1 | 45.00 | 2.5 | 17 | 44.74% |
| 0.25 to <0.50 | |||||||
| 0.50 to <0.75 | |||||||
| 0.75 to <2.50 | |||||||
| 2.50 to <10.00 | |||||||
| 10.00 to <100.00 | |||||||
| 100.00 (Default) | |||||||
| Central governments or central banks - Sub total | 2 771 | 0.01 | # 54 | 45.00 | 1.9 | 102 | 3.68% |
| Institutions | |||||||
| 0.00 to <0.15 | 17 617 | 0.05 | # 155 | 44.52 | 2.5 | 4 995 | 28.35% |
| 0.15 to <0.25 | |||||||
| 0.25 to <0.50 | 165 | 0.30 | # 19 | 45.00 | 2.5 | 115 | 69.70% |
| 0.50 to <0.75 | 1 | 0.60 | # 1 | 0.41 | 1 | 100.00% | |
| 0.75 to <2.50 | 1.70 | # 1 | 45.00 | 2.5 | |||
| 2.50 to <10.00 | 4 | 4.22 | # 2 | 26.48 | 1.5 | 6 | 150.00% |
| 10.00 to <100.00 | |||||||
| 100.00 (Default) | |||||||
| Institutions - Sub total | 17 787 | 0.06 | # 178 | 44.52 | 2.5 | 5 117 | 28.77% |
| Corporates | |||||||
| 0.00 to <0.15 | 4 385 | 0.07 | # 126 | 27.98 | 3.4 | 873 | 19.91% |
| 0.15 to <0.25 | 4 303 | 0.17 | # 119 | 27.24 | 2.5 | 1 105 | 25.68% |
| 0.25 to <0.50 | 4 203 | 0.38 | # 159 | 26.76 | 4.0 | 2 087 | 49.66% |
| 0.50 to <0.75 | 303 309 |
0.60 1.31 |
# 44 # 126 |
27.88 27.06 |
1.8 2.3 |
135 234 |
44.55% 75.73% |
| 0.75 to <2.50 | 103 | 4.57 | # 31 | 14.12 | 1.3 | 133 | 129.13% |
| 2.50 to <10.00 10.00 to <100.00 |
7 | 22.24 | # 2 | 30.62 | 1.2 | 11 | 157.14% |
| 100.00 (Default) | 78 | 100.00 | # 2 | 27.26 | 2.1 | 266 | 341.03% |
| Corporates - Sub total | 13 691 | 0.85 | # 609 | 27.24 | 3.2 | 4 844 | 35.38% |
| of which: SME | |||||||
| 0.00 to <0.15 | 135 | 0.08 | # 10 | 36.01 | 4.4 | 34 | 25.19% |
| 0.15 to <0.25 | 477 | 0.16 | # 30 | 29.84 | 1.6 | 87 | 18.24% |
| 0.25 to <0.50 | 245 | 0.34 | # 65 | 36.27 | 3.7 | 111 | 45.31% |
| 0.50 to <0.75 | 31 | 0.60 | # 20 | 28.01 | 1.9 | 17 | 54.84% |
| 0.75 to <2.50 | 107 | 1.32 | # 77 | 35.64 | 3.0 | 86 | 80.37% |
| 2.50 to <10.00 | 29 | 5.19 | # 16 | 34.65 | 3.7 | 30 | 103.45% |
| 10.00 to <100.00 | 3 | 13.58 | # 1 | 36.55 | 1.5 | 4 | 133.33% |
| 100.00 (Default) | 100.00 | # 1 | 42.83 | 1.0 | |||
| of which: SME - Sub total | 1 027 | 0.51 | # 220 | 32.90 | 2.7 | 369 | 35.93% |
| Retail | |||||||
| 0.00 to <0.15 | |||||||
| 0.15 to <0.25 | 2 | 0.21 | # 4 | 45.00 | 0.00% | ||
| 0.25 to <0.50 | 0.39 | # 11 | 45.00 | ||||
| 0.50 to <0.75 | 0.60 | # 3 | 45.00 | ||||
| 0.75 to <2.50 | 16 | 1.82 | # 138 | 18.94 | 5 | 31.25% | |
| 2.50 to <10.00 | 190 | 4.85 | # 551 | 44.90 | 102 | 53.68% | |
| 10.00 to <100.00 | 17.99 | # 34 | 35.42 | ||||
| 100.00 (Default) | |||||||
| Retail - Sub total | 208 | 4.57 | # 741 | 42.91 | 107 | 51.44% | |
| Other Retail | |||||||
| 0.00 to <0.15 | |||||||
| 0.15 to <0.25 | 2 | # 4 | 0.00% | ||||
| 0.25 to <0.50 | # 11 | ||||||
| 0.50 to <0.75 | # 3 | ||||||
| 0.75 to <2.50 | 16 | # 138 | 5 | 31.25% | |||
| 2.50 to <10.00 | 190 | # 551 | 102 | 53.68% | |||
| 10.00 to <100.00 | # 34 | ||||||
| 100.00 (Default) | |||||||
| Other Retail - Sub total | 208 | # 741 | 107 | 51.44% | |||
| Total all exposures | 34 457 | 0.40 | # 1 582 | 37.69 | 2.7 | 10 170 | 29.52% |
Table 3.37: IRB approach – CCR exposures by portfolio and PD scale (EU CCR4), 31 December 2019
Changes are only effects of normal business activity, no significant changes.
Figure 3.9: Maturity profile for derivative exposures, 31 December 2019
Note: Add-on + net credit exposure is the exposure according to the internal model. Net credit exposure is the largest of the market values after netting and collateral and threshold plus minimum transfer amount for transfer of collateral.
Total exposure according to internal model has slightly decreased 2019 compared with 2018, both for internal add-on and net counterparty credit exposure.
Swedbank's market risks were kept at low levels during 2019. Despite recession worries and unpredictable trade talks between the United States and China, 2019 was characterised by calmer markets with rising equity prices and falling volatility. Interest rates declined but stabilised on low levels. The low-risk profile was achieved through a pro-active yet cautious management of Swedbank's portfolios carrying market risk.
Market risk
The risk to value, earnings, or capital arising from movements of risk factors in financial markets. This risk includes Interest rate risk, Currency risk, Equity risk, Commodity risk and risks from changes in volatilities or correlations.
Highlights 2019
While markets 2018 were characterised by increased uncertainties regarding macro environment and geopolitical trends, 2019 was characterised by calmer markets, rising equity prices and lower interest rates. Notably, Federal Reserve lowered their key interest rate for the first time since 2008 with three cuts, due to slowing growth and muted inflation.
VaR for the Group by the end of the year was SEK 64m, compared to SEK 46m by the end of 2018.
Management of market risks
The majority of Swedbank's market risk is structural or strategic in nature and emerges within Group Treasury. Market risk also arises in the daily market-making and clientfacilitation activities of the trading book. Swedbank's trading operations are managed within the business area LC&I primarily to fulfil the clients' transaction requirements in the financial markets.
Swedbank has established strategies and processes for the overall management of the market risks that emerge within the trading and banking book, with the ERM Policy as the starting point. The policy is reviewed and adopted at least annually by Swedbank's Board of Directors and applies to Swedbank as a Group. The Market Risk Instructions, which originates from the ERM-policy is reviewed and adopted at least annually by the CEO. All internal regulations and processes are reviewed on a regular basis by the risk organisation, internal and external auditors, and supervisors.
Swedbank's market risk-taking is limited via the risk appetite established by Swedbank's Board of Directors. Using the risk appetites as starting points, a market risk limit structure has been adopted on both CEO and CRO level in order to prevent Swedbank from unintentional losses. To enhance the management of market risks even further, limits have also been established on a business level. Only risk-taking units, i.e. units that have been granted permission by Swedbank's CEO, are allowed to carry market risk.
Group Treasury, as well as LC&I, monitor and manage their market risks within the given mandates and have the possibility to use different types of derivative contracts, mainly interest rate and currency interest rate swaps, foreign exchange forwards & swaps as well as forward rate agreements, to mitigate currency and interest rate risks. In those cases where hedge accounting is applied, the effectiveness of the hedge is continuously monitored by evaluating the changes in fair values or cash flows of the hedged item compared with the changes in fair values or cash flows of the hedging instrument.
New products have to be pre-approved in the NPAP process, where some of the key stakeholders besides the business are the risk, compliance, and finance organisations. The process is a way of ensuring, for example, that all positions in the trading book are tradable or can be hedged.
The risk organisation performs daily limit monitoring, in-depth analysis, frequent stress testing, and reporting of Swedbank's market risks to ensure that the risks are properly managed. Internal reporting of market risk exposure and follow-up on limit usage is performed on a daily basis and delivered to various stakeholders, such as the risk-taking units and the senior management of Swedbank. The risk organisation has established sound escalation principles for limit breaches in which the market risk-takers, as well as Swedbank's senior management, are informed of the incident as well as how it has been mitigated.
Measurement of market risk
Swedbank uses a variety of risk measures, both statistical and non-statistical, that guide its day-to-day operations as well as address important regulatory requirements. Statistical measures such as Value-at-Risk (VaR) and Stressed VaR (SVaR) have become mainstays of the risk measurement process and are also used for calculating regulatory capital. Non-statistical measures such as sensitivity analyses and stress tests are important complementary measures that provide a better understanding of specific market risk factors or possible tail scenarios. Materiality is considered when analysing and measuring the risks, paying extra attention to the largest exposures. New products have to be pre-approved by the risk organisation in the NPAP process to ensure that all risk factors associated with the new product are identified and can be managed in the risk measurement. The use of products that contain fundamentally new market risk characteristics, such as new asset classes, requires explicit approval by the CEO. The risk system is subject to a continuous maintenance process and a yearly validation process to ensure that a relevant set of risk factors is being used as the nature and volume of trades may vary over time.
VaR and Stressed VaR
Swedbank's VaR model (using Monte Carlo simulations and a 99% confidence level over a one-day time horizon) is a useful tool for comparing risk levels across different asset classes such as interest rate, credit spread, foreign exchange or equity; and thus gives insight into each asset class as well as into their relative risk levels. VaR does not include strategic currency risk, since a VaR measure on a one-day time horizon is not relevant for positions which are meant to be held strategically for longer periods of time. VaR does, however, include positions that are designated as "Held to maturity" or are in a hedging relationship ("Hedge accounting") and therefore have no direct impact on Swedbank's net gains and losses on financial items at fair value.
The estimations of the parameters included in the VaR model are updated on a daily basis. Both absolute and relative returns are used when simulating potential movements in risk factors. The valuation approach of both VaR and SVaR is full revaluation, with a few exceptions such as structured equity products and interest rate products in the Baltic subsidiaries, for which the valuation is based on approximations. Since VaR is premised on model assumptions, Swedbank conducts daily backtesting to assess the accuracy and relevance of the model. Swedbank has an approval to partially use an Internal Models Approach (IMA) when calculating regulatory capital requirements regarding market risk for Swedbank Consolidated Situation and Swedbank AB. The approval is based on VaR and SVaR models. For both Swedbank CS and Swedbank AB, the approval covers general interest rate risk, general equity risk, specific equity risk and currency risk in the trading book for the Swedish operations. For Swedbank CS, the approval also covers general interest rate risk and currency risk in the trading book for the Baltic subsidiaries. The IMA VaR and SVaR models differ from the VaR and SVaR models used for internal risk management purposes as they do not include credit spread risk. The SVaR model uses market data from the one-year period covering early 2008 to 2009, a period deemed to be of significant stress. The VaR model uses market data from one year back, with unweighted returns. The 10-day VaR is determined by multiplying one-day VaR by the square root of 10. The same methodology applies when calculating the 10-day SVaR.
In addition to the Monte Carlo-based VaR and SVaR models, Swedbank also runs Historical VaR, and other variants such as Exponential VaR and Expected Shortfall, for further complementary monitoring and analysis.
Sensitivity analysis
Swedbank uses various sensitivity measures in order to grasp each portfolio's sensitivity to changes in one or more market risk factors. For example, measures used for interest rate sensitivities may include the one basis point shift along various parts of the curve to capture basis risk or the 100 basis point parallel shift which attempts to capture convexity effects. Another example is FX matrix risk which shows each foreign currency's sensitivity to changes in both price and volatility. Together, these sensitivity measures provide important information to risk analysts who monitor changes, trends and anomalies. These measures also form the building blocks of important risk limits that guide Swedbank's trading activities and banking operations.
Stress tests
Several stress tests are performed and reported to various stakeholders on a daily basis. The various statistical and sensitivity measures described above have known shortfalls and limitations. For example, the VaR model inputs are based on market data from the past year which might not include stressed market conditions, i.e. VaR figures may not capture hypothetical extreme market movements. Moreover, the VaR model does not accurately capture correlation breakdown during extreme financial market stress. Additionally, sensitivity measures only show general sensitivity to small and large movements but provide no historical context for the figures. To address these limitations, Swedbank has a comprehensive set of stress tests which are broadly categorized into scenarios: (i) historical, (ii) hypothetical, and (iii) method and model. The stress tests (and the scenarios on which they are based) are meant to cover significant movements in market risk factors and to highlight mismatches in open positions that might cause large-scale losses.
Historical stress tests attempt to capture various effects on the current portfolio using past market data from periods of particular stress. In effect, these tests present the possible losses to the current portfolio if history were to repeat itself. The set of historical scenarios and relevant market data goes as far back as 25 years. It covers financial events (such as the 1992 Swedish banking crisis or the 2008 subprime mortgage meltdown) and non-financial events (such as the September 2001 terror attacks or the 2011 Japan earthquake).
Hypothetical stress tests attempt to quantify the change in portfolio value that would result from hypothetical and extreme shifts in risk factors. These tests include standardised single or cross-asset tests with large but possible shifts that are historically informed. Other forward-looking tests can include more customized tests which may be run on an ad-hoc basis, such as the 2018 European Banking Authority (EBA) stress test. Some customized tests may be more routinely established, such as the bi-annual reverse stress test.
Method and model stress tests measure how statistical measures (such as VaR and Expected Shortfall) respond to changes in assumptions, parameters and market conditions. The purpose is partly to capture the uncertainty in reported risk figures due to assumptions and parameter estimations, and partly to capture how dependent the reported risk figures are on current market conditions (such as interest rate levels and risk factor covariance).
Capital requirements for market risks
Capital requirements for market risk may be based either on a standardised model or on an internal VaR model (IMA).
As of Q4 2019, Swedbank's capital requirement for market risk, based on calculations according to the standardized approach, was SEK 287m (Q2 2019 SEK 271m). The majority of the total increase (SEK 16m) was due to increased capital requirements for specific interest rate risk in trading book (SEK 11m), which was mainly driven by increased positions in Swedish institutions long term debt instruments. Capital requirements for FX risk in banking book increased by SEK 5m.
At the end of the year, the capital requirement for Swedbank's market risk, based on calculations according to the IMA, was SEK 1 021m (Q2 2019: SEK 901m). The increase was mainly attributable to increased general interest rate risk exposure. The total capital requirement for Swedbank's market risk was SEK 1 308m (Q2 2019: SEK 1 172m).
Table 4.1: Market risk under the standardised approach (EU MR1), 31 December 2019
| Capital requirements |
||
|---|---|---|
| SEKm | RWA | Total |
| Outright products | ||
| Interest rate risk (general and specific) | 3 375 | 270 |
| Equity risk (general and specific) | 13 | 1 |
| Foreign exchange risk | 200 | 16 |
| Commodity risk | ||
| Options | ||
| Simplified approach | ||
| Delta-plus method | ||
| Scenario approach | ||
| Securitisation (specific risk) | ||
| Total | 3 588 | 287 |
Table 4.2: Market risk under the IMA (EU MR2-A), 31 December 2019
| Capital | ||
|---|---|---|
| SEKm | RWA | requirements Total |
| VaR (higher of values a and b) | 2 665 | 213 |
| Previous day's VaR (Article 365(1) (VaRt-1)) | 70 | |
| Average of the daily VaR (Article 365(1)) of the CRR | ||
| on each of the preceding 60 business days | 213 | |
| (VaRavg) x multiplication factor (mc) in accordance with Article 366 of the CRR |
||
| SVaR (higher of values a and b) | 10 097 | 808 |
| Latest SVaR (Article 365(2) of the CRR (SVaRt-1)) | 245 | |
| Average of the SVaR (Article 365(2) of the CRR) during the preceding 60 business days (SVaRavg) x |
808 | |
| multiplication factor (ms) (Article 366 of the CRR) | ||
| IRC (higher of values a and b) | ||
| Most recent IRC value (incremental default and | ||
| migration risks calculated in accordance with Article | ||
| 370 and Article 371 of the CRR) | ||
| Average of the IRC number over the preceding 12 weeks |
||
| Comprehensive risk measure (higher of values | ||
| a, b and c) | ||
| Most recent risk number for the correlation trading | ||
| portfolio (Article 377 of the CRR) | ||
| Average of the risk number for the correlation | ||
| trading portfolio over the preceding 12 weeks 8% of the own funds requirement in the |
||
| standardised approach on the most recent risk | ||
| number for the correlation trading portfolio (Article | ||
| 338(4) of the CRR) | ||
| Other | ||
| Total | 12 762 | 1 021 |
Table 4.3: IMA values for trading portfolios (EU MR3), 31 December 2019
| SEKm | |
|---|---|
| VaR (10 day 99%) | |
| Maximum value | 97 |
| Average value | 64 |
| Minimum value | 49 |
| Period end | 70 |
| Stressed VaR (10 day 99%) | |
| Maximum value | 311 |
| Average value | 256 |
| Minimum value | 216 |
| Period end | 245 |
| Incremental Risk Charge (99.9%) | |
| Maximum value | |
| Average value | |
| Minimum value | |
| Period end | |
| Comprehensive Risk capital charge (99.9%) | |
| Maximum value | |
| Average value | |
| Minimum value | |
| Period end |
Fundamental Review of the Trading Book (FRTB)
The Basel Committee has finalised the FRTB, a comprehensive revision of the global capital adequacy standard for market risk. The final standard "Minimum capital requirements for market risk" was presented in January 2019 and implies substantial revisions to both the standardised approach and the Internal Models Approach.
The Committee's objective is that the new standard will address weaknesses that have been identified in risk measurement under the existing framework. The changes include a strengthened relationship between the standardised and the model-based approaches, encompassing mandatory calculation and public disclosure of standardised capital charges on a desk-by-desk basis. The measure of risk has also been shifted from VaR to Expected Shortfall, to better capture tail risk. Further, the proposal includes a revised boundary between the trading book and the banking book.
Swedbank's work on implementing the upcoming standard has been initiated to ensure compliance with the new framework when it enters into force. As a first step the standardised approach is introduced as a reporting requirement during 2021. The timeline for the full implementation of the new standard in national legislation is still uncertain, but according to the timeline, the Commission will present a proposal to the European Parliament on how to implement FRTB for market risk capital requirements in June 2020.
Although quantitative impact studies performed so far indicate an increase in market risk capital requirements, it is still too early to draw firm conclusions regarding the conclusive levels and when the full impact will be seen. The uncertainty in terms of quantitative impact lies within the final calibration of the new framework, and timing-wise within the EU's application and gradual phasing-in of the internationally agreed capital floor linked to the standardised approach.
Table 4.4: RWA flow statements of market risk exposures under the IMA (EU MR2-B), 31 December 2019
| Comprehensive | Total capital | ||||||
|---|---|---|---|---|---|---|---|
| SEKm | VaR Total | SVaR total | IRC | risk measure | Other | Total RWA | requirements |
| RWA at previous quarter-end | 2 296 | 9 769 | 12 065 | 965 | |||
| Regulatory adjustment | 1 501 | 6 441 | 7 942 | 635 | |||
| RWAs at the previous quarter-end (end of the day) | 795 | 3 328 | 4 122 | 330 | |||
| Movement in risk levels | 87 | -265 | -179 | -14 | |||
| Model updates/changes | |||||||
| Methodology and policy | |||||||
| Acquisitions and disposals | |||||||
| Foreign exchange movements | |||||||
| Other | |||||||
| RWAs at the end of the reporting period (end of the day) | 881 | 3 062 | 3 943 | 315 | |||
| Regulatory adjustment | 1 784 | 7 035 | 8 819 | 706 | |||
| RWAs at the end of the reporting period | 2 665 | 10 098 | 12 762 | 1 021 |
Market risk exposures
Value-at-Risk (Total)
The market volatility generally decreased during 2019, although shorter periods of higher volatility occurred in times of market concerns.
VaR generally increased during 2019, mainly due to structural changes to the positions and the underlying interest rate risk.
Table 4.5: VaR allocated by risk category
| Jan - Dec 2019 (2018) | |||||||
|---|---|---|---|---|---|---|---|
| SEKm | Max | Min | Average | 31 Dec 2019 |
31 Dec 2018 |
||
| Interest rate risk | 83 (78) | 36 (33) | 57 (53) | 58 | 44 | ||
| Currency rate risk | 20 (22) | 2 (3) | 7 (10) | 11 | 5 | ||
| Share price risk | 7 (10) | 1 (1) | 3 (4) | 5 | 3 | ||
| Diversification | -8 (-15) | -10 | -6 | ||||
| Total | 93 (78) | 38 (37) | 59 (52) | 64 | 46 |
Note: The VaR figures above are generated from the VaR model used for internal risk management purposes and are different from the figures generated from the VaR model used for capital requirement calculation. Interest rate risk includes credit spread risk.
Interest rate risk
The majority of the interest rate risk at Swedbank arises in the banking book. The structural interest rate risk arises from mismatches in interest-fixing periods between the assets and liabilities (including derivatives). The interest rate risk from fixed rate assets (primarily customer loans), is for the most part hedged through fixed rate funding or through interest rate swap contracts. An increase in all market interest rates of one percentage point as of 31 December 2019 would have reduced the value of Swedbank's interest-bearing assets and liabilities, including derivatives, by SEK -365m (2018: SEK - 137m). The effect on positions in SEK would have been a reduction of SEK -1 277m (2018: SEK -1 368m), while positions in foreign currency would have increased in value by SEK 912m (2018: SEK 1 232m), see table 4.7.
Currency risk
Structural currency risks primarily arise in the banking book when assets and liabilities are denominated in different currencies. The trading book also generates currency risk. Additionally, Swedbank has a strategic currency position in EUR through goodwill in the Baltic subsidiaries. This position is financed in SEK and is not hedged since it does not affect either profit or the capital base.
A general shift in exchange rates of foreign currencies against the Swedish krona of both positive and negative 5% would entail effects on Swedbank's net gains and losses on financial items at a fair value of SEK 73m (2018: SEK -39m) and SEK 21m (2018: SEK 70m).
Credit spread risk
Credit spread risk within Swedbank arises when issuerspecific spreads change on interest-bearing assets and credit derivatives. Credit spread risk is present in the trading book and in the banking book through Group Treasury's liquidity portfolio. An increase of all issuer-specific spreads as of 31 December 2019 by one basis point would have reduced the value of Swedbank's interest-bearing assets, including derivatives, by SEK 11m (2018: SEK 10m).
Share price risk
Share price risk occurs only in the trading book and originates from exposure to equities and equity-related derivatives. Swedbank's equity trading book is primarily customer-driven with the purpose of providing liquidity to Swedbank's customer base. Swedbank measures and limits share price risk through a risk matrix that maps the outcome of 81 different scenarios where share prices are changed by a maximum of +/– 20% and volatilities by a maximum of +/– 30%. A limit is in place for the worst-case outcome from this matrix. At yearend 2019, the worst-case outcome would have entailed a decline in the value of the trading operation's positions by SEK -27m (2018: SEK -18m).
Commodity risk
Exposure to commodity prices arises only as a part of clientrelated business, and only in exceptional cases. As a rule, Swedbank hedges any positions with commodity exposure with a third party, leaving Swedbank with no commodity risk.
Figure 4.1: Comparison of VaR estimates with gains/losses (EU MR4), Jan-Dec 2019
Backtesting
Swedbank conducts both actual and hypothetical backtesting. Actual backtesting uses the trading operations' actual daily results, cleaned from commissions and fees and excluding monthly value adjustments (such as CVA reservations). The hypothetical backtesting uses close-of-business positions and revalues the portfolio with the latest market data to obtain a hypothetical result. The actual, as well as the hypothetical result, is then compared with VaR to ensure the validity of the IMA VaR model. If actual or hypothetical losses exceed the calculated value at risk estimated losses, it is considered an "exception". Backtesting exceptions against hypothetical P&L impact the IMA RWA estimate while exceptions against actual P&L do not. Given the confidence level of 99%, we would statistically expect an exception about 2-3 times per year. Swedbank has had two exceptions in the hypothetical backtesting in 2019 as shown in Figure 4-1.
The first exception occurred on the 6th of August. The hypothetical loss was SEK 26.7m and VaR was SEK 18.2m. The backtesting exception was mainly caused by drops in EUR and USD interest rates and increases in USD swaption volatilities.
The second exception occurred on the 23th of August. The hypothetical loss was SEK 20.5m and VaR was SEK 17.9m.
The backtesting exception was mainly caused by a decrease in long term SEK interbank interest rates, as well as an increase in USD swaption volatilities.
Value-at-Risk (Trading Book)
Swedbank's market risk exposure, as measured by VaR, was on average slightly higher in 2019 than in 2018. The total trading book VaR in 2019 averaged at SEK 21m, compared to SEK 18m in 2018. The increase was mainly related to fixed income trading.
Table 4.6: Trading book, VaR by business area
| Jan - Dec 2019 (2018) | |||||||
|---|---|---|---|---|---|---|---|
| SEKm | Max | Min | Average | 31 Dec 2019 |
31 Dec 2018 |
||
| Credit spread | 10 (27) | 4 (4) | 6 (12) | 5 | 9 | ||
| Equity | 7 (11) | 1 (1) | 3 (4) | 5 | 3 | ||
| FX | 10 (16) | 2 (2) | 4 (7) | 3 | 6 | ||
| Interest rate | 26 (20) | 12 (6) | 19 (11) | 19 | 13 | ||
| Diversification | -11 (-15) | -9 | -10 | ||||
| Total | 30 (31) | 14 (12) | 21 (18) | 22 | 17 |
Note: The VaR figures above are generated from the VaR model used for internal risk management purposes and are different from the figures generated from the VaR model used for capital requirement calculation.
Net interest income sensitivity
In addition to interest rate sensitivities, other measures such as net interest income (NII) sensitivity in the banking book are calculated and monitored regularly. NII sensitivity is a result of any mismatch between the interest rate fixing periods for assets and liabilities of which the structural risk in the bank's demand deposits is an important part. Swedbank measures its NII sensitivity over a one-year time period using a variety of different interest rate scenarios. The calculations take into account internal assumptions of the relation between market rates and customer rates and also include scenarios to measure the NII impact of different pass-through assumptions.
Table 4.7: Change in value of assets and liabilities measured at fair value, including derivatives, if market interest rate rises 1 percentage point, 31 December 2019
| SEKm | < 3 mths. | 3-6 mths. | 6-12 mths. | 1-2 yrs. | 2-3 yrs. | 3-4 yrs. | 4-5 yrs. | 5-10 yrs. | > 10 yrs. | Total |
|---|---|---|---|---|---|---|---|---|---|---|
| SEK | -152 | -110 | -222 | -750 | 143 | 1 073 | 249 | -1 308 | -200 | -1 277 |
| Foreign currency | 302 | 956 | -41 | 196 | -410 | 110 | -1 082 | 1 095 | -214 | 912 |
| Total | 150 | 846 | -263 | -554 | -267 | 1 183 | -833 | -213 | -414 | -365 |
| Of which financial instruments measured at fair value through profit and loss: | ||||||||||
| SEK | -107 | -9 | -72 | 46 | -132 | -552 | -382 | 1 109 | -61 | -160 |
| Foreign currency | 192 | 909 | -118 | 223 | -313 | 155 | -875 | 1 117 | -78 | 1 212 |
| Total | 85 | 900 | -190 | 269 | -445 | -397 | -1 257 | 2 226 | -139 | 1 052 |
5. Liquidity risk
Swedbank's liquidity position remained strong, supported by investors who are confident in Swedbank's overall business strategy, solid profitability, robust capitalisation, and low-risk position.
Liquidity risk
The risk of not being able to meet payment obligations at maturity or when they fall due.
Highlights 2019
In 2019, Swedbank issued SEK 143bn (SEK 117bn) of longterm debt, including senior non-preferred bonds. This was in part to meet long-term debt maturities of SEK 68bn. Covered bond issuances accounted for a major proportion of the longterm funding at SEK 131bn. SEK 10.9bn of senior nonpreferred bonds were issued to meet MREL requirement by January 2022.
In 2020, Swedbank plans to issue approximately SEK 145bn of long-term debt, of which around SEK 87bn are covered bonds and SEK 38bn are senior non-preferred bonds.
Funding and liquidity strategy
Strategy
Swedbank's funding strategy reflects its asset composition. More than half of the lending consists of Swedish mortgages, primarily financed through covered bonds. Deposits, covered bonds and shareholder equity make up the main part of Swedbank's total funding requirements. This means that Swedbank has a limited structural need for senior unsecured funding.
The share of unsecured funding is determined by Swedbank's aim to maintain a conservative stable funding profile using a diversified set of funding sources as well as its need to meet the regulatory MREL requirements.
To secure a stable funding profile for Swedbank, Group Treasury is continuously monitoring and analysing relevant positions and markets, e.g. the deposit base and the wholesale debt market.
Funding
Swedbank has a number of different funding programs for its short- and long-term funding, including commercial paper programs, certificates of deposit, covered bonds, and senior unsecured debt (see tables 5.1 to 5.3 and figure 5.2 and 5.3). During 2019, Swedbank also began issuing senior nonpreferred bonds to be MREL compliant by 2022.
Swedbank also complements its public funding activities with long-term investor-targeted private placements. In addition, Swedbank continuously evaluates various markets and currencies with the intent to further diversify the investor base.
In 2019, the global credit market was affected by dovish central banks globally as well as an unprecedented lowering of bond yields and swap rates.
Table 5.1: Outstanding debt securities in issue
| SEKm | 2019 | 2018 |
|---|---|---|
| Commercial papers | 128 772 | 131 434 |
| Covered bonds | 589 627 | 497 936 |
| Senior unsecured bonds | 128 445 | 164 243 |
| Structured retail bonds | 8 910 | 10 747 |
| Total | 855 754 | 804 360 |
Table 5.2: Outstanding short-term funding volumes
| SEKm | 2019 | 2018 |
|---|---|---|
| European CP/CD | 49 550 | 14 499 |
| USCP/Yankee CD | 78 225 | 116 935 |
| of which initial maturity > 1 year | 9 546 | 15 642 |
| Domestic CP | 1 000 | |
| Total | 128 775 | 131 434 |
| SEKm | 2019 | 2018 |
|---|---|---|
| Covered bonds | 131 039 | 87 907 |
| Senior unsecured bonds | 26 664 | |
| Structured retail bonds | 1 036 | 2 166 |
| Senior non-preferred | 10 946 | |
| Total | 143 021 | 116 737 |
Figure 5.2: Long-term funding by maturity, 31 Dec 2019
Figure 5.3: Long-term funding by currency, 31 Dec 2019
Table 5.4: Liquidity Reserve, Swedbank, 31 December 20191)
| Currency distribution | |||||
|---|---|---|---|---|---|
| SEKm | Total | SEK | EUR | USD | Other |
| Level 1 assets | 373 729 | 198 704 | 143 352 | 23 669 | 8 004 |
| Cash and holdings in central banks2) | 195 284 | 31 673 | 141 495 | 18 895 | 3 221 |
| - Securities issued or guaranteed by sovereigns, central banks, MDBs and intl. org. |
132 647 | 127 107 | 706 | 4 774 | 60 |
| - Securities issued by municipalities and PSEs |
4 081 | 3 933 | 2 | 146 | |
| - Extremely high-quality covered bonds |
41 717 | 35 991 | 1 149 | 4 577 | |
| Level 2 assets | 5 972 | 4 622 | 126 | 0 | 1 224 |
| Level 2A assets | 5 967 | 4 622 | 121 | 1 224 | |
| - Securities issued or guaranteed by sovereigns, central banks, municipalities and PSEs |
|||||
| - High-quality covered bonds |
5 967 | 4 622 | 121 | 1 224 | |
| - Corporate debt securities (lowest rating AA-) |
|||||
| Level 2B assets | 5 | 5 | |||
| - Asset-backed securities |
|||||
| - High-quality covered bonds |
|||||
| - Corporate debt securities (rated A+ to BBB-) |
5 | 5 | |||
| - Shares (major stock index) |
|||||
| Total Liquid Assets | 379 701 | 203 326 | 143 478 | 23 669 | 9 228 |
1) Unadjusted Liquid Assets classified in accordance with Commission Delegated Regulation (EU 2015/61).
2) Minimum reserve requirements held in Central Banks of Estonia, Latvia, Lithuania and Bank of Finland are excluded from Liquid Assets.
Liquidity reserve
Swedbank maintains a liquidity reserve to manage its liquidity risks. When future refinancing needs arise, the liquidity reserve is increased to meet these maturities. Various types of stressed scenarios such as partly or fully closed markets for new issuance are also considered. At the end of 2019, the liquidity reserve amounted to SEK 380bn (SEK 317bn), see table 5.4. Swedbank's liquidity reserve includes high-quality liquid assets and other liquid assets under control of the
treasury department according to the SFSA and FFFS 2010:7, to be able to withstand liquidity disruptions. Assets included in the reserve fulfil regulatory requirements, see description below table 5.4.
Rating
Swedbank is rated by S&P Global, Moody's and Fitch. All ratings remained unchanged during 2019, however the agencies changed their outlook's for Swedbank due to the discussions about shortcomings in the bank's AML processes.
On 1 April S&P Global affirmed Swedbank's AA- rating but changed its outlook from Stable to Rating Watch Negative. On 2 April Moody's affirmed Swedbank's Aa2 rating but changed its outlook from Stable to Outlook Negative. On 2 April Fitch also affirmed Swedbank's AA- rating but changed its outlook from Stable to Rating Watch Negative.
On September 27 S&P Global revised its outlook to Outlook Negative because the SFSA delayed the completion of its investigation of Swedbank to early 2020.
Asset encumbrance
The types of assets and funding instruments that are being utilised to encumber the balance sheet of a bank determine the nature of the asset encumbrance. In Swedbank's opinion, secured funding in the form of covered bonds, which has a direct link to the underlying business line of mortgage lending, is of higher quality than secured funding in the form of repos, where several different types of assets are used.
Encumbered mortgages, used as covered bond collateral, are the main source of Asset Encumbrance. Apart from these loans, smaller encumbrance volumes also come from derivatives and repos, with most of such encumbrance stemming from Swedbank AB. Unencumbered assets under "other assets" include assets not eligible for pledging in central banks such as intangible assets. See table 5.6 illustrating Swedbank's current and potential level of asset encumbrance. See also table 5.9 for information on the overcollateralisation level.
Table 5.5: Swedbank's ratings, 31 December 2019
| Swedbank AB | Swedbank Mortgage AB | Covered bonds | |||||
|---|---|---|---|---|---|---|---|
| Rating | Outlook | Rating | Outlook | Rating | Outlook | ||
| Standard & Poor's | Short-term | A-1+ | N | A-1+ | N | ||
| Long-term | AA- | N | AA- | N | AAA | S | |
| Moody's | Short-term | P-1 | P-1 | ||||
| Long-term | Aa2 | N | Aa2 | N | Aaa | -* | |
| Fitch | Short-term | F1+ | WN | ||||
| Long-term | AA- | WN |
* Based on Moody's rating methodology for covered bonds, no outlook is assigned Asset encumbrance.
Table 5.6: Asset encumbrance, 31 December 2019
| Unencumbered assets, additional | ||||
|---|---|---|---|---|
| Type of assets (Balance Sheet items), | Encumbered assets | assets available for secured funding | ||
| SEKm | Carry Amount | Fair Value | Carry Amount | Fair Value |
| Assets of the reporting institution | 607 028 | 1 673 692 | ||
| Loans on demand | 226 459 | |||
| Equity instruments | 5 517 | 5 517 | ||
| Debt securities | 23 504 | 23 651 | 180 364 | 181 126 |
| Loans and advances other than loans on demand | 581 941 | 1 150 439 | ||
| of which mortgage loans | 566 492 | 698 826 | ||
| Other assets | 85 646 |
| Encumbered Assets | |||||||
|---|---|---|---|---|---|---|---|
| Purpose for encumbrance (On- and off-balance sheet items), | 31 Dec | 30 Sep | 30 Jun | 31 Mar | |||
| SEKm | 2019 | 2019 | 2019 | 2019 | |||
| Carrying amount of selected financial liabilities | 608 929 | 583 733 | 554 191 | 554 191 | |||
| of which Derivatives | 18 109 | 15 672 | 14 188 | 14 188 | |||
| of which Deposits | 45 040 | 45 405 | 44 165 | 44 165 | |||
| of which Debt securities issued | 547 133 | 525 053 | 495 838 | 495 838 | |||
| Other sources of encumbrance | 20 943 | 21 182 | 21 464 | 21 631 | |||
| Total | 629 873 | 604 958 | 575 822 | 575 822 |
| Unencumbered assets - available for pledging in Central Bank (including repos), | |||||||
|---|---|---|---|---|---|---|---|
| SEKm | 31 Dec 2019 | 31 Dec 2018 | |||||
| Government debt securities | 12 523 | 17 922 | |||||
| Central banks and supranational debt instruments | 121 803 | 82 400 | |||||
| Covered bonds | 54 086 | 42 397 | |||||
| Debt instruments issued by corporate and other issuers | 967 | 563 | |||||
| Securities issued by corporate issuers | 824 | 954 | |||||
| ABS | |||||||
| Mortgage loans | 411 085 | 470 624 | |||||
| Total | 601 288 | 614 860 |
Management of liquidity risk
Structure and organisation of liquidity risk management
The level of risk acceptable for achieving the strategic goals of Swedbank ("Risk appetite") is decided by Swedbank's Board of Directors, while the CEO is responsible for the implementation of the risk policy and risk appetite established by the Board. The CEO has established a Group Treasury function with the overall responsibility to manage Swedbank's liquidity. Group Treasury is the first line of defence in identifying, measuring, analysing, monitoring, and managing liquidity risks. To avoid a conflict of interest, the unit responsible for analysing the liquidity risks is separate from the position-taking units.
Group Risk constitutes the second line risk management function and is responsible for ensuring that liquidity risks are identified and properly managed by Group Treasury, and for this purpose has the responsibility to develop, maintain and provide internally developed Group-wide methods, measurements and a limit framework. Group Risk is also responsible for Group governance and strategies within the area of liquidity risk control, and for monitoring the regulatory environment related to liquidity risk control. Group Risk also provides assurance regarding compliance with the applicable rules and regulations in the countries where liquidity risk arises.
Management and control issues related to liquidity are assessed by the CEO, the CFO and the CRO of Swedbank who are assisted by the GAAC and the GRCC. Management and control of the liquidity in the Baltic subsidiaries are reported to the management of the Baltic subsidiaries (the management board, the CFO and/or the Heads of Risk of the local subsidiaries, respectively).
Liquidity management
Managing liquidity risk is an integral part of Swedbank's business operations. Group Treasury aims to proactively manage liquidity risk by managing liquidity and funding centralised on the Group level. Swedbank's funding strategy and liquidity reserve are key components in liquidity management.
Liquidity risk is forecasted and analysed continuously, using different time horizons to ensure that Swedbank has adequate cash or cash equivalents to meet its obligations in a timely manner. The inherent liquidity risk position is determined by the structure of Swedbank's balance sheet. Maturity structure and maturity mismatches in SEK and foreign currencies are also taken into account. The analysis of Swedbank's expected future cash flows provides important information for managing liquidity risk and for planning of Swedbank's funding.
Liquidity risk management is deemed to be a critically important process. Liquidity risk is monitored and managed daily. Internal data systems are used as a support to the liquidity risk measurement, monitoring and reporting both in a single currency setting as with currencies combined.
Intraday liquidity management
Intraday liquidity management constitutes the process of meeting intraday payment and settlement obligations in a timely manner. Swedbank's methodologies and systems ensure that obligations are fulfilled under normal and stressed conditions during the day. The management of intraday liquidity comprises the following elements:
- measurement of daily liquidity inflows and outflows
- monitoring of intraday liquidity positions
- funding of intraday liquidity needs
- management of timing of liquidity outflows
- capacity to deal with unexpected disruptions in intraday liquidity flows
Centralised liquidity management
Swedbank manages liquidity risk centrally, which means that individual subsidiaries or legal entities have very limited mandates to take on liquidity risk. If it is deemed necessary to provide additional liquidity to a subsidiary or branch from the parent company, a loan facility can be set up to establish a clear responsibility for the parent company to provide liquidity in times of crisis.
Funds Transfer Pricing
The purpose of the Funds Transfer Pricing (FTP) methodology is to assign each business transaction a price that reflects the cost of funding and liquidity risk, ensure the correct allocation to the business areas, and to incentivise prudent management of liquidity risks.
Business continuity plans and Key Risk Indicators
Swedbank has special contingency plans to manage any serious disruption of the liquidity situation and uses several forward-looking risk indicators to detect and act on increased liquidity risks as early as possible. These indicators show different kinds of market information, such as volatility in market prices and price discrepancies between various financial instruments. The indicators can signal increased stress and risk aversion on the financial markets and hence increased liquidity risks.
Measurement of liquidity risk
Swedbank uses a range of risk measures to capture different aspects of the liquidity risk profile. Several liquidity risk measures are used to assess intraday risk, short-term liquidity risks, and long-term structural liquidity risks. These assessments are done using both normal and stressed scenario assumptions. Both the cash flow projections and the liquidity ratios are used to estimate different aspects of the liquidity risk profile. The liquidity metrics are either defined internally or developed based on the external regulatory requirements.
Liquidity risk limit framework
With the decision on Swedbank's overall liquidity risk appetite, the Board of Directors has defined limits on the minimum Survival Horizon and the minimum required overcollateralisation (OC) level. Furthermore, a liquidity risk limit framework has been established in order to safeguard business performance within the risk appetite and to avoid unwanted risk concentrations. The limits are established for Swedbank, its relevant legal entities, for branches, and for currencies.
Survival Horizon
The Survival Horizon measure is the main internal liquidity risk metric used within Swedbank and forms the basis for the
liquidity risk limit framework. The guiding principle of the measure is the capture of all relevant future daily cash flows. Combined with the liquidity reserve of highly liquid assets, the metric illustrates Swedbank's projected liquidity position through time.
The Survival Horizon represents the number of days with positive cumulative net cash flows, taking future cash flows into account. The model is conservative to the extent that it assumes no access to wholesale funding markets and considerable withdrawals of client deposits over a stressed period. At year-end 2019, Swedbank would survive far longer than 12 months with the capital markets completely shut down (see figure 5.4).
The survival horizon represents the number of days with positive cumulative net cash flows taking into consideration Swedbank's future cash flows. No access to wholesale funding markets is assumed, as well as a considerable deposit run. Lending to private and corporate customers is rolled over. The Survival horizon is hence considered as a base stress scenario from a going concern perspective.
The principles below are used in the calculation:
-
Central bank holdings and highly liquid securities (i.e. interest-bearing securities that are pledgeable at central banks) are assumed to generate liquidity day 1, and it is assumed that the liquidity generating capacity of the highly liquid securities is intact.
-
The highly liquid securities are marked-to-market and reduced in accordance with the haircuts set by central banks.
- Highly liquid securities are available from the day they are registered on an account with a Swedbank clearer.
- Non-pledgeable securities are assumed to generate cash flow at coupon payment days and at maturity.
- Holdings of securities issued by entities within Swedbank are not part of the stock of highly liquid securities.
- Cash flows from debt security funding transactions are assumed to occur according to contractual terms and are not rolled over.
- Deposits from financial customers are assumed to occur according to contractual terms and are not rolled over.
- Deposits from private and non-financial customers are considered to gradually be withdrawn and cash outflows occur from these deposits.
- Undrawn committed and non-committed customer credit and/or liquidity facilities are not utilised.
Exceptions and clarifications: - The survival horizon considers management actions to create liquidity and include the effect from these in the curve. As an example, consideration is taken to facilities for issuing and pledging covered bonds.
Exceptions and clarifications - liquid assets: - The liquidity effect of repo/reversed repo transactions, with highly liquid securities as collateral, is assumed to be zero. - The liquidity effect of repo/reversed repo transactions with non-pledgeable securities occur on the start day and end day of the repo transaction. The cash flows from the securities in a reversed repo transaction are modelled to generate contractual cash flows at coupon payment days and at maturity day from the day it is registered on account with a Swedbank clearer.
- The liquidity effect of repo/reversed repo transactions with securities issued by Swedbank is confined to the cash leg's cash flows, since such securities are not part of highly liquid securities.
Liquidity ratios
Swedbank also monitors liquidity risks through additional measures including regulatory defined liquidity measures such as the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR), see table 5.7. The LCR aims to ensure that a bank maintains an adequate level of unencumbered, high-quality assets to meet its liquidity needs for a 30-day
horizon under the assumption of a severe liquidity stress scenario. Thus, the LCR metric focuses on a bank's short-term liquidity.
Swedbank measures the LCR according to the Delegated Regulation (EU) 2015/61. By end of year 2019, the LCR was
182%, compared to 144% for 2018. Throughout 2019, the LCR was maintained well above the regulatory requirement (see table 5.8). The LCR fluctuates over time depending on factors such as the maturity structure of Swedbank's issued securities.
In the LCR, hypothetical stressed cash outflows are calculated by applying various assumptions, with driving factors such as deposit and funding run-offs, utilisation of credit facilities and movements in derivatives and collateral positions.
Collateralization of derivative exposure plays an important part in credit risk reduction and liquidity enhancement. In the LCR measurement, the Historical Look-back Approach is used to cover and manage possible derivative transactions related losses in the stressed scenario. With this method, outflows related to derivative exposures and collateral calls remained at the same level as at year end 2018.
The NSFR shows a bank's ability to manage structural liquidity risk over a one-year horizon. It ensures that a bank's long-term illiquid assets are funded with a minimum amount of stable long-term funding. Thus, the NSFR metric focuses on a bank's long-term structural liquidity exposure. An NSFR of above 100% means that the long-term illiquid assets are adequately funded with stable funding.
As of 31 December 2019, Swedbank had an NSFR of 120% (year-end 2018: 119%). As per year end of 2019, Swedbank discloses the NSFR according to the amended Capital Requirements Regulation (EU) 2019/876 ("CRR2"). For a comparison with the previously disclosed Basel III NSFR see Table 5.7 below.
Table 5.7: Liquidity coverage ratios and other liquidity and funding ratios
| Liquidity coverage ratios1) | 31 Dec 2019 | 31 Dec 2018 |
|---|---|---|
| High Quality Liquid Assets (HQLA), SEKbn | ||
| High quality liquid assets, Level 1 | 371 | 301 |
| High quality liquid assets, Level 2 | 5 | 9 |
| Total HQLA | 376 | 310 |
| Cash Outflows, SEKbn | ||
| Retail deposits and deposits from small business customers | 43 | 42 |
| Unsecured wholesale funding | 152 | 142 |
| Secured wholesale funding | 4 | 7 |
| Additional requirements | 53 | 49 |
| Other cash outflows | 9 | 15 |
| Total Cash Outflows | 261 | 256 |
| Cash Inflows, SEKbn | ||
| Secured lending | 14 | 5 |
| Inflows from fully performing exposures | 19 | 16 |
| Other cash inflows | 23 | 19 |
| Total Cash Inflows | 54 | 40 |
| Liquidity Coverage Ratio, Total, % | 182 | 144 |
| Liquidity coverage ratio (LCR), EUR, % | 379 | 282 |
| Liquidity coverage ratio (LCR), USD, % | 157 | 228 |
| Liquidity coverage ratio (LCR), SEK2), % | 111 | 68 |
| Liquidity and funding ratios | 31 Dec 2019 | 31 Dec 2018 |
| Net stable funding ratio (NSFR) according to CRR23), % | 120 | 119 |
| Available stable funding (ASF), SEKbn | 1 550 | 1 533 |
| Required stable funding (RSF), SEKbn | 1 295 | 1 293 |
| Net stable funding ratio (NSFR) according to BCBS recommendation4), % | 111 | 111 |
| Available stable funding (ASF), SEKbn | 1 550 | 1 537 |
| Required stable funding (RSF), SEKbn | 1 398 | 1 378 |
| Liquid assets in relation to maturing funding during next 3, 6 and 12 months5), % | ||
| liquidity reserve 3 months | 295 | 223 |
| liquidity reserve 6 months | 162 | 162 |
| liquidity reserve 12 months | 112 | 136 |
1) LCR - calculated in accordance with Commission Delegated Regulation (EU 2015/61) of 10 October 2014.
2) As of 01 October 2019, there is a Swedish regulatory requirement of 75% for LCR SEK.
3) NSFR according to the amended Capital Requirements Regulation (EU) 2019/876 ("CRR2").
4) NSFR according to Swedbank's best understanding of BCBS's consultative document on new NSFR recommendation (BCBS295).
5) Liquidity ratios: liquid assets in relation to maturing wholesale funding during next 3, 6 and 12 months:
Liquidity reserve according to definition of the Swedish Bankers' Association.
Maturing funding during 3, 6 and 12 months: All wholesale funding maturing within 3, 6 and 12 months, including short-term CP/CDs, and net of lending and borrowing to/from credit institutions (net Interbank).
Table 5.8: Quantitative information on the LCR - EBA/GL/2017/01 (EU LIQ1)
| Scope of consolidation: consolidated. SEKm |
Total unweighted value | Total weighted value | ||||||
|---|---|---|---|---|---|---|---|---|
| Quarter ending on: | 31-Dec-2019 | 30-Sep-2019 | 30-Jun-2019 | 31-Mar-2019 | 31-Dec-2019 | 30-Sep-2019 | 30-Jun-2019 | 31-Mar-2019 |
| Number of data points used in the calculation of averages | 12 | 12 | 12 | 12 | 12 | 12 | 12 | 12 |
| Total high-quality liquid assets (HQLA) | 442 718 | 439 776 | 469 220 | 505 031 | ||||
| Cash-outflows | ||||||||
| Retail deposits and deposits from small business customers, of which: | 644 061 | 637 658 | 625 268 | 611 638 | 33 618 | 32 614 | 31 721 | 31 061 |
| Stable deposits | 482 169 | 477 385 | 468 291 | 457 411 | 24 108 | 23 869 | 23 415 | 22 871 |
| Less stable deposits | 161 892 | 160 273 | 156 977 | 154 228 | 9 509 | 8 745 | 8 306 | 8 190 |
| Unsecured wholesale funding | 436 050 | 439 277 | 456 314 | 484 075 | 245 086 | 248 894 | 261 363 | 283 111 |
| Operational deposits (all counterparties) and deposits in networks of cooperative banks |
158 655 | 168 705 | 189 186 | 212 728 | 39 082 | 41 591 | 46 712 | 52 604 |
| Non-operational deposits (all counterparties) | 225 119 | 209 325 | 190 218 | 177 953 | 153 728 | 146 057 | 137 741 | 137 112 |
| Unsecured debt | 52 276 | 61 247 | 76 910 | 93 394 | 52 276 | 61 247 | 76 910 | 93 394 |
| Secured wholesale funding | 8 008 | 7 557 | 5 961 | 4 563 | ||||
| Additional requirements | 308 927 | 306 458 | 305 253 | 301 516 | 36 903 | 36 609 | 36 830 | 36 942 |
| Outflows related to derivative exposures and other collateral requirements | 23 274 | 23 359 | 23 123 | 22 657 | 7 860 | 7 944 | 8 230 | 8 547 |
| Outflows related to loss of funding on debt products | ||||||||
| Credit and liquidity facilities | 285 653 | 283 099 | 282 130 | 278 859 | 29 043 | 28 665 | 28 600 | 28 395 |
| Other contractual funding obligations | 27 808 | 26 877 | 27 296 | 27 147 | 27 808 | 26 877 | 27 296 | 27 147 |
| Other contingent funding obligations | 51 135 | 50 266 | 49 638 | 49 238 | ||||
| Total cash outflows | 351 422 | 352 552 | 363 172 | 382 823 | ||||
| Cash-inflows | ||||||||
| Secured lending (e.g. reverse repos) | 59 032 | 57 025 | 53 697 | 45 961 | 59 030 | 57 022 | 53 693 | 45 956 |
| Inflows from fully performing exposures | 40 658 | 35 637 | 31 654 | 28 679 | 29 532 | 25 043 | 21 749 | 20 084 |
| Other cash inflows | 37 439 | 37 869 | 38 170 | 39 050 | 37 439 | 37 869 | 38 170 | 39 050 |
| (Difference between total weighted inflows and total weighted outflows arising from transactions in third countries where there are transfer restrictions or which are denominated in non-convertible currencies) |
||||||||
| (Excess inflows from a related specialised credit institution) | ||||||||
| Total cash inflows | 137 128 | 130 531 | 123 521 | 113 690 | 126 001 | 119 934 | 113 612 | 105 090 |
| Fully exempt inflows | ||||||||
| Inflows Subject to 90% Cap | ||||||||
| Inflows Subject to 75% Cap | 137 128 | 130 531 | 123 521 | 113 690 | 126 001 Total adjusted |
119 934 Total adjusted |
113 612 Total adjusted |
105 090 Total adjusted |
| value | value | value | value | |||||
| Liquidity reserve | 442 718 | 439 776 | 469 220 | 505 031 | ||||
| Total net cash outflows | 294 267 | 303 217 | 319 949 | 342 540 | ||||
| Liquidity coverage ratio (%) | 150% | 145% | 147% | 147% |
Table 5.8 is in line with EBA's Guidelines on LCR disclosure and the values represent 12 months averages for each reported quarter-ending.
Swedbank's cover pool
Another important structural liquidity measure is the overcollateralisation level of the cover pool. The volume of covered bonds that can be issued is determined by the size of Swedbank's cover pool. A certain overcollateralisation is needed to meet the minimum requirement defined by law, but it might also be needed to maintain the triple-A rating with rating agencies. As stipulated in the ERM Policy, Swedbank's cover pool shall be overcollateralized to such a level that the highest rating from at least one rating agency shall be maintained and that compliance with legal requirements shall be met even under a scenario with a real estate price drop of 20%. This level is meant to ensure that enough collateral is available to protect covered bond investors – even in the event of a large housing price fall.
At year-end 2019, the OC level was 76.9%, which is well above the minimum legal requirement (minimum 2%) and the levels required by the rating agencies.
A sensitivity analysis of a possible house price drop affecting the cover pool is run regularly as part of the internal liquidity stress tests. The impact on the OC level is described in table 5- 9. The loan-to-value (LTV) structure of Swedbank's cover pool demonstrates strong resilience when experiencing a fall in house prices.
Table 5.9: Cover pool sensitivity analysis, 31 December 2019
| House price decline, SEKbn | Current | -5% | -10% | -15% | -20% | -25% | -30% | -35% | -40% |
|---|---|---|---|---|---|---|---|---|---|
| Total assets in the cover pool | 989.8 | 984.5 | 975.1 | 961.6 | 944.2 | 922.8 | 897 | 866.4 | 830 |
| Total outstanding covered bonds | 559.5 | 559.5 | 559.5 | 559.5 | 559.5 | 559.5 | 559.5 | 559.5 | 559.5 |
| Overcollateralisation level, % | 76.9% | 76.0% | 74.3% | 71.9% | 68.8% | 64.9% | 60.3% | 54.8% | 48.3% |
Stress tests
In addition to daily measurement of the Survival Horizon and other liquidity risk metrics, Swedbank performs regular stress tests and sensitivity analyses of relevant risk drivers. The purpose of those activities is to, with respect to liquidity risk, understand the balance sheet dynamics under severe circumstances, and to assess Swedbank's resilience to liquidity disturbances.
The annual internal liquidity adequacy assessment process (ILAAP) relies on the results of a designated liquidity risk stress test. The ILAAP stress test aims to assess the strength of the liquidity and funding risk profile of Swedbank, as well as for significant legal entities. The ILAAP scenario incorporate both idiosyncratic and market-related issues. The adverse scenario is unlikely but plausible and trigger a range of risk drivers, which to a large extent are calibrated to the historical events of the post-Lehman liquidity crisis.
The most important risk drivers considered are:
- client withdrawals of deposits
- limited access to the capital markets
- increased utilisation of customer credit lines
- higher collateral requirements due rating downgrade
- general price fall in the liquidity portfolio and associated lower level of market liquidity
The results of the 2019 ILAAP stress test indicate a strong resilience towards an extreme liquidity environment.
6. Operational and compliance risk
We aim for market leading cost efficiency, security and availability as a full-service bank, and to earn the trust of all stakeholders, all of which ineffective processes and systems can put at risk.
Operational risk
The risk of losses, business process disruptions and negative reputational impact resulting from inadequate or failed internal processes, people and systems, or from external events. The definition of operational risk includes information security risk. Operational risk is further broken down into the following sub-risk categories: personnel risk, process risk, information risk (including technology risk), and external risk.
Information security risk is the risk of violation of confidentiality, integrity and availability of information. Information risk includes Cyber risk as a subset which addresses information security risk within the scope of digital information.
Compliance risk
The risks that exist of failure by the Group to fulfil its obligations pursuant to laws, statutes and other regulations applicable to the operations subject to authorization.
Highlights 2019
In 2019 Swedbank saw an increase in incidents and losses compared to 2018. Availability and accessibility as a fullservice bank in our four home markets remains a key priority for Swedbank. Our ability to uphold the service promise to customers is dependent on the ability to achieve and maintain an effective, stable and resilient IT-environment, including outsourced services. Risks that have risen in importance during 2019 include (but are not limited to) cyber risks, outsourcing and third-party risks and technology risks that affect availability. Several initiatives to mitigate risks and to improve processes and controls are under way, both short and medium term.
As described in Chapter 1, there has been identified shortcomings regarding routines and processes for AML/CTF. Internal monitoring activities have also highlighted risks in the area of customer protection that needs focus and actions.
Reducing the risks of money laundering and terrorist financing
During 2019 Swedbank established the Anti-Financial Crime unit (AFC) with the purpose of concentrating the technological and investigative resources and competences connected to the prevention of financial crime. The Anti-Financial Crime unit will focus on anti-money laundering (AML), counter-terrorist financing (CTF), fraud prevention, cyber security, information security, and physical security. The unit has the overall responsibility for the Bank's AML processes including framework and processes for know your customer (KYC), risk classification, transaction monitoring and reporting to authorities.
To support the Bank's efforts to achieve a complete oversight of the AML program, the Bank has appointed external advisors including the international law firm Clifford Chance, which is conducting an in-depth investigation of historical shortcomings in controls as well as exposure to money laundering and breach of sanctions. The investigation encompasses Swedbank AB, its global network of branches and relevant wholly-owned subsidiaries. A Special Task Force unit was formed in December to support the ongoing Clifford Chance investigation as well as the investigations by U.S. authorities. In addition, Swedbank has expanded its legal advisory group to include also the US law firm Quinn Emanuel. The Anti-Financial Crime unit continues to be responsible for implementation of the Bank's forward-looking programme.
To ensure that the Bank is taking the appropriate actions the Board of Directors has also decided to appoint attorney Biörn Riese as an external legal advisor to support the Board of Directors in the ongoing investigations and the work going forward. In addition to above-mentioned organisational changes Swedbank is also investing heavily in new systems regarding know your customer (KYC), risk classification and additional system support. Swedbank has also initiated a project to update existing AML/CTF governance systems and frameworks. The new AML/CTF framework will include a centralized approach to AML/CTF to raise the effectiveness and to facilitate the oversight of the level of compliance within the Bank. The aim is to ensure clear responsibilities, mandates and reporting lines throughout the Bank. Swedbank is also strengthening the capacity of the Bank by increasing the resources applied to these issues as well as investing in new competencies to meet the rapidly changing needs.
Operational Risk Losses
Figure 6.1: Operational risk – total annual losses
Figure 6.2: Annual loss – by Basel Event Type
Figure 6.3: Annual loss – by Basel Business Line
Management of operational risk
Operational risks are inherent in Swedbank's business activities and are present in any financial institution. It is not cost-efficient to attempt to eliminate all operational risks, nor is it possible to do so. Swedbank seeks to maintain the lowest possible level of operational risks, taking into account market sentiment and regulations, as well as Swedbank's strategy, rating ambition and capacity to absorb operational risk losses.
Larger losses of material significance are rare, Swedbank aims to reduce the likelihood of such losses through relevant operational risk control, continuity management, and compliance to maintain readiness for events that could cause financial losses or reputational damage, or could impact the availability of our services.
Risk-based planning
The risk-based planning process serves to make sure that an overarching operational risk view is communicated and relevant risk management and risk control activities are planned. The process should also ensure that there are adequate resources to complete said risk related activities. It also helps to improve coordination and information-sharing between Group Risk, Compliance and Internal Audit towards aligned assurance. The risk-based planning process is an integrated part of Swedbank's annual activity planning.
Risk Assessment
All business areas apply the same methods to self-assess operational risks e.g. Risk Assessment (RA). This method is used on a regular basis to cover all key processes within Swedbank and includes risk identification, action planning and monitoring to manage any risk that may arise.
New Product Approval Process
Swedbank has a Group-wide process for New Product Approval (NPAP) covering all new and/or revised products, services, activities, processes and/or systems as well as major operational and/or organisational changes. The purpose is to ensure that Swedbank does not enter into activities which entail unintended risks or risks that are not immediately managed and controlled as part of the process.
The process is designed to emphasise the responsibility and accountability of the business areas for continuous overview of initiated NPAPs and continuous risk identification, analysis and mitigation. Group Risk and Swedbank Compliance contributes with an expert evaluation of the risk analysis process and the residual risks, and has the mandate to halt changes where the risks exceed the risk appetite and the underlying limits.
Business Continuity Management
Swedbank's principles for Business Continuity Management (BCM) are defined in a Group-level framework. Crisis Management teams are available both on a Group and on a local level to coordinate and communicate internally and externally. In addition, business continuity plans are in place for all critical processes, for IT-systems supporting these processes, and for services that are critical for society in the countries where Swedbank operates. The plans are implemented on a Group and on a local level, and describe how Swedbank shall operate in the event of a severe business disruption or potential crisis situation. Swedbank's Business Continuity and Crisis Management models are derived from the international standard ISO/IEC ISO 22301:2012 Societal security - Business continuity management systems.
Processes and controls
Swedbank has established a framework for process and internal control which is common to all types of processes and controls. Specific frameworks for internal control over financial reporting (ICFR) are applied for the processes concerned. A process universe is established and integrated into Swedbank's governance model. The purpose of Swedbank's process universe is to clarify the responsibility of
the significant processes, as well as for controls in the processes. To create a process-based method for risk management, the process universe is used as a basis for all risk management and risk control within Swedbank.
Incident management
Swedbank has established procedures and system support to facilitate reporting and following-up on incidents. Group Risk supports business areas in reporting, analysing, and drafting action plans to ensure that underlying causes are identified, and suitable actions are taken. Incidents and operational risk losses are reported in a central database for further analysis.
Risk Management Maturity Assessment (RMMA)
RMMA is a scorecard used to assess the risk management maturity level through following up the implementation of risk management processes. A high risk-management maturity level within the business indicates a strong risk awareness – which in turn reduces the threat of unforeseen losses and keeps business assets secure. The RMMA tool has proven to be very efficient in clarifying expectations and steering as well as evolving the risk management forward for improvement. The RMMA score is also used for adjusting capital allocation to further encourage the business to improve their operational risk management as it impacts the capital related profitability measures.
Recovery planning
Swedbank has established a Group-level recovery plan in accordance with the Bank Recovery and Resolution Directive (BRRD) regulatory framework. The plan has been complemented by the guidelines and technical standards issued by the European Banking Authority. The recovery plan describes a set of measures that can be applied in distress in order to restore the sound financial position of Swedbank, and to ensure the continuity of critical financial services provided by Swedbank in all its home markets. The plan also describes a wide range of recovery indicators along with trigger levels that can be easily monitored to capture potential stress in a timely manner. Further, in Swedbank's corporate governance structure, the rules for escalation and decision-making to be used under stressful conditions are described.
Information security risk
Swedbank has a structured approach to continuously manage information security risk and establish sound protection of confidentiality, integrity, and availability of Swedbank's information assets. In order to ensure comprehensive governance and monitoring of related risk exposure, Swedbank has established information security risk appetite, risk tolerance limits and risk metrics. Continuous work is ongoing to further improve in maturity and keep in pace with the challenges of ongoing digital transformation, increasing complexity of external threat landscape, technological developments and increased regulatory expectations.
Conduct risk
Swedbank continuously addresses risks related to the conduct of the bank and its employees by emphasising the importance of sound ethics and identifying and mitigating conflicts of interest. Swedbank has established a Group-level policy for
Code of Conduct and Conflicts of Interest.
Legal
The CEO has established a Group Legal function with the overall responsibility for governing, controlling and supporting proper management of legal matters. Swedbank has lawyers in all major business areas specialised in core areas of Swedbank's operations. The lawyers provide legal services by supporting, understanding, and acting upon the need of the concerned business. There are also internal rules on escalation, information-sharing, and reporting of legal risks and lawsuits. Regular reviews are carried out to identify and follow-up on actual and/or potential legal risks, so that practices can be modified to ensure compliance with local regulatory requirements.
Insurance policies
Swedbank has insurance protection for significant parts of its operations and maintains several insurance programs to mitigate operational risks (and other types of risks). These insurance programs consist of external insurance solutions, internal captive solutions, and externally reinsured captive solutions. The external programs include Crime, Professional Liability, Directors' and Officers' Liability, Property insurance, and Cyber Insurance.
Management of compliance risk
Regulatory Watch Process
The Regulatory Watch process is an assurance process, established by Swedbank Compliance as a control function. The primary purpose of the Regulatory Watch process is to provide assurance to the Board, the CEO, Heads of Business Area/Product Area/Group Functions and other competent decision-making bodies of Licensed Subsidiaries that Legislative Acts are implemented adequately and on time.
Conflicts of interest management
Conflicts of interest management processes set a common structure in the Group in order to identify, document and mitigate different conflicts of interest related to our organisation, executives, and key position holders.
Process for internal alerts
The process sets the overall requirements on how the Group handles internal alerts process which allows employees to report and raise concerns of potential or actual failures to comply with external and internal rules or regulations, concerns of breaches of internal standards, irregularities, criminal offences, including, but not limited to, corruption, fraud, other financial crimes and sexual harassment.
Risk-based planning
The risk-based planning process serves to make sure that an overarching compliance risk profile is communicated, and relevant assurance activities are planned according to the risk-based approach. It also helps to improve coordination and information-sharing between Group Risk, Compliance and Internal Audit towards aligned assurance.
Compliance monitoring
The monitoring process is a standardised process where Swedbank Compliance in a risk based approach assesses how the Group complies with external regulations within scope and relevant internal regulations.
Advice & support
The advisory process for Swedbank Compliance is a key activity for the function that enables sound and sustainable business in line with the regulatory expectations put on the Group. The New Product Approval Process is an example of function's proactive involvement in order to secure the compliance with applicable rules and regulations, in addition to participation in the control process owned by Group Risk.
Training
Training processes allow sharing and spreading the knowledge and help to inform the employees of relevant rules and regulations as well as ethical standards and the values that the Group ascribes to.
Capital requirements for operational risk
Pillar 1 capital
Operational risk capital requirements are calculated under the standardised approach which assigns multipliers determined by the capital adequacy rules (beta factors) expressing the capital requirement in relation to gross income for each business line. The new Standardised Measurement Approach (SMA), due for implementation on 1 January 2022.
Table 6.1: Capital requirement for operational risk, by Basel Business Line
| 2019 | Capital requirement | ||||
|---|---|---|---|---|---|
| SEKm | Income Indicator | Beta (%) * | 2019 | 2018 | 2017 |
| Basic indicator approach | 0 | 15 | 0 | 0 | 91 |
| Standardised approach | 41 664 | 13 | 5 481 | 5 182 | 4 987 |
| Corporate finance | 142 | 18 | 26 | 29 | 39 |
| Trading and sales | 1 787 | 18 | 322 | 232 | 210 |
| Retail banking | 26 123 | 12 | 3 135 | 3 006 | 2 993 |
| Commercial banking | 7 759 | 15 | 1 164 | 1 094 | 1 038 |
| Payment and settlement | 2 068 | 18 | 372 | 366 | 258 |
| Agency services | 297 | 15 | 44 | 44 | 42 |
| Asset Management | 3 482 | 12 | 418 | 411 | 405 |
| Retail brokerage | 5 | 12 | 1 | 1 | 2 |
| Total | 41 664 | 13 | 5 481 | 5 182 | 5 079 |
*The capital requirement for each business line is derived by multiplying the business line's beta factor by its gross income. The total capital requirement for an entity or a group of undertakings is obtained by adding the respective capital requirement of all eight business lines.
Anti-money laundering and Counter Terrorist financing (AML/CTF) and Financial Sanctions Figure 6.4: Group AML/CTF Framework
Risk of money laundering and terrorist financing
Swedbank is a full-service retail bank offering a wide range of products and services to a large number of private and corporate customers. This makes the Group vulnerable and exposed to many predicate crimes in relation to Money Laundering (ML) as well as many different types of Money Laundering/Terrorist Financing (ML/TF) schemes. The ML/TF risks are inherent to Swedbank's business activities. Swedbank has a responsibility to its customers, shareholders, and regulators to prevent the Group from being used for ML/TF. Therefore, Swedbank will apply robust and consistent AML/CTF processes and procedures to prevent use of the services, products or channels for purposes of ML/TF in the jurisdictions in which it operates.
Governance and Group AML/CTF Framework
To strengthen the overall Group AML/CTF approach, a new and updated Group AML/CTF Framework has been rolled out in Swedbank during the second half of 2019. The establishment of the new Group AML/CTF Framework aims to ensure robustness and consistency in the AML/CTF work that takes place across the Group. Apart from outlining the minimum requirements in the Group, it is employed to ensure a centralised approach to AML/CTF, which will work to both achieve a higher degree of effectiveness and to facilitate oversight of the level of compliance within the Group. Coupled with a stronger and more coherent Framework governance and AML/CTF organisation, it ultimately aims to improve the possibilities of an effective overall AML/CTF risk management.
Thus far the following frameworks have been adopted; Group AML/CTF Policy, Group Instruction on AML/CTF Governance, Group Directive on KYC, Group Directive on Investigations and Financial Investigative Unit (FIU) reporting, Group Directive on Suitability Assessment, Group Directive on Training, and Group Directive on the processing and sharing of data for AML/CTF purposes. In March 2020, a Group Directive on Wire Transfer and a Group Directive on Model Ownership are planned to be adopted.
The Group Instruction on AML/CTF Governance outlines the AML/CTF governance with respect to the first line of defence in the Group, including accountabilities and responsibilities, the Group AML/CTF organisation, the AML/CTF reporting procedures and the governance concerning the Group AML/CTF Framework. The appointed Group Specially Appointed Executive (the Group SAE) is accountable for the development and maintenance of the Group AML/CTF Framework and the Group AML/CTF organisation (the Anti-Financial Crime unit). The Group SAE is chairing the groupwide risk committee – Group Financial Crime Committee (GFCC) – which has been established to ensure adequate and effective management of ML/TF risks in the Group.
In line with the established governance, each Subsidiary shall similarly ensure that a Subsidiary SAE be appointed (unless restricted by local legal requirements). The Subsidiary SAE shall report directly to the Subsidiary Board and Subsidiary CEO and functionally to the Group SAE and the relevant BA/PA/GF Head on AML/CTF matters. The BA/PA/GF Head is accountable for the implementation of AML/CTF processes and procedures in its respective BA/PA/GF.
Group Risk Assessment
The Group Directive on Group Risk Assessment Methodology (the GRAM Directive) outlines a uniform approach to the overall Group Risk Assessment Process and the mandatory risk assessments that all legal entities within the Group are obliged to perform.
In accordance with the risk-based approach, the identified and assessed inherent risks shall set the foundation for all AML/CTF routines and processes (measures) in the bank. This is to ensure that measures taken are commensurate with the ML/TF risks that Swedbank is exposed to (i.e. resources are to be dedicated to the areas where risks are higher).
Know your customer
The Group Directive on KYC outlines the minimum requirements as regards the performance of risk-based KYC measures on customers, the customers' Beneficial Owners and Authorised Representatives. The Directive is designed to allow for the application of a risk-based approach, as well as adaption to the nature and scale of the business activities and services etc. Each BA/SUB is accountable for interpreting and implementing the requirements in its business processes to manage the ML/TF risks to which it is exposed.
Transaction monitoring and FIU reporting
To detect suspicious activities, behaviours or transactions which could be related to possible offences, ML or TF, Swedbank performs risk-based monitoring of its customer relationships. This includes scrutiny of transactions undertaken throughout the course of the business relationship as well as occasional transactions. The performance of transaction monitoring in the Group falls under the responsibility of the Group Function Group AML Investigations within AFC (i.e. the Group SAE).
The Group Officer for Controlling and Reporting (Group OCR who is responsible for FIU reporting according to Swedish regulations) has delegated the operational responsibility for establishing and implementing a Group Framework as regards the operational handling of the investigation and reporting to the local FIUs to the Group SAE. The OCR has also delegated the submission of SAR/STRs (or equivalent) and the handling of requests from local FIUs to the appointed Money Laundering Reporting Officers (MLROs). The appointed MLROs for each legal entity in the Group are responsible for the FIUreporting. The monitoring responsibilities of the OCR are delegated to the Compliance function.
The Compliance function monitors and controls the adherence to regulatory requirements, internal regulations, adherence to stated risk appetite, and efficiency of processes both as processes for AML/CTF and especially Transaction monitoring and reporting to FIUs.
Financial sanctions
The Group Policy on Financial Sanctions, adopted by the Board of Directors, lays out the overarching views on how the Bank achieves adherence to various relevant sanction programmes, i.e. financial sanctions enacted by the EU, the UN and the US. In addition, the Group takes a programmatic and risk-based approach to sanctions screening, in line with the Wolfsberg Guidance on Sanctions Screening. This means, inter alia, that the Bank's sanctions programme is applied in conjunction with other anti-financial crime processes, such as policies and procedures, risk assessment and internal controls.
The Bank performs Group-wide daily screening of all International Payments, Trade Finance messages and the registers of new and existing customers, to ensure that Swedbank is not assisting with any transactions or retaining any business engagements that are subject to EU, UN or relevant US sanctions. Furthermore, there are multiple processes in place to stop those who try to use Swedbank to evade sanctions. Should a customer's business model or transactions indicate a sanctions risk that surpasses the Bank's risk appetite, an off-boarding procedure will be initiated.
Currently, the Group is drafting an updated Policy and Directive, in line with the new approach on Group AML/CTF Framework and Governance, and in order to meet new challenges.
7. Stress tests and Economic Capital
Stress testing exercises conducted in 2019 demonstrated Swedbank's strong resilience to severe shocks due to its low-risk profile and adequate capitalization that would allow Swedbank to withstand downturns in every home market.
Stress tests
Swedbank uses stress tests for the purpose of forecasting its solvency and capital needs.
Economic Capital
Economic Capital (EC) models are used to provide an objective internal view regarding risks affecting Swedbank.
EC models and internal stress tests are important tools used by Swedbank to assess and maintain, on an ongoing basis, the capital level needed with respect to Swedbank's adopted risk profile. In addition, Swedbank continously considers the outcome of external assessments such as the SREP. The primary purpose of the SREP is to make sure that Swedbank has adequate capital and liquidity levels. All this ensures a sound management of the risks to which Swedbank is or might be exposed to, including those revealed in stress tests and risks that Swedbank may pose to the financial system.
Highlights 2019
Swedbank continues to demonstrate its strong position by showing solid results in both internally and externally performed stress tests. The main comprehensive stress tests carried out in 2019 were the ICAAP adverse scenario simulation and the stress test designed by the SFSA to assess the size of capital planning buffer. The stress test performed in the ICAAP is designed to reflect identified systemic risks that may have an adverse impact on Swedbank's capital position. Swedbank withstands a severe recession scenario expected to occur approximately once in 25 years with a fully loaded CET 1 capital ratio of 15.2% in the lowest point, which is approximately 50 basis points above estimated regulatory requirement. Thus, the result demonstrates Swedbank's strong resilience to adverse circumstances.
The stress test designed by the SFSA to assess the size of the capital planning buffer is carried out annually as part of SREP. The outcome of the SFSA assessment, presented in the SREP, states that the size of Swedbank´s capital planning buffer is less than 2.5% of RWA (i.e. less than the capital conservation buffer), and thereby will not add to the total capital requirement of Swedbank.
Economic Capital (EC)
EC models are used to provide an objective internal view of the capital requirement for significant risks affecting Swedbank. In contrast to the capital assessment within Pillar 1, the estimation of Swedbank's EC is not limited by assumptions applied in the Basel framework. Consequently, the EC generates a more accurate assessment of the risk to which Swedbank is exposed.
Within the EC framework, credit risk, market risk, operational risk and post-employment risk are considered, while insurance risk and business risk are evaluated separately. The business risk is assessed through stress tests performed in the ICAAP. If the stress test outcome indicates additional capital need, the EC could be increased accordingly. The insurance companies within Swedbank Group perform an annual Own Risk and Solvency Assessment (ORSA). The ORSA process assesses the risks and solvency positions by projecting the risk metrics under the base and adverse scenarios. Similar to business risk, if the outcome of the ORSA reveals a solvency need for the insurance companies, the EC could be increased accordingly.
In general, VaR based models with a confidence level of 99.9% are used to calculate the EC for the different risk types. The confidence level, which corresponds to the confidence level used in the Basel IRB framework calibration, uses a one-year horizon.
EC models by risk type
Swedbank's EC model for credit risk is based on the similar theoretical foundation as the Basel IRB framework, but while the IRB framework is limited to a one-factor model, Swedbank's EC framework applies a multi-factor model. Accordingly, the actual portfolio setup can be used, and both concentration and diversification effects are taken into account.
The operational loss model is a simulation approach based on historical operational losses. The model has been developed primarily using internal and external data and is complemented with scenario information to capture areas where additional input is required beyond loss data. Since Swedbank is heavily dependent on solid IT-solutions, the main driver for operational risk is rather low frequent and high impact losses related to information and technology risk or clients, products and business practices – a trend also evident in the external loss data.
The EC for market risk is primarily driven by interest rate risk in the banking book (IRRBB), where an economic value methodology is used. For risk stemming from the trading operations, Swedbank's internal assessment is in line with the view of market risk within Pillar 1. The main difference is that Swedbank uses a standardised approach to calculate specific interest rate risk in Pillar 1, while an internal model is applied within the EC framework. In addition to market risk in the banking and trading books, the EC assessment also accounts for CVA risk.
Post-employment benefit risk is the final risk type captured within the EC framework. The methodology for calculating post-employment benefit risk is based on the current postemployment benefit plan, where the underlying market risk factors are stressed to evaluate the capital requirement for post-employment benefit risks under stressed conditions.
Table 7.1: Economic Capital by risk type
| Risk type, | ||
|---|---|---|
| SEKbn | 2019 | 2018 |
| Credit risk | 25.5 | 25.2 |
| Market risk | 4.7 | 3.4 |
| Operational risk | 4.3 | 4.2 |
| Risks in post-employment benefits | 0.2 | 0.0 |
| Total | 34.7 | 32.7 |
At year-end 2019, Swedbank's total EC amounted to SEK 34.7bn, which is 6% more than in 2018 (32.7bn). All of the significant risk types moved in a consistent manner demonstrating a positive growth rate. Credit risk, being the
Table 7.2: Risk types according to the ICAAP process
major contributor to the total EC, added SEK 0.3bn (1%). For market risk, the EC increased by 40% to SEK 4.7bn in 2019 vs. 2018 mainly on the back of the banking book component. Higher interest rate risk sensitivity towards decreasing rates played a prominent role in these dynamics. The EC for operational risk amounted to SEK 4.3bn, which is 3% higher than a year ago (4.2bn). The operational risk charge mirrors the development of the Pillar 1 capital requirement, although the two approaches are driven by different underlying factors. Post-employment benefit risks result in EC of SEK 0.2bn. The EC is a crucial component for and serves as primary input to the ICAAP.
Internal Capital Adequacy Assessment Process (ICAAP) – Pillar 2
In the ICAAP under Pillar 2, Swedbank's solvency and capital need is determined by applying the EC methodology and stress tests. Swedbank calculates the Pillar 2 capital for all relevant risk types. Strategic and reputational risks are managed indirectly within the capital adequacy assessment, as the capital buffer implicitly protects against such risks, and they are carefully monitored and managed. Liquidity constraints may arise as a result of an imbalance between risk and capital. The ICAAP is designed to ensure that such imbalances do not arise, and consequently, a conservative view of liquidity risk is important to the process.
| Pillar 1 | Pillar 2 | |
|---|---|---|
| Risk type | Capital is allocated? | Contributes to calculated capital need? |
| Credit risk | Yes | Yes |
| Concentration risk | No | Yes |
| Market risk | Yes | Yes |
| Market risk: Interest rate risk in banking book | No | Yes |
| Operational risk | Yes | Yes |
| Insurance risk | Yes1 | Yes2 |
| Risks in post-employment benefits | No | Yes |
| Risk type | Pillar 1 | Pillar 2 |
| No specific capital is allocated | Identified and mitigated? | |
| Reputational risk | No | Yes |
| Liquidity risk | No | ILAAP3 |
| Strategic risk: Decision risk, Business plans, Projects and acquisitions |
No | Yes4 |
1) Holdings in insurance companies are risk weighted at 250%.
2) The insurance companies in Swedbank Group perform an Own Risk and Solvency Assessment (ORSA). The aim of this process is to assess risks (both qualitatively and quantitatively) and the solvency position over a business planning period of three years. The calculations are performed by projecting the risk metrics under the base and adverse scenarios.
3) For information regarding liquidity risk in ILAAP and other stress tests and sensitivity analysis for liquidity risk, please see Chapter 5.
4) Economic Capital and adverse Scenario Simulation calculations can be adjusted to reflect forward looking perspective
Stress tests
Swedbank uses macroeconomic scenario-based stress tests in the ICAAP for the purpose of forecasting its solvency and capital needs. The stress tests are an important means of analysing how Swedbank's portfolios are affected by severe macroeconomic developments, including the effects of negative events on Swedbank's total capital and risk profile.
The Group-wide stress test methodology takes its starting point in the identification of systemic risks that may have an adverse impact on Swedbank's capital. The identified systemic
risks are transformed into quantitative effects on key macroeconomic variables to build macroeconomic scenarios. The scenarios include variables for Swedbank's four home markets and can thereby be used both on a Group level and for the subsidiaries. When stressing credit risk, Swedbank uses statistical models that transform the adverse macroeconomic scenarios into loss levels for relevant balance-sheet items. Profit and Loss items such as net interest income and fees and commissions are also stressed in the scenario. After REA changes are accounted for, a total impact on capital adequacy can be reliably estimated. Finally, the stress test outcomes and the methodology are evaluated and discussed by Swedbank's experts and by management, to ensure consistency and reliability. The scenarios are presented to the Board of Directors for approval along with an assessment of the effects on the main risk types.
The adverse ICAAP scenarios
For ICAAP purposes, Swedbank develops a single narrative describing adverse macroeconomic scenario and calibrates it to two different severity levels, both with a three-year time horizon. One is a mild recession scenario reflecting a possible macroeconomic development expected to occur once in seven years, and the other is a severe recession scenario reflecting a possible but improbable course of events occurring no more than once in 25 years.
The 1-in-7-years scenario is used to assess Swedbank's capacity to withstand expected recessions maintaining a comfortable capital adequacy level. If a scenario analysis indicates that Swedbank could slip below the regulatory requirement threshold, a remedial action would be considered. Currently, no such need has been identified. Swedbank uses the 1–in-25-years scenario to determine whether the capital level is aligned with the risk appetite. If the risk appetite for capital is exceeded, relevant measures are taken to restore a sufficient capital level.
Sources: Swedbank, Statistics Sweden and the Swedish central bank.
The 1-in-25-year scenario is designed to reflect the identified systemic risks that may have an adverse impact on Swedbank's capitalisation. The scenario developed for the ICAAP 2019 assumes that the recently much-debated barriers to international trade are implemented in their most extreme form, which sets in motion a set of policy events and exaggeratory bilateral responses. It is further assumed that the trade obstacles become permanent and are perceived as such by markets. Thus, the scenario takes as a starting point a massive drop in trade as global exports plummet for all countries in the scenario. The contraction of trade is accompanied by an initial increase in consumer prices as tariffs are transferred on to consumers. Later on in the scenario, the initial inflation is transformed into stagnant and then negative price growth as the economic activity slows down. Furthermore, the tariffs trigger geopolitical tensions, which add to the burden of falling world trade and growth, particularly because consumer sentiment (affecting consumption) and corporate investments plummet.
Note: Indexed real GDP with 100 representing the real GDP level at the start of the scenario (year 0).
Table 7.3: Stress test ICAAP scenario parameters
| Severity level 1-in-25 years | ||||
|---|---|---|---|---|
| 20181) | 2019f | 2020f | 2021f | |
| Sweden | ||||
| Real GDP growth, % yoy | 2.5 | -3.9 | -2.6 | -0.4 |
| Unemployment, % | 5.9 | 8.9 | 11.4 | 10.7 |
| Inflation, % yoy | 2.1 | 1.8 | -0.3 | -0.4 |
| Residential real estate price index | 100.0 | 85.7 | 73.2 | 65.1 |
| Estonia | ||||
| Real GDP growth, % yoy | 3.9 | -2.9 | -3.0 | 0.0 |
| Unemployment, % | 6.5 | 9.4 | 12.1 | 10.7 |
| Inflation, % yoy | 3.7 | 3.3 | -0.5 | -1.2 |
| Residential real estate price index | 100.0 | 88.0 | 76.4 | 70.2 |
| Latvia | ||||
| Real GDP growth, % yoy | 5.0 | -2.9 | -2.6 | 0.0 |
| Unemployment, % | 8.0 | 10.6 | 11.3 | 10.7 |
| Inflation, % yoy | 3.2 | 2.7 | -0.7 | -0.8 |
| Residential real estate price index | 100.0 | 84.4 | 70.4 | 62.1 |
| Lithuania | ||||
| Real GDP growth, % yoy | 3.8 | -3.5 | -3.6 | -0.2 |
| Unemployment, % | 7.3 | 10.4 | 11.7 | 11.0 |
| Inflation, % yoy | 2.4 | 2.9 | -0.6 | -1.1 |
| Residential real estate price index | 100.0 | 86.4 | 71.0 | 60.1 |
| Interest rates | ||||
| 3m Government rate SEK, % | -0.73 | -0.73 | -0.73 | -0.73 |
| 3m Government rate EUR, % | -0.66 | -0.66 | -0.66 | -0.66 |
| FX | ||||
| USD/SEK | 8.90 | 9.12 | 9.23 | 9.35 |
| EUR/SEK | 10.19 | 10.57 | 10.65 | 10.74 |
1) Figures for 2018 are based on preliminary estimates due to final figures being published first after the submission of the ICAAP report.
Impact on Swedbank – simulation results
In the ICAAP, Swedbank factors in known changes in regulatory and accounting practices which will take effect during the simulation period and that can be analysed with a
high degree of certainty. These changes are integrated in the calculations according to their expected implementation schedule. The adjustments include, amongst others, IRB model revisions and effects associated with IFRS 16.
Table 7.4: Income statement under the ICAAP scenario
| Income statement under ICAAP scenario 1) , |
Severity level 1-in-25 years | |||
|---|---|---|---|---|
| SEKbn | 20181) | 2019f | 2020f | 2021f |
| Total net interest income | 26.7 | 26.2 | 25.3 | 25.0 |
| Total income | 44.6 | 41.2 | 40.7 | 40.5 |
| Total expenses | 17.5 | 18.0 | 17.8 | 17.8 |
| Profit before impairments | 27.1 | 23.2 | 22.9 | 22.7 |
| Credit impairments | 0.8 | 13.0 | 15.5 | 7.8 |
| Operating profit | 26.3 | 10.2 | 7.4 | 14.9 |
| Tax expense | 5.4 | 2.1 | 1.5 | 3.1 |
| Non-controlling interests | 0.0 | 0.0 | 0.0 | 0.0 |
| Profit for the period attributable to: 2) Shareholders of Swedbank AB |
20.8 | 8.1 | 5.9 | 11.8 |
1) The ICAAP is based on Swedbank CS which does not include insurance companies.
2) The Board of Directors has set the dividend policy to 75% of profit for the year. This policy is applied in the ICAAP stress test.
Net interest income
In the simulated scenario the net interest income drops by SEK 1.7bn compared to the starting position. The main drivers underlying this development are widened funding spreads and increased volumes of non-performing, revenue nongenerating loans in the portfolio.
Expenses
In the scenario, the development of expenses is primarily inflation-driven. As inflation rate is positive in the first year, both staff and administrative costs go up slightly but are cautiously kept constant in the coming deflationary years. Note also that an exceptional loss of SEK 257m related to a hypothetical operational risk incident is included in the expenses for 2019.
Credit impairments
New credit impairments amount to SEK 36.3bn with total provisions increasing six times driven by an eightfold increase in Stage 3 provisioning as per IFRS 9 designation and material additions to Stage 2 induced by rating migrations. Losses are tilted to the first two years of the scenario and only recede in the third year, although the absolute level still dwarfs the precrisis impairments. The Large Corporates and Institutions (LC&I) business area proves to be the most vulnerable to the simulated shock and accounts for 46% of total losses. The Swedish Banking credit portfolio generates 43% of accumulated losses, while the Baltic Banking business area – the remaining 11%. Sectors that are most heavily affected by the crisis as gauged by cumulative loss ratios are shipping and offshore, retail and construction.
Table 7.5: Credit impairments under the ICAAP scenario
| Severity level 1-in-25 years | Accumulated | ||||
|---|---|---|---|---|---|
| Credit impairment by business area, | EAD | 2019 - 2021 | |||
| SEKbn | 2018 | 2019 | 2020 | 2021 | ratio, % |
| Swedish banking | 1 285.5 | 4.2 | 6.4 | 5.1 | 1.2 |
| Large Corporates & Institutions | 348.9 | 6.8 | 8.2 | 1.7 | 4.8 |
| Estonia | 87.0 | 0.6 | 0.3 | 0.4 | 1.5 |
| Latvia | 40.9 | 0.6 | 0.2 | 0.2 | 2.5 |
| Lithuania | 63.4 | 0.8 | 0.4 | 0.4 | 2.5 |
| Other | 290.1 | 0.0 | 0.0 | 0.0 | 0.0 |
| Total | 2 115.8 | 13.0 | 15.5 | 7.8 | 1.7 |
Impact on Swedbank – RWA and capital
Common Equity Tier 1 capital improves in nominal terms compared to the starting value at 2018-end due to the profit generation and positive contribution of SEK 2.5bn to other comprehensive income in the first year associated with the post-employment benefit plan (IAS 19) liabilities. This is illustrative of Swedbank's resilience as it happens against the backdrop of soaring credit losses and dwindling revenues.
However, significantly increasing REA driven by credit portfolio migrations, currency effects and other factors negatively impacts the CET1 ratio, which drops by 108 basis points at the trough. Nevertheless, Swedbank is not expected to breach forecasted regulatory capital requirements at any point of the scenario. Thus, the scenario simulation result demonstrates Swedbank's strong resilience to severe circumstances and prudent level of capitalisation.
Table 7.6: Swedbank Consolidated Situation capital assessment results
| Capital assessment | Severity level 1-in-25 years | |||
|---|---|---|---|---|
| SEKbn | 2018 | 2019f | 2020f | 2021f |
| Total RWA | 637.9 | 713.2 | 710.3 | 713.4 |
| Common Equity Tier 1 | 103.8 | 108.4 | 108.9 | 111.5 |
| Common Equity Tier 1 ratio, % | 16.3 | 15.2 | 15.3 | 15.6 |
Appendix A: Consolidated Situation
Contents
| Name | Page |
|---|---|
| Swedbank's legal entity structure and business activities | 85 |
| Terminology and abbreviations | 86 |
| Swedbank CS: Own funds disclosure | |
| Disclosure according to Article 4 in Commission Implementing Regulation (EU) No 1423/2013 | 87 |
| Swedbank CS: Capital instruments' main features | |
| Disclosure according to Article 3 in Commission Implementing Regulation (EU) No 1423/2013 | 89 |
Swedbank's legal entity structure and business activities
Swedbank Consolidated Situation
The consolidated situation for Swedbank as of 31 December 2019 comprised the Swedbank Group with the exception of insurance companies. The EnterCard Group is included through the proportionate consolidation method. The difference between Swedbank Group and Swedbank Consolidated Situation (CS) is shown more in detail below, where "•" means 100% consolidation and "–" means not consolidated. Where percentages are shown, the company is included using the equity method unless otherwise stated. Any changes in legal entity structure are reflected on www.swedbank.com.
| Legal entity name | Business activity | Country | Group Swedbank |
Swedbank CS | Swedbank Estonia Group | Swedbank Estonia CS | Swedbank Latvia Group | Swedbank Latvia CS | Swedbank Lithuania Group | Swedbank Lithuania CS | Legal entity name | Business activity | Country | Swedbank Group | Swedbank CS | Swedbank Estonia Group | Swedbank Estonia CS | Swedbank Latvia Group | Swedbank Latvia CS | Swedbank Lithuania Group Swedbank Lithuania CS |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Swedbank AB | Banking operations | SE | • | • | FR&R Invest AB | Financial reconstruction & recovery |
SE | • | • | |||||||||||
| Swedbank Mortgage AB | Mortgage | SE | • | • | Swedbank Newco AB | Inactive | SE | • | • | |||||||||||
| Swedbank Robur AB | Holding company | SE | • | • | Swedbank Securities US LLC |
Securities company US | • | • | ||||||||||||
| Swedbank Robur Fonder AB |
Fund management | SE | • | • | First Securities AS | Inactive | NO | • | • | |||||||||||
| Swedbank Investeerimisfondid AS |
Investment management | EE | • | • | Swedbank Management Company SA (ManCo) |
Holding company | LU | • | • | |||||||||||
| Swedbank leguldijumu Parvaldes Sabierdiba AS |
Investment management | LV | • | • | Swedbank AS (Estonia) Banking operations EE | • | • | • | • | |||||||||||
| Swedbank investiciju valdymas UAB |
Investment management | LT | • | • | Swedbank Liising AS | Leasing, factoring | EE | • | • | • | • | |||||||||
| Cerdo Bankpartner AB | IT | SE | • | • | Swedbank Life Insurance SE |
Life insurance | EE | • | − | • | − | |||||||||
| SwedLux S.A. | Banking operations | LU | • | • | Swedbank P&C Insurance AS |
Insurance | EE | • | − | • | − | |||||||||
| Sparfrämjandet AB | Inactive | SE | • | • | Swedbank Support OÜ IT, property | management | EE | • | • | • | • | |||||||||
| Sparia Group Insurance Company Ltd |
Insurance company | SE | • | − | SK ID Solutions AS | Certification services |
EE 25% 25% 25% 25% | |||||||||||||
| Swedbank Fastighetsbyrå AB |
Holding Company | SE | • | • | Swedbank AS (Latvia) | Banking operations LV | • | • | • | • | ||||||||||
| Fastighetsbyran The Real Estate Agency S.L. |
Estate Agent | ES | • | • | Swedbank Lizings SIA | Leasing, factoring | LV | • | • | • | • | |||||||||
| Svensk Mäklarstatistik AB Real Estate Statistics | SE 25% 25% | Swedbank Atklatais Pensiju Fonds AS |
Investment management |
LV | • | • | • | • | ||||||||||||
| Bankernas Kontantkort CASH Sverige AB |
Inactive | SE | • | • | Swedbank AB (Lithuania) |
Banking operations LT | • | • | • • |
|||||||||||
| Swedbank PayEx Holding AB |
Holding Company | SE | • | • | Swedbank Lizingas UAB |
Leasing, factoring | LT | • | • | • • |
||||||||||
| PayEx Norge AS | Invoicing, ledger, debt collection, e-com, point-of sale, value-added-service |
NO | • | • | Swedbank valda UAB | Real estate management |
LT | • | • | • • |
||||||||||
| PayEx Danmark AS | Invoicing, ledger, debt collection, e-com, point-of sale, value-added-service |
DK | • | • | EnterCard Group AB | Credit card transactions |
SE 50% 50% | |||||||||||||
| Swedbank PayEx Collection AB |
Inactive | SE | • | • | Sparbanken Sjuhärad AB |
Banking operations SE 48% 48% | ||||||||||||||
| PayEx Sverige AB | Invoicing, ledger, debt collection, e-com, point-of sale, value-added-service |
SE | • | • | Sparbanken Rekarne AB |
Banking operations SE 50% 50% | ||||||||||||||
| PayEx Solutions OY | Inactive | FI | • | • | Sparbanken Skåne AB | Banking operations SE 22% 22% | ||||||||||||||
| PayEx Suomi OY | Invoicing, ledger, debt collection, e-com, point-of sale, value-added-service |
FI | • | • | Vimmerby Sparbank AB Banking operations SE 40% 40% | |||||||||||||||
| PayEx Invest AB | Real estate | SE | • | • | Ölands Bank AB | Banking operations SE 49% 49% | ||||||||||||||
| Faktab B1 AB | Real estate | SE | • | • | Finansiell ID-Teknik BID AB |
Computer services | SE 28% 28% | |||||||||||||
| Faktab V1 AB | Real estate | SE | • | • | BGC Holding AB | Giro transactions | SE 29% 29% | |||||||||||||
| Faktab S1 AB | Real estate | SE | • | • | Getswish AB | Mobile transactions SE 20% 20% | ||||||||||||||
| Ektornet AB | Real estate | SE | • | • | VISA Sweden, ek för | Association for the benefit of card transaction companies |
SE 39% 39% | |||||||||||||
| Swedbank Försäkring AB Insurance company | SE | • | − | USE Intressenter AB | Holding company related to UC |
SE 20% 20% | ||||||||||||||
| ATM Holding AB | Holding company | SE 70% 70% | P27 Nordic Payments Platform AB |
Payment solutions | SE 17% 17% | |||||||||||||||
| Bankomat AB | ATM operations | SE 20% 20% | Nordic KYC Utility AB | KYC (Know Your Customer) service |
SE 17% 17% |
Terminology and abbreviations
| "AC" | Audit Committee | "Group" | Swedbank Group (see definition |
|---|---|---|---|
| "A-IRB" | Advanced Internal Ratings-Based Approach |
"G-SIB" | below) Global Systemically Important |
| "ALM" | Asset Liability Management | Bank | |
| "AMA" | Advanced Measurement Approach |
"G-SII" | Global Systemically Important Institution |
| "AML" | Anti-Money Laundering | "ICAAP" | Internal Capital Adequacy |
| "AT1" | Additional Tier 1 capital | Assessment Process | |
| "AVA" | Additional Valuation Adjustment Business Area Risk and |
"ICFR" | Internal Control over Financial Reporting |
| "BARCC" | Compliance Committee | "IFRS" | International Financial Reporting Standards |
| "BCBS" | Basel Committee on Banking Supervision |
"ILAAP" | Internal Liquidity Adequacy Assessment Process |
| "Board" | Board of Directors of Swedbank AB |
"IRB" | Internal Ratings Based Approach |
| "BRRD" | Bank Recovery and Resolution Directive 2014/59/EU |
"IRRBB" | Interest Rate Risk in the Banking Book |
| "CCF" | Credit Conversion Factor | "ISDA" | International Swaps and |
| "CCoB" | Capital Conservation Buffer | Derivatives Association | |
| "CCP" | Central Counterparty | "LC&I" "LCR" |
Large Corporate & Institutions Liquidity Coverage Ratio |
| "CCyB" | Countercyclical Capital Buffer | ||
| "CET1" | Common Equity Tier 1 | "LGD" | Loss Given Default |
| Collective Investment | "LTV" | Loan-To-Value | |
| "CIU" | Undertaking | "MDB" | Multilateral Development Bank |
| "CPC" | Credit Process Control | "MREL" | Minimum level of own funds and eligible liabilities |
| "CRO" | Chief Risk Officer of Swedbank AB |
"NII" | Net Interest Income |
| Capital Requirements Directive | "NPAP" | New Product Approval Process | |
| "CRD IV" | 2013/36/EU | "NSFR" | Net Stable Funding Ratio |
| Capital Requirements Regulation | "OC" | Overcollateralisation | |
| "CRR" | (EU) No 575/2013 | "O-SII | Other Systemically Important |
| "CS" | Consolidated Situation | buffer" | Institution buffer |
| "CSA" | Credit Support Annex | "OTC" | Over-the-Counter |
| "CVA" | Credit Value Adjustment | "ORSA" | Own Risk and Solvency Assessment |
| "DVA" | Debit Valuation Adjustment | "Own | The sum of Tier 1 and Tier 2 |
| "DVP" | Delivery-vs-Payment | funds" | capital |
| "EAD" | Exposure at Default | "Parent | |
| "EBA" | European Banking Authority | Company" | Swedbank AB (publ) |
| "EC" | Economic Capital | "PD" | Probability of Default |
| "ECB" | European Central Bank | "PFE" | Potential Future Exposure |
| "EL" | Expected Loss | "PSE" | Public Sector Entity |
| "ERM | Enterprise Risk Management | "PVP" | Payment-vs-Payment |
| (Policy)" | (Policy) | "RAROC" | Risk Adjusted Return On Capital |
| "F-IRB" | Foundation Internal Ratings Based Approach |
"RC" | Remuneration Committee |
| Financial Restructuring & | "RCC" | Risk and Capital Committee | |
| "FR&R" | Recovery | "Riksbank" | Sweden's Central Bank |
| "FRTB" | Fundamental Review of the Trading Book (review by the |
"RMMA" | Risk Management Maturity Assessment |
| BCBS) | "RTS" | Regulatory Technical Standards | |
| "FSA" "FSB" |
Financial Supervisory Authority Financial Stability Board |
"RWA" | Risk Weighted Assets (same as REA, Risk Exposure Amount) |
| "FTP" | Funds Transfer Pricing | "SA" | Standardised Approach |
| Group Asset Allocation | Standardised Approach for | ||
| "GAAC" | Committee | "SA-CCR" | Measuring Counterparty Credit Risk Exposures |
| "GF" | Group Functions | "SFSA" or | |
| "GRCC" | Group Risk and Compliance Committee |
"Swedish FSA" |
Swedish Financial Supervisory Authority |
| "SFT" | Securities Financing Transaction |
|---|---|
| "SMA" | Standardised Measurement Approach |
| "SME" | Small and Medium-Sized Enterprises |
| "SNDO" | Swedish National Debt Office (Swedish: Riksgälden) |
| "SPK" | Sparinstitutens PensionsKassa Försäkringsförening (pension fund) |
| "SREP" | Supervisory Review and Evaluation Process |
| "SRB" | Single Resolution Board |
| "SRM" | Single Resolution Mechanism |
| "SSE" | Small-sized companies |
| "SSM" | Single Supervisory Mechanism |
| "SVaR" | Stressed Value-at-Risk |
| "Swedbank" | Swedbank Consolidated Situation |
| "Swedbank Baltic" |
Swedbank AS (Estonia), Swedbank AS (Latvia) and Swedbank AB (Lithuania) |
| "Swedbank Group" |
Swedbank AB (publ) and all its underlying legal entities (regardless of percentages of holding) |
| "TCFD" | Task Force on Climate-Related Financial Disclosures |
| "T2" | Tier 2 capital |
| "TLAC" | Total Loss-Absorbing Capacity |
| "TLTRO" | Targeted Long-Term Refinancing Operations |
| "TOA" | Tenant Owner Association |
| "TOR" | Tenant Owner Right |
| "TtC" | Through-the-Cycle |
| "VaR" | Value-at-Risk |
| "VAT" | Value-Added Tax |
| "WWR" | Wrong Way Risk |
Swedbank CS: Own funds disclosure, 31 December 2019
Disclosure according to Article 4 in Commission Implementing Regulation (EU) No 1423/2013
| SEKm | Common Equity Tier 1 capital: instruments and reserves, | (a) Amounts at disclosure date |
(b) (EU) No 575/2013 article reference |
|---|---|---|---|
| 1 | Capital instruments and the related share premium accounts of which: Instrument type 1 |
38 110 | 26 (1), 27, 28, 29 EBA list 26 (3) |
| of which: Instrument type 2 | EBA list 26 (3) | ||
| of which: Instrument type 3 | EBA list 26 (3) | ||
| 2 3 |
Retained earnings Accumulated other comprehensive income (and any other reserves) |
59 189 22 712 |
26 (1) (c) 26 (1) |
| 3a | Funds for general banking risk | 26 (1) (f) | |
| 4 | Amount of qualifying items referred to in Article 484 (3) and the related share premium accounts subject to phase out from CET1 |
486 (2) | |
| 5 | Minority interests (amount allowed in consolidated CET1) | 84 | |
| 5a | Independently reviewed interim profits net of any foreseeable charge or dividend | 9 537 | 26 (2) |
| 6 | Common Equity Tier 1 (CET1) capital before regulatory adjustments | 129 548 | |
| 7 | Common Equity Tier 1 (CET1) capital: regulatory adjustments Additional value adjustments (negative amount) |
-454 | 34, 105 |
| 8 | Intangible assets (net of related tax liability) (negative amount) | -17 231 | 36 (1) (b), 37 |
| 9 | Empty set in the EU | ||
| 10 | Deferred tax assets that rely on future profitability excluding those arising from temporary difference (net of related tax liability where the conditions in Article 38 (3) are met) (negative amount) |
-108 | 36 (1) (c), 38 |
| 11 | Fair value reserves related to gains or losses on cash flow hedges | -5 | 33 (1) (a) |
| 12 | Negative amounts resulting from the calculation of expected loss amounts | 36 (1) (d), 40, 159 | |
| 13 | Any increase in equity that results from securitised assets (negative amount) | 32 (1) | |
| 14 15 |
Gains or losses on liabilities valued at fair value resulting from changes in own credit standing Defined-benefit pension fund assets (negative amount) |
-90 | 33 (1) (b) 36 (1) (e), 41 |
| 16 | Direct and indirect holdings by an institution of own CET1 instruments (negative amount) | -1 587 | 36 (1) (f), 42 |
| Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where those entities | |||
| 17 | have reciprocal cross-holdings with the institution designed to inflate artificially the own funds of the institution (negative amount) |
36 (1) (g), 44 | |
| 18 | Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where the institution does not have a significant investment in those entities (amount above 10% threshold and net of eligible short |
36 (1) (h), 43, 45, 46, 49 (2) (3), 79 |
|
| positions) (negative amount) Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where the institution has |
|||
| 19 | a significant investment in those entities (amount above 10% threshold and net of eligible short positions) | 36 (1) (i), 43, 45, 47, 48 (1) (b), 49 (1) to (3), 79 |
|
| 20 | (negative amount) Empty set in the EU |
||
| Exposure amount of the following items which qualify for a RW of 1250%, where the institution opts for the | |||
| 20a | deduction alternative | 36 (1) (k) | |
| 20b | of which: qualifying holdings outside the financial sector (negative amount) | 36 (1) (k) (i), 89 to 91 | |
| 20c | of which: securitisation positions (negative amount) | 36 (1) (k) (ii), 243 (1) (b), 244 (1) (b), 258 |
|
| 20d | of which: free deliveries (negative amount) | 36 (1) (k) (iii), 379 (3) | |
| 21 | Deferred tax assets arising from temporary difference (amount above 10% threshold, net of related tax liability | 36 (1) (c), 38, 48 (1) (a) | |
| where the conditions in Article 38 (3) are met) (negative amount) | |||
| 22 | Amount exceeding the 15% threshold (negative amount) of which: direct and indirect holdings by the institution of the CET1 instruments of financial sector entities where |
48 (1) | |
| 23 | the institution has a significant investment in those entities | 36 (1) (i), 48 (1) (b) | |
| 24 | Empty set in the EU | ||
| 25 | of which: deferred tax assets arising from temporary difference | 36 (1) (c), 38, 48 (1) (a) | |
| 25a 25b |
Losses for the current financial year (negative amount) Foreseeable tax charges relating to CET1 items (negative amount) |
36 (1) (a) 36 (1) (l) |
|
| 27 | Qualifying AT1 deductions that exceed the AT1 capital of the institution (negative amount) | 36 (1) (j) | |
| 28 | Total regulatory adjustments to Common Equity Tier 1 (CET1) | -19 475 | |
| 29 | Common Equity Tier 1 (CET1) capital | 110 073 | |
| Additional Tier 1 (AT1) capital: instruments | |||
| 30 31 |
Capital instruments and the related share premium accounts of which: classified as equity under applicable accounting standards |
16 203 | 51, 52 |
| 32 | of which: classified as liabilities under applicable accounting standards | ||
| 33 | Amount of qualifying items referred to in Article 484 (4) and the related share premium accounts subject to phase out from AT1 |
0 | 486 (3) |
| 34 | Qualifying Tier 1 capital included in consolidated AT1 capital (including minority interest not included in row 5) | 85, 86 | |
| 35 | issued by subsidiaries and held by third parties of which: instruments issued by subsidiaries subject to phase-out |
486 (3) | |
| 36 | Additional Tier 1 (AT1) capital before regulatory adjustments | 16 203 | |
| Additional Tier 1 (AT1) capital: regulatory adjustments | |||
| 37 | Direct and indirect holdings by an institution of own AT1 instruments (negative amount) | -50 | 52 (1) (b), 56 (a), 57 |
| 38 | Direct, indirect and synthetic holdings of the AT1 instruments of financial sector entities where those entities have reciprocal cross holdings with the institution designed to artificially inflate the own funds of the institution |
56 (b), 58 | |
| (negative amount) Direct, indirect and synthetic holdings of the AT1 instruments of financial sector entities where the institution does |
|||
| 39 | not have a significant investment in those entities (amount above 10% threshold and net of eligible short | 56 (c), 59, 60, 79 | |
| positions) (negative amount) Direct, indirect and synthetic holdings of the AT1 instruments of financial sector entities where the institution has |
|||
| 40 | a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount) |
56 (d), 59, 79 | |
| Regulatory adjustments applied to Additional Tier 1 capital in respect of amounts subject to pre-CRR treatment and | |||
| 41 | transitional treatments subject to phase-out as prescribed in Regulation (EU) No 585/2013 (i.e. CRR residual amounts) |
||
| 42 | Qualifying T2 deductions that exceed the T2 capital of the institution (negative amount) | 56 (e) | |
| 43 44 |
Total regulatory adjustments to Additional Tier 1 (AT1) capital Additional Tier 1 (AT1) capital |
-50 16 153 |
|
| 45 | Tier 1 capital (T1 = CET1 + AT1) | 126 226 |
| Tier 2 (T2) capital: instruments and provisions | |||
|---|---|---|---|
| 46 | Capital instruments and the related share premium accounts | 15 409 | 62, 63 |
| 47 | Amount of qualifying items referred to in Article 484 (5) and the related share premium accounts subject to phase | 486 (4) | |
| out from T2 Qualifying own funds instruments included in consolidated T2 capital (including minority interest and AT1 |
|||
| 48 | instruments not included in rows 5 or 34) issued by subsidiaries and held by third party | 87, 88 | |
| 49 | of which: instruments issued by subsidiaries subject to phase-out | 486 (4) | |
| 50 | Credit risk adjustments | 88 | 62 (c) & (d) |
| 51 | Tier 2 (T2) capital before regulatory adjustment | 15 497 | |
| Tier 2 (T2) capital: regulatory adjustments | |||
| 52 | Direct and indirect holdings by an institution of own T2 instruments and subordinated loans (negative amount) | -50 | 63 (b) (i), 66 (a), 67 |
| Holdings of the T2 instruments and subordinated loans of financial sector entities where those entities have | |||
| 53 | reciprocal cross-holdings with the institutions designed to artificially inflate the own funds of the institution | 66 (b), 68 | |
| (negative amount) | |||
| Direct, indirect and synthetic holdings of the T2 instruments and subordinated loans of financial sector entities | |||
| 54 | where the institution does not have a significant investment in those entities (amount above 10% threshold and | 66 (c), 69, 70, 79 | |
| net of eligible short positions) (negative amount) | |||
| Direct, indirect and synthetic holdings of the T2 instruments and subordinated loans of financial sector entities | |||
| 55 | where the institution has a significant investment in those entities (net of eligible short positions) (negative amounts) |
-120 | 66 (d), 69, 79, 477 (4) |
| 56 | Empty set in the EU | ||
| 57 | Total regulatory adjustments to Tier 2 (T2) capital | -170 | |
| 58 | Tier 2 (T2) capital | 15 327 | |
| 59 | Total capital (TC = T1 + T2) | 141 554 | |
| 60 | Total risk-weighted assets | 649 237 | |
| Capital ratios and buffers | |||
| 61 | Common Equity Tier 1 (as a percentage of total risk exposure amount) | 16.95% | 92 (2) (a) |
| 62 | Tier 1 (as a percentage of total risk exposure amount) | 19.44% | 92 (2) (b) |
| 63 | Total capital (as a percentage of total risk exposure amount) | 21.80% | 92 (2) (c) |
| Institution-specific buffer requirement (CET1 requirement in accordance with article 92 (1) (a) plus capital | 12.02% | ||
| 64 | conservation and countercyclical buffer requirements plus a systemic risk buffer, plus systemically important | CRD 128, 129, 130, | |
| institution buffer expressed as a percentage of total risk exposure amount) 1) | 131, 133 | ||
| 65 | of which: capital conservation buffer requirement | 2.50% | |
| 66 | of which: countercyclical buffer requirement | 2.02% | |
| 67 | of which: systemic risk buffer requirement | 3.00% | |
| 67a | of which: Global Systemically Important Institution (G-SII) or Other Systemically Important Institution (O-SII) buffer | ||
| 68 | Common Equity Tier 1 available to meet buffers (as a percentage of risk exposure amount) 2) | 12.45% | CRD 128 |
| 69 | [non-relevant in EU regulation] | ||
| 70 | [non-relevant in EU regulation] | ||
| 71 | [non-relevant in EU regulation] | ||
| Amounts below the thresholds for deduction (before risk-weighting) | |||
| 72 | Direct and indirect holdings of the capital of financial sector entities where the institution does not have a | 1 632 | 36 (1) (h), 45, 46, 56 (c), |
| significant investment in those entities (amount below 10% threshold and net of eligible short positions) | 59, 60, 66 (c), 69, 70 | ||
| 73 | Direct and indirect holdings of the CET1 instruments of financial sector entities where the institution has a | 6 678 | 36 (1) (i), 45, 48 |
| significant investment in those entities (amount below 10% threshold and net of eligible short positions) | |||
| 74 | Empty set in the EU | ||
| 75 | Deferred tax assets arising from temporary difference (amount below 10 % threshold, net of related tax liability | 53 | 36 (1) (c), 38, 48 |
| where the conditions in Article 38 (3) are met) | |||
| Applicable caps on the inclusion of provisions in Tier 2 Credit risk adjustments included in T2 in respect of exposures subject to standardised approach (prior to the |
|||
| 76 | application of the cap) | 62 | |
| 77 | Cap on inclusion of credit risk adjustments in T2 under standardised approach | 62 | |
| Credit risk adjustments included in T2 in respect of exposures subject to internal ratings-based approach (prior to | 88 | ||
| 78 | the application of the cap) | 62 | |
| 79 | Cap for inclusion of credit risk adjustments in T2 under internal ratings-based approach | 1 617 | 62 |
| Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2014 and 1 Jan 2022) | |||
| 80 | - Current cap on CET1 instruments subject to phase-out arrangements | 484 (3), 486 (2) & (5) | |
| 81 | - Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities) | 484 (3), 486 (2) & (5) | |
| 82 | - Current cap on AT1 instruments subject to phase-out arrangements | 484 (4), 486 (3) & (5) | |
| 83 | - Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities) | 484 (4), 486 (3) & (5) | |
| 84 | - Current cap on T2 instruments subject to phase-out arrangements | 484 (5), 486 (4) & (5) | |
| 85 | - Amount excluded from T2 due to cap (excess over cap after redemptions and maturities) | 484 (5), 486 (4) & (5) |
Note: 'N/A' if the question is not applicable
1) The CET1 capital requirement including buffer requirements.
2) The CET1 capital ratio as reported, is less than the minimum requirement of 4.5% (excluding buffer requirements) and less than any CET1 items used to meet the Tier 1 and total capital requirements.
Swedbank CS: Capital instruments' main features, 31 December 2019
Disclosure according to Article 3 in Commission Implementing Regulation (EU) No 1423/2013
| Capital instruments' main features template | ||||||
|---|---|---|---|---|---|---|
| 1 | Issuer | Swedbank AB (publ) | Swedbank AB (publ) | Swedbank AB (publ) | ||
| Unique identifier (e.g. CUSIP, ISIN or | ||||||
| 2 | Bloomberg identifier for private | SE0000242455 | XS1190655776 | XS1535953134 | ||
| placement | ||||||
| 3 | Governing law(s) of the instrument | Swedish | English/Swedish | English/Swedish | ||
| Regulatory treatment | ||||||
| 4 | Transitional CRR rules | Common Equity Tier 1 | Additional Tier 1 | Additional Tier 1 | ||
| 5 | Post-transitional CRR rules | Common Equity Tier 1 | Additional Tier 1 | Additional Tier 1 | ||
| 6 | Eligible at solo/(sub- )consolidated/solo & (sub- )consolidated |
Solo & consolidated | Solo & Consolidated | Solo & Consolidated | ||
| 7 | Instrument type (types to be specified by each jurisdiction) |
Share capital as published in Regulation (EU) No 575/2013 article 28 |
Additional Tier 1 as published in Regulation (EU) No 575/2013 art 52 |
Additional Tier 1 as published in Regulation (EU) No 575/2013 art 52 |
||
| 8 | Amount recognised in regulatory capital (currency in million, as of most recent reporting date) |
SEK 24 904m | SEK 6 983m | SEK 4 663m | ||
| 9 | Nominal amount of instrument | SEK 24 904m | USD 750m | USD 500m | ||
| 9a | Issue price | N/A | 100 per cent | 100 per cent | ||
| 9b | Redemption price | N/A | 100 per cent of Nominal amount | 100 per cent of Nominal amount | ||
| 10 | Accounting classification | Shareholders' equity | Liability - amortised cost | Liability - amortised cost | ||
| 11 | Original date of issuance | N/A | 19.Feb.15 | 16.Dec.16 | ||
| 12 | Perpetual or dated | Perpetual | Perpetual | Perpetual | ||
| 13 | Original maturity date | No maturity | No maturity | No maturity | ||
| 14 | Issuer call subject to prior supervisory | No | Yes | Yes | ||
| approval | ||||||
| 15 | Optional call date, contingent call dates, and redemption amount |
N/A | 17-Mar-20 100 per cent of Nominal amount |
17-Mar-22 100 per cent of Nominal amount |
||
| In addition Tax/Regulatory call | In addition Tax/Regulatory call | |||||
| 16 | Subsequent call dates, if applicable | N/A | Any Reset Date after first call date | Any Reset Date after first call date | ||
| Coupons / dividends | ||||||
| 17 | Fixed or floating dividend/coupon | N/A | Fixed | Fixed | ||
| 18 | Coupon rate and any related index | N/A | Fixed 5.5 per cent per annum to call date (equiv to USD Swap Rate +3.767 per cent per annum), thereafter reset Fixed rate equiv to USD Swap Rate |
Fixed 6.0 per cent per annum to call date (equiv to USD Swap Rate +4.106 per cent per annum), thereafter reset Fixed rate equiv to USD Swap Rate |
||
| +3.767 per cent per annum | +4.106 per cent per annum | |||||
| 19 | Existence of a dividend stopper | N/A | No | No | ||
| 20a | Fully discretionary, partially discretionary or mandatory (in terms of timing |
Fully discretionary | Fully discretionary | Fully discretionary | ||
| 20b | Fully discretionary, partially discretionary or mandatory (in terms of amount) |
Fully discretionary | Fully discretionary | Fully discretionary | ||
| 21 | Existence of step up or other incentive to redeem |
N/A | No | No | ||
| 22 | Noncumulative or cumulative | N/A | Non cumulative | Non cumulative | ||
| 23 | Convertible or non-convertible | N/A | Convertible | Convertible | ||
| 24 | If convertible, conversion trigger (s) | N/A | 8% CET1 ratio on consolidated level, 5.125% CET1 ratio on solo level |
8% CET1 ratio on consolidated level, 5.125% CET1 ratio on solo level |
||
| 25 | If convertible, fully or partially | N/A | Fully | Fully | ||
| 26 | If convertible, conversion rate | N/A | The greater of the current market price of an Ordinary Share, the Quota value of an Ordinary Share and the Floor Price, all as of the Conversion Date. Floor price means USD 15.70 (subject to limited anti-dilution adjustments) |
The greater of the current market price of an Ordinary Share, the Quota value of an Ordinary Share and the Floor Price, all as of the Conversion Date. Floor price means USD 15.70 (subject to limited anti-dilution adjustments) |
||
| 27 | If convertible, mandatory or optional conversion |
N/A | Mandatory | Mandatory | ||
| 28 | If convertible, specify instrument type convertible into |
N/A | Ordinary Share | Ordinary Share | ||
| 29 | If convertible, specify issuer of instrument it converts into |
N/A | Swedbank AB (publ) | Swedbank AB (publ) | ||
| 30 | Write-down features | N/A | No | No | ||
| 31 | If write-down, write-down trigger (s) | N/A | N/A | N/A | ||
| 32 | If write-down, full or partial | N/A | N/A | N/A | ||
| 33 | If write-down, permanent or temporary |
N/A | N/A | N/A | ||
| 34 | If temporary write-down, description of write-up mechanism |
N/A | N/A | N/A | ||
| 35 | Position in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument) |
Additional Tier 1 | Tier 2 | Tier 2 | ||
| 36 | Non-compliant transitioned features | No | No | No | ||
| 37 | If yes, specify non-compliant features | N/A | N/A | N/A |
| Capital instruments' main features template | |||||||
|---|---|---|---|---|---|---|---|
| 1 | Issuer | Swedbank AB (publ) | Swedbank AB (publ) | Swedbank AB (publ) | Swedbank AB (publ) | ||
| 2 | Unique identifier (e.g. CUSIP, ISIN or Bloomberg identifier for private |
XS2046625765 | XS1617859464 | XS1796813589 | XS1807179277 | ||
| 3 | placement Governing law(s) of the instrument |
English/Swedish | English/Swedish | English/Swedish | English/Swedish | ||
| Regulatory treatment | |||||||
| 4 5 |
Transitional CRR rules Post-transitional CRR rules |
Additional Tier 1 Additional Tier 1 |
Tier 2 Tier 2 |
Tier 2 Tier 2 |
Tier 2 Tier 2 |
||
| 6 | Eligible at solo/(sub- )consolidated/solo & (sub- )consolidated |
Solo & Consolidated | Solo & Consolidated | Solo & Consolidated | Solo & Consolidated | ||
| 7 | Instrument type (types to be specified by each jurisdiction) |
Additional Tier 1 as published in Regulation (EU) No 575/2013 art 52 |
Tier 2 as published in Regulation (EU) No 575/2013 article 63 |
Tier 2 as published in Regulation (EU) No 575/2013 article 63 |
Tier 2 as published in Regulation (EU) No 575/2013 article 63 |
||
| 8 | Amount recognised in regulatory capital (currency in million, as of most recent reporting date) |
SEK 4 558m | SEK 6 849m | SEK 433m | SEK 685m | ||
| 9 | Nominal amount of instrument | USD 500m | EUR 650m | JPY 5 000m | JPY 8 000m | ||
| 9a | Issue price | 100 per cent | 99.475 per cent | 100 per cent | 100 per cent | ||
| 100 per cent of Nominal | 100 per cent of Nominal | 100 per cent of Nominal | 100 per cent of Nominal | ||||
| 9b | Redemption price | amount | amount | amount | amount | ||
| 10 | Accounting classification | Liability - amortised cost | Liability - amortised cost | Liability - amortised cost | Liability - amortised cost | ||
| 11 | Original date of issuance | 29.Aug.19 | 22.May.17 | 28.Mar.18 | 12.Apr.18 | ||
| 12 | Perpetual or dated | Perpetual | Dated | Dated | Dated | ||
| 13 | Original maturity date | No maturity | 22.Nov.27 | 28.Mar.33 | 12.Apr.28 | ||
| 14 | Issuer call subject to prior supervisory approval |
Yes | Yes | Yes | Yes | ||
| 17-SEP-24 | 22-NOV-22 | 28-MAR-28 | 12-APR-23 | ||||
| 15 | Optional call date, contingent call dates, and redemption amount |
100 per cent of Nominal amount In addition Tax/Regulatory |
100 per cent of Nominal amount In addition Tax/Regulatory |
100 per cent of Nominal amount In addition Tax/Regulatory |
100 per cent of Nominal amount In addition Tax/Regulatory |
||
| call | call | call | call | ||||
| 16 | Subsequent call dates, if applicable | Any Reset Date after first call date |
N/A | N/A | N/A | ||
| Coupons / dividends | |||||||
| 17 | Fixed or floating dividend/coupon | Fixed | Fixed | Fixed | Fixed | ||
| 18 | Coupon rate and any related index | Fixed 5.625 per cent per annum to call date (equiv to USD Swap Rate +4.224 per cent per annum), thereafter |
Fixed 1 per cent per annum to call date (equivalent to Euro Swap Rate +0.82 per cent per annum), thereafter |
Fixed 0,9 per cent per annum payable in arrear on each Interest Payment Date, thereafter reset Fixed rate |
Fixed 0,75 per cent per annum payable in arrear on each Interest Payment Date, thereafter reset Fixed rate |
||
| reset Fixed rate equiv to USD Swap Rate +4.224 per cent per annum |
reset Fixed rate equivalent to Euro Swap Rate +0.82 per cent per annum |
equivalent to JPY 6M Swap Rate +0.6425 per cent per annum |
equivalent to JPY 6M Swap Rate +0.64625 per cent per annum |
||||
| 19 | Existence of a dividend stopper | No | No | No | No | ||
| 20a | Fully discretionary, partially discretionary or mandatory (in terms of timing |
Fully discretionary | Mandatory | Mandatory | Mandatory | ||
| 20b | Fully discretionary, partially discretionary or mandatory (in terms of amount) |
Fully discretionary | Mandatory | Mandatory | Mandatory | ||
| 21 | Existence of step up or other incentive to redeem |
No | No | No | No | ||
| 22 | Noncumulative or cumulative | Non cumulative | Cumulative | Cumulative | Cumulative | ||
| 23 | Convertible or non-convertible | Convertible | Non-convertible | Non-convertible | Non-convertible | ||
| 24 | If convertible, conversion trigger (s) | 8% CET1 ratio on consolidated level, 5.125% CET1 ratio on solo level |
N/A | N/A | N/A | ||
| 25 | If convertible, fully or partially | Fully | N/A | N/A | N/A | ||
| 26 | If convertible, conversion rate | The greater of the current market price of an Ordinary Share, the Quota value of an Ordinary Share and the Floor Price, all as of the Conversion Date. Floor price means USD 8.75 (subject to limited anti-dilution |
N/A | N/A | N/A | ||
| 27 | If convertible, mandatory or optional conversion |
adjustments) Mandatory |
N/A | N/A | N/A | ||
| 28 | If convertible, specify instrument type convertible into |
Ordinary Share | N/A | N/A | N/A | ||
| 29 | If convertible, specify issuer of instrument it converts into |
Swedbank AB (publ) | N/A | N/A | N/A | ||
| 30 | Write-down features | No | No | No | No | ||
| 31 | If write-down, write-down trigger (s) | N/A | N/A | N/A | N/A | ||
| 32 | If write-down, full or partial | N/A | N/A | N/A | N/A | ||
| 33 | If write-down, permanent or temporary |
N/A | N/A | N/A | N/A | ||
| 34 | If temporary write-down, description of write-up mechanism |
N/A | N/A | N/A | N/A | ||
| 35 | Position in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument) |
Tier 2 | Senior debt | Senior debt | Senior debt | ||
| 36 | Non-compliant transitioned features | No | No | No | No | ||
| 37 | If yes, specify non-compliant features | N/A | N/A | N/A | N/A |
| Capital instruments' main features template | ||||||
|---|---|---|---|---|---|---|
| 1 | Issuer | Swedbank AB (publ) | Swedbank AB (publ) | Swedbank AB (publ) | ||
| 2 | Unique identifier (e.g. CUSIP, ISIN or Bloomberg identifier for private |
XS1816641937 XS1848755358 |
XS1880928459 | |||
| 3 | placement Governing law(s) of the instrument |
English/Swedish | English/Swedish | English/Swedish | ||
| Regulatory treatment | ||||||
| 4 | Transitional CRR rules | Tier 2 | Tier 2 | Tier 2 | ||
| 5 | Post-transitional CRR rules | Tier 2 | Tier 2 | Tier 2 | ||
| Eligible at solo/(sub- | ||||||
| 6 | )consolidated/solo & (sub- )consolidated |
Solo & Consolidated | Solo & Consolidated | Solo & Consolidated | ||
| Tier 2 as published in | Tier 2 as published in | Tier 2 as published in | ||||
| 7 | Instrument type (types to be specified by each jurisdiction) |
Regulation (EU) No 575/2013 article 63 |
Regulation (EU) No 575/2013 article 63 |
Regulation (EU) No 575/2013 article 63 |
||
| 8 | Amount recognised in regulatory capital (currency in million, as of most recent reporting date) |
SEK 1 210m | SEK 941m | SEK 5 290m | ||
| 9 | Nominal amount of instrument | SEK 1 200m | JPY 11 000m | EUR 500m | ||
| 9a | Issue price | 100 per cent | 100 per cent | 99.523 per cent | ||
| 9b | Redemption price | 100 per cent of Nominal | 100 per cent of Nominal | 100 per cent of Nominal | ||
| amount | amount | amount | ||||
| 10 | Accounting classification | Liability - amortised cost | Liability - amortised cost | Liability - amortised cost | ||
| 11 | Original date of issuance | 08.May.18 | 29.Jun.18 | 18.Sep.18 | ||
| 12 | Perpetual or dated | Dated | Dated | Dated | ||
| 13 | Original maturity date | 08.May.28 | 29.Jun.28 | 18.Sep.28 | ||
| 14 | Issuer call subject to prior supervisory approval |
Yes | Yes | Yes | ||
| 08-MAY-23 | 29-JUN-23 | 18-SEP-23 | ||||
| 100 per cent of Nominal | 100 per cent of Nominal | 100 per cent of Nominal | ||||
| 15 | Optional call date, contingent call | amount | amount | amount | ||
| dates, and redemption amount | In addition Tax/Regulatory | In addition Tax/Regulatory | In addition Tax/Regulatory call | |||
| call | call | |||||
| 16 | Subsequent call dates, if applicable | N/A | N/A | N/A | ||
| Coupons / dividends | ||||||
| 17 | Fixed or floating dividend/coupon | Fixed | Fixed | Fixed | ||
| Fixed 1,55875 per cent per | Fixed 0,95 per cent per annum payable in arrear on |
Fixed 1 per cent per annum to call date (equivalent to Euro Swap Rate +0.82 per cent per annum), thereafter reset Fixed rate equivalent to Euro Swap Rate +1.28 per cent per |
||||
| 18 | Coupon rate and any related index | annum payable in arrear on each Interest Payment Date, thereafter reset Floating rate 3-month STIBOR +1,03 per cent per annum |
each Interest Payment Date, thereafter reset Fixed rate equivalent to JPY 6M Swap Rate +0.85125 per cent per |
|||
| annum | annum | |||||
| 19 | Existence of a dividend stopper | No | No | No | ||
| 20a | Fully discretionary, partially discretionary or mandatory (in terms of timing |
Mandatory | Mandatory | Mandatory | ||
| 20b | Fully discretionary, partially discretionary or mandatory (in terms of amount) |
Mandatory | Mandatory | Mandatory | ||
| 21 | Existence of step up or other incentive | No | No | No | ||
| to redeem | ||||||
| 22 | Noncumulative or cumulative | Cumulative | Cumulative | Cumulative | ||
| 23 | Convertible or non-convertible | Non-convertible | Non-convertible | Non-convertible | ||
| 24 | If convertible, conversion trigger (s) | N/A | N/A | N/A | ||
| 25 | If convertible, fully or partially | N/A | N/A | N/A | ||
| 26 | If convertible, conversion rate | N/A | N/A | N/A | ||
| 27 | If convertible, mandatory or optional conversion |
N/A | N/A | N/A | ||
| 28 | If convertible, specify instrument type convertible into |
N/A | N/A | N/A | ||
| 29 | If convertible, specify issuer of instrument it converts into |
N/A | N/A | N/A | ||
| 30 | Write-down features | No | No | No | ||
| 31 | If write-down, write-down trigger (s) | N/A | N/A | N/A | ||
| 32 | If write-down, full or partial If write-down, permanent or |
N/A | N/A | N/A | ||
| 33 | temporary If temporary write-down, description |
N/A | N/A | N/A | ||
| 34 | of write-up mechanism | N/A | N/A | N/A | ||
| 35 | Position in subordination hierarchy in liquidation (specify instrument type |
Senior debt | Senior debt | Senior debt | ||
| immediately senior to instrument) | ||||||
| 36 | Non-compliant transitioned features | No | No | No | ||
| 37 | If yes, specify non-compliant features | N/A | N/A | N/A |
Appendix B: Large Subsidiaries
Contents
Name Page
| Swedbank Estonia Consolidated Situation | 93 |
|---|---|
| Swedbank Latvia Consolidated Situation | 111 |
| Swedbank Lithuania Consolidated Situation | 130 |
| Swedbank Mortgage AB | 149 |
Appendix: Swedbank Estonia Consolidated Situation (CS)
Introduction
Swedbank's Risk Management and Capital Adequacy Report 2019 (Pillar 3 report) provides information on Swedbank's capital adequacy and risk management. The report is based on regulatory disclosure requirements set out in Regulation (EU) No 575/2013. In accordance with Article 13 in the same regulation, certain information shall be provided for large subsidiaries. Information regarding Swedbank Estonia Consolidated Situation (CS) is provided in this Appendix and pertains to conditions as of 31 December 2019. Information on the organisational and legal structure of Swedbank Estonia Consolidated Situation is provided in Appendix A of this Pillar 3 report. Information regarding Swedbank's corporate governance structure and measures undertaken to manage operations in Swedbank Consolidated Situation is presented in Swedbank's Corporate Governance Report. Information regarding risk implications of the remuneration process (and aggregate as well as granular quantitative information on remuneration) for Swedbank Estonia Consolidated Situation is disclosed in the document "Information regarding remuneration in Swedbank". Swedbank's Group-wide framework includes instructions for management of credit risk, including instructions for granting and prolonging credits, for collateral valuation, for determining impairment and for credit risk adjustments. Information regarding management of credit risk is provided in Chapter 3 of this Pillar 3 report. The Group-wide framework also includes instructions describing the approach used to assess the adequacy of internal capital to support current and future activities. This information is provided in Chapter 7 of the same report. All documents mentioned are available on www.swedbank.com. All figures are denominated in EUR thousands unless otherwise stated.
Capital requirements
Under the CRR/CRD IV framework, a bank's total capital must be equivalent to at least the sum of the capital requirements for credit- market- and operational risks, including combined capital buffers, Pillar 2 requirement (P2R) and Pillar 2 guidance (P2G). The capital requirement for Swedbank Estonia CS in Pillar 1, as a percentage of RWA, amounted to 10% of the CET1 capital, and 13.5% of the total capital as of year-end. Combined capital buffer requirements comprise 5.5% and consist of systemic risk buffer (1%), buffer requirement of 2% for other systemically important institutions (O-SII) and capital conservation buffer of 2.5%. The capitalisation of Swedbank Estonia CS must also comply with the capital requirements in Pillar 2. According to the 2019 Supervisory Review and Evaluation Process (SREP), the Pillar 2 requirement (P2R) slightly increased to 2.0% from 1.5% in the previous year. Pillar 2 guidance (P2G) remained unchanged since last year at 1%. Banks are expected to treat a failure to meet the P2G as an early warning signal. The P2G does not stipulate any limitation on the Maximum Distributable Amount. Considering the above, the CET 1 capital ratio requirement of Swedbank Estonia CS amounted to 13.0% and the total capital ratio requirement was 16.5% as of year-end 2019.
| Capital requirements (forward-looking, incl. fully implemented buffers and Pillar 2 requirements)1, 31 December 2019 | |
|---|---|
| ---------------------------------------------------------------------------------------------------------------------- | -- |
| Pillar 1 | CET1 | AT1 | T2 | Total capital |
|---|---|---|---|---|
| Minimum CET1 requirement | 4.5% | 1.5% | 2.0% | 8.0% |
| Systemic risk buffer (P1) 2 | 1.0% | 1.0% | ||
| Capital conservation buffer (CCoB) | 2.5% | 2.5% | ||
| Countercyclical capital buffer (CCyB) | 0.0% | 0.0% | ||
| O-SII buffer | 2.0% | 2.0% | ||
| 10.0% | 1.5% | 2.0% | 13.5% | |
| Pillar 23 | ||||
| Pillar 2 requirement (P2R) | 2.0% | 2.0% | ||
| Pillar 2 capital guidance (P2G) | 1.0% | 1.0% | ||
| 3.0% | 3.0% | |||
| Capital requirements | 13.0% | 16.5% | ||
| Actual capital ratios as of 31 December 2019 | 40.6% | 40.6% |
1) Swedbank's estimate based on the Estonian FSA's announced capital requirements. All table values above rounded to one decimal place.
2) Starting from 2016, the systemic risk buffer has decreased from 2% to 1% and an O-SII buffer of 2% has been introduced.
3) P2R and P2G determined by 2019 SREP.
On 31 December 2019, Swedbank Estonia CS's Common Equity Tier 1 and Total Capital ratio both amounted to 40.6% (end-2018: 42.0%). The capitalisation of Swedbank Estonia CS is well above the capital requirements presented in the table above. Swedbank Estonia CS's leverage ratio was 13.36% at end 2019 (end-2018: 13.90%), with the decrease mainly due to a growing loan portfolio. In the 2019 Supervisory Review and Evaluation Process (SREP), the capitalisation of Swedbank Estonia CS was assessed as adequate for both the current and forward-looking perspective of regulatory capital requirements.
According to Swedbank's procedures, the capital planning process is performed on a quarterly basis for the Baltic subsidiaries, which includes an assessment of the overall capitalisation versus the above-mentioned capital requirements and risk of excessive leverage. In case of a potential capital shortfall, capital injections or measures to reduce the risk exposure amount may be performed. In
addition to the injection of equity capital, the total capital in a subsidiary may also be strengthened through subordinated loans from the parent company (Swedbank AB). In case of changes in the leverage ratio, which might implicate managing the risk of excessive leverage, other business steering or asset-and-liability management tools may also be considered, and accessed if needed, to affect the total exposure measure.
The Bank Recovery and Resolution Directive (BRRD), which allows the authorities to deal with banks in distress, was established in the EU in 2014 and transposed to Estonian national laws on 29 March 2015. The directive includes a requirement on banks to hold a minimum level of own funds and eligible liabilities (MREL). In December 2017, MREL requirement was formally decided on a consolidated level (Swedbank CS) by the SNDO (The Swedish National Debt Office). An individual MREL requirement for Swedbank Estonia CS was introduced by the Single Resolution Board (SRB) in 2019 and came into force as of end-of-year 2019.
Estonia 2: Total capital
Disclosure according to Article 2 in Commission Implementing Regulation (EU) No 1423/2013
| EURt | 31.12.2019 | 30.09.2019 |
|---|---|---|
| Shareholders' equity according to the Group balance sheet | 1 540 858 | 1 540 858 |
| Non-controlling interests | ||
| Anticipated dividends | ||
| Deconsolidation of insurance companies | 26 050 | 26 050 |
| Unrealised value changes in financial liabilities due to changes in own creditworthiness | ||
| Cash flow hedges | ||
| Additional value adjustments | -844 | -725 |
| Goodwill | ||
| Deferred tax assets | ||
| Intangible assets | -863 | -813 |
| Net provisions for reported IRB credit exposures | -26 903 | -24 609 |
| Shares deducted from CET1 capital | ||
| Defined benefit pension fund assets | ||
| Total CET1 capital | 1 538 298 | 1 540 761 |
| Additional Tier 1 capital | ||
| Total Tier 1 capital | 1 538 298 | 1 540 761 |
| Tier 2 capital | ||
| Total capital | 1 538 298 | 1 540 761 |
The corresponding information for Swedbank CS is enclosed in Swedbank's Fact Book.
Estonia 3: Own funds disclosure, 31 December 2019
Disclosure according to Article 4 in Commission Implementing Regulation (EU) No 1423/2013
| EURt | Common Equity Tier 1 capital: instruments and reserves, | (a) Amounts at disclosure date |
(b) (EU) No 575/2013 article reference |
|---|---|---|---|
| 1 | Capital instruments and the related share premium accounts | 115 982 | 26 (1), 27, 28, 29 |
| of which: Instrument type 1 | EBA list 26 (3) | ||
| of which: Instrument type 2 of which: Instrument type 3 |
EBA list 26 (3) EBA list 26 (3) |
||
| 2 | Retained earnings | 1 408 801 | 26 (1) (c) |
| 3 | Accumulated other comprehensive income (and any other reserves) | 20 284 | 26 (1) |
| 3a | Funds for general banking risk | 21 841 | 26 (1) (f) |
| 4 | Amount of qualifying items referred to in Article 484 (3) and the related share premium accounts subject to phase | 486 (2) | |
| 5 | out from CET1 Minority interests (amount allowed in consolidated CET1) |
84 | |
| 5a | Independently reviewed interim profits net of any foreseeable charge or dividend | 26 (2) | |
| 6 | Common Equity Tier 1 (CET1) capital before regulatory adjustments | 1 566 908 | |
| Common Equity Tier 1 (CET1) capital: regulatory adjustments | |||
| 7 | Additional value adjustments (negative amount) | -844 | 34, 105 |
| 8 9 |
Intangible assets (net of related tax liability) (negative amount) Empty set in the EU |
-863 | 36 (1) (b), 37 |
| Deferred tax assets that rely on future profitability excluding those arising from temporary difference (net of | |||
| 10 | related tax liability where the conditions in Article 38 (3) are met) (negative amount) | 36 (1) (c), 38 | |
| 11 | Fair value reserves related to gains or losses on cash flow hedges | 33 (1) (a) | |
| 12 13 |
Negative amounts resulting from the calculation of expected loss amounts Any increase in equity that results from securitised assets (negative amount) |
-26 903 | 36 (1) (d), 40, 159 32 (1) |
| 14 | Gains or losses on liabilities valued at fair value resulting from changes in own credit standing | 33 (1) (b) | |
| 15 | Defined-benefit pension fund assets (negative amount) | 36 (1) (e), 41 | |
| 16 | Direct and indirect holdings by an institution of own CET1 instruments (negative amount) | 36 (1) (f), 42 | |
| Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where those entities | |||
| 17 | have reciprocal cross-holdings with the institution designed to inflate artificially the own funds of the institution (negative amount) |
36 (1) (g), 44 | |
| Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where the institution | |||
| 18 | does not have a significant investment in those entities (amount above 10% threshold and net of eligible short | 36 (1) (h), 43, 45, 46, 49 | |
| positions) (negative amount) | (2) (3), 79 | ||
| Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where the institution has | 36 (1) (i), 43, 45, 47, 48 | ||
| 19 | a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount) |
(1) (b), 49 (1) to (3), 79 | |
| 20 | Empty set in the EU | ||
| 20a | Exposure amount of the following items which qualify for a RW of 1250%, where the institution opts for the | 36 (1) (k) | |
| deduction alternative | |||
| 20b | of which: qualifying holdings outside the financial sector (negative amount) | 36 (1) (k) (i), 89 to 91 | |
| 20c | of which: securitisation positions (negative amount) | 36 (1) (k) (ii), 243 (1) (b), 244 (1) (b), 258 |
|
| 20d | of which: free deliveries (negative amount) | 36 (1) (k) (iii), 379 (3) | |
| 21 | Deferred tax assets arising from temporary difference (amount above 10% threshold, net of related tax liability | 36 (1) (c), 38, 48 (1) (a) | |
| where the conditions in Article 38 (3) are met) (negative amount) | |||
| 22 | Amount exceeding the 15% threshold (negative amount) of which: direct and indirect holdings by the institution of the CET1 instruments of financial sector entities where |
48 (1) | |
| 23 | the institution has a significant investment in those entities | 36 (1) (i), 48 (1) (b) | |
| 24 | Empty set in the EU | ||
| 25 | of which: deferred tax assets arising from temporary difference | 36 (1) (c), 38, 48 (1) (a) | |
| 25a | Losses for the current financial year (negative amount) | 36 (1) (a) | |
| 25b 27 |
Foreseeable tax charges relating to CET1 items (negative amount) Qualifying AT1 deductions that exceed the AT1 capital of the institution (negative amount) |
36 (1) (l) 36 (1) (j) |
|
| 28 | Total regulatory adjustments to Common Equity Tier 1 (CET1) | -28 610 | |
| 29 | Common Equity Tier 1 (CET1) capital | 1 538 298 | |
| Additional Tier 1 (AT1) capital: instruments | |||
| 30 | Capital instruments and the related share premium accounts | 51, 52 | |
| 31 32 |
of which: classified as equity under applicable accounting standards of which: classified as liabilities under applicable accounting standards |
||
| Amount of qualifying items referred to in Article 484 (4) and the related share premium accounts subject to phase | |||
| 33 | out from AT1 | 486 (3) | |
| 34 | Qualifying Tier 1 capital included in consolidated AT1 capital (including minority interest not included in row 5) | 85, 86 | |
| issued by subsidiaries and held by third parties | |||
| 35 36 |
of which: instruments issued by subsidiaries subject to phase-out Additional Tier 1 (AT1) capital before regulatory adjustments |
486 (3) | |
| Additional Tier 1 (AT1) capital: regulatory adjustments | |||
| 37 | Direct and indirect holdings by an institution of own AT1 instruments (negative amount) | 52 (1) (b), 56 (a), 57 | |
| Direct, indirect and synthetic holdings of the AT1 instruments of financial sector entities where those entities have | |||
| 38 | reciprocal cross holdings with the institution designed to artificially inflate the own funds of the institution (negative amount) |
56 (b), 58 | |
| Direct, indirect and synthetic holdings of the AT1 instruments of financial sector entities where the institution does | |||
| 39 | not have a significant investment in those entities (amount above 10% threshold and net of eligible short | 56 (c), 59, 60, 79 | |
| positions) (negative amount) | |||
| Direct, indirect and synthetic holdings of the AT1 instruments of financial sector entities where the institution has | |||
| 40 | a significant investment in those entities (amount above 10% threshold and net of eligible short positions) | 56 (d), 59, 79 | |
| (negative amount) Regulatory adjustments applied to Additional Tier 1 capital in respect of amounts subject to pre-CRR treatment and |
|||
| 41 | transitional treatments subject to phase-out as prescribed in Regulation (EU) No 585/2013 (i.e. CRR residual | ||
| amounts) | |||
| 42 | Qualifying T2 deductions that exceed the T2 capital of the institution (negative amount) | 56 (e) | |
| 43 44 |
Total regulatory adjustments to Additional Tier 1 (AT1) capital Additional Tier 1 (AT1) capital |
||
| 45 | Tier 1 capital (T1 = CET1 + AT1) | 1 538 298 |
| Tier 2 (T2) capital: instruments and provisions | |||
|---|---|---|---|
| 46 | Capital instruments and the related share premium accounts | 62, 63 | |
| 47 | Amount of qualifying items referred to in Article 484 (5) and the related share premium accounts subject to phase out from T2 |
486 (4) | |
| 48 | Qualifying own funds instruments included in consolidated T2 capital (including minority interest and AT1 instruments not included in rows 5 or 34) issued by subsidiaries and held by third party |
87, 88 | |
| 49 | of which: instruments issued by subsidiaries subject to phase-out | 486 (4) | |
| 50 | Credit risk adjustments | 62 (c) & (d) | |
| 51 | Tier 2 (T2) capital before regulatory adjustment | ||
| Tier 2 (T2) capital: regulatory adjustments | |||
| 52 | Direct and indirect holdings by an institution of own T2 instruments and subordinated loans (negative amount) | 63 (b) (i), 66 (a), 67 | |
| 53 | Holdings of the T2 instruments and subordinated loans of financial sector entities where those entities have reciprocal cross-holdings with the institutions designed to artificially inflate the own funds of the institution |
66 (b), 68 | |
| (negative amount) | |||
| Direct, indirect and synthetic holdings of the T2 instruments and subordinated loans of financial sector entities | |||
| 54 | where the institution does not have a significant investment in those entities (amount above 10% threshold and | 66 (c), 69, 70, 79 | |
| net of eligible short positions) (negative amount) | |||
| Direct, indirect and synthetic holdings of the T2 instruments and subordinated loans of financial sector entities | |||
| 55 | where the institution has a significant investment in those entities (net of eligible short positions) (negative | 66 (d), 69, 79, 477 (4) | |
| amounts) | |||
| 56 | Empty set in the EU | ||
| 57 | Total regulatory adjustments to Tier 2 (T2) capital | ||
| 58 | Tier 2 (T2) capital | ||
| 59 | Total capital (TC = T1 + T2) | 1 538 298 | |
| 60 | Total risk-weighted assets | 3 793 347 | |
| Capital ratios and buffers | |||
| 61 | Common Equity Tier 1 (as a percentage of total risk exposure amount) | 40.6% | 92 (2) (a) |
| 62 | Tier 1 (as a percentage of total risk exposure amount) | 40.6% | 92 (2) (b) |
| 63 | Total capital (as a percentage of total risk exposure amount) | 40.6% | 92 (2) (c) |
| 64 | Institution-specific buffer requirement (CET1 requirement in accordance with article 92 (1) (a) plus capital conservation and countercyclical buffer requirements plus a systemic risk buffer, plus systemically important |
CRD 128, 129, 130, | |
| institution buffer expressed as a percentage of total risk exposure amount) 1) | 10.0% | 131, 133 | |
| 65 | of which: capital conservation buffer requirement | 2.5% | |
| 66 | of which: countercyclical buffer requirement | 0.0% | |
| 67 | of which: systemic risk buffer requirement | 1.0% | |
| 67a | of which: Global Systemically Important Institution (G-SII) or Other Systemically Important Institution (O-SII) buffer | 2.0% | |
| 68 | Common Equity Tier 1 available to meet buffers (as a percentage of risk exposure amount) 2) | 32.6% | CRD 128 |
| 69 | [non-relevant in EU regulation] | ||
| 70 | [non-relevant in EU regulation] | ||
| 71 | [non-relevant in EU regulation] | ||
| Amounts below the thresholds for deduction (before risk-weighting) | |||
| 72 | Direct and indirect holdings of the capital of financial sector entities where the institution does not have a | 36 (1) (h), 45, 46, 56 (c), | |
| significant investment in those entities (amount below 10% threshold and net of eligible short positions) | 59, 60, 66 (c), 69, 70 | ||
| 73 | Direct and indirect holdings of the CET1 instruments of financial sector entities where the institution has a | 36 (1) (i), 45, 48 | |
| significant investment in those entities (amount below 10% threshold and net of eligible short positions) | |||
| 74 | Empty set in the EU | ||
| 75 | Deferred tax assets arising from temporary difference (amount below 10 % threshold, net of related tax liability | 36 (1) (c), 38, 48 | |
| where the conditions in Article 38 (3) are met) | |||
| Applicable caps on the inclusion of provisions in Tier 2 | |||
| 76 | Credit risk adjustments included in T2 in respect of exposures subject to standardised approach (prior to the | 62 | |
| application of the cap) | |||
| 77 | Cap on inclusion of credit risk adjustments in T2 under standardised approach | 62 | |
| 78 | Credit risk adjustments included in T2 in respect of exposures subject to internal ratings-based approach (prior to | 62 | |
| the application of the cap) | |||
| 79 | Cap for inclusion of credit risk adjustments in T2 under internal ratings-based approach | 62 | |
| Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2014 and 1 Jan 2022) | |||
| 80 | - Current cap on CET1 instruments subject to phase-out arrangements | 484 (3), 486 (2) & (5) | |
| 81 | - Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities) | 484 (3), 486 (2) & (5) | |
| 82 | - Current cap on AT1 instruments subject to phase-out arrangements | 484 (4), 486 (3) & (5) | |
| 83 | - Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities) | 484 (4), 486 (3) & (5) | |
| 84 | - Current cap on T2 instruments subject to phase-out arrangements | 484 (5), 486 (4) & (5) | |
| 85 | - Amount excluded from T2 due to cap (excess over cap after redemptions and maturities) | 484 (5), 486 (4) & (5) |
1) The CET1 capital requirement including buffer requirements.
2) The CET1 capital ratio as reported, is less than the minimum requirement of 4.5% (excluding buffer requirements) and less than any CET1 items used to meet the Tier 1 and total capital requirements.
Estonia 4a: Amount of institution-specific countercyclical capital buffer
| EURt | 31.12.2019 |
|---|---|
| Total risk exposure amount | 3 793 347 |
| Institution-specific countercyclical buffer rate | 0.00% |
| Institution-specific countercyclical buffer requirement | 100 |
The corresponding information for Swedbank CS can be found in the Capital position chapter of this Pillar 3 report.
Estonia 4b: Geographical distribution of credit exposures relevant for the calculation of the countercyclical capital buffer, 31 December 2019
| General credit exposures | Trading book exposure | Securitisation exposures |
Own funds requirements | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| EURt | Exposure value for SA |
Exposure value for IRB |
Sum of long and short position of trading book |
Value of trading book exposure for internal models |
Exposure value for SA |
Exposure value for IRB |
of which General credit exposures |
of which Trading book exposures |
of which Securitisation exposures |
Total | Own funds requirement weights |
Countercyclical capital buffer rate |
| Sweden | 27 | 1 975 | 35 | 35 | 0.01% | 2.5% | ||||||
| Estonia | 647 658 | 8 093 186 | 652 | 254 226 | 85 | 254 311 | 98.64% | |||||
| Latvia | 5 | 22 462 | 1 153 | 1 153 | 0.45% | |||||||
| Lithuania | 378 | 63 | 60 | 32 | 5 | 37 | 0.01% | 1.0% | ||||
| Norway | 1 977 | 35 | 35 | 0.01% | 2.5% | |||||||
| Finland | 19 028 | 6 | 392 | 1 | 393 | 0.15% | ||||||
| Denmark | 453 | 4 | 4 | 0.00% | 1.0% | |||||||
| USA | 1 631 | 20 | 20 | 0.01% | ||||||||
| Great | 3 664 | 81 | 81 | 0.03% | 1.0% | |||||||
| Britain | ||||||||||||
| Other | 14 891 | 38 861 | 5 | 1 752 | 0 | 1 751 | 0.68% | |||||
| countries | ||||||||||||
| Total | 662 959 | 8 183 300 | 723 | 257 730 | 91 | 257 820 | 100.00% | 0.0% |
The corresponding information for Swedbank CS can be found in the Capital position chapter of this Pillar 3 report.
Estonia 5: Capital instruments' main features, 31 December 2019
Disclosure according to Article 3 in Commission Implementing Regulation (EU) No 1423/2013
| Capital instruments' main features template | |||||||
|---|---|---|---|---|---|---|---|
| 1 | Issuer | Swedbank AS, Estonia | |||||
| 2 | Unique identifier (e.g. CUSIP, ISIN or Bloomberg identifier for private placement) | EE0000001063 | |||||
| 3 | Governing law(s) of the instrument | Estonian | |||||
| Regulatory treatment | |||||||
| 4 | Transitional CRR rules | Common Equity Tier 1 | |||||
| 5 | Post-transitional CRR rules | Common Equity Tier 1 | |||||
| 6 | Eligible at solo/(sub-)consolidated/solo & (sub-)consolidated | Solo & consolidated | |||||
| Share capital | |||||||
| 7 | Instrument type (types to be specified by each jurisdiction) | as published in Regulation | |||||
| (EU) No 575/2013 article 28 | |||||||
| 8 | Amount recognised in regulatory capital (currency in million, as of most recent reporting date) | EUR 85m | |||||
| 9 | Nominal amount of instrument | EUR 85m | |||||
| 9a | Issue price | N/A | |||||
| 9b | Redemption price | N/A | |||||
| 10 | Accounting classification | Shareholders' equity | |||||
| 11 | Original date of issuance | N/A | |||||
| 12 | Perpetual or dated | Perpetual | |||||
| 13 | Original maturity date | No maturity | |||||
| 14 | Issuer call subject to prior supervisory approval | No | |||||
| 15 | Optional call date, contingent call dates, and redemption amount | N/A | |||||
| 16 | Subsequent call dates, if applicable | N/A | |||||
| Coupons / dividends | |||||||
| 17 | Fixed or floating dividend/coupon | N/A | |||||
| 18 | Coupon rate and any related index | N/A | |||||
| 19 | Existence of a dividend stopper | N/A | |||||
| 20a | Fully discretionary, partially discretionary or mandatory (in terms of timing) | Fully discretionary | |||||
| 20b | Fully discretionary, partially discretionary or mandatory (in terms of amount) | Fully discretionary | |||||
| 21 | Existence of step up or other incentive to redeem | N/A | |||||
| 22 | Noncumulative or cumulative | N/A | |||||
| 23 | Convertible or non-convertible | N/A | |||||
| 24 | If convertible, conversion trigger (s) | N/A | |||||
| 25 | If convertible, fully or partially | N/A | |||||
| 26 | If convertible, conversion rate | N/A | |||||
| 27 | If convertible, mandatory or optional conversion | N/A | |||||
| 28 | If convertible, specify instrument type convertible into | N/A | |||||
| 29 | If convertible, specify issuer of instrument it converts into | N/A | |||||
| 30 | Write-down features | N/A | |||||
| 31 | If write-down, write-down trigger (s) | N/A | |||||
| 32 | If write-down, full or partial | N/A | |||||
| 33 | If write-down, permanent or temporary | N/A | |||||
| 34 | If temporary write-down, description of write-up mechanism | N/A | |||||
| 35 | Position in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument) | Additional Tier 1 | |||||
| 36 | Non-compliant transitioned features | No | |||||
| 37 | If yes, specify non-compliant features | N/A |
Estonia 6: Overview of RWAs (EU OV1), 31 December 2019
| RWA | Minimum capital requirements | ||||
|---|---|---|---|---|---|
| EURt | 31.12.2019 | 30.09.2019 | 31.12.2019 | ||
| Credit risk (excluding Counterparty credit risk (CCR)) | 3 007 611 | 2 953 376 | 240 609 | ||
| - of which the standardised approach (SA) | 323 684 | 333 812 | 25 895 | ||
| - of which the foundation IRB (FIRB) approach | 1 748 075 | 1 704 253 | 139 846 | ||
| - of which the advanced IRB (AIRB) approach | 935 852 | 915 311 | 74 868 | ||
| - of which equity IRB under the simple risk- weighted approach or the IMA | |||||
| Counterparty credit risk | 15 760 | 13 614 | 1 261 | ||
| - of which mark to market | 13 351 | 12 366 | 1 068 | ||
| - of which original exposure | |||||
| - of which the standardised approach | |||||
| - of which internal model method (IMM) | |||||
| - of which risk exposure amount for contributions to the default fund of a CCP | |||||
| - of which CVA | 2 409 | 1 248 | 193 | ||
| Settlement risk | |||||
| Securitisation exposures in the banking book (after the cap) | |||||
| - of which IRB approach | |||||
| - of which IRB supervisory formula approach (SFA) | |||||
| - of which internal assessment approach (IAA) | |||||
| - of which standardised approach | |||||
| Market risk | 2 003 | 2 409 | 160 | ||
| - of which the standardised approach | 2 003 | 2 409 | 160 | ||
| - of which IMA | |||||
| Large exposures | |||||
| Operational risk | 486 096 | 486 096 | 38 888 | ||
| - of which basic indicator approach | |||||
| - of which standardised approach | 486 096 | 486 096 | 38 888 | ||
| - of which advanced measurement approach | |||||
| Amounts below the thresholds for deduction (subject to 250% risk weight) | 281 877 | 281 877 | 22 550 | ||
| Floor adjustment | |||||
| Other risk exposure amount | |||||
| Total | 3 793 347 | 3 737 372 | 303 468 |
The corresponding information for Swedbank CS can be found in the Capital position chapter of this Pillar 3 report.
During the last quarter of 2019 the RWA of Swedbank Estonia increased by EUR 56m. Credit risk RWA increased by EUR 54m mainly due to volume growth in both corporate and retail portfolios. Counterparty credit risk RWA increased by EUR 2m due to increased exposures.
Estonia 7: IRB specialised lending and equities (EU CR10), 31 December 2019
| Specialised lending | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Regulatory categories, | On- balance | Off-balance | Exposure | Expected | ||||||
| EURt | Remaining maturity | sheet amount | sheet amount | Risk weight | amount | RWAs | losses | |||
| Category 1 | Less than 2.5 years | 10 | 5 | 50% | 14 | 7 | 0 | |||
| Equal to or more than 2.5 years | 68 | 14 | 70% | 78 | 55 | 0 | ||||
| Category 2 | Less than 2.5 years | 0 | 8 483 | 70% | 6 363 | 4 454 | 26 | |||
| Equal to or more than 2.5 years | 3 180 | 0 | 90% | 3 180 | 2 862 | 25 | ||||
| Category 3 | Less than 2.5 years | 0 | 7 931 | 115% | 5 950 | 6 842 | 167 | |||
| Equal to or more than 2.5 years | 7 513 | 0 | 115% | 7 519 | 8 646 | 211 | ||||
| Category 4 | Less than 2.5 years | 0 | 0 | 250% | 0 | 0 | 0 | |||
| Equal to or more than 2.5 years | 8 624 | 0 | 250% | 8 641 | 21 604 | 691 | ||||
| Category 5 | Less than 2.5 years | 0 | 0 | - | 0 | 0 | 0 | |||
| Equal to or more than 2.5 years | 0 | 0 | - | 0 | 0 | 0 | ||||
| Total | Less than 2.5 years | 10 | 16 419 | 12 327 | 11 303 | 193 | ||||
| Equal to or more than 2.5 years | 19 385 | 14 | 19 418 | 33 167 | 927 | |||||
| Equities under the simple risk-weighted approach | ||||||||||
| Private equity exposures | ||||||||||
| Exchange-traded equity exposures | ||||||||||
| Other equity exposures |
Total
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The exposures in Category 3, 4 and 5 have been reduced compared to end-2018 due to work out of some exposures in default or with higher risk.
Estonia 8: Total and average net amount of exposures (EU CRB-B), 31 December 2019
| Average net | ||
|---|---|---|
| Net exposure at the | exposure over | |
| EURt | end of the period | the period |
| Central governments or central banks | 0 | 0 |
| Institutions | 74 332 | 79 550 |
| Corporates | 3 454 001 | 3 457 235 |
| - of which Specialised Lending | 35 828 | 34 030 |
| - of which SME | 247 481 | 240 742 |
| Retail | 5 122 095 | 5 021 309 |
| - Secured by real estate property | 3 651 242 | 3 561 289 |
| ---SME | 94 532 | 90 470 |
| ---Non-SME | 3 556 710 | 3 470 819 |
| - Qualifying revolving | 0 | 0 |
| - Other Retail | 1 470 853 | 1 460 020 |
| --- SME | 597 008 | 570 820 |
| --- Non-SME | 873 845 | 832 592 |
| Equity | 0 | 0 |
| Other exposures | 179 569 | 167 575 |
| Total IRB approach | 8 829 997 | 8 725 669 |
| Central governments or central banks | 2 339 796 | 2 186 080 |
| Regional governments or local | 177 777 | 152 683 |
| authorities | ||
| Public sector entities | 42 121 | 42 365 |
| Multilateral Development Banks | 0 | 1 606 |
| International Organisations | 0 | 0 |
| Institutions | 128 887 | 228 220 |
| Corporates | 101 445 | 93 008 |
| - of which SME | 18 688 | 18 430 |
| Retail | 292 218 | 290 118 |
| - of which SME | 292 218 | 290 111 |
| Secured by mortgages on immovable | 0 | 0 |
| property | ||
| - of which SME | 0 | 0 |
| Exposures in default | 1 | 1 |
| Items associated with particularly high risk | 0 | 0 |
| Covered bonds | 0 | 0 |
| Claims on institutions and corporates with a short-term credit assessment | 0 | 0 |
| Collective investments undertakings | 610 | 701 |
| (CIU) | ||
| Equity exposures | 114 159 | 114 160 |
| Other exposures | 154 281 | 158 359 |
| Total SA approach | 3 351 295 | 3 267 302 |
| Total | 12 181 292 | 11 992 971 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
Total exposure has increased by EUR 0.4bn compared to year-end 2018. The main drivers are increased Private mortgage loans and loans to SME corporates in the Retail exposure class.
Estonia 9: Geographical breakdown of exposures (EU CRB-C), 31 December 2019
| Net carrying values | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| EURt | Significant area: Nordic |
Sweden | Norway | Denmark | Finland | Significant area: Baltic |
Estonia Lithuania | Latvia | Rest of the world |
USA | Other geographical areas |
Total | |
| Central governments or central banks | |||||||||||||
| Institutions | 4 900 | 640 | 2 158 | 1 991 | 111 | 20 | 20 | 69 412 | 342 | 69 070 | 74 332 | ||
| Corporates | 1 995 | 1 995 | 3 425 446 | 3 403 352 | 22 094 | 26 560 | 26 560 | 3 454 001 | |||||
| Retail | 21 707 | 1 969 | 2 015 | 485 | 17 238 | 5 082 239 | 5 081 801 | 380 | 58 | 18 149 | 1 655 | 16 494 | 5 122 095 |
| Equity | 0 | ||||||||||||
| Other exposures | 260 | 36 | 35 | 189 | 179 190 | 179 182 | 2 | 6 | 119 | 5 | 114 | 179 569 | |
| Total IRB approach | 28 862 | 2 645 | 4 208 | 2 476 | 19 533 | 8 686 895 | 8 664 355 | 22 476 | 64 | 114 240 | 2 002 | 112 238 | 8 829 997 |
| Central governments or central banks | 1 | 1 | 2 339 795 | 2 284 451 | 4 508 | 50 836 | 2 339 796 | ||||||
| Regional governments or local authorities | 177 777 | 177 777 | 177 777 | ||||||||||
| Public sector entities | 42 121 | 42 121 | 42 121 | ||||||||||
| Multilateral Development Banks | 0 | ||||||||||||
| International Organisations | 0 | ||||||||||||
| Institutions | 127 877 | 121 275 | 6 602 | 1 010 | 29 | 29 | 952 | 128 887 | |||||
| Corporates | 87 227 | 87 181 | 1 | 45 | 14 218 | 14 218 | 101 445 | ||||||
| Retail | 292 218 | 292 218 | 292 218 | ||||||||||
| Secured by mortgages on immovable property | 0 | ||||||||||||
| Exposures in default | 1 | 1 | 1 | ||||||||||
| Items associated with particularly high risk | 0 | ||||||||||||
| Covered bonds | 0 | ||||||||||||
| Claims on institutions and corporates with a short-term credit assessment | 0 | ||||||||||||
| Collective investments undertakings (CIU) | 610 | 610 | 610 | ||||||||||
| Equity exposures | 114 097 | 114 097 | 62 | 62 | 114 159 | ||||||||
| Other exposures | 27 | 27 | 154 254 | 153 916 | 4 | 334 | 154 281 | ||||||
| Total SA approach | 127 905 | 121 302 | 6 603 | 0 | 0 | 3 166 379 | 3 109 670 | 4 542 | 52 167 | 57 011 | 0 | 57 011 | 3 351 295 |
| Total | 156 767 | 123 947 | 10 811 | 2 476 | 19 533 11 853 274 11 774 025 | 27 018 | 52 231 | 171 251 | 2 002 | 169 249 12 181 292 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The increased exposures stem from Estonia, as 97% of the total exposure does. The remaining exposures are towards clients with a relation to Estonia. Exposures in the standardised approach to institutions have decreased by EUR 0.1bn and is explained by increased exposures to the parent company Swedbank AB.
Estonia 10: Concentration of exposures by industry or counterparty type (EU CRB-D), 31 December 2019
| EURt | Private mortgage | Tenant owner associations |
Private other | Agriculture, forestry, fishing |
Manufacturing | Public sector and utilities |
Construction | Retail | Transportation | Shipping and offshore | restaurants Hotels and |
Information and communication |
Finance and insurance | management Property |
Residential properties | Commercial | Industrial and Warehouse |
Other property management |
Professional services | Other corporate lending |
Credit institutions | Other exposures | Total |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Central governments or central banks |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Institutions | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 5 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 74 327 | 0 | 74 332 |
| Corporates | 0 | 0 | 314 | 191 361 | 566 066 | 313 071 | 200 664 | 230 725 | 285 848 | 0 | 179 600 | 15 770 | 81 120 | 1 182 475 | 21 552 | 727 415 | 178 065 | 255 443 | 202 873 | 4 114 | 0 | 0 | 3 454 001 |
| Retail | 3 562 658 | 0 | 890 502 | 73 600 | 98 000 | 18 095 | 87 149 | 116 924 | 70 553 | 0 | 19 374 | 16 469 | 3 409 | 83 381 | 4 220 | 24 089 | 11 286 | 43 786 | 75 893 | 6 088 | 0 | 0 | 5 122 095 |
| Equity | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other exposures | 0 | 0 | 88 076 | 3 781 | 10 127 | 3 036 | 15 491 | 21 580 | 8 186 | 0 | 1 523 | 4 121 | 678 | 3 892 | 139 | 638 | 315 | 2 800 | 18 150 | 908 | 20 | 0 | 179 569 |
| Total IRB approach Central governments or |
3 562 658 | 0 978 892 268 742 674 193 334 202 303 304 369 229 364 587 | 0 200 497 36 360 | 85 212 1 269 748 25 911 752 142 189 666 302 029 296 916 11 110 | 74 347 | 0 | 8 829 997 | ||||||||||||||||
| central banks | 0 | 0 | 0 | 0 | 0 | 72 854 | 0 | 0 | 0 | 0 | 0 | 15 | 0 | 43 569 | 0 | 0 | 0 | 43 569 | 6 | 117 | 2 215 908 | 7 327 | 2 339 796 |
| Regional governments or local authorities |
0 | 0 | 0 | 0 | 0 | 176 061 | 0 | 0 | 440 | 0 | 0 | 0 | 0 | 920 | 0 | 0 | 0 | 920 | 281 | 75 | 0 | 0 | 177 777 |
| Public sector entities | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 42 121 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 42 121 |
| Multilateral | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Development Banks International |
|||||||||||||||||||||||
| Organisations | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Institutions | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1 709 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 127 036 | 142 | 128 887 |
| Corporates | 0 | 0 | 0 | 0 | 0 | 43 | 0 | 34 788 | 0 | 0 | 0 | 0 | 46 018 | 18 868 | 0 | 18 868 | 0 | 0 | 1 086 | 642 | 0 | 0 | 101 445 |
| Retail Secured by mortgages |
1 | 0 | 0 | 72 | 0 | 3 296 | 0 | 0 | 0 10 | 4 | 29 | 0 | 283 765 | 13 149 | 774 | 0 | 269 843 | 3 016 | 2 019 | 6 | 0 | 292 218 | |
| on immovable property | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Exposures in default | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 0 | 0 | 0 | 1 | 0 | 0 | 0 | 0 | 1 |
| Items associated with | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| particularly high risk Covered bonds |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Claims on institutions | |||||||||||||||||||||||
| and corporates with a short- term credit |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| assessment | |||||||||||||||||||||||
| Collective investments | |||||||||||||||||||||||
| undertakings (CIU) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 610 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 610 |
| Equity exposures | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1 346 | 112 751 | 0 | 0 | 0 | 0 | 0 | 62 | 0 | 0 | 0 | 114 159 |
| Other exposures | 0 | 0 | 0 | 0 | 0 | 4 107 | 0 | 0 | 5 | 0 | 0 | 9 | 68 091 | 4 | 0 | 0 | 0 | 4 | 242 | 18 645 | 0 | 63 178 | 154 281 |
| Total SA approach Total |
1 3 562 659 |
0 | 0 | 71 | 0 256 361 | 0 | 34 788 | 445 10 | 4 | 1 399 271 300 | 347 128 13 149 | 19 642 | 0 314 337 | 4 693 21 498 2 342 950 70 647 | 3 351 295 0 978 892 268 813 674 193 590 563 303 304 404 017 365 032 10 200 501 37 759 356 512 1 616 876 39 060 771 784 189 666 616 366 301 609 32 608 2 417 297 70 647 12 181 292 |
||||||||
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The increased exposures are mainly in Private mortgage loans (EUR 0.3bn). Increased corporate exposures, EUR 0.1bn, are spread over several sectors with highest nominal increases in Manufacturing and Hotels and restaurants.
Estonia 11: Maturity of exposures (EU CRB-E), 31 December 2019
| Net exposure value | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| EURt | On demand | <= 1 year | > 1 year <= 5 years |
> 5 years | No stated maturity |
Total | ||||
| Central governments or central banks | 0 | 0 | 0 | 0 | 0 | 0 | ||||
| Institutions | 0 | 1 571 | 59 382 | 0 | 8 782 | 69 735 | ||||
| Corporates | 138 948 | 181 084 | 2 082 264 | 386 987 | 26 562 | 2 815 845 | ||||
| Retail | 19 728 | 70 489 | 1 015 533 | 3 638 008 | 52 | 4 743 810 | ||||
| Equity | 0 | 0 | 0 | 0 | 0 | 0 | ||||
| Other exposures | 0 | 11 776 | 142 380 | 25 413 | 0 | 179 569 | ||||
| Total IRB approach | 158 676 | 264 920 | 3 299 559 | 4 050 408 | 35 396 | 7 808 959 | ||||
| Central governments or | 0 | 2 283 823 | 7 233 | 43 841 | 0 | 2 334 897 | ||||
| central banks | ||||||||||
| Regional governments or local authorities | 0 | 2 807 | 48 271 | 115 110 | 0 | 166 188 | ||||
| Public sector entities | 0 | 0 | 42 121 | 0 | 0 | 42 121 | ||||
| Multilateral Development Banks |
0 | 0 | 0 | 0 | 0 | 0 | ||||
| International | 0 | 0 | 0 | 0 | 0 | 0 | ||||
| Organisations | ||||||||||
| Institutions | 0 | 89 068 | 3 | 0 | 39 601 | 128 672 | ||||
| Corporates | 91 | 779 | 14 907 | 18 879 | 0 | 34 656 | ||||
| Retail | 350 | 718 | 30 743 | 251 803 | 0 | 283 614 | ||||
| Secured by mortgages on | 0 | 0 | 0 | 0 | 0 | 0 | ||||
| immovable property Exposures in default |
0 | 1 | 0 | 0 | 0 | 1 | ||||
| Items associated with particularly high risk | 0 | 0 | 0 | 0 | 0 | 0 | ||||
| Covered bonds | 0 | 0 | 0 | 0 | 0 | 0 | ||||
| Claims on institutions and corporates with a short- term credit assessment | 0 | 0 | 0 | 0 | 0 | 0 | ||||
| Collective investments | 0 | 0 | 0 | 0 | 610 | 610 | ||||
| undertakings (CIU) | ||||||||||
| Equity exposures | 0 | 0 | 0 | 0 | 114 159 | 114 159 | ||||
| Other exposures | 68 081 | 45 971 | 4 031 | 415 | 35 783 | 154 281 | ||||
| Total SA approach | 68 522 | 2 423 167 | 147 309 | 430 048 | 190 153 | 3 259 199 | ||||
| Total | 227 198 | 2 688 087 | 3 446 868 | 4 480 456 | 225 549 | 11 068 158 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
For corporate exposures the maturity structure has changed with a decrease of EUR 0.4bn in exposures with maturity less than one year and with a corresponding increase for maturities 1 to 5 years and more than 5 years. For rest of the exposure classes the overall structure of maturity is unchanged compared to 2018.
Credit quality of exposures
Past due loans
Past due loans refer to overdrawn accounts and loans where amounts due for payment have not been paid in accordance with the terms of the loan agreements.
Credit impaired loans
Impaired loans are loans for which it is unlikely that the payments will be received in accordance with the contractual terms and where there is a risk that Swedbank will not receive full payment. A loan is considered credit-impaired when there is objective proof that an event has occurred on an individual level following the first reporting date of the loan, and that a risk of loss arises when the loan's anticipated future cash flows differ from the contractual cash flows. A loan in default is also always considered as an impaired loan, and vice versa.
Events on an individual level arise, implying an impairment test, e.g., when:
- A borrower incurs significant financial difficulties.
- It is likely that the borrower will enter into bankruptcy, liquidation or financial restructuring.
- Or there is a breach of contract, such as materially delayed or non–payment of interest or principal.
Exposures that are overdue by more than 90 days, or exposures where the terms have changed in a significant manner due to the borrower's financial difficulties, are considered as credit-impaired and as being in default. Impaired loans are moved to stage 3 according to the accounting framework IFRS 9. The provisioning level in stage 3 can either be assessed automatically by systems implemented by the bank or through individual assessment and decisions from authorised credit committee according to the bank's established principles.
Provisions
All loans, performing as well as non-performing, will carry a loss allowance (provision). It is not necessary for a loss event to occur before an impairment loss is recognized. This can also be described as the expected credit loss approach, i.e. all exposures in the Group's accounts will have an expected credit loss recognized directly after their origination, which is in line with the accounting standards IFRS 9.
All loans are subject to stage allocation and will carry a provision based on that allocation at each reporting date. The exposures are allocated to one of three stages:
- Stage 1 Performing exposures where the credit risk has not increased significantly since initial recognition.
- Stage 2 Performing exposures where the risk of default has increased significantly since initial recognition, but the asset is still not classified as credit-impaired.
- Stage 3 Credit-impaired exposures.
Regardless of which stage a loan is allocated to, the provisions will be calculated according to Swedbank's models. For some large exposures in stage 3, the provisioning will be assessed manually by using scenario-based cash flows and then decided by the relevant credit decision-making body.
Mitigation of credit risk
Swedbank strives to obtain adequate collateral. Collateral is considered from a risk perspective even if the collateral cannot be recognised for capital adequacy purposes. The collateral, its value and risk mitigating effect are considered throughout the credit process.
The term collateral covers pledges and guarantees. The most common types of pledges are real estate, apartments and floating charge. Netting agreements or covenants are not considered as collateral.
In special circumstances, Swedbank may buy credit derivatives or financial guarantees to hedge the credit risk, but this is not part of Swedbank's normal lending operations. Main types of guarantors and counterparties in credit derivatives and their creditworthiness are described in the main document under Counterparty credit risk.
Credits without collateral are mainly granted for small loans to private customers or loans to large companies with very solid repayment capacity. For the latter, special loan covenants are commonly created which entitle Swedbank to renegotiate or terminate the agreement if the borrower's repayment capacity deteriorates, or if the covenants are otherwise breached.
Collateral valuation
The valuation of collateral is based on a thorough review and analysis of the pledged assets and is an integrated part in the credit risk assessment of the borrower. The establishment of the collateral value is part of the credit decision. The value of the collateral is reassessed within periodic credit reviews of the borrower and in situations where Swedbank has reason to believe that the value has deteriorated, or the exposure has become a problem loan.
The established value of the collateral shall correspond to the most likely sales price at the date of valuation estimated in a qualitative process and characterised by prudence. For financial collateral, such as debt securities, equities and collective investment undertakings (CIUs), valuation is normally monitored on a daily basis.
Concentrations within mitigation instruments
Approximately 42% of the loans have private housing mortgages as collateral implicating a high concentration risk. However, the composition of the portfolio, with a large number of customers and relatively small amounts on each borrower, mitigates the risks. Another 23% of the loans have other real estate collateral. This portfolio is spread over several customers and different property segments.
Estonia 12: Credit quality of exposures by exposure classes and instruments (EU CR1-A), 31 December 2019
| Gross carrying values of which |
Credit risk | ||||||
|---|---|---|---|---|---|---|---|
| Non | Specific credit | General | adjustment | ||||
| Defaulted | defaulted | risk | credit risk | Accumulated | charges of the | ||
| EURt Central governments or central banks |
exposures | exposures | adjustment | adjustment | write-offs | period | Net values |
| Institutions | 74 336 | 4 | 3 | 74 332 | |||
| Corporates | 21 988 | 3 444 010 | 11 997 | 13 210 | 982 | 3 454 001 | |
| - of which Specialised Lending | 0 | 35 853 | 25 | 25 | -9 | 35 828 | |
| - of which SME | 960 | 247 057 | 536 | 31 | 104 | 247 481 | |
| Retail | 21 441 | 5 108 078 | 7 424 | 12 839 | -425 | 5 122 095 | |
| - Secured by real estate property | 13 217 | 3 641 107 | 3 082 | 11 101 | -452 | 3 651 242 | |
| --- SME | 1 002 | 94 170 | 640 | 2 713 | -171 | 94 532 | |
| --- Non-SME | 12 215 | 3 546 937 | 2 442 | 8 388 | -281 | 3 556 710 | |
| - Qualifying revolving | |||||||
| - Other Retail | 8 224 | 1 466 971 | 4 342 | 1 738 | 27 | 1 470 853 | |
| --- SME | 6 807 | 592 619 | 2 418 | 334 | -24 | 597 008 | |
| --- Non-SME | 1 417 | 874 352 | 1 924 | 1 404 | 50 | 873 845 | |
| Equity | |||||||
| Other exposures | 179 569 | 179 569 | |||||
| Total IRB approach | 43 429 | 8 805 993 | 19 425 | 26 049 | 560 | 8 829 997 | |
| Central governments or central banks | 2 339 801 | 5 | 2 339 796 | ||||
| Regional governments or local authorities | 177 781 | 4 | 177 777 | ||||
| Public sector entities | 42 121 | 42 121 | |||||
| Multilateral development banks | |||||||
| International organisations | |||||||
| Institutions | 128 887 | -6 | 128 887 | ||||
| Corporates: | 101 462 | 17 | 4 286 | -40 | 101 445 | ||
| - of which SME | 18 692 | 4 | 3 304 | 18 688 | |||
| Retail | 292 381 | 163 | 5 034 | 5 | 292 218 | ||
| - of which SME | 292 381 | 163 | 10 | 5 | 292 218 | ||
| Secured by mortgages on immovable | |||||||
| - of which SME | |||||||
| Exposures in default | 1 | 1 | |||||
| Items associated with particularly high risk | |||||||
| Covered bonds | |||||||
| Claims on institutions and corporates with a | |||||||
| short- term credit assessment | |||||||
| Collective investments undertakings (CIU) | 610 | 610 | |||||
| Equity exposures | 114 159 | 114 159 | |||||
| Other exposures | 154 290 | 9 | 154 281 | ||||
| Total SA approach | 1 | 3 351 492 | 198 | 9 320 | -41 | 3 351 295 | |
| Total | 43 430 | 12 157 485 | 19 623 | 35 369 | 519 | 12 181 292 | |
| - of which Loans | 42 150 | 10 777 928 | 19 415 | 35 369 | 598 | 10 800 663 | |
| - of which Debt Securities | 268 132 | 0 | 268 132 | ||||
| - of which Off-balance sheet exposures | 1 280 | 1 111 425 | 208 | -79 | 1 112 497 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
During 2019 the volumes of defaulted corporates decreased by EUR 10m, mainly driven by some larger customers no longer considered to be in default.
Estonia 13: Credit quality of exposures by industry or counterparty type (EU CR1-B), 31 December 2019
| Gross carrying values of which | Specific credit | General credit | Credit risk | ||||
|---|---|---|---|---|---|---|---|
| Defaulted | Non-defaulted | risk | risk | Accumulated | adjustment | ||
| EURt | exposures | exposures | adjustment | adjustment | write-offs | charges | Net values |
| Private mortgage | 12 215 | 3 552 890 | 2 446 | 10 832 | -295 | 3 562 659 | |
| Tenant owner associations | 0 | 0 | 0 | 0 | 0 | 0 | |
| Private other | 1 868 | 979 033 | 2 009 | 6 344 | 59 | 978 892 | |
| Agriculture, forestry, fishing | 5 403 | 265 796 | 2 386 | 133 | 1 087 | 268 813 | |
| Manufacturing | 14 252 | 665 313 | 5 372 | 305 | 562 | 674 193 | |
| Public sector and utilities | 96 | 590 644 | 177 | 0 | 69 | 590 563 | |
| Construction | 1 591 | 302 231 | 518 | 628 | -9 | 303 304 | |
| Retail | 1 890 | 402 927 | 800 | 15 917 | -127 | 404 017 | |
| Transportation | 847 | 364 515 | 330 | 270 | 48 | 365 032 | |
| Shipping and offshore | 0 | 10 | 0 | 0 | 10 | ||
| Hotels and restaurants | 288 | 200 307 | 94 | 67 | -121 | 200 501 | |
| Information and communication | 43 | 37 757 | 41 | 0 | -3 | 37 759 | |
| Finance and insurance | 10 | 356 548 | 46 | -67 | 356 512 | ||
| Property management | 2 234 | 1 615 684 | 1 042 | 420 | -148 | 1 616 876 | |
| - Residential properties | 0 | 39 074 | 14 | -6 | 39 060 | ||
| - Commercial | 0 | 771 861 | 77 | 172 | -4 | 771 784 | |
| - Industrial and Warehouse | 0 | 189 674 | 8 | 21 | -16 | 189 666 | |
| - Other property management | 2 234 | 615 075 | 943 | 227 | -122 | 616 366 | |
| Professional services | 2 642 | 303 284 | 4 317 | 122 | -530 | 301 609 | |
| Other corporate lending | 51 | 32 585 | 28 | 12 | 0 | 32 608 | |
| Credit institutions | 0 | 2 417 305 | 8 | -6 | 2 417 297 | ||
| Other exposures | 0 | 70 656 | 9 | 319 | 0 | 70 647 | |
| Total | 43 430 | 12 157 485 | 19 623 | 35 369 | 519 | 12 181 292 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The largest changes in reduced volume of defaulted exposures are seen in Professional services and Property Management, while there is a minor increase in Manufacturing.
Estonia 14: Credit quality of exposures by geography (EU CR1-C), 31 December 2019
| Gross carrying values of | Credit risk | ||||||
|---|---|---|---|---|---|---|---|
| Defaulted | Non-defaulted | Specific credit | General credit | Accumulated | adjustment | ||
| EURt | exposures | exposures | risk adjustment | risk adjustment | write-offs | charges | Net values |
| Significant area: Nordic | 387 | 156 479 | 99 | 112 | -9 | 156 767 | |
| - Sweden | 3 | 123 955 | 11 | 0 | 1 | 123 947 | |
| - Norway | 0 | 10 813 | 2 | -1 | 10 811 | ||
| - Denmark | 0 | 2 477 | 1 | 0 | 2 476 | ||
| - Finland | 384 | 19 234 | 85 | 112 | -9 | 19 533 | |
| Significant area: Baltic | 43 033 | 11 829 726 | 19 485 | 35 230 | 565 | 11 853 274 | |
| - Estonia | 43 032 | 11 750 475 | 19 482 | 35 225 | 569 | 11 774 025 | |
| - Latvia | 1 | 27 019 | 2 | 5 | -3 | 27 018 | |
| - Lithuania | 0 | 52 232 | 1 | -1 | 52 231 | ||
| Rest of the world | 10 | 171 280 | 39 | 27 | -37 | 171 251 | |
| - USA | 0 | 2 003 | 1 | 0 | 2 002 | ||
| - Other geographical areas | 10 | 169 277 | 38 | 27 | -37 | 169 249 | |
| Total | 43 430 | 12 157 485 | 19 623 | 35 369 | 519 | 12 181 292 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The reduced volumes of defaulted exposures stemmed from Estonia.
| Gross carrying amount/nominal amount | Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions |
Collateral and financial guarantees received |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Performing exposures | Non-performing exposures | Performing exposures – accumulated impairment and provisions |
Non-performing exposures – accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions |
Accumulated partial write off |
On performing |
On non performing |
|||||||||
| EURt | Of which stage 1 |
Of which stage 2 |
Of which stage 2 |
Of which stage 3 |
Of which stage 1 |
Of which stage 2 |
Of which stage 2 |
Of which stage 3 |
exposures | exposures | |||||
| Loans and advances | 10 656 197 9 889 175 | 767 022 | 49 702 | 5 900 | 43 791 | 6 356 | 923 | 5 433 | 13 059 | 62 | 12 997 | 0 | 6 012 522 | 30 903 | |
| Central banks | 2 215 912 | 2 215 912 | 4 | 4 | |||||||||||
| General governments | 233 927 | 233 903 | 24 | 6 | 6 | 47 393 | |||||||||
| Credit institutions | 142 049 | 141 279 | 770 | 1 | 1 | ||||||||||
| Other financial corporations | 105 089 | 93 004 | 12 085 | 31 | 30 | 14 | 5 | 9 | 20 | 20 | 43 291 | ||||
| Non-financial corporations | 3 401 546 | 3 170 288 | 231 258 | 30 163 | 1 690 | 28 473 | 4 257 | 485 | 3 772 | 10 546 | 20 | 10 526 | 2 392 188 | 15 774 | |
| Of which SMEs Households |
825 894 4 557 674 |
731 066 4 034 789 |
94 828 522 885 |
10 433 19 508 |
1 690 4 210 |
8 742 15 288 |
1 026 2 074 |
325 423 |
701 1 651 |
2 444 2 493 |
20 42 |
2 424 2 451 |
437 714 3 529 650 |
5 193 15 129 |
|
| Debt securities | 154 357 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Central banks | |||||||||||||||
| General governments | 97 465 | ||||||||||||||
| Credit institutions | 56 892 | ||||||||||||||
| Other financial corporations | |||||||||||||||
| Non-financial corporations | |||||||||||||||
| Off-balance-sheet exposures Central banks |
1 111 250 1 033 690 | 77 560 | 1 347 | 1 | 1 346 | 181 | 91 | 90 | 27 | 0 | 27 | 0 | 355 | ||
| General governments | 16 488 | 16 488 | |||||||||||||
| Credit institutions | 4 789 | 4 069 | 720 | 3 | 3 | ||||||||||
| Other financial corporations | 47 201 | 19 305 | 27 896 | 12 | 12 | ||||||||||
| Non-financial corporations | 763 347 | 729 957 | 33 390 | 1 341 | 1 341 | 110 | 65 | 45 | 27 | 27 | 355 | ||||
| Households | 279 425 | 263 871 | 15 554 | 6 | 1 | 5 | 56 | 26 | 30 | ||||||
| Total | 11 921 804 10 922 865 | 844 582 | 51 049 | 5 901 | 45 137 | 6 537 | 1 014 | 5 523 | 13 086 | 62 | 13 024 | 0 | 6 012 522 | 31 258 |
Estonia 15: Performing and non-performing exposures and related provisions, 31 December 2019
The performance of Swedbank's portfolio remains on a high stable level with less than 1% of non-performing exposures. Most of the defaults (stage 3) are within non-financial corporations in sectors Manufacturing and in Private mortgage. Stage 2 (significantly increased credit risk) exposures remain on a low level of 7%, where Private customers under households contribute the most.
| Gross carrying amount/nominal amount | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Performing exposures | Non-performing exposures | |||||||||||
| EURt | Not past due or past due ≤ 30 days |
Past due > 30 days ≤ 90 days |
Unlikely to pay that are not past due or are past due ≤ 90 days |
Past due > 90 days ≤ 180 days |
Past due > 180 days ≤ 1 year |
Past due > 1 year ≤ 2 years |
Past due > 2 years ≤ 5 years |
Past due > 5 years ≤ 7 years |
Past due > 7 years |
Of which defaulted |
||
| Loans and advances | 10 656 197 | 10 649 210 | 6 987 | 49 702 | 34 527 | 7 734 | 1 665 | 1 596 | 2 455 | 901 | 824 | 42 020 |
| Central banks | 2 215 912 | 2 215 912 | ||||||||||
| General governments | 233 927 | 233 927 | ||||||||||
| Credit institutions | 142 049 | 142 049 | ||||||||||
| Other financial corporations | 105 089 | 105 089 | 31 | 21 | 10 | 20 | ||||||
| Non-financial corporations | 3 401 546 | 3 400 355 | 1 191 | 30 163 | 19 053 | 5 701 | 1 051 | 1 339 | 2 004 | 699 | 316 | 28 150 |
| Of which SMEs | 825 894 | 824 703 | 1 191 | 10 433 | 4 925 | 1 608 | 1 051 | 593 | 1 241 | 699 | 316 | 8 419 |
| Households | 4 557 674 | 4 551 878 | 5 796 | 19 508 | 15 453 | 2 033 | 604 | 257 | 451 | 202 | 508 | 13 850 |
| Debt securities Central banks |
154 357 | 154 357 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| General governments | 97 465 | 97 465 | ||||||||||
| Credit institutions | 56 892 | 56 892 | ||||||||||
| Other financial corporations | ||||||||||||
| Non-financial corporations | ||||||||||||
| Off-balance-sheet exposures Central banks |
1 111 250 | 1 347 | 1 275 | |||||||||
| General governments | 16 488 | |||||||||||
| Credit institutions | 4 789 | |||||||||||
| Other financial corporations | 47 201 | |||||||||||
| Non-financial corporations | 763 347 | 1 341 | 1 275 | |||||||||
| Households | 279 425 | 6 | ||||||||||
| Total | 11 921 804 | 10 803 567 | 6 987 | 51 049 | 34 527 | 7 734 | 1 665 | 1 596 | 2 455 | 901 | 824 | 43 295 |
Estonia 16: Credit quality of performing and non-performing exposures by past due days, 31 December 2019
The total exposures that are past due is low. Less than 1% of total exposures are past due more than 30 days. Most of the exposures that are non-performing are less than 90 days past due.
Estonia 17: Credit quality of forborne exposures, 31 December 2019
| Accumulated impairment, accumulated negative changes Gross carrying amount/nominal amount in fair value due to credit risk and provisions |
Collateral received and financial guarantees received on forborne exposures |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Performing forborne |
Non-performing forborne | On performing forborne exposures |
On non performing forborne exposures |
Of which collateral and financial guarantees received on non |
||||||
| EURt | Of which defaulted |
Of which impaired |
performing exposures with forbearance measures |
|||||||
| Loans and advances | 58 651 | 28 756 | 22 741 | 23 393 | 1 268 | 7 791 | 70 621 | 18 971 | ||
| Central banks | ||||||||||
| General governments | 24 | 24 | ||||||||
| Credit institutions | ||||||||||
| Other financial corporations | ||||||||||
| Non-financial corporations | 47 107 | 14 460 | 12 749 | 12 775 | 1 211 | 6 285 | 51 384 | 6 900 | ||
| Households | 11 520 | 14 296 | 9 992 | 10 618 | 57 | 1 506 | 19 213 | 12 071 | ||
| Debt Securities | ||||||||||
| Loan commitments given | 211 | 210 | ||||||||
| Total | 58 862 | 28 756 | 22 741 | 23 393 | 1 268 | 7 791 | 70 831 | 18 971 |
Estonia 18: Changes in stock of general and specific credit risk adjustments (EU CR2-A), 31 December 2019
| EURt | Accumulated Specific credit risk adjustment |
Accumulated General credit risk adjustment |
|---|---|---|
| Opening balance | 18 922 | |
| Increases due to amounts set aside for estimated loan losses during the period | 1 489 | |
| Decreases due to amounts reversed for estimated loan losses during the period | -490 | |
| Decreases due to amounts taken against accumulated credit risk adjustments | -303 | |
| Transfers between credit risk adjustments | 0 | |
| Impact of exchange rate differences | -2 | |
| Business combinations, including acquisitions and disposals of subsidiaries | 0 | |
| Other adjustments | 7 | |
| Closing balance | 19 623 | |
| Recoveries on credit risk adjustments recorded directly to the statement of profit | 2 783 | |
| or loss. | ||
| Specific credit risk adjustments recorded directly to the statement of profit or loss. | 2 087 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The increase of specific credit risk adjustments is mainly explained by initial provisions related to the increased loan volumes.
Estonia 19: Changes in stock of defaulted and impaired loans and debt securities (EU CR2-B), 31 December 2019
| EURt | Gross carrying value defaulted exposures |
|---|---|
| Opening balance | 35 092 |
| Loans and debt securities that have defaulted or impaired since the last reporting period | 15 394 |
| Returned to non-defaulted status | -6 239 |
| Amounts written off | -1 860 |
| Other changes | 685 |
| Closing balance | 43 071 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
Compared to end-June 2019 impaired loans has increased by EUR 8m, mainly due to some larger customers that defaulted during the period.
Estonia 20: Collateral obtained by taking possession and execution processes, 31 December 2019
| Collateral obtained by taking possession | ||||
|---|---|---|---|---|
| EURt | Accumulated negative Value at initial recognition changes |
|||
| Property, plant and equipment (PP&E) | ||||
| Other than PP&E | 341 | -56 | ||
| Residential immovable property | ||||
| Commercial Immovable property | ||||
| Movable property (auto, shipping, etc.) | 341 | -56 | ||
| Equity and debt instruments | ||||
| Other | ||||
| Total | 341 | -56 |
Estonia 21: Credit risk mitigation techniques – overview (EU CR3), 31 December 2019
| Exposures unsecured: | Exposures secured: | Exposures secured by | Exposures secured by financial | Exposures secured by credit | |
|---|---|---|---|---|---|
| EURt | Carrying amount | Carrying amount | collateral | guarantees | derivatives |
| Total Loans | 1 064 972 | 7 357 234 | 6 203 850 | 1 153 384 | |
| Total Debt | 154 357 | ||||
| securities | |||||
| Other | 2 491 595 | ||||
| Total all | |||||
| exposures | 3 710 924 | 7 357 234 | 6 203 850 | 1 153 384 | |
| - of which | |||||
| defaulted | 2 337 | 27 235 | 21 935 | 5 300 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
A vast majority of the increased exposures are collateralised with mortgage deeds.
Estonia 22: Credit risk exposure and credit risk mitigation (CRM) effects (EU CR4), 31 December 2019
| Exposures post-CCF | RWA and RWA | ||||||
|---|---|---|---|---|---|---|---|
| Exposures before CCF and CRM | and CRM | density | |||||
| Exposure classes, | On-balance | Off-balance | On- balance | Off- balance | RWA | ||
| EURt | sheet amount | sheet amount | sheet amount | sheet amount | RWA | density | |
| Central governments or central banks | 2 334 897 | 4 899 | 2 408 176 | 1 102 | 11 069 | 0.46% | |
| Regional government or local authorities | 166 188 | 11 589 | 166 605 | 4 489 | 34 219 | 20.00% | |
| Public sector entities | 42 121 | 42 121 | 0.00% | ||||
| Multilateral development banks | |||||||
| International organisations | |||||||
| Institutions | 128 672 | 215 | 128 672 | 200 | 25 774 | 20.00% | |
| Corporates | 34 656 | 66 789 | 33 214 | 1 024 | 30 237 | 88.31% | |
| Retail | 283 614 | 8 604 | 256 347 | 3 785 | 148 720 | 57.17% | |
| Secured by mortgages on immovable property | |||||||
| Exposures in default | 1 | 1 | 2 | 200.00% | |||
| Higher-risk categories | |||||||
| Covered bonds | |||||||
| Institutions and corporates with a short term credit | |||||||
| assessment | |||||||
| collective investment undertakings | 610 | 610 | 610 | 100.00% | |||
| Equity | 114 159 | 114 159 | 283 285 | 248.15% | |||
| Other items | 154 281 | 154 281 | 71 646 | 46.44% | |||
| Total | 3 259 199 | 92 096 | 3 304 186 | 10 600 | 605 562 | 18.27% |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
Estonia 23: RWA flow statements of credit risk exposures under IRB (EU CR8), 31 December 2019
| EURt | RWA amounts | Capital requirements |
|---|---|---|
| RWA as at end of previous reporting period | 2 619 564 | 209 565 |
| Asset size | 61 487 | 4 919 |
| Asset quality | 473 | 38 |
| Model updates | 0 | 0 |
| Methodology and policy | 0 | 0 |
| Acquisitions and disposals | 0 | 0 |
| Foreign exchange movements | -267 | -21 |
| Other | 2 670 | 214 |
| RWA as at end of reporting period | 2 683 927 | 214 714 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
RWA reported under IRB increased by EUR 63m in the quarter from increased exposures, mainly in the Retail Real Estate exposure class.
Leverage ratio disclosure
Swedbank takes the risk of excessive leverage into account in the forward-looking capital planning process which is performed at least on a quarterly basis. Other business steering or asset-and-liability management tools are also considered as means to affect the total exposure measure and may be accessed should such a need arise.
The leverage ratio has decreased slightly from 13.6% to 13.4% during Q4 2019 due to a slight decrease in Tier 1 capital, and a slight increase in total leverage ratio exposures.
Estonia 24: Summary reconciliation of accounting assets and leverage ratio exposures (LRSum), 31 December 2019
| EURt Applicable Amounts Total assets as per published financial statements 11 080 197 Adjustment for entities which are consolidated for accounting purposes but are outside the scope of regulatory consolidation (Adjustment for fiduciary assets recognised on the balance sheet pursuant to the applicable accounting framework but excluded |
|---|
| from the leverage ratio exposure measure in accordance with Article 429(13) of Regulation (EU) No 575/2013 "CRR") |
| Adjustments for derivative financial instruments 15 130 |
| Adjustments for securities financing transactions "SFTs" |
| Adjustment for off-balance sheet items (i.e. conversion to credit equivalent amounts of off-balance sheet exposures) 445 799 |
| (Adjustment for intragroup exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (7) of |
| Regulation (EU) No 575/2013) |
| (Adjustment for exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (14) of Regulation |
| (EU) No 575/2013) |
| Other adjustments -28 610 |
| Total leverage ratio exposure 11 512 516 |
The corresponding information for Swedbank CS can be found in the Capital position chapter of this Pillar 3 report.
Estonia 25: Leverage ratio common disclosure (LRCom), 31 December 2019
| Leverage ratio common disclosure | CRR leverage ratio exposures |
|---|---|
| On-balance sheet items (excluding derivatives, SFTs and fiduciary assets, but including collateral) | 11 070 935 |
| (Asset amounts deducted in determining Tier 1 capital) | -28 610 |
| Total on-balance sheet exposures (excluding derivatives, SFTs and fiduciary assets) (sum of lines 1 and 2) | 11 042 325 |
| Derivative exposures | |
| Replacement cost associated with all derivatives transactions (i.e. net of eligible cash variation margin) | 7 824 |
| Add-on amounts for PFE associated with all derivatives transactions (mark-to-market method) | 16 568 |
| Exposure determined under Original Exposure Method | |
| Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the applicable accounting | |
| framework | |
| (Deductions of receivables assets for cash variation margin provided in derivatives transactions) | |
| (Exempted CCP leg of client-cleared trade exposures) | |
| Adjusted effective notional amount of written credit derivatives | |
| (Adjusted effective notional offsets and add-on deductions for written credit derivatives) | |
| Total derivative exposures (sum of lines 4 to 10) | 24 392 |
| Securities financing transaction exposures | |
| Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions | |
| (Netted amounts of cash payables and cash receivables of gross SFT assets) | |
| Counterparty credit risk exposure for SFT assets | |
| Derogation for SFTs: Counterparty credit risk exposure in accordance with Article 429b (4) and 222 of Regulation (EU) No 575/2013 | |
| Agent transaction exposures | |
| (Exempted CCP leg of client-cleared SFT exposure) | |
| Total securities financing transaction exposures (sum of lines 12 to 15a) | |
| Other off-balance sheet exposures | |
| Off-balance sheet exposures at gross notional amount | 1 113 342 |
| (Adjustments for conversion to credit equivalent amounts) | -667 543 |
| Other off-balance sheet exposures (sum of lines 17 to 18) | 445 799 |
| Exempted exposures in accordance with CRR Article 429 (7) and (14) (on and off balance sheet) | |
| (Exemption of intragroup exposures (solo basis) in accordance with Article 429(7) of Regulation (EU) No 575/2013 (on and off | |
| balance sheet)) | |
| (Exposures exempted in accordance with Article 429 (14) of Regulation (EU) No 575/2013 (on and off balance sheet)) | |
| Capital and total exposures | |
| Tier 1 capital | 1 538 298 |
| Total leverage ratio exposures (sum of lines 3, 11, 16, 19, EU-19a and EU-19b) | 11 512 516 |
| Leverage ratio | |
| Leverage ratio | 13.36% |
| Choice on transitional arrangements and amount of derecognised fiduciary items | |
| Choice on transitional arrangements for the definition of the capital measure |
Amount of derecognised fiduciary items in accordance with Article 429(11) of Regulation (EU) NO 575/2013
The corresponding information for Swedbank CS can be found in the Capital position chapter of this Pillar 3 report.
Appendix: Swedbank Latvia Consolidated Situation (CS)
Introduction
Swedbank's Risk Management and Capital Adequacy Report 2019 (Pillar 3 report) provides information on Swedbank's capital adequacy and risk management. The report is based on regulatory disclosure requirements set out in Regulation (EU) No 575/2013. In accordance with Article 13 in the same regulation, certain information shall be provided for large subsidiaries. Information regarding Swedbank Latvia Consolidated Situation (CS) is provided in this Appendix and pertains to conditions as of 31 December 2019. Information on the organisational and legal structure of Swedbank Latvia Consolidated Situation is provided in Appendix A of this Pillar 3 report. Information regarding Swedbank's corporate governance structure and measures undertaken to manage operations in Swedbank Consolidated Situation is presented in Swedbank's Corporate Governance Report. Information regarding risk implications of the remuneration process (and aggregate as well as granular quantitative information on remuneration) for Swedbank Latvia Consolidated Situation is disclosed in the document "Information regarding remuneration in Swedbank". Swedbank's Group-wide framework includes instructions for management of credit risk, including instructions for granting and prolonging credits, for collateral valuation, for determining impairment and for credit risk adjustments. Information regarding management of credit risk is provided in Chapter 3 of this Pillar 3 report. The Group-wide framework also includes instructions describing the approach used to assess the adequacy of internal capital to support current and future activities. This information is provided in Chapter 7 of the same report. All documents mentioned are available on www.swedbank.com. All figures are denominated in EUR thousands unless otherwise stated.
Capital requirements
Under the CRR/CRD IV framework, a bank's total capital must be equivalent to at least the sum of the capital requirements for credit- market- and operational risks, including combined capital buffers, Pillar 2 requirement (P2R) and Pillar 2 guidance (P2G). The capital requirement for Swedbank Latvia CS in Pillar 1, as a percentage of RWA, amounted to 9.0% of the CET1 capital, and 12.5% of the total capital as of year-end. Combined capital buffer requirements comprise 4.5% and consist of 2% for other systemically important institutions buffer (O-SII) and capital conservation buffer of 2.5%. The capitalisation of Swedbank Latvia CS must also comply with the capital requirements in Pillar 2. According to the 2019 Supervisory Review and Evaluation Process (SREP), the Pillar 2 requirement (P2R) slightly increased to 1.7% from 1.4 % previous year. Pillar 2 guidance (P2G) remained unchanged since last year at 1%. Banks are expected to treat a failure to meet the P2G as an early warning signal. The P2G does not stipulate any limitation on the Maximum Distributable Amount. Considering the above, the CET 1 capital ratio requirement of Swedbank Latvia CS amounted to 11.7% and the total capital ratio requirement was 15.2% as of year-end 2019.
Capital requirements (forward-looking, incl. fully implemented buffers and Pillar 2 requirements)1, 31 December 2019
| Pillar 1 | CET1 | AT1 | T2 | Total capital | |
|---|---|---|---|---|---|
| Minimum CET1 requirement | 4.5% | 1.5% | 2.0% | 8.0% | |
| Systemic risk buffer (P1) | 0.0% | 0.0% | |||
| Capital conservation buffer (CCoB) | 2.5% | 2.5% | |||
| Countercyclical capital buffer (CCyB) | 0.0% | 0.0% | |||
| O-SII buffer2 | 2.0% | 2.0% | |||
| 9.0% | 1.5% | 2.0% | 12.5% | ||
| Pillar 23 | |||||
| Pillar 2 requirement (P2R) | 1.7% | 1.7% | |||
| Pillar 2 capital guidance (P2G) | 1.0% | 1.0% | |||
| 2.7% | 2.7% | ||||
| Capital requirements | 11.7% | 15.2% | |||
| Actual capital ratios as of 31 December 2019 | 29.4% | 29.4% |
1) Swedbank's estimate based on the Latvian FSA's announced capital requirements. All table values above rounded to one decimal place.
2) O-SII buffer of 2%, has been applicable since 2018.
3) P2R and P2G add-on determined by 2019 SREP
On 31 December 2019, Swedbank Latvia CS's Common Equity Tier 1 and Total Capital ratio both amounted to 29.36% (end-2018: 27.55%). The capitalisation of Swedbank Latvia CS is well above the capital requirements presented in the table above. Swedbank Latvia CS's leverage ratio was 11.93% at end 2019 (end-2018: 10.86%). In the 2019 Supervisory Review and Evaluation Process (SREP), the capitalisation of Swedbank Latvia CS was assessed as adequate for both the current and forward-looking perspective of regulatory capital requirements.
According to Swedbank's procedures, the capital planning process is performed on a quarterly basis for the Baltic subsidiaries, which includes the assessment of the overall capitalisation versus the above mentioned capital requirements and risk of excessive leverage. In case of a potential capital shortfall, capital injections or measures to reduce the risk exposure amount may be performed. In addition to injection of equity capital, the total capital in a
subsidiary may also be strengthened through subordinated loans from the parent company (Swedbank AB). In case of changes in the leverage ratio, which might implicate managing the risk of excessive leverage, other business steering or asset-and-liability management tools may also be considered, and accessed if needed, as a means to affect the total exposure measure.
The Bank Recovery and Resolution Directive (BRRD), which allows the authorities to deal with banks in distress, was established in the EU in 2014 and transposed to Latvian national laws on 16 July 2015. The directive includes a requirement on banks to hold a minimum level of own funds and eligible liabilities (MREL). In December 2017, MREL requirement was formally decided on a consolidated level (Swedbank CS) by the SNDO (The Swedish National Debt Office). An individual MREL requirement for Swedbank Latvia CS was introduced by the Single Resolution Board (SRB) in 2019 and will come into force on 30 September 2020.
Latvia 2: Total capital
Disclosure according to Article 2 in Commission Implementing Regulation (EU) No 1423/2013
| EURt | 31.12.2019 | 30.09.2019 |
|---|---|---|
| Shareholders' equity according to the Group balance sheet | 754 564 | 754 565 |
| Non-controlling interests | ||
| Anticipated dividends | ||
| Deconsolidation of insurance companies | ||
| Unrealised value changes in financial liabilities due to changes in own creditworthiness | ||
| Cash flow hedges | ||
| Additional value adjustments | -376 | -400 |
| Goodwill | ||
| Deferred tax assets | ||
| Intangible assets | -4 531 | -4 671 |
| Net provisions for reported IRB credit exposures | -26 003 | -25 708 |
| Shares deducted from CET1 capital | ||
| Defined benefit pension fund assets | ||
| Total CET1 capital | 723 654 | 723 786 |
| Additional Tier 1 capital | ||
| Total Tier 1 capital | 723 654 | 723 786 |
| Tier 2 capital | ||
| Total capital | 723 654 | 723 786 |
The corresponding information for Swedbank CS is enclosed in Swedbank's Fact Book.
Latvia 3: Own funds disclosure, 31 December 2019
Disclosure according to Article 4 in Commission Implementing Regulation (EU) No 1423/2013
| EURt | Common Equity Tier 1 capital: instruments and reserves, | (a) Amounts at disclosure date |
(b) (EU) No 575/2013 article reference |
|---|---|---|---|
| 1 | Capital instruments and the related share premium accounts | 575 000 | 26 (1), 27, 28, 29 |
| of which: Instrument type 1 | EBA list 26 (3) | ||
| of which: Instrument type 2 | EBA list 26 (3) | ||
| 2 | of which: Instrument type 3 Retained earnings |
179 085 | EBA list 26 (3) 26 (1) (c) |
| 3 | Accumulated other comprehensive income (and any other reserves) | 479 | 26 (1) |
| 3a | Funds for general banking risk | 26 (1) (f) | |
| 4 | Amount of qualifying items referred to in Article 484 (3) and the related share premium accounts subject to phase out from CET1 |
486 (2) | |
| 5 | Minority interests (amount allowed in consolidated CET1) | 84 | |
| 5a | Independently reviewed interim profits net of any foreseeable charge or dividend | 26 (2) | |
| 6 | Common Equity Tier 1 (CET1) capital before regulatory adjustments | 754 564 | |
| Common Equity Tier 1 (CET1) capital: regulatory adjustments | |||
| 7 | Additional value adjustments (negative amount) | -376 | 34, 105 |
| 8 9 |
Intangible assets (net of related tax liability) (negative amount) Empty set in the EU |
-4 531 | 36 (1) (b), 37 |
| Deferred tax assets that rely on future profitability excluding those arising from temporary difference (net of | |||
| 10 | related tax liability where the conditions in Article 38 (3) are met) (negative amount) | 36 (1) (c), 38 | |
| 11 | Fair value reserves related to gains or losses on cash flow hedges | 33 (1) (a) | |
| 12 | Negative amounts resulting from the calculation of expected loss amounts | -26 003 | 36 (1) (d), 40, 159 |
| 13 | Any increase in equity that results from securitised assets (negative amount) | 32 (1) | |
| 14 15 |
Gains or losses on liabilities valued at fair value resulting from changes in own credit standing Defined-benefit pension fund assets (negative amount) |
33 (1) (b) 36 (1) (e), 41 |
|
| 16 | Direct and indirect holdings by an institution of own CET1 instruments (negative amount) | 36 (1) (f), 42 | |
| Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where those entities | |||
| 17 | have reciprocal cross-holdings with the institution designed to inflate artificially the own funds of the institution | 36 (1) (g), 44 | |
| (negative amount) | |||
| Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where the institution | 36 (1) (h), 43, 45, 46, 49 | ||
| 18 | does not have a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount) |
(2) (3), 79 | |
| Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where the institution has | |||
| 19 | a significant investment in those entities (amount above 10% threshold and net of eligible short positions) | 36 (1) (i), 43, 45, 47, 48 | |
| (negative amount) | (1) (b), 49 (1) to (3), 79 | ||
| 20 | Empty set in the EU | ||
| 20a | Exposure amount of the following items which qualify for a RW of 1250%, where the institution opts for the deduction alternative |
36 (1) (k) | |
| 20b | of which: qualifying holdings outside the financial sector (negative amount) | 36 (1) (k) (i), 89 to 91 | |
| 36 (1) (k) (ii), 243 (1) (b), | |||
| 20c | of which: securitisation positions (negative amount) | 244 (1) (b), 258 | |
| 20d | of which: free deliveries (negative amount) | 36 (1) (k) (iii), 379 (3) | |
| 21 | Deferred tax assets arising from temporary difference (amount above 10% threshold, net of related tax liability | 36 (1) (c), 38, 48 (1) (a) | |
| 22 | where the conditions in Article 38 (3) are met) (negative amount) Amount exceeding the 15% threshold (negative amount) |
48 (1) | |
| of which: direct and indirect holdings by the institution of the CET1 instruments of financial sector entities where | |||
| 23 | the institution has a significant investment in those entities | 36 (1) (i), 48 (1) (b) | |
| 24 | Empty set in the EU | ||
| 25 | of which: deferred tax assets arising from temporary difference | 36 (1) (c), 38, 48 (1) (a) | |
| 25a | Losses for the current financial year (negative amount) | 36 (1) (a) | |
| 25b 27 |
Foreseeable tax charges relating to CET1 items (negative amount) Qualifying AT1 deductions that exceed the AT1 capital of the institution (negative amount) |
36 (1) (l) 36 (1) (j) |
|
| 28 | Total regulatory adjustments to Common Equity Tier 1 (CET1) | -30 910 | |
| 29 | Common Equity Tier 1 (CET1) capital | 723 654 | |
| Additional Tier 1 (AT1) capital: instruments | |||
| 30 | Capital instruments and the related share premium accounts | 51, 52 | |
| 31 | of which: classified as equity under applicable accounting standards | ||
| 32 | of which: classified as liabilities under applicable accounting standards | ||
| 33 | Amount of qualifying items referred to in Article 484 (4) and the related share premium accounts subject to phase out from AT1 |
486 (3) | |
| Qualifying Tier 1 capital included in consolidated AT1 capital (including minority interest not included in row 5) | |||
| 34 | issued by subsidiaries and held by third parties | 85, 86 | |
| 35 | of which: instruments issued by subsidiaries subject to phase-out | 486 (3) | |
| 36 | Additional Tier 1 (AT1) capital before regulatory adjustments | ||
| 37 | Additional Tier 1 (AT1) capital: regulatory adjustments Direct and indirect holdings by an institution of own AT1 instruments (negative amount) |
52 (1) (b), 56 (a), 57 | |
| Direct, indirect and synthetic holdings of the AT1 instruments of financial sector entities where those entities have | |||
| 38 | reciprocal cross holdings with the institution designed to artificially inflate the own funds of the institution | 56 (b), 58 | |
| (negative amount) | |||
| Direct, indirect and synthetic holdings of the AT1 instruments of financial sector entities where the institution does | |||
| 39 | not have a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount) |
56 (c), 59, 60, 79 | |
| Direct, indirect and synthetic holdings of the AT1 instruments of financial sector entities where the institution has | |||
| 40 | a significant investment in those entities (amount above 10% threshold and net of eligible short positions) | 56 (d), 59, 79 | |
| (negative amount) | |||
| Regulatory adjustments applied to Additional Tier 1 capital in respect of amounts subject to pre-CRR treatment and | |||
| 41 | transitional treatments subject to phase-out as prescribed in Regulation (EU) No 585/2013 (i.e. CRR residual amounts) |
||
| 42 | Qualifying T2 deductions that exceed the T2 capital of the institution (negative amount) | 56 (e) | |
| 43 | Total regulatory adjustments to Additional Tier 1 (AT1) capital | ||
| 44 | Additional Tier 1 (AT1) capital | ||
| 45 | Tier 1 capital (T1 = CET1 + AT1) | 723 654 |
| Tier 2 (T2) capital: instruments and provisions | |||
|---|---|---|---|
| 46 | Capital instruments and the related share premium accounts | 62, 63 | |
| 47 | Amount of qualifying items referred to in Article 484 (5) and the related share premium accounts subject to phase | 486 (4) | |
| out from T2 | |||
| 48 | Qualifying own funds instruments included in consolidated T2 capital (including minority interest and AT1 | 87, 88 | |
| instruments not included in rows 5 or 34) issued by subsidiaries and held by third party | |||
| 49 | of which: instruments issued by subsidiaries subject to phase-out | 486 (4) | |
| 50 | Credit risk adjustments | 62 (c) & (d) | |
| 51 | Tier 2 (T2) capital before regulatory adjustment | ||
| Tier 2 (T2) capital: regulatory adjustments | |||
| 52 | Direct and indirect holdings by an institution of own T2 instruments and subordinated loans (negative amount) | 63 (b) (i), 66 (a), 67 | |
| Holdings of the T2 instruments and subordinated loans of financial sector entities where those entities have | |||
| 53 | reciprocal cross-holdings with the institutions designed to artificially inflate the own funds of the institution | 66 (b), 68 | |
| (negative amount) | |||
| Direct, indirect and synthetic holdings of the T2 instruments and subordinated loans of financial sector entities | |||
| 54 | where the institution does not have a significant investment in those entities (amount above 10% threshold and | 66 (c), 69, 70, 79 | |
| net of eligible short positions) (negative amount) | |||
| Direct, indirect and synthetic holdings of the T2 instruments and subordinated loans of financial sector entities | |||
| 55 | where the institution has a significant investment in those entities (net of eligible short positions) (negative | 66 (d), 69, 79, 477 (4) | |
| amounts) | |||
| 56 | Empty set in the EU | ||
| 57 | Total regulatory adjustments to Tier 2 (T2) capital | ||
| 58 | Tier 2 (T2) capital | ||
| 59 | Total capital (TC = T1 + T2) | 723 654 | |
| 60 | Total risk-weighted assets | 2 464 955 | |
| Capital ratios and buffers | |||
| 61 | Common Equity Tier 1 (as a percentage of total risk exposure amount) | 29.36% | 92 (2) (a) |
| 62 | Tier 1 (as a percentage of total risk exposure amount) | 29.36% | 92 (2) (b) |
| 63 | Total capital (as a percentage of total risk exposure amount) | 29.36% | 92 (2) (c) |
| Institution-specific buffer requirement (CET1 requirement in accordance with article 92 (1) (a) plus capital | CRD 128, 129, 130, | ||
| 64 | conservation and countercyclical buffer requirements plus a systemic risk buffer, plus systemically important | 9.02% | 131, 133 |
| institution buffer expressed as a percentage of total risk exposure amount) 1) | |||
| 65 | of which: capital conservation buffer requirement | 2.50% | |
| 66 | of which: countercyclical buffer requirement | 0.02% | |
| 67 | of which: systemic risk buffer requirement | 0.00% | |
| 67a | of which: Global Systemically Important Institution (G-SII) or Other Systemically Important Institution (O-SII) buffer | 2.00% | |
| 68 | Common Equity Tier 1 available to meet buffers (as a percentage of risk exposure amount) 2) | 24.86% | CRD 128 |
| 69 | [non-relevant in EU regulation] | ||
| 70 | [non-relevant in EU regulation] | ||
| 71 | [non-relevant in EU regulation] | ||
| Amounts below the thresholds for deduction (before risk-weighting) | |||
| Direct and indirect holdings of the capital of financial sector entities where the institution does not have a | 36 (1) (h), 45, 46, 56 (c), | ||
| 72 | significant investment in those entities (amount below 10% threshold and net of eligible short positions) | 59, 60, 66 (c), 69, 70 | |
| Direct and indirect holdings of the CET1 instruments of financial sector entities where the institution has a | |||
| 73 | significant investment in those entities (amount below 10% threshold and net of eligible short positions) | 36 (1) (i), 45, 48 | |
| 74 | Empty set in the EU | ||
| Deferred tax assets arising from temporary difference (amount below 10 % threshold, net of related tax liability | |||
| 75 | where the conditions in Article 38 (3) are met) | 36 (1) (c), 38, 48 | |
| Applicable caps on the inclusion of provisions in Tier 2 | |||
| Credit risk adjustments included in T2 in respect of exposures subject to standardised approach (prior to the | |||
| 76 | application of the cap) | 62 | |
| 77 | Cap on inclusion of credit risk adjustments in T2 under standardised approach | 62 | |
| Credit risk adjustments included in T2 in respect of exposures subject to internal ratings-based approach (prior to | |||
| 78 | the application of the cap) | 62 | |
| 79 | Cap for inclusion of credit risk adjustments in T2 under internal ratings-based approach | 62 | |
| Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2014 and 1 Jan 2022) | |||
| 80 | - Current cap on CET1 instruments subject to phase-out arrangements | 484 (3), 486 (2) & (5) | |
| 81 | - Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities) | 484 (3), 486 (2) & (5) | |
| 82 | - Current cap on AT1 instruments subject to phase-out arrangements | 484 (4), 486 (3) & (5) | |
| 83 | - Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities) | 484 (4), 486 (3) & (5) | |
| 84 | - Current cap on T2 instruments subject to phase-out arrangements | 484 (5), 486 (4) & (5) | |
| 85 | - Amount excluded from T2 due to cap (excess over cap after redemptions and maturities) | 484 (5), 486 (4) & (5) | |
1) The CET1 capital requirement including buffer requirements.
2) The CET1 capital ratio as reported, is less than the minimum requirement of 4.5% (excluding buffer requirements) and less than any CET1 items used to meet the Tier 1 and total capital requirements.
Latvia 4a: Amount of institution-specific countercyclical capital buffer
| EURt | 31.12.2019 |
|---|---|
| Total risk exposure amount | 2 464 955 |
| Institution-specific countercyclical buffer rate | 0.02% |
| Institution-specific countercyclical buffer requirement | 373 |
The corresponding information for Swedbank CS can be found in the Capital position chapter of this Pillar 3 report.
Latvia 4b: Geographical distribution of credit exposures relevant for the calculation of the countercyclical capital buffer, 31 December 2019
| General credit exposures Trading book exposure |
Securitisation exposures |
Own funds requirements | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| EURt | Exposure value for SA |
Exposure value for IRB |
Sum of long and short position of trading book |
Value of trading book exposure for internal models |
Exposure value for SA |
Exposure value for IRB |
of which General credit exposures |
of which Trading book exposures |
of which Securitisation exposures |
Total | Own funds requirement weights |
Countercyclical capital buffer rate |
| Sweden | 220 | 596 | 43 | 43 | 0.03% | 2.50% | ||||||
| Estonia | 2 | 1 052 | 689 | 27 | 7 | 34 | 0.02% | |||||
| Latvia | 116 858 | 3 808 040 | 22 | 164 914 | 164 914 | 97.98% | ||||||
| Lithuania | 38 | 6 566 | 329 | 329 | 0.20% | 1.00% | ||||||
| Norway | 112 | 203 | 20 | 20 | 0.01% | 2.50% | ||||||
| Finland | 10 | 76 | 4 | 4 | 0.00% | |||||||
| Denmark | 37 | 43 244 | 1 660 | 1 660 | 0.99% | 1.00% | ||||||
| USA | 125 | 246 | 14 | 14 | 0.01% | |||||||
| Great Britain Other |
1 396 | 2 152 | 164 | 164 | 0.10% | 1.00% | ||||||
| countries | 818 | 21 619 | 1 124 | 1 124 | 0.67% | 0.00% | ||||||
| Total | 119 616 | 3 883 794 | 711 | 168 299 | 7 | 168 306 | 100.00% | 0.02% |
The corresponding information for Swedbank CS can be found in the Capital position chapter of this Pillar 3 report.
Latvia 5: Capital instruments' main features, 31 December 2019
Disclosure according to Article 3 in Commission Implementing Regulation (EU) No 1423/2013
| Capital instruments' main features template | ||
|---|---|---|
| 1 | Issuer | Swedbank AS, Latvia |
| 2 | Unique identifier (e.g. CUSIP, ISIN or Bloomberg identifier for private placement) | LV40003074764 |
| 3 | Governing law(s) of the instrument | Latvian Commercial Law |
| Regulatory treatment | ||
| 4 | Transitional CRR rules | Common Equity Tier 1 |
| 5 | Post-transitional CRR rules | Common Equity Tier 1 |
| 6 | Eligible at solo/(sub-)consolidated/solo & (sub-)consolidated | Solo & consolidated |
| Share capital | ||
| 7 | Instrument type (types to be specified by each jurisdiction) | as published in Regulation |
| (EU) No 575/2013 article 28 | ||
| 8 | Amount recognised in regulatory capital (currency in million, as of most recent reporting date) | EUR 575m |
| 9 | Nominal amount of instrument | EUR 575m |
| 9a | Issue price | N/A |
| 9b | Redemption price | N/A |
| 10 | Accounting classification | Shareholders' equity |
| 11 | Original date of issuance | N/A |
| 12 | Perpetual or dated | Perpetual |
| 13 | Original maturity date | No maturity |
| 14 | Issuer call subject to prior supervisory approval | No |
| 15 | Optional call date, contingent call dates, and redemption amount | N/A |
| 16 | Subsequent call dates, if applicable | N/A |
| Coupons / dividends | ||
| 17 | Fixed or floating dividend/coupon | N/A |
| 18 | Coupon rate and any related index | N/A |
| 19 | Existence of a dividend stopper | N/A |
| 20a | Fully discretionary, partially discretionary or mandatory (in terms of timing) | Fully discretionary |
| 20b | Fully discretionary, partially discretionary or mandatory (in terms of amount) | Fully discretionary |
| 21 | Existence of step up or other incentive to redeem | N/A |
| 22 | Noncumulative or cumulative | N/A |
| 23 | Convertible or non-convertible | N/A |
| 24 | If convertible, conversion trigger (s) | N/A |
| 25 | If convertible, fully or partially | N/A |
| 26 | If convertible, conversion rate | N/A |
| 27 | If convertible, mandatory or optional conversion | N/A |
| 28 | If convertible, specify instrument type convertible into | N/A |
| 29 | If convertible, specify issuer of instrument it converts into | N/A |
| 30 | Write-down features | N/A |
| 31 | If write-down, write-down trigger (s) | N/A |
| 32 | If write-down, full or partial | N/A |
| 33 | If write-down, permanent or temporary | N/A |
| 34 | If temporary write-down, description of write-up mechanism | N/A |
| 35 | Position in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument) | Additional Tier 1 |
| 36 | Non-compliant transitioned features | No |
| 37 | If yes, specify non-compliant features | N/A |
Latvia 6: Overview of RWAs (EU OV1), 31 December 2019
| RWA | Minimum capital requirements | |||
|---|---|---|---|---|
| EURt | 31.12.2019 | 30.09.2019 | 31.12.2019 | |
| Credit risk (excluding Counterparty credit risk (CCR)) | 2 126 854 | 2 144 986 | 170 148 | |
| - of which the standardised approach (SA) | 66 212 | 76 689 | 5 297 | |
| - of which the foundation IRB (FIRB) approach | 1 144 433 | 1 161 846 | 91 555 | |
| - of which the advanced IRB (AIRB) approach | 916 209 | 906 451 | 73 297 | |
| - of which equity IRB under the simple risk- weighted approach or the IMA | ||||
| Counterparty credit risk | 9 178 | 9 164 | 734 | |
| - of which mark to market | 8 801 | 8 876 | 704 | |
| - of which original exposure | ||||
| - of which the standardised approach | ||||
| - of which internal model method (IMM) | ||||
| - of which risk exposure amount for contributions to the default fund of a CCP | ||||
| - of which CVA | 377 | 288 | 30 | |
| Settlement risk | ||||
| Securitisation exposures in the banking book (after the cap) | ||||
| - of which IRB approach | ||||
| - of which IRB supervisory formula approach (SFA) | ||||
| - of which internal assessment approach (IAA) | ||||
| - of which standardised approach | ||||
| Market risk | 8 545 | 4 887 | 684 | |
| - of which the standardised approach | 8 545 | 4 887 | 684 | |
| - of which IMA | ||||
| Large exposures | ||||
| Operational risk | 320 378 | 320 378 | 25 630 | |
| - of which basic indicator approach | ||||
| - of which standardised approach | 320 378 | 320 378 | 25 630 | |
| - of which advanced measurement approach | ||||
| Amounts below the thresholds for deduction (subject to 250% risk weight) | ||||
| Floor adjustment | ||||
| Other risk exposure amount | ||||
| Total | 2 464 955 | 2 479 415 | 197 196 |
The corresponding information for Swedbank CS can be found in the Capital position chapter of this Pillar 3 report.
During the last quarter of 2019 the RWA of Swedbank Latvia decreased by EUR 14m. The development is mainly due to a decrease in credit risk RWA by EUR 18m, which was driven by volume decrease in the corporate portfolio. This effect was partly offset by an increase in market risk RWA by EUR 4m due to prolonged duration in the portfolio.
Latvia 7: IRB specialised lending and equities (EU CR10), 31 December 2019
| Specialised lending | |||||||
|---|---|---|---|---|---|---|---|
| Regulatory categories, | On- balance | Off-balance | Exposure | Expected | |||
| EURt | Remaining maturity | sheet amount | sheet amount | Risk weight | amount | RWAs | losses |
| Category 1 | Less than 2.5 years | 14 | 31 | 50% | 45 | 22 | |
| Equal to or more than 2.5 years | 5 | 70% | 5 | 4 | |||
| Category 2 | Less than 2.5 years | 70% | |||||
| Equal to or more than 2.5 years | 12 406 | 90% | 12 406 | 11 166 | 99 | ||
| Category 3 | Less than 2.5 years | 115% | |||||
| Equal to or more than 2.5 years | 115% | ||||||
| Category 4 | Less than 2.5 years | 250% | |||||
| Equal to or more than 2.5 years | 2 391 | 250% | 2 447 | 6 117 | 196 | ||
| Category 5 | Less than 2.5 years | - | |||||
| Equal to or more than 2.5 years | 193 | - | 1 753 | 876 | |||
| Total | Less than 2.5 years | 14 | 31 | 45 | 22 | ||
| Equal to or more than 2.5 years | 14 995 | 16 611 | 17 287 | 1 171 | |||
| Equities under the simple risk-weighted approach | |||||||
| Private equity exposures | 190% | ||||||
| Exchange-traded equity exposures | 290% | ||||||
| Other equity exposures | 370% | ||||||
| Total | - |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
Total exposure decreased by EUR 5m compared to end-June 2019 due to reduced limits and repaid contracts.
Latvia 8: Total and average net amount of exposures (EU CRB-B), 31 December 2019
| Average net | ||
|---|---|---|
| Net exposure at the | exposure over | |
| EURt | end of the period | the period |
| Central governments or central banks | ||
| Institutions | 13 666 | 13 446 |
| Corporates | 1 665 470 | 1 713 080 |
| - of which Specialised Lending | 15 040 | 20 261 |
| - of which SME | 100 616 | 105 392 |
| Retail | 2 363 749 | 2 319 200 |
| - Secured by real estate property | 1 534 255 | 1 489 593 |
| ---SME | 15 428 | 15 931 |
| ---Non-SME | 1 518 827 | 1 473 662 |
| - Qualifying Revolving | ||
| - Other Retail | 829 494 | 829 607 |
| --- SME | 363 650 | 371 623 |
| --- Non-SME | 465 844 | 457 984 |
| Equity | ||
| Other exposures | 179 248 | 152 327 |
| Total IRB approach | 4 222 133 | 4 198 053 |
| Central governments or central banks | 2 067 356 | 1 951 961 |
| Regional governments or local | 2 300 | 2 442 |
| authorities | ||
| Public sector entities | 18 411 | 19 745 |
| Multilateral Development Banks | ||
| International Organisations | ||
| Institutions | 55 125 | 81 486 |
| Corporates | 26 306 | 28 434 |
| - of which SME | 1 595 | 2 311 |
| Retail | 34 416 | 34 359 |
| - of which SME | 25 709 | 25 104 |
| Secured by mortgages on immovable | 52 721 | 55 431 |
| property | ||
| - of which SME | 2 | |
| Exposures in default | 1 377 | 1 679 |
| Items associated with particularly high risk | ||
| Covered bonds | ||
| Claims on institutions and corporates with a short-term credit assessment | ||
| Collective investments undertakings | ||
| (CIU) | ||
| Equity exposures | 300 | 300 |
| Other exposures | 496 | 700 |
| Total SA approach | 2 258 808 | 2 176 537 |
| Total | 6 480 941 | 6 374 590 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
Total exposures decreased by EUR 0.2bn, as a result of decreased placements in central governments in the standardised approach. In the IRB approach exposures to Private mortgages increased by EUR 0.1bn, which was counteracted by a decrease in corporate exposures.
Latvia 9: Geographical breakdown of exposures (EU CRB-C), 31 December 2019
| Net carrying values | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| EURt | Significant area: Nordic |
Sweden | Norway | Denmark | Finland | Significant area: Baltic |
Estonia | Latvia | Lithuania | Rest of the world |
USA | Other geographical areas |
Total |
| Central governments or central banks | |||||||||||||
| Institutions | 1 277 | 80 | 1 047 | 150 | 1 525 | 45 | 1 480 | 10 865 | 4 118 | 6 747 | 13 667 | ||
| Corporates | 63 756 | 63 756 | 1 590 733 | 1 584 860 | 5 873 | 10 980 | 10 980 | 1 665 469 | |||||
| Retail | 1 275 | 601 | 205 | 391 | 78 | 2 349 011 | 1 051 | 2 347 259 | 701 | 13 463 | 251 | 13 212 | 2 363 749 |
| Equity | |||||||||||||
| Other exposures | 179 248 | 179 248 | 179 248 | ||||||||||
| Total IRB approach | 66 308 | 601 | 285 | 65 194 | 228 4 120 517 | 1 051 4 111 412 | 8 054 | 35 308 | 4 369 | 30 939 4 222 133 | |||
| Central governments or central banks | 2 067 356 | 2 067 356 | 2 067 356 | ||||||||||
| Regional governments or local authorities | 2 300 | 2 300 | 2 300 | ||||||||||
| Public sector entities | 18 411 | 18 411 | 18 411 | ||||||||||
| Multilateral Development Banks | |||||||||||||
| International Organisations | |||||||||||||
| Institutions | 53 552 | 53 332 | 220 | 1 573 | 1 410 | 2 | 161 | 55 125 | |||||
| Corporates | 26 222 | 26 222 | 84 | 84 | 26 306 | ||||||||
| Retail | 23 | 23 | 34 265 | 34 265 | 128 | 128 | 34 416 | ||||||
| Secured by mortgages on immovable property | 180 | 45 | 88 | 37 | 10 | 50 688 | 50 656 | 32 | 1 853 | 125 | 1 728 | 52 721 | |
| Exposures in default | 1 102 | 1 102 | 275 | 275 | 1 377 | ||||||||
| Items associated with particularly high risk | |||||||||||||
| Covered bonds | |||||||||||||
| Claims on institutions and corporates with a short-term credit assessment | |||||||||||||
| Collective investments undertakings (CIU) | |||||||||||||
| Equity exposures | 300 | 300 | 300 | ||||||||||
| Other exposures | 175 | 175 | 321 | 2 | 313 | 6 | 496 | ||||||
| Total SA approach | 53 930 | 53 552 | 331 | 37 | 10 2 202 538 | 1 412 2 200 927 | 199 | 2 340 | 125 | 2 215 2 258 808 | |||
| Total | 120 238 | 54 153 | 616 | 65 231 | 238 6 323 055 | 2 463 6 312 339 | 8 253 | 37 648 | 4 494 | 33 154 6 480 941 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The decreased exposures stem from Latvia, as 98% of the total exposure does.
| EURt | Private mortgage | Tenant owner associations |
Private other | Agriculture, forestry, fishing |
Manufacturing | Public sector and utilities |
Construction | Retail | Transportation | Shipping and offshore | restaurants Hotels and |
Information and communication |
Finance and insurance | management Property |
Residential properties | Commercial | Industrial and Warehouse |
Other property management |
Professional services | Other corporate lending |
Credit institutions | Other exposures | Total |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Central | |||||||||||||||||||||||
| governments or central banks Institutions Corporates Retail |
1 518 550 | 2 632 468 090 |
127 736 88 124 |
251 867 48 246 |
157 477 9 955 |
99 752 25 620 |
186 702 85 564 |
124 792 43 857 |
117 522 4 927 |
39 806 6 425 |
10 162 904 |
454 182 26 089 |
15 026 1 025 |
346 987 10 156 |
75 429 914 |
16 740 13 994 |
88 586 35 222 |
4 253 2 177 |
13 666 | 13 666 1 665 469 2 363 750 |
|||
| Equity | |||||||||||||||||||||||
| Other exposures | 179 248 | 179 248 | |||||||||||||||||||||
| Total IRB approach 1 518 550 | 470 722 215 860 300 113 167 432 125 372 272 266 168 649 | 122 449 46 231 11 066 480 271 16 051 357 143 76 343 30 734 123 808 | 6 430 | 13 666 179 248 4 222 133 | |||||||||||||||||||
| Central governments or central banks |
156 122 | 1 902 082 | 9 152 | 2 067 356 | |||||||||||||||||||
| Regional governments or local authorities |
2 300 | 2 300 | |||||||||||||||||||||
| Public sector entities Multilateral Development Banks International |
11 706 | 6 702 | 3 | 18 411 | |||||||||||||||||||
| Organisations Institutions Corporates Retail Secured by mortgages on |
4 943 52 721 |
3 763 | 26 | 335 984 |
536 | 3 | 606 30 |
641 | 15 013 | 953 14 907 |
493 | 953 14 414 |
8 542 9 178 |
216 46 |
55 125 | 55 125 26 306 34 416 52 721 |
|||||||
| immovable property Exposures in default Items associated with particularly high risk Covered bonds Claims on institutions and corporates with a short- term credit assessment |
1 279 | 98 | 1 377 | ||||||||||||||||||||
| Collective investments undertakings (CIU) Equity exposures Other exposures |
300 496 |
300 496 |
|||||||||||||||||||||
| Total SA approach | 58 943 | 3 861 | 26 | 1 319 170 664 | 3 | 636 | 7 343 | 15 013 | 15 860 | 493 | 15 367 | 17 723 | 262 1 957 207 | 9 948 2 258 808 | |||||||||
| Total | 1 577 493 | 474 583 215 886 301 432 338 096 125 375 272 902 175 992 | 122 449 46 231 26 079 496 131 16 544 357 143 76 343 46 101 141 531 | 6 692 1 970 873 189 196 6 480 941 |
Latvia 10: Concentration of exposures by industry or counterparty type (EU CRB-D), 31 December 2019
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The decreased exposures stem mainly from the increase in placements in central banks reported in Credit institutions in the table. Increased private mortgages are in the retail exposure class under the IRB approach. The decreased corporate exposures are spread over several sectors.
Latvia 11: Maturity of exposures (EU CRB-E), 31 December 2019
| Net exposure value | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| EURt | On demand | <= 1 year | > 1 year <= 5 years |
> 5 years | No stated maturity |
Total | |||
| Central governments or central banks | |||||||||
| Institutions | 6 988 | 3 894 | 10 882 | ||||||
| Corporates | 9 744 | 202 709 | 936 527 | 200 915 | 1 349 895 | ||||
| Retail | 1 604 | 45 529 | 486 235 | 1 575 812 | 65 | 2 109 245 | |||
| Equity | |||||||||
| Other exposures | 91 568 | 52 853 | 34 827 | 179 248 | |||||
| Total IRB approach | 109 904 | 304 985 | 1 422 762 | 1 776 727 | 34 892 | 3 649 270 | |||
| Central governments or central banks | 1 902 082 | 65 240 | 2 | 1 967 324 | |||||
| Regional governments or local authorities | 8 | 73 | 2 213 | 2 294 | |||||
| Public sector entities | 5 216 | 12 275 | 38 | 17 529 | |||||
| Multilateral Development | |||||||||
| Banks | |||||||||
| International | |||||||||
| Organisations | |||||||||
| Institutions | 9 538 | 45 151 | 54 689 | ||||||
| Corporates | 43 | 859 | 9 411 | 10 313 | |||||
| Retail | 12 | 136 | 4 467 | 27 458 | 1 | 32 074 | |||
| Secured by mortgages on | 61 | 3 462 | 49 190 | 52 713 | |||||
| immovable property | |||||||||
| Exposures in default | 805 | 187 | 385 | 1 377 | |||||
| Items associated with particularly high risk | |||||||||
| Covered bonds | |||||||||
| Claims on institutions and corporates with a short- term credit assessment | |||||||||
| Collective investments | |||||||||
| undertakings (CIU) | |||||||||
| Equity exposures | 300 | 300 | |||||||
| Other exposures | 496 | 496 | |||||||
| Total SA approach | 1 911 632 | 117 156 | 21 325 | 88 695 | 301 | 2 139 109 | |||
| Total | 2 021 536 | 422 141 | 1 444 087 | 1 865 422 | 35 193 | 5 788 379 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
Decreased placements in central banks were on demand, reducing these volumes. For corporate exposures the maturity structure has changed with a decrease of EUR 0.2bn in exposures with maturity less than one year with a corresponding increase for maturities 1 to 5 years and more than 5 years. For rest of the exposure classes the overall structure of maturity is unchanged compared to 2018.
Credit quality of exposures
Past due loans
Past due loans refer to overdrawn accounts and loans where amounts due for payment have not been paid in accordance with the terms of the loan agreements.
Credit impaired loans
Impaired loans are loans for which it is unlikely that the payments will be received in accordance with the contractual terms and where there is a risk that Swedbank will not receive full payment. A loan is considered credit-impaired when there is objective proof that an event has occurred on an individual level following the first reporting date of the loan, and that a risk of loss arises when the loan's anticipated future cash flows differ from the contractual cash flows. A loan in default is also always considered as an impaired loan, and vice versa.
Events on an individual level arise, implying an impairment test, e.g., when:
- A borrower incurs significant financial difficulties.
- It is likely that the borrower will enter into bankruptcy, liquidation or financial restructuring.
- Or there is a breach of contract, such as materially delayed or non–payment of interest or principal.
Exposures that are overdue by more than 90 days, or exposures where the terms have changed in a significant manner due to the borrower's financial difficulties, are considered as credit-impaired and as being in default. Impaired loans are moved to stage 3 according to the accounting framework IFRS 9. The provisioning level in stage 3 can either be assessed automatically by systems implemented by the bank or through individual assessment and decisions from authorised credit committee according to the bank's established principles.
Provisions
All loans, performing as well as non-performing, will carry a loss allowance (provision). It is not necessary for a loss event to occur before an impairment loss is recognized. This can also be described as the expected credit loss approach, i.e. all exposures in the Group's accounts will have an expected credit loss recognized directly after their origination, which is in line with the accounting standards IFRS 9.
All loans are subject to stage allocation and will carry a provision based on that allocation at each reporting date. The exposures are allocated to one of three stages:
- Stage 1 Performing exposures where the credit risk has not increased significantly since initial recognition.
- Stage 2 Performing exposures where the risk of default has increased significantly since initial recognition, but the asset is still not classified as credit-impaired.
- Stage 3 Credit-impaired exposures.
Regardless of which stage a loan is allocated to, the provisions will be calculated according to Swedbank's models. For some large exposures in stage 3, the provisioning will be assessed manually by using scenario-based cash flows and then decided by the relevant credit decision-making body.
Mitigation of credit risk
Swedbank strives to obtain adequate collateral. Collateral is considered from a risk perspective even if the collateral cannot be recognised for capital adequacy purposes. The collateral, its value and risk mitigating effect are considered throughout the credit process.
The term collateral covers pledges and guarantees. The most common types of pledges are real estate, apartments and floating charge. Netting agreements or covenants are not considered as collateral.
In special circumstances, Swedbank may buy credit derivatives or financial guarantees to hedge the credit risk, but this is not part of Swedbank's normal lending operations. Main types of guarantors and counterparties in credit derivatives and their creditworthiness are described in the main document under Counterparty credit risk.
Credits without collateral are mainly granted for small loans to private customers or loans to large companies with very solid repayment capacity. For the latter, special loan covenants are commonly created which entitle Swedbank to renegotiate or terminate the agreement if the borrower's repayment capacity deteriorates, or if the covenants are otherwise breached.
Collateral valuation
The valuation of collateral is based on a thorough review and analysis of the pledged assets and is an integrated part in the credit risk assessment of the borrower. The establishment of the collateral value is part of the credit decision. The value of the collateral is reassessed within periodic credit reviews of the borrower and in situations where Swedbank has reason to believe that the value has deteriorated, or the exposure has become a problem loan.
The established value of the collateral shall correspond to the most likely sales price at the date of valuation estimated in a qualitative process and characterised by prudence. For financial collateral, such as debt securities, equities and collective investment undertakings (CIUs), valuation is normally monitored on a daily basis.
Concentrations within mitigation instruments
Approximately 41% of the loans have private housing mortgages as collateral implicating a high concentration risk. However, the composition of the portfolio, with a large number of customers and relatively small amounts on each borrower, mitigates the risks. Another 23% of the loans have other real estate collateral. This portfolio is spread over several customers and different property segments.
Latvia 12: Credit quality of exposures by exposure classes and instruments (EU CR1-A), 31 December 2019
| which Credit risk Non Specific credit General adjustment Defaulted defaulted risk credit risk Accumulated charges of the |
Net values |
|---|---|
| EURt exposures exposures adjustment adjustment write-offs period |
|
| Central governments or central banks | |
| Institutions 13 689 23 -5 |
13 666 |
| Corporates 4 171 1 664 929 3 630 96 199 692 |
1 665 470 |
| - of which Specialised Lending 1 798 14 858 1 616 22 967 -20 |
15 040 |
| - of which SME 100 793 177 46 989 -107 |
100 616 |
| Retail 26 179 2 352 900 15 330 201 022 -2 005 |
2 363 749 |
| - Secured by real estate property 20 621 1 524 558 10 925 166 189 -1 280 |
1 534 254 |
| --- SME 534 15 074 181 6 599 -120 |
15 427 |
| --- Non-SME 20 087 1 509 484 10 744 159 590 -1 160 |
1 518 827 |
| - Qualifying revolving | |
| - Other Retail 5 558 828 342 4 405 34 833 -725 |
829 495 |
| --- SME 2 386 362 760 1 496 12 910 -469 |
363 650 |
| --- Non-SME 3 172 465 582 2 909 21 923 -256 |
465 845 |
| Equity | |
| Other exposures 179 248 |
179 248 |
| Total IRB approach 30 350 4 210 766 18 983 297 221 -1 318 |
4 222 133 |
| Central governments or central banks 2 067 378 22 |
2 067 356 |
| Regional governments or local authorities 2 300 -35 |
2 300 |
| Public sector entities 18 414 3 -1 |
18 411 |
| Multilateral development banks | |
| International organisations | |
| Institutions 55 125 |
55 125 |
| Corporates: 26 313 7 8 -2 |
26 306 |
| - of which SME 1 |
-1 |
| Retail 34 919 504 372 -23 |
34 415 |
| - of which SME 95 -9 |
-95 |
| Secured by mortgages on immovable 52 721 14 -224 |
52 721 |
| - of which SME | |
| Exposures in default 1 700 322 2 892 -86 |
1 378 |
| Items associated with particularly high risk | |
| Covered bonds | |
| Claims on institutions and corporates with a | |
| short- term credit assessment | |
| Collective investments undertakings (CIU) | |
| Equity exposures 300 |
300 |
| Other exposures 496 |
496 |
| Total SA approach 1 700 2 257 966 858 3 286 -371 |
2 258 808 |
| Total 32 050 6 468 732 19 841 300 507 -1 689 |
6 480 941 |
| - of which Loans 31 963 5 719 954 19 625 300 507 -1 573 |
5 732 292 |
| - of which Debt Securities 56 088 |
56 088 |
| - of which Off-balance sheet exposures 87 692 690 216 -116 |
692 561 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
Defaulted exposures decreased by EUR 6m, evenly distributed between private individuals and corporates.
Latvia 13: Credit quality of exposures by industry or counterparty type (EU CR1-B), 31 December 2019
| Gross carrying values of which | Specific credit | General credit | Credit risk | ||||
|---|---|---|---|---|---|---|---|
| Defaulted | Non-defaulted | risk | risk | Accumulated | adjustment | ||
| EURt | exposures | exposures | adjustment | adjustment | write-offs | charges | Net values |
| Private mortgage | 21 587 | 1 567 297 | 11 391 | 166 046 | -1 466 | 1 577 493 | |
| Tenant owner associations | |||||||
| Private other | 4 894 | 473 022 | 3 333 | 32 791 | -285 | 474 583 | |
| Agriculture, forestry, fishing | 408 | 215 888 | 410 | 2 638 | -207 | 215 886 | |
| Manufacturing | 319 | 301 405 | 292 | 12 980 | -149 | 301 432 | |
| Public sector and utilities | 1 | 338 130 | 35 | 790 | -50 | 338 096 | |
| Construction | 314 | 125 235 | 174 | 11 076 | -52 | 125 375 | |
| Retail | 1 908 | 271 634 | 640 | 15 180 | 82 | 272 902 | |
| Transportation | 170 | 175 941 | 119 | 10 130 | -139 | 175 992 | |
| Shipping and offshore | |||||||
| Hotels and restaurants | 153 | 123 364 | 1 068 | 13 099 | 952 | 122 449 | |
| Information and communication | 42 | 46 235 | 46 | 294 | -25 | 46 231 | |
| Finance and insurance | 26 081 | 2 | 33 | -6 | 26 079 | ||
| Property management | 1 810 | 496 295 | 1 974 | 23 435 | -326 | 496 131 | |
| - Residential properties | 1 753 | 16 411 | 1 620 | 14 491 | -28 | 16 544 | |
| - Commercial | 46 | 357 324 | 227 | 7 171 | -235 | 357 143 | |
| - Industrial and Warehouse | 76 349 | 6 | -8 | 76 343 | |||
| - Other property management | 11 | 46 211 | 121 | 1 773 | -55 | 46 101 | |
| Professional services | 441 | 141 374 | 284 | 7 217 | -14 | 141 531 | |
| Other corporate lending | 3 | 6 719 | 30 | 4798 | -4 | 6 692 | |
| Credit institutions | 1 970 916 | 43 | 1 970 873 | ||||
| Other exposures | 189 196 | 189 196 | |||||
| Total | 32 050 | 6 468 732 | 19 841 | 300 507 | -1 689 | 6 480 941 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
In addition to reduced defaulted private mortgage loans the corporate sectors with largest decrease was Property management while there were increases in Agriculture, Forestry and Fishing and Retail.
Latvia 14: Credit quality of exposures by geography (EU CR1-C), 31 December 2019
| Gross carrying values of | |||||||
|---|---|---|---|---|---|---|---|
| Credit risk | |||||||
| Defaulted | Non-defaulted | Specific credit | General credit | Accumulated | adjustment | ||
| EURt | exposures | exposures | risk adjustment | risk adjustment | write-offs | charges | Net values |
| Significant area: Nordic | 3 | 120 248 | 13 | 364 | 0 | 120 238 | |
| - Sweden | 54 157 | 4 | 364 | -3 | 54 153 | ||
| - Norway | 621 | 5 | 3 | 616 | |||
| - Denmark | 65 233 | 2 | -2 | 65 231 | |||
| - Finland | 3 | 237 | 2 | 2 | 238 | ||
| Significant area: Baltic | 31 590 | 6 311 091 | 19 626 | 296 757 | -1 710 | 6 323 055 | |
| - Estonia | 2 468 | 5 | 27 | 1 | 2 463 | ||
| - Latvia | 31 589 | 6 300 346 | 19 596 | 296 704 | -1 703 | 6 312 339 | |
| - Lithuania | 1 | 8 277 | 25 | 26 | -8 | 8 253 | |
| Rest of the world | 457 | 37 393 | 202 | 3 386 | 21 | 37 648 | |
| - USA | 4 498 | 4 | 102 | -2 | 4 494 | ||
| - Other geographical areas | 457 | 32 895 | 198 | 3 284 | 23 | 33 154 | |
| Total | 32 050 | 6 468 732 | 19 841 | 300 507 | -1 689 | 6 480 941 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
As for total exposures the vast majority of the defaulted exposures are in Latvia, where also the reduction was seen.
| Gross carrying amount/nominal amount | Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions |
Collateral and financial guarantees received |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Performing exposures | Non-performing exposures | Performing exposures – accumulated impairment and provisions |
Non-performing exposures – accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions |
Accumulated partial write off |
On performing |
On non performing |
|||||||||
| EURt | Of which stage 1 |
Of which stage 2 |
Of which stage 2 |
Of which stage 3 |
Of which stage 1 |
Of which stage 2 |
Of which stage 2 |
Of which stage 3 |
exposures | exposures | |||||
| Loans and advances | 5 562 853 4 968 513 | 594 340 | 49 704 | 14 322 | 35 347 | 8 576 | 1 326 | 7 250 | 11 049 | 226 | 10 823 | 2 698 098 | 34 315 | ||
| Central banks | 1 902 102 | 1 902 102 | 21 | 21 | |||||||||||
| General governments | 21 046 | 15 802 | 5 244 | 3 | 3 | 3 387 | |||||||||
| Credit institutions | 65 925 | 65 450 | 474 | ||||||||||||
| Other financial corporations | 60 650 | 60 598 | 52 | 1 | 1 | 1 | 1 | 1 | 1 | 5 642 | |||||
| Non-financial corporations | 1 635 244 | 1 466 294 | 168 950 | 14 392 | 8 765 | 5 627 | 2 211 | 355 | 1 856 | 2 713 | 72 | 2 641 | 1 160 037 | 8 941 | |
| Of which SMEs | 383 034 | 327 260 | 55 773 | 6 492 | 3 474 | 3 017 | 814 | 286 | 528 | 974 | 38 | 936 | 177 286 | 5 011 | |
| Households Debt securities |
1 877 885 56 087 |
1 458 266 | 419 619 | 35 311 | 5 557 | 29 719 | 6 340 | 947 | 5 394 | 8 335 | 154 | 8 181 | 1 529 032 | 25 374 | |
| Central banks | |||||||||||||||
| General governments | 56 087 | ||||||||||||||
| Credit institutions | |||||||||||||||
| Other financial corporations | |||||||||||||||
| Non-financial corporations | |||||||||||||||
| Off-balance-sheet exposures Central banks |
692 578 | 634 480 | 58 098 | 199 | 25 | 89 | 213 | 79 | 135 | 2 | 2 | 33 | |||
| General governments | 100 923 | 100 913 | 10 | 2 | 2 | ||||||||||
| Credit institutions | 3 491 | 1 658 | 1 832 | 23 | 23 | ||||||||||
| Other financial corporations | 15 274 | 15 123 | 151 | ||||||||||||
| Non-financial corporations | 382 064 | 346 980 | 35 084 | 178 | 22 | 71 | 32 | 18 | 15 | 22 | |||||
| Households | 190 827 | 169 806 | 21 021 | 21 | 3 | 18 | 156 | 59 | 97 | 2 | 2 | 11 | |||
| Total | 6 311 518 5 602 994 | 652 437 | 49 903 | 14 347 | 35 436 | 8 789 | 1 405 | 7 385 | 11 051 | 226 | 10 825 | 2 698 098 | 34 348 |
Latvia 15: Performing and non-performing exposures and related provisions, 31 December 2019
The performance of Swedbank's portfolio remains on a high stable level with less than 1% of non-performing exposures. Most of the defaults (stage 3) are within mortgages in households. Stage 2 (significantly increased credit risk) exposures remain on a low level of 10%, where mortgages in households contribute the most.
| Gross carrying amount/nominal amount | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Performing exposures | Non-performing exposures | |||||||||||
| EURt | Not past due or past due ≤ 30 days |
Past due > 30 days ≤ 90 days |
Unlikely to pay that are not past due or are past due ≤ 90 days |
Past due > 90 days ≤ 180 days |
Past due > 180 days ≤ 1 year |
Past due > 1 year ≤ 2 years |
Past due > 2 years ≤ 5 years |
Past due > 5 years ≤ 7 years |
Past due > 7 years |
Of which defaulted |
||
| Loans and advances | 5 562 853 | 5 558 795 | 4 057 | 49 704 | 28 827 | 4 269 | 4 257 | 4 102 | 4 777 | 792 | 2 680 | 31 738 |
| Central banks | 1 902 102 | 1 902 102 | ||||||||||
| General governments | 21 046 | 21 046 | ||||||||||
| Credit institutions | 65 925 | 65 925 | ||||||||||
| Other financial corporations | 60 650 | 60 650 | 1 | 1 | ||||||||
| Non-financial corporations | 1 635 244 | 1 634 229 | 1 015 | 14 392 | 10 481 | 459 | 242 | 761 | 2 120 | 16 | 312 | 5 498 |
| Of which SMEs | 383 034 | 382 019 | 1 015 | 6 492 | 4 333 | 459 | 242 | 761 | 368 | 16 | 312 | 2 888 |
| Households | 1 877 885 | 1 874 843 | 3 042 | 35 311 | 18 345 | 3 810 | 4 015 | 3 341 | 2 657 | 776 | 2 368 | 26 240 |
| Debt securities | 56 087 | 56 087 | ||||||||||
| Central banks | ||||||||||||
| General governments | 56 087 | 56 087 | ||||||||||
| Credit institutions | ||||||||||||
| Other financial corporations | ||||||||||||
| Non-financial corporations | ||||||||||||
| Off-balance-sheet exposures Central banks |
692 578 | 199 | 109 | |||||||||
| General governments | 100 923 | |||||||||||
| Credit institutions | 3 491 | |||||||||||
| Other financial corporations | 15 274 | |||||||||||
| Non-financial corporations | 382 064 | 178 | 109 | |||||||||
| Households | 190 827 | 21 | ||||||||||
| Total | 6 311 518 | 5 614 882 | 4 057 | 49 903 | 28 827 | 4 269 | 4 257 | 4 102 | 4 777 | 792 | 2 680 | 31 847 |
Latvia 16: Credit quality of performing and non-performing exposures by past due days, 31 December 2019
The total exposures that are past due is low. Less than 1% of total exposures are past due more than 30 days. Most of the exposures that are non-performing are less than 90 days past due.
Latvia 17: Credit quality of forborne exposures, 31 December 2019
| Gross carrying amount/nominal amount | Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions |
Collateral received and financial guarantees received on forborne exposures |
||||||
|---|---|---|---|---|---|---|---|---|
| Performing forborne |
Non-performing forborne | On performing forborne exposures |
On non performing forborne exposures |
Of which collateral and financial guarantees received on non |
||||
| EURt | Of which defaulted |
Of which impaired |
performing exposures with forbearance measures |
|||||
| Loans and advances | 42 823 | 34 480 | 19 049 | 20 949 | 513 | 6 755 | 64 325 | 25 352 |
| Central banks | ||||||||
| General governments | ||||||||
| Credit institutions | ||||||||
| Other financial corporations | ||||||||
| Non-financial corporations | 26 979 | 11 932 | 3 282 | 3 282 | 198 | 2 109 | 33 338 | 8 072 |
| Households | 15 844 | 22 548 | 15 767 | 17 667 | 315 | 4 646 | 30 987 | 17 280 |
| Debt Securities | ||||||||
| Loan commitments given | 306 | 81 | 13 | 2 | 327 | 33 | ||
| Total | 43 129 | 34 561 | 19 049 | 20 962 | 513 | 6 757 | 64 652 | 25 385 |
Latvia 18: Changes in stock of general and specific credit risk adjustments (EU CR2-A), 31 December 2019
| EURt | Accumulated Specific credit risk adjustment |
Accumulated General credit risk adjustment |
|---|---|---|
| Opening balance | 21 419 | |
| Increases due to amounts set aside for estimated loan losses during the period | 992 | |
| Decreases due to amounts reversed for estimated loan losses during the period | -910 | |
| Decreases due to amounts taken against accumulated credit risk adjustments | -1 213 | |
| Transfers between credit risk adjustments | ||
| Impact of exchange rate differences | 4 | |
| Business combinations, including acquisitions and disposals of subsidiaries | 43 | |
| Other adjustments | -494 | |
| Closing balance | 19 841 | |
| Recoveries on credit risk adjustments recorded directly to the statement of profit or loss. |
3 570 | |
| Specific credit risk adjustments recorded directly to the statement of profit or loss. | -2 876 | |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The decrease in specific credit risk adjustment compared to end-June 2019 is mainly explained by transfers between stages and changes in IFRS 9 models. Otherwise there were normal amounts of new provisions and reduced provisions from re-aged defaults.
Latvia 19: Changes in stock of defaulted and impaired loans and debt securities (EU CR2-B), 31 December 2019
| EURt | Gross carrying value defaulted exposures |
|---|---|
| Opening balance | 35 779 |
| Loans and debt securities that have defaulted or impaired since the last reporting period | 6 595 |
| Returned to non-defaulted status | -2 314 |
| Amounts written off | -3 304 |
| Other changes | -4 706 |
| Closing balance | 32 050 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The inflow of new defaults was low, and net there was a decrease by EUR 4m, which is explained by reduced volumes of defaulted private mortgage loans and by work-out of one Large Corporate customer from property management industry.
Latvia 20: Collateral obtained by taking possession and execution processes, 31 December 2019
| Collateral obtained by taking possession | |||||
|---|---|---|---|---|---|
| EURt | Value at initial recognition | Accumulated negative changes |
|||
| Property, plant and equipment (PP&E) | |||||
| Other than PP&E | 4 621 | -1 851 | |||
| Residential immovable property | 1 440 | -86 | |||
| Commercial Immovable property | 2 469 | -1 671 | |||
| Movable property (auto, shipping, etc.) | 565 | -89 | |||
| Equity and debt instruments | |||||
| Other | 147 | -5 | |||
| Total | 4 621 | -1 851 |
The volumes of obtained collateral were reduced in 2019 mainly explained by work-out of one Large Corporate customer from the Property management industry.
Latvia 21: Credit risk mitigation techniques – overview (EU CR3), 31 December 2019
| EURt | Exposures unsecured: Carrying amount |
Exposures secured: Carrying amount |
Exposures secured by collateral |
Exposures secured by financial guarantees |
Exposures secured by credit derivatives |
|---|---|---|---|---|---|
| Total Loans | 2 007 434 | 1 633 578 | 1 587 789 | 45 789 | |
| Total Debt securities |
56 088 | ||||
| Other | 2 091 279 | ||||
| Total all exposures |
4 154 801 | 1 633 578 | 1 587 789 | 45 789 | |
| - of which defaulted |
5 366 | 16 570 | 16 567 | 3 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The increase in exposures secured by collateral is explained by new mortgage loans. The decrease in unsecured exposures is explained by decreased placements in central banks.
Latvia 22: Credit risk exposure and credit risk mitigation (CRM) effects (EU CR4), 31 December 2019
| Exposures post-CCF | RWA and RWA | |||||
|---|---|---|---|---|---|---|
| Exposures before CCF and CRM and CRM |
density | |||||
| Exposure classes, | On-balance | Off-balance | On- balance | Off- balance | RWA | |
| EURt | sheet amount | sheet amount | sheet amount | sheet amount | RWA | density |
| Central governments or central banks | 1 967 324 | 100 033 | 2 005 032 | 51 695 | 11 218 | 0.55% |
| Regional government or local authorities | 2 294 | 6 | 4 049 | 6 | 811 | 20.00% |
| Public sector entities | 17 529 | 882 | 17 529 | 457 | 3 146 | 17.49% |
| Multilateral development banks | 184 | 0.00% | ||||
| International organisations | ||||||
| Institutions | 54 689 | 436 | 54 689 | 225 | 10 985 | 20.00% |
| Corporates | 10 312 | 15 993 | 1 330 | 121 | 1 306 | 90.01% |
| Retail | 32 074 | 2 342 | 28 226 | 643 | 18 089 | 62.66% |
| Secured by mortgages on immovable property | 52 713 | 8 | 52 713 | 4 | 18 450 | 35.00% |
| Exposures in default | 1 377 | 1 377 | 1 415 | 102.76% | ||
| Higher-risk categories | ||||||
| Covered bonds | ||||||
| Institutions and corporates with a short term credit | ||||||
| assessment | ||||||
| collective investment undertakings | ||||||
| Equity | 300 | 300 | 300 | 100.00% | ||
| Other items | 496 | 496 | 492 | 99.19% | ||
| Total | 2 139 108 | 119 700 | 2 165 925 | 53 151 | 66 212 | 2.98% |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
Latvia 23: RWA flow statements of credit risk exposures under IRB (EU CR8), 31 December 2019
| EURt | RWA amounts | Capital requirements |
|---|---|---|
| RWA as at end of previous reporting period | 2 068 296 | 160 056 |
| Asset size | 4 712 | -1 232 |
| Asset quality | -13 990 | -1 119 |
| Model updates | ||
| Methodology and policy | ||
| Acquisitions and disposals | ||
| Foreign exchange movements | -984 | -79 |
| Other | 2 608 | 219 |
| RWA as at end of reporting period | 2 060 642 | 157 845 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
RWA reported under IRB decreased by EUR 8m in Q4. The main driver of RWA change in the quarter was positive PD migrations for corporate exposures and reduced LGD in retail mortgages from improved collateral.
Leverage ratio disclosure
Swedbank takes the risk of excessive leverage into account in the forward-looking capital planning process which is performed at least on a quarterly basis. Other business steering or asset-and-liability management tools are also considered as means to affect the total exposure measure and may be accessed should such a need arise.
The leverage ratio has decreased slightly from 12.2% to 11.9% during Q4 2019 driven by an increase in total leverage ratio exposures.
Latvia 24: Summary reconciliation of accounting assets and leverage ratio exposures (LRSum), 31 December 2019
| Summary reconciliation of accounting assets and leverage ratio exposures, | |
|---|---|
| EURt | Applicable Amounts |
| Total assets as per published financial statements | 5 823 379 |
| Adjustment for entities which are consolidated for accounting purposes but are outside the scope of regulatory consolidation | |
| (Adjustment for fiduciary assets recognised on the balance sheet pursuant to the applicable accounting framework but excluded | |
| from the leverage ratio exposure measure in accordance with Article 429(13) of Regulation (EU) No 575/2013 "CRR") | |
| Adjustments for derivative financial instruments | 10 987 |
| Adjustments for securities financing transactions "SFTs" | |
| Adjustment for off-balance sheet items (i.e. conversion to credit equivalent amounts of off-balance sheet exposures) | 260 436 |
| (Adjustment for intragroup exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (7) of | |
| Regulation (EU) No 575/2013) | |
| (Adjustment for exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (14) of Regulation | |
| (EU) No 575/2013) | |
| Other adjustments | -30 911 |
| Total leverage ratio exposure | 6 063 891 |
The corresponding information for Swedbank CS can be found in the Capital position chapter of this Pillar 3 report.
Latvia 25: Leverage ratio common disclosure (LRCom), 31 December 2019
| Leverage ratio common disclosure | CRR leverage ratio exposures |
|---|---|
| On-balance sheet items (excluding derivatives, SFTs and fiduciary assets, but including collateral) | 5 816 942 |
| (Asset amounts deducted in determining Tier 1 capital) | -30 911 |
| Total on-balance sheet exposures (excluding derivatives, SFTs and fiduciary assets) (sum of lines 1 and 2) | 5 786 031 |
| Derivative exposures | |
| Replacement cost associated with all derivatives transactions (i.e. net of eligible cash variation margin) | 6 438 |
| Add-on amounts for PFE associated with all derivatives transactions (mark-to-market method) | 10 987 |
| Exposure determined under Original Exposure Method | |
| Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the applicable accounting framework |
|
| (Deductions of receivables assets for cash variation margin provided in derivatives transactions) | |
| (Exempted CCP leg of client-cleared trade exposures) | |
| Adjusted effective notional amount of written credit derivatives | |
| (Adjusted effective notional offsets and add-on deductions for written credit derivatives) | |
| Total derivative exposures (sum of lines 4 to 10) | 17 425 |
| Securities financing transaction exposures | |
| Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions | |
| (Netted amounts of cash payables and cash receivables of gross SFT assets) | |
| Counterparty credit risk exposure for SFT assets | |
| Derogation for SFTs: Counterparty credit risk exposure in accordance with Article 429b (4) and 222 of Regulation (EU) No 575/2013 | |
| Agent transaction exposures | |
| (Exempted CCP leg of client-cleared SFT exposure) | |
| Total securities financing transaction exposures (sum of lines 12 to 15a) | |
| Other off-balance sheet exposures | |
| Off-balance sheet exposures at gross notional amount | 692 777 |
| (Adjustments for conversion to credit equivalent amounts) | -432 342 |
| Other off-balance sheet exposures (sum of lines 17 to 18) | 260 435 |
| Exempted exposures in accordance with CRR Article 429 (7) and (14) (on and off balance sheet) | |
| (Exemption of intragroup exposures (solo basis) in accordance with Article 429(7) of Regulation (EU) No 575/2013 (on and off balance sheet)) |
|
| (Exposures exempted in accordance with Article 429 (14) of Regulation (EU) No 575/2013 (on and off balance sheet)) | |
| Capital and total exposures | |
| Tier 1 capital | 723 654 |
| Total leverage ratio exposures (sum of lines 3, 11, 16, 19, EU-19a and EU-19b) | 6 063 891 |
| Leverage ratio | |
| Leverage ratio | 11,93% |
| Choice on transitional arrangements and amount of derecognised fiduciary items | |
| Choice on transitional arrangements for the definition of the capital measure | |
| Amount of derecognised fiduciary items in accordance with Article 429(11) of Regulation (EU) NO 575/2013 |
The corresponding information for Swedbank CS can be found in the Capital position chapter of this Pillar 3 report.
Appendix: Swedbank Lithuania Consolidated Situation (CS)
Introduction
Swedbank's Risk Management and Capital Adequacy Report 2019 (Pillar 3 report) provides information on Swedbank's capital adequacy and risk management. The report is based on regulatory disclosure requirements set out in Regulation (EU) No 575/2013. In accordance with Article 13 in the same regulation, certain information shall be provided for large subsidiaries. Information regarding Swedbank Lithuania Consolidated Situation (CS) is provided in this Appendix and pertains to conditions as of 31 December 2019. Information on the organisational and legal structure of Swedbank Lithuania Consolidated Situation is provided in Appendix A of this Pillar 3 report. Information regarding Swedbank's corporate governance structure and measures undertaken to manage operations in Swedbank Consolidated Situation is presented in Swedbank's Corporate Governance Report. Information regarding risk implications of the remuneration process (and aggregate as well as granular quantitative information on remuneration) for Swedbank Lithuania Consolidated Situation is disclosed in the document "Information regarding remuneration in Swedbank". Swedbank's Group-wide framework includes instructions for management of credit risk, including instructions for granting and prolonging credits, for collateral valuation, for determining impairment and for credit risk adjustments. Information regarding management of credit risk is provided in Chapter 3 of this Pillar 3 report. The Group-wide framework also includes instructions describing the approach used to assess the adequacy of internal capital to support current and future activities. This information is provided in Chapter 7 of the same report. All documents mentioned are available on www.swedbank.com. All figures are denominated in EUR thousands unless otherwise stated.
Capital requirements
Under the CRR/CRD IV framework, a bank's total capital must be equivalent to at least the sum of the capital requirements for credit- market- and operational risks, including combined capital buffers, Pillar 2 requirement (P2R) and Pillar 2 guidance (P2G). The capital requirement for Swedbank Lithuania CS in Pillar 1, as a percentage of RWA, amounted to 10% of the CET1 capital, and 13.5% of the total capital as of year-end. Combined capital buffer requirements comprise 5.5% and consist of buffer requirement of 2% for other systemically important institutions (O-SII), capital conservation buffer of 2.5% and counter-cyclical buffer of 1%. In 2018, the Board of the Bank of Lithuania decided to increase counter-cyclical buffer from 0.5% to 1%, however applicable to a full extent only from 30 June 2019. The capitalisation of Swedbank Lithuania CS must also comply with the capital requirements in Pillar 2. According to the 2019 Supervisory Review and Evaluation Process (SREP), the Pillar 2 requirement (P2R) increased to 1.8% (2018: 1.5%) and Pillar 2 guidance (P2G) remained unchanged at 1%. Banks are expected to treat a failure to meet the P2G as an early warning signal. The P2G does not stipulate any limitation on the Maximum Distributable Amount. Considering the above, the forwardlooking CET 1 capital ratio requirement of Swedbank Lithuania CS amounted to 12.8% (incl. CCyB of 1.0%) and the total capital ratio requirement was 16.3% (incl. CCyB 1.0%) as of year-end 2019.
| Pillar 1 | CET1 | AT1 | T2 | Total capital | |
|---|---|---|---|---|---|
| Minimum CET1 requirement | 4.5% | 1.5% | 2.0% | 8.0% | |
| Systemic risk buffer (P1) | 0.0% | 0.0% | |||
| Capital conservation buffer (CCoB) | 2.5% | 2.5% | |||
| Countercyclical capital buffer (CCyB) | 1.0% | 1.0% | |||
| O-SII buffer 2 | 2.0% | 2.0% | |||
| 10.0% | 1.5% | 2.0% | 13.5% | ||
| Pillar 23 | |||||
| Pillar 2 requirement (P2R) | 1.8% | 1.8% | |||
| Pillar 2 capital guidance (P2G) | 1.0% | 1.0% | |||
| 2.8% | 2.8% | ||||
| Capital requirements | 12.8% | 16.3% | |||
| Actual capital ratios as of 31 December 2019 | 22.5% | 22.5% |
1) Swedbank's estimate based on the Lithuanian FSA's announced capital requirements. All table values above rounded to one decimal place.
On 31 December 2019, Swedbank Lithuania CS's Common Equity Tier 1 and Total Capital ratio both amounted to 22.47% (end-2018: 20.9%). The capitalisation of Swedbank Lithuania CS is well above the capital requirements presented in the table above. Swedbank Lithuania CS's leverage ratio was 6.49% at end 2019 (end-2018: 6.54%). In the 2019 Supervisory Review and Evaluation Process (SREP), the capitalisation of Swedbank Lithuania CS was assessed as adequate for both the current and forward-looking perspective of regulatory capital requirements.
According to Swedbank's procedures, the capital planning process is performed on a quarterly basis for the Baltic subsidiaries, which includes the assessment of the overall capitalisation versus the above-mentioned capital requirements and risk of excessive leverage. In case of a potential capital shortfall, capital injections or measures to reduce the risk exposure amount may be performed. In addition to the injection of equity capital, the total capital in a
subsidiary may also be strengthened through subordinated loans from the parent company (Swedbank AB). In case of changes in the leverage ratio, which might implicate managing the risk of excessive leverage, other business steering or asset-and-liability management tools may also be considered, and accessed if needed, to affect the total exposure measure.
The Bank Recovery and Resolution Directive (BRRD), which allows the authorities to deal with banks in distress, was established in the EU in 2014 and transposed to Lithuanian national laws on 3 December 2015. The directive includes a requirement on banks to hold a minimum level of own funds and eligible liabilities (MREL). In December 2017, MREL requirement was formally decided on a consolidated level (Swedbank CS) by the SNDO (The Swedish National Debt Office). An individual MREL requirement for Swedbank Lithuania CS was introduced by the Single Resolution Board (SRB) in 2019 and will come into force on 30 September 2020.
Lithuania 2: Total capital
Disclosure according to Article 2 in Commission Implementing Regulation (EU) No 1423/2013
| EURt | 31.12.2019 | 30.09.2019 |
|---|---|---|
| Shareholders' equity according to the Group balance sheet | 743 897 | 720 831 |
| Non-controlling interests | ||
| Anticipated dividends | ||
| Deconsolidation of insurance companies | ||
| Unrealised value changes in financial liabilities due to changes in own creditworthiness | ||
| Cash flow hedges | ||
| Additional value adjustments | -701 | -832 |
| Goodwill | ||
| Deferred tax assets | -10 166 | -9 631 |
| Intangible assets | -112 | -111 |
| Net provisions for reported IRB credit exposures | -19 037 | -17 539 |
| Shares deducted from CET1 capital | ||
| Defined benefit pension fund assets | ||
| Total CET1 capital | 713 881 | 692 718 |
| Additional Tier 1 capital | ||
| Total Tier 1 capital | 713 881 | 692 718 |
| Tier 2 capital | ||
| Total capital | 713 881 | 692 718 |
The corresponding information for Swedbank CS is enclosed in Swedbank's Fact Book.
2) The increased countercyclical buffer (CCyB) of 1% is applicable from 30 June 2019.
3) P2R and P2G determined by 2019 SREP
Lithuania 3: Own funds disclosure, 31 December 2019 Disclosure according to Article 4 in Commission Implementing Regulation (EU) No 1423/2013
| EURt | Common Equity Tier 1 capital: instruments and reserves, | (a) Amounts at disclosure date |
(b) (EU) No 575/2013 article reference |
|---|---|---|---|
| 1 | Capital instruments and the related share premium accounts | 502 258 | 26 (1), 27, 28, 29 |
| of which: Instrument type 1 | 475 623 | EBA list 26 (3) | |
| of which: Instrument type 2 | EBA list 26 (3) | ||
| of which: Instrument type 3 | 26 635 | EBA list 26 (3) | |
| 2 | Retained earnings | 114 233 | 26 (1) (c) |
| 3 3a |
Accumulated other comprehensive income (and any other reserves) Funds for general banking risk |
127 406 | 26 (1) 26 (1) (f) |
| Amount of qualifying items referred to in Article 484 (3) and the related share premium accounts subject to phase | |||
| 4 | out from CET1 | 486 (2) | |
| 5 | Minority interests (amount allowed in consolidated CET1) | 84 | |
| 5a | Independently reviewed interim profits net of any foreseeable charge or dividend | 26 (2) | |
| 6 | Common Equity Tier 1 (CET1) capital before regulatory adjustments | 743 897 | |
| Common Equity Tier 1 (CET1) capital: regulatory adjustments | |||
| 7 | Additional value adjustments (negative amount) | -701 | 34, 105 |
| 8 | Intangible assets (net of related tax liability) (negative amount) | -112 | 36 (1) (b), 37 |
| 9 | Empty set in the EU | ||
| 10 | Deferred tax assets that rely on future profitability excluding those arising from temporary difference (net of related tax liability where the conditions in Article 38 (3) are met) (negative amount) |
-10 166 | 36 (1) (c), 38 |
| 11 | Fair value reserves related to gains or losses on cash flow hedges | 33 (1) (a) | |
| 12 | Negative amounts resulting from the calculation of expected loss amounts | -19 037 | 36 (1) (d), 40, 159 |
| 13 | Any increase in equity that results from securitised assets (negative amount) | 32 (1) | |
| 14 | Gains or losses on liabilities valued at fair value resulting from changes in own credit standing | 33 (1) (b) | |
| 15 | Defined-benefit pension fund assets (negative amount) | 36 (1) (e), 41 | |
| 16 | Direct and indirect holdings by an institution of own CET1 instruments (negative amount) | 36 (1) (f), 42 | |
| Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where those entities | |||
| 17 | have reciprocal cross-holdings with the institution designed to inflate artificially the own funds of the institution | 36 (1) (g), 44 | |
| (negative amount) | |||
| Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where the institution | 36 (1) (h), 43, 45, 46, 49 | ||
| 18 | does not have a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount) |
(2) (3), 79 | |
| Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where the institution has | |||
| 19 | a significant investment in those entities (amount above 10% threshold and net of eligible short positions) | 36 (1) (i), 43, 45, 47, 48 | |
| (negative amount) | (1) (b), 49 (1) to (3), 79 | ||
| 20 | Empty set in the EU | ||
| 20a | Exposure amount of the following items which qualify for a RW of 1250%, where the institution opts for the | 36 (1) (k) | |
| deduction alternative | |||
| 20b | of which: qualifying holdings outside the financial sector (negative amount) | 36 (1) (k) (i), 89 to 91 | |
| 20c | of which: securitisation positions (negative amount) | 36 (1) (k) (ii), 243 (1) (b), 244 (1) (b), 258 |
|
| 20d | of which: free deliveries (negative amount) | 36 (1) (k) (iii), 379 (3) | |
| Deferred tax assets arising from temporary difference (amount above 10% threshold, net of related tax liability | |||
| 21 | where the conditions in Article 38 (3) are met) (negative amount) | 36 (1) (c), 38, 48 (1) (a) | |
| 22 | Amount exceeding the 15% threshold (negative amount) | 48 (1) | |
| 23 | of which: direct and indirect holdings by the institution of the CET1 instruments of financial sector entities where | 36 (1) (i), 48 (1) (b) | |
| the institution has a significant investment in those entities | |||
| 24 | Empty set in the EU | ||
| 25 | of which: deferred tax assets arising from temporary difference | 36 (1) (c), 38, 48 (1) (a) | |
| 25a | Losses for the current financial year (negative amount) | 36 (1) (a) | |
| 25b 27 |
Foreseeable tax charges relating to CET1 items (negative amount) Qualifying AT1 deductions that exceed the AT1 capital of the institution (negative amount) |
36 (1) (l) 36 (1) (j) |
|
| 28 | Total regulatory adjustments to Common Equity Tier 1 (CET1) | -30 016 | |
| 29 | Common Equity Tier 1 (CET1) capital | 713 881 | |
| Additional Tier 1 (AT1) capital: instruments | |||
| 30 | Capital instruments and the related share premium accounts | 51, 52 | |
| 31 | of which: classified as equity under applicable accounting standards | ||
| 32 | of which: classified as liabilities under applicable accounting standards | ||
| 33 | Amount of qualifying items referred to in Article 484 (4) and the related share premium accounts subject to phase | 486 (3) | |
| out from AT1 | |||
| 34 | Qualifying Tier 1 capital included in consolidated AT1 capital (including minority interest not included in row 5) | 85, 86 | |
| issued by subsidiaries and held by third parties | |||
| 35 | of which: instruments issued by subsidiaries subject to phase-out | 486 (3) | |
| 36 | Additional Tier 1 (AT1) capital before regulatory adjustments Additional Tier 1 (AT1) capital: regulatory adjustments |
||
| 37 | Direct and indirect holdings by an institution of own AT1 instruments (negative amount) | 52 (1) (b), 56 (a), 57 | |
| Direct, indirect and synthetic holdings of the AT1 instruments of financial sector entities where those entities have | |||
| 38 | reciprocal cross holdings with the institution designed to artificially inflate the own funds of the institution | 56 (b), 58 | |
| (negative amount) | |||
| Direct, indirect and synthetic holdings of the AT1 instruments of financial sector entities where the institution does | |||
| 39 | not have a significant investment in those entities (amount above 10% threshold and net of eligible short | 56 (c), 59, 60, 79 | |
| positions) (negative amount) | |||
| 40 | Direct, indirect and synthetic holdings of the AT1 instruments of financial sector entities where the institution has a significant investment in those entities (amount above 10% threshold and net of eligible short positions) |
56 (d), 59, 79 | |
| (negative amount) | |||
| Regulatory adjustments applied to Additional Tier 1 capital in respect of amounts subject to pre-CRR treatment and | |||
| 41 | transitional treatments subject to phase-out as prescribed in Regulation (EU) No 585/2013 (i.e. CRR residual | ||
| amounts) | |||
| 42 | Qualifying T2 deductions that exceed the T2 capital of the institution (negative amount) | 56 (e) | |
| 43 | Total regulatory adjustments to Additional Tier 1 (AT1) capital | ||
| 44 45 |
Additional Tier 1 (AT1) capital Tier 1 capital (T1 = CET1 + AT1) |
713 881 | |
| Tier 2 (T2) capital: instruments and provisions | |||
|---|---|---|---|
| 46 | Capital instruments and the related share premium accounts | 62, 63 | |
| 47 | Amount of qualifying items referred to in Article 484 (5) and the related share premium accounts subject to phase | 486 (4) | |
| out from T2 | |||
| 48 | Qualifying own funds instruments included in consolidated T2 capital (including minority interest and AT1 | 87, 88 | |
| instruments not included in rows 5 or 34) issued by subsidiaries and held by third party | |||
| 49 | of which: instruments issued by subsidiaries subject to phase-out | 486 (4) | |
| 50 | Credit risk adjustments | 62 (c) & (d) | |
| 51 | Tier 2 (T2) capital before regulatory adjustment | ||
| Tier 2 (T2) capital: regulatory adjustments | |||
| 52 | Direct and indirect holdings by an institution of own T2 instruments and subordinated loans (negative amount) | 63 (b) (i), 66 (a), 67 | |
| Holdings of the T2 instruments and subordinated loans of financial sector entities where those entities have | |||
| 53 | reciprocal cross-holdings with the institutions designed to artificially inflate the own funds of the institution | 66 (b), 68 | |
| (negative amount) | |||
| Direct, indirect and synthetic holdings of the T2 instruments and subordinated loans of financial sector entities | |||
| 54 | where the institution does not have a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount) |
66 (c), 69, 70, 79 | |
| Direct, indirect and synthetic holdings of the T2 instruments and subordinated loans of financial sector entities | |||
| 55 | where the institution has a significant investment in those entities (net of eligible short positions) (negative | 66 (d), 69, 79, 477(4) | |
| amounts) | |||
| 56 | Empty set in the EU | ||
| 57 | Total regulatory adjustments to Tier 2 (T2) capital | ||
| 58 | Tier 2 (T2) capital | ||
| 59 | Total capital (TC = T1 + T2) | 713 881 | |
| 60 | Total risk-weighted assets | 3 177 226 | |
| Capital ratios and buffers | |||
| 61 | Common Equity Tier 1 (as a percentage of total risk exposure amount) | 22.47% | 92 (2) (a) |
| 62 | Tier 1 (as a percentage of total risk exposure amount) | 22.47% | 92 (2) (b) |
| 63 | Total capital (as a percentage of total risk exposure amount) | 22.47% | 92 (2) (c) |
| Institution-specific buffer requirement (CET1 requirement in accordance with article 92 (1) (a) plus capital | 9.99% | CRD 128, 129, 130, | |
| 64 | conservation and countercyclical buffer requirements plus a systemic risk buffer, plus systemically important | 131, 133 | |
| institution buffer expressed as a percentage of total risk exposure amount) 1) | |||
| 65 | of which: capital conservation buffer requirement | 2.50% | |
| 66 | of which: countercyclical buffer requirement | 0.99% | |
| 67 | of which: systemic risk buffer requirement | 0.00% | |
| 67a | of which: Global Systemically Important Institution (G-SII) or Other Systemically Important Institution (O-SII) buffer | 2.00% | |
| 68 | Common Equity Tier 1 available to meet buffers (as a percentage of risk exposure amount) 2) | 12.48% | CRD 128 |
| 69 | [non-relevant in EU regulation] | ||
| 70 | [non-relevant in EU regulation] | ||
| 71 | [non-relevant in EU regulation] | ||
| Amounts below the thresholds for deduction (before risk-weighting) | |||
| 72 | Direct and indirect holdings of the capital of financial sector entities where the institution does not have a | 36 (1) (h), 45, 46, 56 (c), | |
| significant investment in those entities (amount below 10% threshold and net of eligible short positions) | 59, 60, 66 (c), 69, 70 | ||
| 73 | Direct and indirect holdings of the CET1 instruments of financial sector entities where the institution has a | 36 (1) (i), 45, 48 | |
| significant investment in those entities (amount below 10% threshold and net of eligible short positions) | |||
| 74 | Empty set in the EU | ||
| 75 | Deferred tax assets arising from temporary difference (amount below 10 % threshold, net of related tax liability | 36 (1) (c), 38, 48 | |
| where the conditions in Article 38 (3) are met) | |||
| Applicable caps on the inclusion of provisions in Tier 2 | |||
| 76 | Credit risk adjustments included in T2 in respect of exposures subject to standardised approach (prior to the | 62 | |
| application of the cap) | |||
| 77 | Cap on inclusion of credit risk adjustments in T2 under standardised approach | 62 | |
| 78 | Credit risk adjustments included in T2 in respect of exposures subject to internal ratings-based approach (prior to | 62 | |
| the application of the cap) | |||
| 79 | Cap for inclusion of credit risk adjustments in T2 under internal ratings-based approach | 62 | |
| Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2014 and 1 Jan 2022) | |||
| 80 | - Current cap on CET1 instruments subject to phase-out arrangements | 484 (3), 486 (2) & (5) | |
| 81 | - Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities) | 484 (3), 486 (2) & (5) | |
| 82 | - Current cap on AT1 instruments subject to phase-out arrangements | 484 (4), 486 (3) & (5) | |
| 83 | - Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities) | 484 (4), 486 (3) & (5) | |
| 84 | - Current cap on T2 instruments subject to phase-out arrangements | 484 (5), 486 (4) & (5) | |
| 85 | - Amount excluded from T2 due to cap (excess over cap after redemptions and maturities) | 484 (5), 486 (4) & (5) |
1) The CET1 capital requirement including buffer requirements.
2) The CET1 capital ratio as reported is less than the minimum requirement of 4.5% (excluding buffer requirements) and less than any CET1 items used to meet the Tier 1 and total capital requirements.
Lithuania 4a: Amount of institution-specific countercyclical capital buffer
| EURt | 31.12.2019 |
|---|---|
| Total risk exposure amount | 3 177 226 |
| Institution-specific countercyclical buffer rate | 0.99% |
| Institution-specific countercyclical buffer requirement | 31 446 |
The corresponding information for Swedbank CS can be found in the Capital position chapter of this Pillar 3 report.
Lithuania 4b: Geographical distribution of credit exposures relevant for the calculation of the countercyclical capital buffer, 31 December 2019
| General credit exposures | Trading book exposure | Securitisation exposures |
Own funds requirements | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| EURt | Exposure value for SA |
Exposure value for IRB |
Sum of long and short position of trading book |
Value of trading book exposure for internal models |
Exposure value for SA |
Exposure value for IRB |
of which General credit exposures |
of which Trading book exposures |
of which Securitisation exposures |
Total | Own funds requirement weights |
Countercyclical capital buffer rate |
| Sweden | 389 | 39 638 | 2 176 | 2 176 | 1.13% | 2.50% | ||||||
| Estonia | 1 767 | 882 | 402 | 140 | 48 | 188 | 0.10% | 0.00% | ||||
| Latvia | 1 064 | 29 017 | 1 871 | 1 871 | 0.97% | 0.00% | ||||||
| Lithuania | 614 988 | 5 728 601 | 8 157 | 183 191 | 131 | 183 322 | 95.51% | 1.00% | ||||
| Norway | 253 | 1 187 | 40 | 40 | 0.02% | 2.50% | ||||||
| Finland | 0 | 220 | 7 | 7 | 0.00% | 0.00% | ||||||
| Denmark | 163 | 8 826 | 477 | 477 | 0.25% | 1.00% | ||||||
| USA | 120 | 1 715 | 37 | 37 | 0.02% | 0.00% | ||||||
| Great Britain |
1 286 | 5 492 | 211 | 211 | 0.11% | 1.00% | ||||||
| Other countries |
1 182 | 67 870 | 3 608 | 3 607 | 1.89% | 0.00% | ||||||
| Total | 621 212 | 5 883 448 | 8 559 | 0 | 0 | 0 | 191 758 | 179 | 0 | 191 936 | 100.00% | 0.99% |
The corresponding information for Swedbank CS can be found in the Capital position chapter of this Pillar 3 report.
Lithuania 5: Capital instruments' main features, 31 December 2019
Disclosure according to Article 3 in Commission Implementing Regulation (EU) No 1423/2013
| Capital instruments' main features template | ||
|---|---|---|
| 1 | Issuer | Swedbank AB, Lithuania |
| 2 | Unique identifier (e.g. CUSIP, ISIN or Bloomberg identifier for private placement) | LT0000100620 |
| 3 | Governing law(s) of the instrument | Lithuanian |
| Regulatory treatment | ||
| 4 | Transitional CRR rules | Common Equity Tier 1 |
| 5 | Post-transitional CRR rules | Common Equity Tier 1 |
| 6 | Eligible at solo/(sub-)consolidated/solo & (sub-)consolidated | Solo & consolidated |
| 7 | Instrument type (types to be specified by each jurisdiction) | Share capital as published in Regulation (EU) No 575/2013 article 28 |
| 8 | Amount recognised in regulatory capital (currency in million, as of most recent reporting date) | EUR 475.6m |
| 9 | Nominal amount of instrument | EUR 475.6m |
| 9a | Issue price | Nominal price of share 2.9 EUR |
| 9b | Redemption price | N/A |
| 10 | Accounting classification | Shareholders' equity |
| 11 | Original date of issuance | N/A |
| 12 | Perpetual or dated | Perpetual |
| 13 | Original maturity date | No maturity |
| 14 | Issuer call subject to prior supervisory approval | No |
| 15 | Optional call date, contingent call dates, and redemption amount | N/A |
| 16 | Subsequent call dates, if applicable | N/A |
| Coupons / dividends | ||
| 17 | Fixed or floating dividend/coupon | N/A |
| 18 | Coupon rate and any related index | N/A |
| 19 | Existence of a dividend stopper | N/A |
| 20 | Fully discretionary, partially discretionary or mandatory (in terms of timing) | Fully discretionary |
| a | ||
| 20 b |
Fully discretionary, partially discretionary or mandatory (in terms of amount) | Fully discretionary |
| 21 | Existence of step up or other incentive to redeem | N/A |
| 22 | Noncumulative or cumulative | N/A |
| 23 | Convertible or non-convertible | N/A |
| 24 | If convertible, conversion trigger (s) | N/A |
| 25 | If convertible, fully or partially | N/A |
| 26 | If convertible, conversion rate | N/A |
| 27 | If convertible, mandatory or optional conversion | N/A |
| 28 | If convertible, specify instrument type convertible into | N/A |
| 29 | If convertible, specify issuer of instrument it converts into | N/A |
| 30 | Write-down features | N/A |
| 31 | If write-down, write-down trigger (s) | N/A |
| 32 | If write-down, full or partial | N/A |
| 33 | If write-down, permanent or temporary | N/A |
| 34 | If temporary write-down, description of write-up mechanism | N/A |
| 35 | Position in subordination hierarchy in liquidation (specify instrument type immediately senior to | Additional Tier 1 |
| instrument) | ||
| 36 | Non-compliant transitioned features | No |
| 37 | If yes, specify non-compliant features | N/A |
Lithuania 6: Overview of RWAs (EU OV1), 31 December 2019
| RWA | Minimum capital requirements | ||||
|---|---|---|---|---|---|
| EURt | 31.12.2019 | 30.09.2019 | 31.12.2019 | ||
| Credit risk (excluding Counterparty credit risk (CCR)) | 2 488 092 | 2 431 438 | 199 047 | ||
| - of which the standardised approach (SA) | 379 267 | 387 864 | 30 341 | ||
| - of which the foundation IRB (FIRB) approach | 1 272 657 | 1 236 044 | 101 813 | ||
| - of which the advanced IRB (AIRB) approach | 836 168 | 807 530 | 66 893 | ||
| - of which equity IRB under the simple risk- weighted approach or the IMA | |||||
| Counterparty credit risk | 27 209 | 25 052 | 2 177 | ||
| - of which mark to market | 22 346 | 21 252 | 1 788 | ||
| - of which original exposure | |||||
| - of which the standardised approach | |||||
| - of which internal model method (IMM) | |||||
| - of which risk exposure amount for contributions to the default fund of a CCP | 4 863 | 3 800 | 389 | ||
| - of which CVA | |||||
| Settlement risk | |||||
| Securitisation exposures in the banking book (after the cap) | |||||
| - of which IRB approach | |||||
| - of which IRB supervisory formula approach (SFA) | |||||
| - of which internal assessment approach (IAA) | |||||
| - of which standardised approach | |||||
| Market risk | 12 941 | 13 788 | 1 035 | ||
| - of which the standardised approach | 12 941 | 13 788 | 1 035 | ||
| - of which IMA | |||||
| Large exposures | |||||
| Operational risk | 386 984 | 354 682 | 30 959 | ||
| - of which basic indicator approach | |||||
| - of which standardised approach | 386 984 | 354 682 | 30 959 | ||
| - of which advanced measurement approach | |||||
| Amounts below the thresholds for deduction (subject to 250% risk weight) | |||||
| Floor adjustment | |||||
| Other risk exposure amount | 262 000 | 342 000 | 20 960 | ||
| Total | 3 177 226 | 3 166 960 | 254 178 |
The corresponding information for Swedbank CS can be found in the Capital position chapter of this Pillar 3 report.
During the last quarter of 2019 the RWA of Swedbank Lithuania increased by EUR 10m. The increase in total RWA was mainly driven by an increase in credit risk RWA and operational risk RWA together with a decrease in other risk weighted amount. The increase in credit risk RWA of EUR 57m was mainly due to volume growth in both retail and corporate portfolios. The increase in operational risk RWA by EUR 32m is due to increased revenues, which drives the calculation of RWA under the applicable regulatory framework. The decrease of other risk weighted assets by EUR 80m is driven by the calculation of amounts held under Article 3 in relation to corporate PD models. The Article 3 amount is recalculated on a quarterly basis and this prompted a decrease for Swedbank Lithuania during the fourth quarter.
Lithuania 7: IRB specialised lending and equities (EU CR10), 31 December 2019
| Specialised lending | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Regulatory categories, | On- balance | Off-balance | Exposure | Expected | ||||||||
| EURt | Remaining maturity | sheet amount | sheet amount | Risk weight | amount | RWAs | losses | |||||
| Category 1 | Less than 2.5 years | 27 | 5 561 | 50% | 2 808 | 1 403 | 0 | |||||
| Equal to or more than 2.5 years | 1 872 | 1 | 70% | 1 873 | 1 311 | 7 | ||||||
| Category 2 | Less than 2.5 years | 35 | 1 795 | 70% | 932 | 653 | 4 | |||||
| Equal to or more than 2.5 years | 4 334 | 0 | 90% | 4 335 | 3 901 | 35 | ||||||
| Category 3 | Less than 2.5 years | 0 | 0 | 115% | 0 | 0 | 0 | |||||
| Equal to or more than 2.5 years | 0 | 0 | 115% | 0 | 0 | 0 | ||||||
| Category 4 | Less than 2.5 years | 0 | 0 | 250% | 0 | 0 | 0 | |||||
| Equal to or more than 2.5 years | 0 | 0 | 250% | 0 | 0 | 0 | ||||||
| Category 5 | Less than 2.5 years | 0 | 0 | - | 0 | 0 | 0 | |||||
| Equal to or more than 2.5 years | 0 | 0 | - | 0 | 0 | 0 | ||||||
| Total | Less than 2.5 years | 62 | 7 356 | 3 740 | 2 056 | 4 | ||||||
| Equal to or more than 2.5 years | 6 206 | 1 | 6 208 | 5 212 | 42 | |||||||
| Equities under the simple risk-weighted approach | ||||||||||||
| Private equity exposures | 190% | |||||||||||
| Exchange-traded equity exposures | 290% | |||||||||||
| Other equity exposures | 370% | |||||||||||
| Total | - |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
Total exposures in specialised lending increased by EUR 3m compared to end-June 2019 due to normal business activities.
Lithuania 8: Total and average net amount of exposures (EU CRB-B), 31 December 2019
| Net exposure at the | Average net exposure over |
|
|---|---|---|
| EURt | end of the period | the period |
| Central governments or central banks | ||
| Institutions | 19 755 | 17 105 |
| Corporates | 2 510 161 | 2 548 700 |
| - of which Specialised Lending | 13 625 | 13 436 |
| - of which SME | 156 217 | 153 235 |
| Retail | 4 149 780 | 3 936 432 |
| - Secured by real estate property | 3 184 969 | 2 995 817 |
| ---SME | 10 053 | 9 856 |
| ---Non-SME | 3 174 916 | 2 985 961 |
| - Qualifying Revolving | ||
| - Other Retail | 964 811 | 940 615 |
| --- SME | 342 254 | 339 254 |
| --- Non-SME | 622 557 | 601 361 |
| Equity | ||
| Other exposures | ||
| Total IRB approach | 6 679 696 | 6 502 237 |
| Central governments or central banks | 4 113 994 | 3 470 351 |
| Regional governments or local | 3 505 | 3 876 |
| authorities | ||
| Public sector entities | 5 130 | 4 951 |
| Multilateral Development Banks | ||
| International Organisations | 2 336 | |
| Institutions | 92 003 | 82 332 |
| Corporates | 86 854 | 77 940 |
| - of which SME | 8 997 | 7 913 |
| Retail | 31 396 | 30 997 |
| - of which SME | 24 377 | 22 603 |
| Secured by mortgages on immovable | 235 733 | 242 672 |
| property | ||
| - of which SME | 276 | 224 |
| Exposures in default | 5 424 | 6 020 |
| Items associated with particularly high risk | ||
| Covered bonds | ||
| Claims on institutions and corporates with a short-term credit assessment | ||
| Collective investments undertakings | ||
| (CIU) | ||
| Equity exposures | 300 | 326 |
| Other exposures | 260 626 | 256 322 |
| Total SA approach | 4 834 965 | 4 178 123 |
| Total | 11 514 661 | 10 680 360 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The total exposures increased by EUR 1.1bn in 2019, of which EUR 0.5bn is explained by increased placements in central banks. In the IRB approach the exposure increase is from Private mortgage loans.
Lithuania 9: Geographical breakdown of exposures (EU CRB-C), 31 December 2019
| Net carrying values | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| EURt | Significant area: Nordic |
Sweden | Norway | Denmark | Finland | Significant area: Baltic |
Estonia | Latvia | Lithuania | Rest of the world |
USA | Other geographical areas |
Total | |
| Central governments or central banks | 0 | 0 | 0 | 0 | ||||||||||
| Institutions | 3 185 | 14 | 3 171 | 0 | 16 570 | 4 020 | 12 550 | 19 755 | ||||||
| Corporates | 69 780 | 61 290 | 8 490 | 2 375 916 | 873 | 28 343 | 2 346 700 | 64 465 | 64 465 | 2 510 161 | ||||
| Retail | 2 262 | 468 | 1 207 | 366 | 221 | 4 133 891 | 26 | 733 | 4 133 132 | 13 627 | 1 737 | 11 890 | 4 149 780 | |
| Equity | 0 | 0 | 0 | 0 | ||||||||||
| Other exposures | 0 | 0 | 0 | 0 | ||||||||||
| Total IRB approach | 75 227 | 61 758 | 1 221 | 12 027 | 221 | 6 509 807 | 899 | 29 076 | 6 479 832 | 94 662 | 5 757 | 88 905 | 6 679 696 | |
| Central governments or central banks | 0 | 4 113 994 | 4 113 994 | 0 | 4 113 994 | |||||||||
| Regional governments or local authorities | 0 | 3 505 | 3 505 | 0 | 3 505 | |||||||||
| Public sector entities | 0 | 5 130 | 5 130 | 0 | 5 130 | |||||||||
| Multilateral Development Banks | 0 | 0 | 0 | 0 | ||||||||||
| International Organisations | 0 | 0 | 0 | 0 | ||||||||||
| Institutions | 90 397 | 89 520 | 877 | 0 | 1 606 | 1 238 | 368 | 0 | 92 003 | |||||
| Corporates | 0 | 86 854 | 1 322 | 348 | 85 184 | 0 | 86 854 | |||||||
| Retail | 22 | 22 | 31 245 | 445 | 715 | 30 085 | 129 | 18 | 111 | 31 396 | ||||
| Secured by mortgages on immovable property | 781 | 388 | 230 | 163 | 232 532 | 232 532 | 2 420 | 102 | 2 318 | 235 733 | ||||
| Exposures in default | 0 | 5 385 | 5 385 | 39 | 39 | 5 424 | ||||||||
| Items associated with particularly high risk | 0 | 0 | 0 | 0 | ||||||||||
| Covered bonds | 0 | 0 | 0 | 0 | ||||||||||
| Claims on institutions and corporates with a short-term credit assessment | 0 | 0 | 0 | 0 | ||||||||||
| Collective investments undertakings (CIU) | 0 | 0 | 0 | 0 | ||||||||||
| Equity exposures | 0 | 300 | 300 | 0 | 300 | |||||||||
| Other exposures | 0 | 260 626 | 260 626 | 0 | 260 626 | |||||||||
| Total SA approach | 91 200 | 89 908 | 1 129 | 163 | 0 | 4 741 177 | 3 005 | 1 431 | 4 736 741 | 2 588 | 120 | 2 468 | 4 834 965 | |
| Total | 166 427 | 151 666 | 2 350 | 12 190 | 221 11 250 984 | 3 904 | 30 507 11 216 573 | 97 250 | 5 877 | 91 373 11 514 661 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The increased exposures stem from Lithuania, as 97% of the total exposure does.
| EURt | Private mortgage | Tenant owner associations |
Private other | Agriculture, forestry, fishing |
Manufacturing | Public sector and utilities |
Construction | Retail | Transportation | Shipping and offshore | restaurants Hotels and |
Information and communication |
Finance and insurance | management Property |
Residential properties | Commercial | Industrial and Warehouse |
Other property management |
Professional services | Other corporate lending |
Credit institutions | Other exposures | Total |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Central | |||||||||||||||||||||||
| governments or central banks Institutions Corporates Retail Equity Other exposures |
3 179 008 | 9 127 673 768 |
36 436 14 489 |
520 283 43 171 |
385 362 8 703 |
48 808 26 424 |
460 198 96 180 |
163 784 37 681 |
114 229 5 571 |
99 326 8 292 |
26 195 1 354 |
0 0 608 034 20 569 0 0 |
13 625 838 |
507 801 9 514 |
47 037 4 853 |
39 571 5 364 |
35 235 32 350 |
3144 2220 |
19 755 | 0 19 755 2 510 161 4 149 780 0 0 |
|||
| Total IRB | 3 179 008 | 0 682 895 50 925 563 454 394 065 75 232 556 378 201 465 | 0 119 800 107 618 27 549 628 603 14 463 517 315 51 890 44 935 67 585 | 5 364 | 19 755 | 0 | 6 679 696 | ||||||||||||||||
| approach Central |
|||||||||||||||||||||||
| governments or central banks |
147 190 | 0 | 3 966 804 | 4 113 994 | |||||||||||||||||||
| Regional governments or local authorities |
3 505 | 0 | 3 505 | ||||||||||||||||||||
| Public sector entities Multilateral |
4 967 | 16 | 0 | 121 | 26 | 5 130 | |||||||||||||||||
| Development Banks |
0 | 0 | |||||||||||||||||||||
| International Organisations Institutions Corporates Retail |
4 392 | 2 814 | 4 368 1 231 |
34 846 10 045 |
237 573 |
1 225 2 307 |
35 859 7 453 |
775 551 |
7 137 672 |
690 | 0 0 39 49 |
39 49 |
1 663 1 210 |
15 99 |
92 003 | 0 92 003 86 854 31 396 |
|||||||
| Secured by mortgages on immovable |
235 629 | 104 | 0 | 235 733 | |||||||||||||||||||
| property Exposures in default |
5 333 | 80 | 11 | 0 | 5 424 | ||||||||||||||||||
| Items associated with particularly |
0 | 0 | |||||||||||||||||||||
| high risk Covered bonds Claims on |
0 | 0 | |||||||||||||||||||||
| institutions and corporates with a short- term credit |
0 | 0 | |||||||||||||||||||||
| assessment Collective investments undertakings |
0 | 0 | |||||||||||||||||||||
| (CIU) Equity exposures Other exposures |
300 | 0 0 |
260 626 | 300 260 626 |
|||||||||||||||||||
| Total SA approach |
245 354 | 0 | 2 894 | 5 599 | 44 891 156 772 | 3 559 | 43 312 | 1 326 | 0 | 0 | 7 809 | 794 | 88 | 0 | 88 | 0 | 0 | 2 994 | 140 4 058 807 260 626 | 4 834 965 | |||
| Total | 3 424 362 | 0 685 789 56 524 608 345 550 837 78 791 599 690 202 791 | 0 119 800 115 427 28 343 628 691 14 463 517 403 51 890 44 935 70 579 | 5 504 4 078 562 260 626 11 514 661 |
Lithuania 10: Concentration of exposures by industry or counterparty type (EU CRB-D), 31 December 2019
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
Main increase is in Private mortgage loans. In the corporate portfolio there are normal fluctuations in outstanding exposure, with the largest increase in Property Management by EUR 100m.
Lithuania 11: Maturity of exposures (EU CRB-E), 31 December 2019
| Net exposure value | ||||||
|---|---|---|---|---|---|---|
| EURt | On demand | <= 1 year | > 1 year <= 5 years |
> 5 years | No stated maturity |
Total |
| Central governments or central banks | 0 | |||||
| Institutions | 8 837 | 10 723 | 19 560 | |||
| Corporates | 146 498 | 176 708 | 1 475 208 | 72 463 | 25 915 | 1 896 792 |
| Retail | 11 859 | 60 329 | 460 306 | 3 234 923 | 82 | 3 767 499 |
| Equity | 0 | |||||
| Other exposures | 0 | |||||
| Total IRB approach | 167 194 | 247 760 | 1 935 514 | 3 307 386 | 25 997 | 5 683 851 |
| Central governments or | 3 966 804 | 85 674 | 61 515 | 4 113 993 | ||
| central banks | ||||||
| Regional governments or local authorities | 16 | 1 788 | 1 668 | 3 472 | ||
| Public sector entities | 506 | 2 500 | 819 | 3 825 | ||
| Multilateral Development | 0 | |||||
| Banks | ||||||
| International | 0 | |||||
| Organisations | ||||||
| Institutions | 35 127 | 56 345 | 91 472 | |||
| Corporates | 7 814 | 59 755 | 67 | 67 636 | ||
| Retail | 1 168 | 11 707 | 5 762 | 1 | 18 638 | |
| Secured by mortgages on | 48 | 3 159 | 232 526 | 235 733 | ||
| immovable property | ||||||
| Exposures in default | 1 112 | 880 | 3 432 | 5 424 | ||
| Items associated with particularly high risk | 0 | |||||
| Covered bonds | 0 | |||||
| Claims on institutions and corporates with a short- term credit assessment | 0 | |||||
| Collective investments | 0 | |||||
| undertakings (CIU) | ||||||
| Equity exposures | 300 | 300 | ||||
| Other exposures | 172 826 | 13 265 | 72 | 74 463 | 260 626 | |
| Total SA approach | 4 174 757 | 165 948 | 141 376 | 244 274 | 74 764 | 4 801 119 |
| Total | 4 341 951 | 413 708 | 2 076 890 | 3 551 660 | 100 761 | 10 484 970 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The maturity for the majority of the placements in central banks is now classified as on demand. The increased private mortgage loans have maturity more than five years. For the corporate exposures there is a decrease in short maturities, less than one year, of EUR 200m which instead increased in the bucket for 1 to 5 years maturity.
Credit quality of exposures
Past due loans
Past due loans refer to overdrawn accounts and loans where amounts due for payment have not been paid in accordance with the terms of the loan agreements.
Credit impaired loans
Impaired loans are loans for which it is unlikely that the payments will be received in accordance with the contractual terms and where there is a risk that Swedbank will not receive full payment. A loan is considered credit-impaired when there is objective proof that an event has occurred on an individual level following the first reporting date of the loan, and that a risk of loss arises when the loan's anticipated future cash flows differ from the contractual cash flows. A loan in default is also always considered as an impaired loan, and vice versa.
Events on an individual level arise, implying an impairment test, e.g., when:
- A borrower incurs significant financial difficulties.
- It is likely that the borrower will enter into bankruptcy, liquidation or financial restructuring.
- Or there is a breach of contract, such as materially delayed or non–payment of interest or principal.
Exposures that are overdue by more than 90 days, or exposures where the terms have changed in a significant manner due to the borrower's financial difficulties, are considered as credit-impaired and as being in default. Impaired loans are moved to stage 3 according to the accounting framework IFRS 9. The provisioning level in stage 3 can either be assessed automatically by systems implemented by the bank or through individual assessment and decisions from authorised credit committee according to the bank's established principles.
Provisions
All loans, performing as well as non-performing, will carry a loss allowance (provision). It is not necessary for a loss event to occur before an impairment loss is recognized. This can also be described as the expected credit loss approach, i.e. all exposures in the Group's accounts will have an expected credit loss recognized directly after their origination, which is in line with the accounting standards IFRS 9.
All loans are subject to stage allocation and will carry a provision based on that allocation at each reporting date. The exposures are allocated to one of three stages:
- Stage 1 Performing exposures where the credit risk has not increased significantly since initial recognition.
- Stage 2 Performing exposures where the risk of default has increased significantly since initial recognition, but the asset is still not classified as credit-impaired.
- Stage 3 Credit-impaired exposures.
Regardless of which stage a loan is allocated to, the provisions will be calculated according to Swedbank's models. For some large exposures in stage 3, the provisioning will be assessed manually by using scenario-based cash flows and then decided by the relevant credit decision-making body.
Mitigation of credit risk
Swedbank strives to obtain adequate collateral. Collateral is considered from a risk perspective even if the collateral cannot be recognised for capital adequacy purposes. The collateral, its value and risk mitigating effect are considered throughout the credit process.
The term collateral covers pledges and guarantees. The most common types of pledges are real estate, apartments, movable assets and inventories. Netting agreements or covenants are not considered as collateral.
In special circumstances, Swedbank may buy credit derivatives or financial guarantees to hedge the credit risk, but this is not part of Swedbank's normal lending operations. Main types of guarantors and counterparties in credit derivatives and their creditworthiness are described in the main document under Counterparty credit risk.
Credits without collateral are mainly granted for small loans to private customers or loans to large companies with very solid repayment capacity. For the latter, special loan covenants are commonly created which entitle Swedbank to renegotiate or terminate the agreement if the borrower's repayment capacity deteriorates, or if the covenants are otherwise breached.
Collateral valuation
The valuation of collateral is based on a thorough review and analysis of the pledged assets and is an integrated part in the credit risk assessment of the borrower. The establishment of the collateral value is part of the credit decision. The value of the collateral is reassessed within periodic credit reviews of the borrower and in situations where Swedbank has reason to believe that the value has deteriorated, or the exposure has become a problem loan.
The established value of the collateral shall correspond to the most likely sales price at the date of valuation estimated in a qualitative process and characterised by prudence. For financial collateral, such as debt securities, equities and collective investment undertakings (CIUs), valuation is normally monitored on a daily basis.
Concentrations within mitigation instruments
Approximately 55% of the loans have private housing mortgages as collateral implicating a high concentration risk. However, the composition of the portfolio, with a large number of customers and relatively small amounts on each borrower, mitigates the risks. Another 17% of the loans have other real estate collateral. This portfolio is spread over several customers and different property segments.
Lithuania 12: Credit quality of exposures by exposure classes and instruments (EU CR1-A), 31 December 2019
| Gross carrying values of | |||||||
|---|---|---|---|---|---|---|---|
| which | Credit risk | ||||||
| Non | Specific credit | General | adjustment | ||||
| Defaulted | defaulted | risk | credit risk | Accumulated | charges of the | ||
| EURt | exposures | exposures | adjustment | adjustment | write-offs | period | Net values |
| Central governments or central banks | 0 | ||||||
| Institutions | 19 755 | 19 755 | |||||
| Corporates | 17 170 | 2 499 279 | 6 288 | 12 233 | 191 | 2 510 161 | |
| - of which Specialised Lending | 13 626 | 1 | 1 | 13 625 | |||
| - of which SME | 156 403 | 186 | 9 663 | 43 | 156 217 | ||
| Retail | 41 615 | 4 122 504 | 14 339 | 53 844 | 538 | 4 149 780 | |
| - Secured by real estate property | 34 040 | 3 160 055 | 9 126 | 20 408 | 326 | 3 184 969 | |
| --- SME | 1 505 | 9 078 | 530 | 619 | 147 | 10 053 | |
| --- Non-SME | 32 535 | 3 150 977 | 8 596 | 19 789 | 179 | 3 174 916 | |
| - Qualifying revolving | 0 | ||||||
| - Other Retail | 7 575 | 962 449 | 5 213 | 33 436 | 212 | 964 811 | |
| --- SME | 4 638 | 339 773 | 2 157 | 2 277 | 492 | 342 254 | |
| --- Non-SME | 2 937 | 622 676 | 3 056 | 31 159 | -280 | 622 557 | |
| Equity | 0 | ||||||
| Other exposures | 0 | ||||||
| Total IRB approach | 58 785 | 6 641 538 | 20 627 | 66 077 | 729 | 6 679 696 | |
| Central governments or central banks | 4 114 001 | 7 | 4 113 994 | ||||
| Regional governments or local authorities | 3 505 | 3 505 | |||||
| Public sector entities | 5 130 | 5 130 | |||||
| Multilateral development banks | 0 | ||||||
| International organisations | 0 | ||||||
| Institutions | 92 003 | 92 003 | |||||
| Corporates: | 86 873 | 19 | -1 | 86 854 | |||
| - of which SME | 8 997 | -1 | 8 997 | ||||
| Retail | 32 022 | 626 | -32 | 31 396 | |||
| - of which SME | 24 388 | 11 | 6 | 24 377 | |||
| Secured by mortgages on immovable | 235 733 | -65 | 235 733 | ||||
| - of which SME | 276 | 276 | |||||
| Exposures in default | 5 927 | 503 | 2 310 | 125 | 5 424 | ||
| Items associated with particularly high risk | 0 | ||||||
| Covered bonds | 0 | ||||||
| Claims on institutions and corporates with a | 0 | ||||||
| short- term credit assessment | |||||||
| Collective investments undertakings (CIU) | 0 | ||||||
| Equity exposures | 300 | 300 | |||||
| Other exposures | 260 633 | 7 | 260 626 | ||||
| Total SA approach | 5 927 | 4 830 200 | 1 162 | 2 310 | 27 | 4 834 965 | |
| Total | 64 712 | 11 471 738 | 21 789 | 68 387 | 756 | 11 514 661 | |
| - of which Loans | 64 693 | 6 065 728 | 21 522 | 68 387 | 710 | 6 108 899 | |
| - of which Debt Securities | 146 476 | 146 476 | |||||
| - of which Off-balance sheet exposures | 18 | 1 029 926 | 253 | 46 | 1 029 691 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
Defaulted exposures have decreased by EUR 6m compared to end-June 2019 driven by decreased private exposure.
Lithuania 13: Credit quality of exposures by industry or counterparty type (EU CR1-B), 31 December 2019
| Gross carrying values of which | Specific credit | General credit | Credit risk | ||||
|---|---|---|---|---|---|---|---|
| Defaulted | Non-defaulted | risk | risk | Accumulated | adjustment | ||
| EURt | exposures | exposures | adjustment | adjustment | write-offs | charges | Net values |
| Private mortgage | 38 814 | 3 395 366 | 9 818 | 23 385 | -202 | 3 424 362 | |
| Tenant owner associations | 0 | ||||||
| Private other | 3 863 | 685 382 | 3 456 | 4 667 | 412 | 685 789 | |
| Agriculture, forestry, fishing | 107 | 56 595 | 178 | 821 | -1 | 56 524 | |
| Manufacturing | 8 494 | 604 548 | 4 697 | 4 070 | 36 | 608 345 | |
| Public sector and utilities | 550 860 | 23 | 251 | -1 | 550 837 | ||
| Construction | 797 | 78 373 | 379 | 2 576 | 44 | 78 791 | |
| Retail | 1 184 | 599 242 | 736 | 12 026 | 11 | 599 690 | |
| Transportation | 360 | 202 678 | 247 | 10 032 | -31 | 202 791 | |
| Shipping and offshore | 0 | ||||||
| Hotels and restaurants | 6 081 | 114 199 | 480 | 355 | 319 | 119 800 | |
| Information and communication | 4 | 115 468 | 45 | 93 | 13 | 115 427 | |
| Finance and insurance | 28 351 | 8 | 59 | -7 | 28 343 | ||
| Property management | 4 746 | 625 430 | 1 485 | 7 133 | 123 | 628 691 | |
| - Residential properties | 966 | 13 848 | 351 | 3 644 | -55 | 14 463 | |
| - Commercial | 3 780 | 514 617 | 994 | 184 | 111 | 517 403 | |
| - Industrial and Warehouse | 51 954 | 64 | 2 107 | 80 | 51 890 | ||
| - Other property management | 45 011 | 76 | 1 198 | -13 | 44 935 | ||
| Professional services | 262 | 70 496 | 179 | 1 100 | 9 | 70 579 | |
| Other corporate lending | 5548 | 44 | 1819 | 31 | 5 504 | ||
| Credit institutions | 4 078 569 | 7 | 4 078 562 | ||||
| Other exposures | 260 633 | 7 | 260 626 | ||||
| Total | 64 712 | 11 471 738 | 21 789 | 68 387 | 756 | 11 514 661 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The reduced defaults are mainly from private mortgage EUR 10m, but also from Private other EUR 2m.
Lithuania 14: Credit quality of exposures by geography (EU CR1-C), 31 December 2019
| Gross carrying values of | |||||||
|---|---|---|---|---|---|---|---|
| EURt | Defaulted exposures |
Non-defaulted exposures |
Specific credit risk adjustment |
General credit risk adjustment |
Accumulated write-offs |
Credit risk adjustment charges |
Net values |
| Significant area: Nordic | 32 | 166 423 | 28 | 1 | -2 | 166 427 | |
| - Sweden | 30 | 151 647 | 11 | 1 | 4 | 151 666 | |
| - Norway | 1 | 2 361 | 12 | -7 | 2 350 | ||
| - Denmark | 1 | 12 193 | 4 | 12 190 | |||
| - Finland | 222 | 1 | 1 | 221 | |||
| Significant area: Baltic | 63 890 | 11 208 703 | 21 609 | 68 171 | 787 | 11 250 984 | |
| - Estonia | 3 904 | 0 | 0 | 0 | 3 904 | ||
| - Latvia | 124 | 30 398 | 15 | 0 | -8 | 30 507 | |
| - Lithuania | 63 766 | 11 174 401 | 21 594 | 68 171 | 795 | 11 216 573 | |
| Rest of the world | 790 | 96 612 | 152 | 215 | -29 | 97 250 | |
| - USA | 5 882 | 5 | 36 | -1 | 5 877 | ||
| - Other geographical areas | 790 | 90 730 | 147 | 179 | -28 | 91 373 | |
| Total | 64 712 | 11 471 738 | 21 789 | 68 387 | 756 | 11 514 661 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The reduced defaults were on counterparties in Lithuania.
| Gross carrying amount/nominal amount | Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions |
Collateral and financial guarantees received |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Performing exposures | Non-performing exposures | Performing exposures – accumulated impairment and provisions |
Non-performing exposures – accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions |
Accumulated partial write off |
On performing |
On non performing |
|||||||||
| EURt | Of which stage 1 |
Of which stage 2 |
Of which stage 2 |
Of which stage 3 |
Of which stage 1 |
Of which stage 2 |
Of which stage 2 |
Of which stage 3 |
exposures | exposures | |||||
| Loans and advances | 10 041 942 9 264 505 | 777 437 | 84 241 | 10 061 | 73 848 | 6 568 | 1 163 | 5 405 | 14 966 | 129 | 14 837 | 0 | 4 745 376 | 66 953 | |
| Central banks | 3 966 811 | 3 966 811 | 7 | 7 | |||||||||||
| General governments | 7 301 | 7 301 | 155 | ||||||||||||
| Credit institutions | 111 042 | 110 633 | 409 | ||||||||||||
| Other financial corporations | 98 701 | 63 920 | 34 781 | 103 | 103 | 28 | 1 | 27 | 38 624 | 103 | |||||
| Non-financial corporations | 2 091 166 | 1 883 249 | 207 917 | 25 493 | 3 501 | 21 992 | 1 226 | 357 | 868 | 6 963 | 4 | 6 959 | 1 364 056 | 17 707 | |
| Of which SMEs | 353 298 | 281 634 | 71 664 | 4 903 | 81 | 4 822 | 661 | 191 | 470 | 1 502 | 1 | 1 501 | 169 562 | 2 578 | |
| Households | 3 766 921 | 3 232 591 | 534 330 | 58 645 | 6 560 | 51 753 | 5 307 | 798 | 4 510 | 8 003 | 125 | 7 878 | 3 342 541 | 49 143 | |
| Debt securities | 146 476 | 146 476 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Central banks | |||||||||||||||
| General governments | 146 476 | 146 476 | |||||||||||||
| Credit institutions | |||||||||||||||
| Other financial corporations | |||||||||||||||
| Non-financial corporations | |||||||||||||||
| Off-balance-sheet exposures Central banks |
1 021 900 | 948 902 | 72 998 | 8 044 | 3 911 | 25 | 249 | 144 | 105 | 4 | 2 | 2 | 0 | 0 | 3 909 |
| General governments | 1 338 | 1 338 | |||||||||||||
| Credit institutions | 726 | 707 | 19 | ||||||||||||
| Other financial corporations | 4 005 | 1 063 | 2 942 | 1 | 1 | ||||||||||
| Non-financial corporations | 696 511 | 638 838 | 57 673 | 8 019 | 3 906 | 5 | 88 | 54 | 34 | 2 | 2 | 3 909 | |||
| Households | 319 320 | 306 956 | 12 364 | 25 | 5 | 20 | 160 | 90 | 70 | 2 | 0 | 2 | |||
| Total | 11 210 318 10 359 883 | 850 435 | 92 285 | 13 972 | 73 873 | 6 817 | 1 307 | 5 510 | 14 970 | 131 | 14 839 | 0 | 4 745 376 | 70 862 |
Lithuania 15: Performing and non-performing exposures and related provisions, 31 December 2019
The performance of Swedbank's portfolio remains on a high stable level with less than 1% of non-performing exposures. Most of the defaults (stage 3) are within mortgages under households. Stage 2 (significantly increased credit risk) exposures remain on a low level of 8%, where customers in the sectors Retail and Manufacturing in non-financial corporations and mortgages in households contribute the most.
| Gross carrying amount/nominal amount | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Performing exposures | Non-performing exposures | |||||||||||
| EURt | Not past due or past due ≤ 30 days |
Past due > 30 days ≤ 90 days |
Unlikely to pay that are not past due or are past due ≤ 90 days |
Past due > 90 days ≤ 180 days |
Past due > 180 days ≤ 1 year |
Past due > 1 year ≤ 2 years |
Past due > 2 years ≤ 5 years |
Past due > 5 years ≤ 7 years |
Past due > 7 years |
Of which defaulted |
||
| Loans and advances | 10 041 942 | 10 027 693 | 14 249 | 84 241 | 33 381 | 6 967 | 6 237 | 6 073 | 17 044 | 7 661 | 6 878 | 63 416 |
| Central banks | 3 966 811 | 3 966 811 | ||||||||||
| General governments | 7 301 | 7 301 | ||||||||||
| Credit institutions | 111 042 | 111 042 | ||||||||||
| Other financial corporations | 98 701 | 98 701 | 103 | 103 | ||||||||
| Non-financial corporations | 2 091 166 | 2 089 873 | 1 293 | 25 493 | 4 127 | 260 | 389 | 1 620 | 11 710 | 6 244 | 1 143 | 21 656 |
| Of which SMEs | 353 298 | 352 005 | 1 293 | 4 903 | 707 | 260 | 389 | 1 620 | 585 | 199 | 1 143 | 4 487 |
| Households | 3 766 921 | 3 753 965 | 12 956 | 58 645 | 29 151 | 6 707 | 5 848 | 4 453 | 5 334 | 1 417 | 5 735 | 41 760 |
| Debt securities | 146 476 | 146 476 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Central banks | ||||||||||||
| General governments | 146 476 | 146 476 | ||||||||||
| Credit institutions | ||||||||||||
| Other financial corporations | ||||||||||||
| Non-financial corporations | ||||||||||||
| Off-balance-sheet exposures Central banks |
1 021 900 | 0 | 0 | 8 044 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 5 |
| General governments | 1 338 | |||||||||||
| Credit institutions | 726 | |||||||||||
| Other financial corporations | 4 005 | |||||||||||
| Non-financial corporations | 696 511 | 8 019 | 5 | |||||||||
| Households | 319 320 | 25 | ||||||||||
| Total | 11 210 318 | 10 174 169 | 14 249 | 92 285 | 33 381 | 6 967 | 6 237 | 6 073 | 17 044 | 7 661 | 6 878 | 63 421 |
Lithuania 16: Credit quality of performing and non-performing exposures by past due days, 31 December 2019
The total exposures that are past due is low. Less than 1% of total exposures are past due more than 30 days. Most of the exposures that are non-performing are less than 90 days past due.
Lithuania 17: Credit quality of forborne exposures, 31 December 2019
| Gross carrying amount/nominal amount | Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions |
Collateral received and financial guarantees received on forborne exposures |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Performing forborne |
Non-performing forborne | On On non performing performing forborne forborne exposures |
exposures | Of which collateral and financial guarantees received on non |
||||||
| EURt | Of which defaulted |
Of which impaired |
performing exposures with forbearance measures |
|||||||
| Loans and advances | 14 083 | 40 596 | 30 411 | 31 846 | 127 | 8 651 | 44 176 | 31 254 | ||
| Central banks | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||
| General governments | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||
| Credit institutions | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||
| Other financial corporations | 8 | 0 | 0 | 0 | 0 | 0 | 8 | 0 | ||
| Non-financial corporations | 4 623 | 11 513 | 8 012 | 8 012 | 49 | 4 342 | 11 707 | 7 137 | ||
| Households | 9 452 | 29 083 | 22 399 | 23 834 | 78 | 4 309 | 32 461 | 24 117 | ||
| Debt Securities | ||||||||||
| Loan commitments given | 20 | 8 014 | 0 | 0 | 0 | 2 | 3 904 | 3 904 | ||
| Total | 14 103 | 48 610 | 30 411 | 31 846 | 127 | 8 653 | 48 080 | 35 158 |
Lithuania 18: Changes in stock of general and specific credit risk adjustments (EU CR2-A), 31 December 2019
| EURt | Accumulated Specific credit risk adjustment |
Accumulated General credit risk adjustment |
|---|---|---|
| Opening balance | 21 534 | |
| Increases due to amounts set aside for estimated loan losses during the period | -710 | |
| Decreases due to amounts reversed for estimated loan losses during the period | 645 | |
| Decreases due to amounts taken against accumulated credit risk adjustments | 818 | |
| Transfers between credit risk adjustments | -744 | |
| Impact of exchange rate differences | ||
| Business combinations, including acquisitions and disposals of subsidiaries | ||
| Other adjustments | -16 | |
| Closing balance | 21 527 | |
| Recoveries on credit risk adjustments recorded directly to the statement of profit | -1 708 | |
| or loss. | ||
| Specific credit risk adjustments recorded directly to the statement of profit or loss. | 1 612 | |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
No major changes in specific credit risk adjustments during the year. There were normal amounts of new provisions, but also reduced provisions from re-aged defaults.
Lithuania 19: Changes in stock of defaulted and impaired loans and debt securities (EU CR2-B), 31 December 2019
| EURt | Gross carrying value defaulted exposures |
|---|---|
| Opening balance | 81 129 |
| Loans and debt securities that have defaulted or impaired since the last reporting period | 4 247 |
| Returned to non-defaulted status | -15 180 |
| Amounts written off | -3 526 |
| Other changes | -3 193 |
| Closing balance | 63 477 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The majority of the loans that returned to non-default status is private mortgage loans.
Lithuania 20: Collateral obtained by taking possession and execution processes, 31 December 2019
| Collateral obtained by taking possession | ||||
|---|---|---|---|---|
| EURt | Value at initial recognition |
Accumulated negative changes |
||
| Property, plant and equipment (PP&E) | ||||
| Other than PP&E | 9 206 | -2 788 | ||
| Residential immovable property | 0 | 0 | ||
| Commercial Immovable property | 7 208 | -2 347 | ||
| Movable property (auto, shipping, etc.) | 1 998 | -441 | ||
| Equity and debt instruments | 0 | 0 | ||
| Other | 0 | 0 | ||
| Total | 9 206 | -2 788 | ||
Lithuania 21: Credit risk mitigation techniques – overview (EU CR3), 31 December 2019
| EURt | Exposures unsecured: Carrying amount |
Exposures secured: Carrying amount |
Exposures secured by collateral |
Exposures secured by financial guarantees |
Exposures secured by credit derivatives |
|---|---|---|---|---|---|
| Total Loans | 2 399 820 | 3 709 079 | 3 422 460 | 286 619 | |
| Total Debt securities |
146 476 | ||||
| Other | 4 229 595 | ||||
| Total all exposures |
6 775 891 | 3 709 079 | 3 422 460 | 286 619 | |
| - of which defaulted |
22 041 | 28 700 | 27 922 | 778 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The increase in mortgage loans has increased the total exposures secured by collateral. The increase in placements in central banks increased unsecured exposures.
Lithuania 22: Credit risk exposure and credit risk mitigation (CRM) effects (EU CR4), 31 December 2019
| Exposures post-CCF | RWA and RWA | ||||||
|---|---|---|---|---|---|---|---|
| Exposures before CCF and CRM | and CRM | density | |||||
| Exposure classes, | On-balance | Off-balance | On- balance | Off- balance | RWA | ||
| EURt | sheet amount | sheet amount | sheet amount | sheet amount | RWA | density | |
| Central governments or central banks | 4 113 993 | 1 | 4 174 803 | 2 499 | 21 847 | 0.52% | |
| Regional government or local authorities | 3 472 | 33 | 4 259 | 246 | 0 | 0.00% | |
| Public sector entities | 3 825 | 1 305 | 3 825 | 676 | 2 250 | 50.00% | |
| Multilateral development banks | 0.00% | ||||||
| International organisations | 0.00% | ||||||
| Institutions | 91 472 | 531 | 313 136 | 66 652 | 76 695 | 20.19% | |
| Corporates | 67 636 | 19 218 | 67 636 | 550 | 67 912 | 99.60% | |
| Retail | 18 638 | 12 758 | 18 635 | 407 | 12 722 | 66.81% | |
| Secured by mortgages on immovable property | 235 733 | 235 733 | 82 484 | 34.99% | |||
| Exposures in default | 5 424 | 5 424 | 5 657 | 104.30% | |||
| Higher-risk categories | 0.00% | ||||||
| Covered bonds | 0.00% | ||||||
| Institutions and corporates with a short term credit | 0.00% | ||||||
| assessment | |||||||
| collective investment undertakings | 0.00% | ||||||
| Equity | 300 | 300 | 3 750 | 1250.00% | |||
| Other items | 260 626 | 260 626 | 105 950 | 40.65% | |||
| Total | 4 801 119 | 33 846 | 5 084 377 | 71 030 | 379 267 | 7.36% |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The major driver of the increase in the standardised approach is exposures to central governments.
Lithuania 23: RWA flow statements of credit risk exposures under IRB (EU CR8), 31 December 2019
| EURt | RWA amounts | Capital requirements |
|---|---|---|
| RWA as at end of previous reporting period | 2 043 573 | 163 486 |
| Asset size | 22 351 | 1 788 |
| Asset quality | 42 251 | 3 380 |
| Model updates | ||
| Methodology and policy | ||
| Acquisitions and disposals | ||
| Foreign exchange movements | -56 | -4 |
| Other | 700 | 56 |
| RWA as at end of reporting period | 2 108 819 | 168 706 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
RWA reported under IRB increased by EUR 65m as compared to Q3 2019, due to asset size increase from new private mortgage loans and for asset quality PD migration increased RWA by EUR 50m, while improved LGD's decreased RWA by EUR 7m.
Leverage ratio disclosure
Swedbank takes the risk of excessive leverage into account in the forward-looking capital planning process which is performed at least on a quarterly basis. Other business steering or asset-and-liability management tools are also considered as means to affect the total exposure measure and may be accessed should such a need arise.
The leverage ratio has decreased from 7.0% to 6.5% during Q4 2019, driven by an increase in total leverage ratio exposures.
Lithuania 24: Summary reconciliation of accounting assets and leverage ratio exposures (LRSum), 31 December 2019
| Summary reconciliation of accounting assets and leverage ratio exposures, | |
|---|---|
| EURt | Applicable Amounts |
| Total assets as per published financial statements | 10 536 781 |
| Adjustment for entities which are consolidated for accounting purposes but are outside the scope of regulatory consolidation | |
| (Adjustment for fiduciary assets recognised on the balance sheet pursuant to the applicable accounting framework but excluded | |
| from the leverage ratio exposure measure in accordance with Article 429(13) of Regulation (EU) No 575/2013 "CRR") | |
| Adjustments for derivative financial instruments | 31 554 |
| Adjustments for securities financing transactions "SFTs" | -782 |
| Adjustment for off-balance sheet items (i.e. conversion to credit equivalent amounts of off-balance sheet exposures) | 470 499 |
| (Adjustment for intragroup exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (7) of | |
| Regulation (EU) No 575/2013) | |
| (Adjustment for exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (14) of Regulation | |
| (EU) No 575/2013) | |
| Other adjustments | -30 016 |
| Total leverage ratio exposure | 11 008 036 |
The corresponding information for Swedbank CS can be found in the Capital position chapter of this Pillar 3 report.
Lithuania 25: Leverage ratio common disclosure (LRCom), 31 December 2019
| Leverage ratio common disclosure | CRR leverage ratio exposures |
|---|---|
| On-balance sheet items (excluding derivatives, SFTs and fiduciary assets, but including collateral) | 10 521 630 |
| (Asset amounts deducted in determining Tier 1 capital) | -30 016 |
| Total on-balance sheet exposures (excluding derivatives, SFTs and fiduciary assets) (sum of lines 1 and 2) | 10 491 614 |
| Derivative exposures | |
| Replacement cost associated with all derivatives transactions (i.e. net of eligible cash variation margin) | 14 369 |
| Add-on amounts for PFE associated with all derivatives transactions (mark-to-market method) | 31 554 |
| Exposure determined under Original Exposure Method | |
| Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the applicable accounting | |
| framework | |
| (Deductions of receivables assets for cash variation margin provided in derivatives transactions) | |
| (Exempted CCP leg of client-cleared trade exposures) | |
| Adjusted effective notional amount of written credit derivatives | |
| (Adjusted effective notional offsets and add-on deductions for written credit derivatives) | |
| Total derivative exposures (sum of lines 4 to 10) | 45 923 |
| Securities financing transaction exposures | |
| Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions | 782 |
| (Netted amounts of cash payables and cash receivables of gross SFT assets) | -782 |
| Counterparty credit risk exposure for SFT assets | |
| Derogation for SFTs: Counterparty credit risk exposure in accordance with Article 429b (4) and 222 of Regulation (EU) No 575/2013 | |
| Agent transaction exposures | |
| (Exempted CCP leg of client-cleared SFT exposure) | |
| Total securities financing transaction exposures (sum of lines 12 to 15a) | 0 |
| Other off-balance sheet exposures | |
| Off-balance sheet exposures at gross notional amount | 1 029 944 |
| (Adjustments for conversion to credit equivalent amounts) | -559 445 |
| Other off-balance sheet exposures (sum of lines 17 to 18) | 470 499 |
| Exempted exposures in accordance with CRR Article 429 (7) and (14) (on and off balance sheet) | |
| (Exemption of intragroup exposures (solo basis) in accordance with Article 429(7) of Regulation (EU) No 575/2013 (on and off balance sheet)) |
|
| (Exposures exempted in accordance with Article 429 (14) of Regulation (EU) No 575/2013 (on and off balance sheet)) | |
| Capital and total exposures | |
| Tier 1 capital | 713 881 |
| Total leverage ratio exposures (sum of lines 3, 11, 16, 19, EU-19a and EU-19b) | 11 008 036 |
| Leverage ratio | |
| Leverage ratio | 6.49% |
| Choice on transitional arrangements and amount of derecognised fiduciary items | |
| Choice on transitional arrangements for the definition of the capital measure | |
| Amount of derecognised fiduciary items in accordance with Article 429(11) of Regulation (EU) NO 575/2013 |
The corresponding information for Swedbank CS can be found in the Capital position chapter of this Pillar 3 report.
Appendix: Swedbank Mortgage AB Consolidated Situation (CS)
Introduction
Swedbank's Risk Management and Capital Adequacy Report 2019 (Pillar 3 report) provides information on Swedbank's capital adequacy and risk management. The report is based on regulatory disclosure requirements set out in Regulation (EU) No 575/2013. In accordance with Article 13 in the same regulation, certain information shall be provided for large subsidiaries. Information regarding Swedbank Mortgage AB Consolidated Situation (CS) is provided in this Appendix and pertains to conditions as of 31 December 2019. Information on the organisational and legal structure of Swedbank Mortgage AB Consolidated Situation is provided in Appendix A of this Pillar 3 report. Information regarding Swedbank's corporate governance structure and measures undertaken to manage operations in Swedbank Consolidated Situation is presented in Swedbank's Corporate Governance Report. Information regarding risk implications of the remuneration process (and aggregate as well as granular quantitative information on remuneration) for Swedbank Mortgage AB Consolidated Situation is disclosed in the document "Information regarding remuneration in Swedbank". Swedbank's Group-wide framework includes instructions for management of credit risk, including instructions for granting and prolonging credits, for collateral valuation, for determining impairment and for credit risk adjustments. Information regarding management of credit risk is provided in Chapter 3 of this Pillar 3 report. The Group-wide framework also includes instructions describing the approach used to assess the adequacy of internal capital to support current and future activities. This information is provided in Chapter 7 of the same report. All documents mentioned are available on www.swedbank.com. All figures are denominated in SEK million unless otherwise stated.
Capital requirements
Swedbank Mortgage's legal capital requirement is explained by the framework CRR/CRD IV. From 31 December 2018, the SFSA applies the 25 per cent risk weight mortgage floor in Pillar 1 instead of Pillar 2. From 19 September 2019, the SFSA raised the countercyclical buffer rate from 2.0 per cent to 2.5 per cent on Swedish exposures. The reason for the hike is the elevated risk in the financial system due to higher household and non-financial company debt. On 31 December 2019, Swedbank Mortgage's Common Equity Tier 1 and Total Capital ratio were 16.8% (17.3%) and 16.8% (17.3%), respectively. The actual total capital at end-2019 exceeding the capital requirement was SEK 8.9 billion (SEK 10.7 billion). Hence, the capitalisation of Swedbank Mortgage is maintained above the capital requirements according to CRR/CRDIV. Swedbank Mortgage's leverage ratio was 4.5% at end-2019 (2018: 4.6%). In the 2019 Supervisory Review and Evaluation Process (SREP), Swedbank Mortgage was assessed to be adequately capitalised and able to comply with regulatory capital requirements (including Pillar 2 risks) going forward. The Bank's Recovery and Resolution Directive (BRRD), which allows the authorities to deal with banks in distress, was established in the EU in 2014. The directive includes a requirement on banks to hold a minimum level of own funds and eligible liabilities (MREL). During 2017, the SNDO announced the MREL requirement for Swedish banks where the MREL requirement was given on a single point of entry level. Swedbank Group has an MREL requirement and since 1 April 2019, Swedbank Mortgage is subject to an individual MREL requirement corresponding to 4.9% of total liabilities and own funds (TLOF). In December 2019, the individual MREL requirement for Swedbank Mortgage in 2020 was communicated as 4.39% of TLOF, which applies as of 1 January 2020.
Capital requirements (Actual, incl. fully implemented buffers and Pillar 2 requirements), 31 December 2019
| Pillar 1 | CET1 | AT1 | T2 | Total capital |
|---|---|---|---|---|
| Minimum CET1 requirement | 4.5% | 1.5% | 2.0% | 8.0% |
| Systemic risk buffer (P1) | 0.0% | 0.0% | ||
| Capital conservation buffer (CCoB) | 2.5% | 2.5% | ||
| Countercyclical capital buffer (CCyB) | 2.5% | 2.5% | ||
| O-SII buffer | 0.0% | 0.0% | ||
| 9.5% | 1.5% | 2.0% | 13.0% | |
| Pillar 2 | ||||
| Systemic risk charge | 0.0% | 0.0% | ||
| Individual pillar 2 charge | 0.4% | 0.1% | 0.1% | 0.6% |
| 0.4% | 0.1% | 0.1% | 0.6% | |
| Capital requirements | 9.9% | 1.6% | 2.1% | 13.6% |
| Actual capital ratios as of 31 December 2019 | 16.8% | 0.0% | 16.8% |
Mortgage AB 2: Total capital
Disclosure according to Article 2 in Commission Implementing Regulation (EU) No 1423/2013
| SEKm | 31.12.2019 | 30.09.2019 |
|---|---|---|
| Shareholders' equity according to the Group balance sheet | 46 169 | 46 181 |
| Non-controlling interests | ||
| Anticipated dividends | ||
| Deconsolidation of insurance companies | ||
| Unrealised value changes in financial liabilities due to changes in own creditworthiness | ||
| Cash flow hedges | - 34 | - 44 |
| Additional value adjustments | 3 | |
| Goodwill | ||
| Deferred tax assets | ||
| Intangible assets | ||
| Untaxed revenue | ||
| Net provisions for reported IRB credit exposures | ||
| Shares deducted from CET1 capital | ||
| Defined benefit pension fund assets | ||
| Total CET1 capital | 46 135 | 46 140 |
| Additional Tier 1 capital | ||
| Total Tier 1 capital | 46 135 | 46 140 |
| Tier 2 capital | 80 | 66 |
| Total capital | 46 215 | 46 206 |
The corresponding information for Swedbank CS is enclosed in Swedbank's Fact Book.
Mortgage AB 3: Own funds disclosure, 31 December 2019 Disclosure according to Article 4 in Commission Implementing Regulation (EU) No 1423/2013
| SEKm | Common Equity Tier 1 capital: instruments and reserves, | (a) Amounts at disclosure date |
(b) (EU) No 575/2013 article reference |
|---|---|---|---|
| 1 | Capital instruments and the related share premium accounts | 11 500 | 26 (1), 27, 28, 29 |
| of which: Instrument type 1 | EBA list 26 (3) | ||
| of which: Instrument type 2 | EBA list 26 (3) | ||
| of which: Instrument type 3 | EBA list 26 (3) | ||
| 2 | Retained earnings | 25 192 | 26 (1) (c) |
| 3 3a |
Accumulated other comprehensive income (and any other reserves) Funds for general banking risk |
-476 | 26 (1) 26 (1) (f) |
| Amount of qualifying items referred to in Article 484 (3) and the related share premium accounts subject to phase | |||
| 4 | out from CET1 | 486 (2) | |
| 5 | Minority interests (amount allowed in consolidated CET1) | 84 | |
| 5a | Independently reviewed interim profits net of any foreseeable charge or dividend | 9 953 | 26 (2) |
| 6 | Common Equity Tier 1 (CET1) capital before regulatory adjustments | 46 169 | |
| 7 | Common Equity Tier 1 (CET1) capital: regulatory adjustments Additional value adjustments (negative amount) |
-5 | 34, 105 |
| 8 | Intangible assets (net of related tax liability) (negative amount) | 36 (1) (b), 37 | |
| 9 | Empty set in the EU | ||
| 10 | Deferred tax assets that rely on future profitability excluding those arising from temporary difference (net of | 36 (1) (c), 38 | |
| related tax liability where the conditions in Article 38 (3) are met) (negative amount) | |||
| 11 12 |
Fair value reserves related to gains or losses on cash flow hedges Negative amounts resulting from the calculation of expected loss amounts |
-34 | 33 (1) (a) 36 (1) (d), 40, 159 |
| 13 | Any increase in equity that results from securitised assets (negative amount) | 32 (1) | |
| 14 | Gains or losses on liabilities valued at fair value resulting from changes in own credit standing | 5 | 33 (1) (b) |
| 15 | Defined-benefit pension fund assets (negative amount) | 36 (1) (e), 41 | |
| 16 | Direct and indirect holdings by an institution of own CET1 instruments (negative amount) | 36 (1) (f), 42 | |
| Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where those entities | |||
| 17 | have reciprocal cross-holdings with the institution designed to inflate artificially the own funds of the institution (negative amount) |
36 (1) (g), 44 | |
| Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where the institution | |||
| 18 | does not have a significant investment in those entities (amount above 10% threshold and net of eligible short | 36 (1) (h), 43, 45, 46, 49 | |
| positions) (negative amount) | (2) (3), 79 | ||
| Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where the institution has | 36 (1) (i), 43, 45, 47, 48 | ||
| 19 | a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount) |
(1) (b), 49 (1) to (3), 79 | |
| 20 | Empty set in the EU | ||
| Exposure amount of the following items which qualify for a RW of 1250%, where the institution opts for the | |||
| 20a | deduction alternative | 36 (1) (k) | |
| 20b | of which: qualifying holdings outside the financial sector (negative amount) | 36 (1) (k) (i), 89 to 91 | |
| 20c | of which: securitisation positions (negative amount) | 36 (1) (k) (ii), 243 (1) (b), 244 (1) (b), 258 |
|
| 20d | of which: free deliveries (negative amount) | 36 (1) (k) (iii), 379 (3) | |
| Deferred tax assets arising from temporary difference (amount above 10% threshold, net of related tax liability | |||
| 21 | where the conditions in Article 38 (3) are met) (negative amount) | 36 (1) (c), 38, 48 (1) (a) | |
| 22 | Amount exceeding the 15% threshold (negative amount) | 48 (1) | |
| 23 | of which: direct and indirect holdings by the institution of the CET1 instruments of financial sector entities where the institution has a significant investment in those entities |
36 (1) (i), 48 (1) (b) | |
| 24 | Empty set in the EU | ||
| 25 | of which: deferred tax assets arising from temporary difference | 36 (1) (c), 38, 48 (1) (a) | |
| 25a | Losses for the current financial year (negative amount) | 36 (1) (a) | |
| 25b | Foreseeable tax charges relating to CET1 items (negative amount) | 36 (1) (l) | |
| 27 | Qualifying AT1 deductions that exceed the AT1 capital of the institution (negative amount) | 36 (1) (j) | |
| 28 29 |
Total regulatory adjustments to Common Equity Tier 1 (CET1) Common Equity Tier 1 (CET1) capital |
-34 46 135 |
|
| Additional Tier 1 (AT1) capital: instruments | |||
| 30 | Capital instruments and the related share premium accounts | 51, 52 | |
| 31 | of which: classified as equity under applicable accounting standards | ||
| 32 | of which: classified as liabilities under applicable accounting standards | ||
| 33 | Amount of qualifying items referred to in Article 484 (4) and the related share premium accounts subject to phase | 486 (3) | |
| out from AT1 Qualifying Tier 1 capital included in consolidated AT1 capital (including minority interest not included in row 5) |
|||
| 34 | issued by subsidiaries and held by third parties | 85, 86 | |
| 35 | of which: instruments issued by subsidiaries subject to phase-out | 486 (3) | |
| 36 | Additional Tier 1 (AT1) capital before regulatory adjustments | ||
| Additional Tier 1 (AT1) capital: regulatory adjustments | |||
| 37 | Direct and indirect holdings by an institution of own AT1 instruments (negative amount) Direct, indirect and synthetic holdings of the AT1 instruments of financial sector entities where those entities have |
52 (1) (b), 56 (a), 57 | |
| 38 | reciprocal cross holdings with the institution designed to artificially inflate the own funds of the institution | 56 (b), 58 | |
| (negative amount) | |||
| Direct, indirect and synthetic holdings of the AT1 instruments of financial sector entities where the institution does | |||
| 39 | not have a significant investment in those entities (amount above 10% threshold and net of eligible short | 56 (c), 59, 60, 79 | |
| positions) (negative amount) Direct, indirect and synthetic holdings of the AT1 instruments of financial sector entities where the institution has |
|||
| 40 | a significant investment in those entities (amount above 10% threshold and net of eligible short positions) | 56 (d), 59, 79 | |
| (negative amount) | |||
| Regulatory adjustments applied to Additional Tier 1 capital in respect of amounts subject to pre-CRR treatment and | |||
| 41 | transitional treatments subject to phase-out as prescribed in Regulation (EU) No 585/2013 (i.e. CRR residual | ||
| 42 | amounts) Qualifying T2 deductions that exceed the T2 capital of the institution (negative amount) |
56 (e) | |
| 43 | Total regulatory adjustments to Additional Tier 1 (AT1) capital | ||
| 44 | Additional Tier 1 (AT1) capital | ||
| 45 | Tier 1 capital (T1 = CET1 + AT1) | 46 135 |
| Tier 2 (T2) capital: instruments and provisions | |||
|---|---|---|---|
| 46 | Capital instruments and the related share premium accounts | 62, 63 | |
| Amount of qualifying items referred to in Article 484 (5) and the related share premium accounts subject to phase | |||
| 47 | out from T2 | 486 (4) | |
| Qualifying own funds instruments included in consolidated T2 capital (including minority interest and AT1 | |||
| 48 | instruments not included in rows 5 or 34) issued by subsidiaries and held by third party | 87, 88 | |
| 49 | of which: instruments issued by subsidiaries subject to phase-out | 486 (4) | |
| 50 | Credit risk adjustments | 80 | 62 (c) & (d) |
| 51 | Tier 2 (T2) capital before regulatory adjustment | 80 | |
| Tier 2 (T2) capital: regulatory adjustments | |||
| 52 | Direct and indirect holdings by an institution of own T2 instruments and subordinated loans (negative amount) | 63 (b) (i), 66 (a), 67 | |
| 53 | Holdings of the T2 instruments and subordinated loans of financial sector entities where those entities have reciprocal cross-holdings with the institutions designed to artificially inflate the own funds of the institution |
66 (b), 68 | |
| (negative amount) | |||
| Direct, indirect and synthetic holdings of the T2 instruments and subordinated loans of financial sector entities | |||
| 54 | where the institution does not have a significant investment in those entities (amount above 10% threshold and | 66 (c), 69, 70, 79 | |
| net of eligible short positions) (negative amount) | |||
| Direct, indirect and synthetic holdings of the T2 instruments and subordinated loans of financial sector entities | |||
| 55 | where the institution has a significant investment in those entities (net of eligible short positions) (negative | 66 (d), 69, 79, 477(4) | |
| amounts) | |||
| 56 | Empty set in the EU | ||
| 57 | Total regulatory adjustments to Tier 2 (T2) capital | ||
| 58 | Tier 2 (T2) capital | 80 | |
| 59 | Total capital (TC = T1 + T2) | 46 215 | |
| 60 | Total risk-weighted assets | 274 444 | |
| Capital ratios and buffers | |||
| 61 | Common Equity Tier 1 (as a percentage of total risk exposure amount) | 16.81% | 92 (2) (a) |
| 62 | Tier 1 (as a percentage of total risk exposure amount) | 16.81% | 92 (2) (b) |
| 63 | Total capital (as a percentage of total risk exposure amount) | 16.84% | 92 (2) (c) |
| Institution-specific buffer requirement (CET1 requirement in accordance with article 92 (1) (a) plus capital | 9.50% | ||
| 64 | conservation and countercyclical buffer requirements plus a systemic risk buffer, plus systemically important | CRD 128, 129, 130, | |
| institution buffer expressed as a percentage of total risk exposure amount) 1) | 131, 133 | ||
| 65 | of which: capital conservation buffer requirement | 2.50% | |
| 66 | of which: countercyclical buffer requirement | 2.50% | |
| 67 | of which: systemic risk buffer requirement | ||
| 67a | of which: Global Systemically Important Institution (G-SII) or Other Systemically Important Institution (O-SII) buffer | ||
| 68 | Common Equity Tier 1 available to meet buffers (as a percentage of risk exposure amount) 2) | 8.81% | CRD 128 |
| 69 | [non-relevant in EU regulation] | ||
| 70 | [non-relevant in EU regulation] | ||
| 71 | [non-relevant in EU regulation] | ||
| Amounts below the thresholds for deduction (before risk-weighting) | |||
| Direct and indirect holdings of the capital of financial sector entities where the institution does not have a | 36 (1) (h), 45, 46, 56 (c), | ||
| 72 | significant investment in those entities (amount below 10% threshold and net of eligible short positions) | 59, 60, 66 (c), 69, 70 | |
| Direct and indirect holdings of the CET1 instruments of financial sector entities where the institution has a | |||
| 73 | significant investment in those entities (amount below 10% threshold and net of eligible short positions) | 36 (1) (i), 45, 48 | |
| 74 | Empty set in the EU | ||
| Deferred tax assets arising from temporary difference (amount below 10 % threshold, net of related tax liability | |||
| 75 | where the conditions in Article 38 (3) are met) | 36 (1) (c), 38, 48 | |
| Applicable caps on the inclusion of provisions in Tier 2 | |||
| Credit risk adjustments included in T2 in respect of exposures subject to standardised approach (prior to the | |||
| 76 | application of the cap) | 62 | |
| 77 | Cap on inclusion of credit risk adjustments in T2 under standardised approach | 62 | |
| Credit risk adjustments included in T2 in respect of exposures subject to internal ratings-based approach (prior to | 80 | ||
| 78 | the application of the cap) | 62 | |
| 79 | Cap for inclusion of credit risk adjustments in T2 under internal ratings-based approach | 252 | 62 |
| Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2014 and 1 Jan 2022) | |||
| 80 | - Current cap on CET1 instruments subject to phase-out arrangements | 484 (3), 486 (2) & (5) | |
| 81 | - Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities) | 484 (3), 486 (2) & (5) | |
| 82 | - Current cap on AT1 instruments subject to phase-out arrangements | 484 (4), 486 (3) & (5) | |
| 83 | - Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities) | 484 (4), 486 (3) & (5) | |
| 84 | - Current cap on T2 instruments subject to phase-out arrangements | 484 (5), 486 (4) & (5) | |
| 85 | - Amount excluded from T2 due to cap (excess over cap after redemptions and maturities) | 484 (5), 486 (4) & (5) |
1) The CET1 capital requirement including buffer requirements.
2) The CET1 capital ratio as reported, is less than the minimum requirement of 4.5% (excluding buffer requirements) and less than any CET1 items used to meet the Tier 1 and total capital requirements.
Mortgage AB 4a: Amount of institution-specific countercyclical capital buffer
| SEKm | 31.12.2019 |
|---|---|
| Total risk exposure amount | 274 444 |
| Institution-specific countercyclical buffer rate | 2.50% |
| Institution-specific countercyclical buffer requirement | 6 859 |
The corresponding information for Swedbank CS can be found in the Capital position chapter of this Pillar 3 report.
Mortgage AB 4b: Geographical distribution of credit exposures relevant for the calculation of the countercyclical capital buffer, 31 December 2019
| General credit exposures |
Trading book exposure | Securitisation exposures |
Own funds requirements | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SEKm | Exposure value for SA |
Exposure value for IRB |
Sum of long and short position of trading book |
Value of trading book exposure for internal models |
Exposure value for SA |
Exposure value for IRB |
of which General credit exposures |
of which Trading book exposures |
of which Securitisat ion exposures |
Total | Own funds requirement weights |
Countercyclical capital buffer rate |
| Sweden | 1 027 654 | 20 432 | 20 432 | 99.93% | 2.50% | |||||||
| Estonia Latvia Lithuania |
6 | 0.00% | 1.00% | |||||||||
| Norway | 409 | 5 | 5 | 0.02% | 2.50% | |||||||
| Finland | 16 | 1 | 1 | 0.01% | ||||||||
| Denmark USA |
336 9 |
8 | 8 | 0.04% 0.00% |
1.00% | |||||||
| Great Britain Other |
29 | 0.00% | 1.00% | |||||||||
| countries | 190 | 1 | 1 | 0.01% | 0.00% | |||||||
| Total | 1 028 649 | 20 447 | 20 447 | 100.00% | 2.50% |
The corresponding information for Swedbank CS can be found in the Capital position chapter of this Pillar 3 report.
Mortgage AB 5: Capital instruments' main features, 31 December 2019
Disclosure according to Article 3 in Commission Implementing Regulation (EU) No 1423/2013
| Capital instruments' main features template | |||||||
|---|---|---|---|---|---|---|---|
| 1 | Issuer | Swedbank Hypotek AB (publ) | |||||
| 2 | Unique identifier (e.g. CUSIP, ISIN or Bloomberg identifier for private placement) | SE0004270023 | |||||
| 3 | Governing law(s) of the instrument | Swedish | |||||
| Regulatory treatment | |||||||
| 4 | Transitional CRR rules | Common Equity Tier 1 | |||||
| 5 | Post-transitional CRR rules | Common Equity Tier 1 | |||||
| 6 | Eligible at solo/(sub-)consolidated/solo & (sub-)consolidated | Solo & consolidated | |||||
| Share capital | |||||||
| 7 | Instrument type (types to be specified by each jurisdiction) | as published in Regulation | |||||
| (EU) No 575/2013 article 28 | |||||||
| 8 | Amount recognised in regulatory capital (currency in million, as of most recent reporting date) | SEK 11 500m | |||||
| 9 | Nominal amount of instrument | SEK 11 500m | |||||
| 9a | Issue price | N/A | |||||
| 9b | Redemption price | N/A | |||||
| 10 | Accounting classification | Shareholders' equity | |||||
| 11 | Original date of issuance | N/A | |||||
| 12 | Perpetual or dated | Perpetual | |||||
| 13 | Original maturity date | No maturity | |||||
| 14 | Issuer call subject to prior supervisory approval | No | |||||
| 15 | Optional call date, contingent call dates, and redemption amount | N/A | |||||
| 16 | Subsequent call dates, if applicable | N/A | |||||
| Coupons / dividends | |||||||
| 17 | Fixed or floating dividend/coupon | N/A | |||||
| 18 | Coupon rate and any related index | N/A | |||||
| 19 | Existence of a dividend stopper | N/A | |||||
| 20a | Fully discretionary, partially discretionary or mandatory (in terms of timing) | Fully discretionary | |||||
| 20b | Fully discretionary, partially discretionary or mandatory (in terms of amount) | Fully discretionary | |||||
| 21 | Existence of step up or other incentive to redeem | N/A | |||||
| 22 | Noncumulative or cumulative | N/A | |||||
| 23 | Convertible or non-convertible | N/A | |||||
| 24 | If convertible, conversion trigger (s) | N/A | |||||
| 25 | If convertible, fully or partially | N/A | |||||
| 26 | If convertible, conversion rate | N/A | |||||
| 27 | If convertible, mandatory or optional conversion | N/A | |||||
| 28 | If convertible, specify instrument type convertible into | N/A | |||||
| 29 | If convertible, specify issuer of instrument it converts into | N/A | |||||
| 30 | Write-down features | N/A | |||||
| 31 | If write-down, write-down trigger (s) | N/A | |||||
| 32 | If write-down, full or partial | N/A | |||||
| 33 | If write-down, permanent or temporary | N/A | |||||
| 34 | If temporary write-down, description of write-up mechanism | N/A | |||||
| 35 | Position in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument) | Additional Tier 1 | |||||
| 36 37 |
Non-compliant transitioned features If yes, specify non-compliant features |
No N/A |
Mortgage AB 6: Overview of RWAs (EU OV1), 31 December 2019
| RWA | Minimum capital requirements | |||
|---|---|---|---|---|
| SEKm | 31.12.2019 | 30.09.2019 | 31.12.2019 | |
| Credit risk (excluding Counterparty credit risk (CCR)) | 41 677 | 42 999 | 3 334 | |
| - of which the standardised approach (SA) | ||||
| - of which the foundation IRB (FIRB) approach | 1 806 | 2 215 | 144 | |
| - of which the advanced IRB (AIRB) approach | 39 871 | 40 784 | 3 190 | |
| - of which equity IRB under the simple risk- weighted approach or the IMA | ||||
| Counterparty credit risk | ||||
| - of which mark to market | ||||
| - of which original exposure | ||||
| - of which the standardised approach | ||||
| - of which internal model method (IMM) | ||||
| - of which risk exposure amount for contributions to the default fund of a CCP | ||||
| - of which CVA | ||||
| Settlement risk | ||||
| Securitisation exposures in the banking book (after the cap) | ||||
| - of which IRB approach | ||||
| - of which IRB supervisory formula approach (SFA) | ||||
| - of which internal assessment approach (IAA) | ||||
| - of which standardised approach | ||||
| Market risk | ||||
| - of which the standardised approach | ||||
| - of which IMA | ||||
| Large exposures | ||||
| Operational risk | 18 656 | 18 656 | 1 492 | |
| - of which basic indicator approach | ||||
| - of which standardised approach | 18 656 | 18 656 | 1 492 | |
| - of which advanced measurement approach | ||||
| Amounts below the thresholds for deduction (subject to 250% risk weight) | 324 | 289 | 26 | |
| Floor adjustment | ||||
| Other risk exposure amount | 213 787 | 212 653 | 17 103 | |
| Total | 274 444 | 274 597 | 21 956 |
The corresponding information for Swedbank CS can be found in the Capital position chapter of this Pillar 3 report.
During the last quarter of 2019 the RWA of Swedbank Mortgage AB decreased marginally by SEK 0.2bn. RWA in credit risk decreased by SEK 1.3bn, mainly due to improved asset quality. The decrease was partly off-set by an increase in other risk weighted assets by SEK 1.1bn. The risk-weight floor for Swedish mortgages which is reported under this line item increased during the quarter mainly due to reclassification of mortgage offers.
Mortgage AB 7: IRB specialised lending and equities (EU CR10), 31 December 2019
Swedbank Mortgage AB does not have specialised lending. The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
Mortgage AB 8: Total and average net amount of exposures (EU CRB-B), 31 December 2019
| Net exposure at the | Average net exposure over |
|
|---|---|---|
| SEKm | end of the period | the period |
| Central governments or central banks | 518 | 556 |
| Institutions | ||
| Corporates | 54 648 | 54 124 |
| - of which Specialised Lending | ||
| - of which SME | 48 758 | 49 160 |
| Retail | 978 064 | 976 727 |
| - Secured by real estate property | 973 859 | 971 149 |
| ---SME | 102 069 | 103 684 |
| ---Non-SME | 871 790 | 867 465 |
| - Qualifying Revolving | ||
| - Other Retail | 4 205 | 5 578 |
| --- SME | 1 | 2 |
| --- Non-SME | 4 204 | 5 576 |
| Equity | ||
| Other exposures | 185 | 405 |
| Total IRB approach | 1 033 415 | 1 031 812 |
| Central governments or central banks | ||
| Regional governments or local | ||
| authorities Public sector entities |
||
| Multilateral Development Banks | ||
| International Organisations | ||
| Institutions | 89 159 | 47 354 |
| Corporates | ||
| - of which SME | ||
| Retail | ||
| - of which SME | ||
| Secured by mortgages on immovable | ||
| property | ||
| - of which SME | ||
| Exposures in default | ||
| Items associated with particularly high risk | ||
| Covered bonds | ||
| Claims on institutions and corporates with a short-term credit assessment | ||
| Collective investments undertakings | ||
| (CIU) | ||
| Equity exposures | ||
| Other exposures | ||
| Total SA approach | 89 159 | 47 354 |
| Total | 1 122 574 | 1 079 166 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The increase in exposures is driven by the Retail exposure class and exposures secured by real estate, mainly to private individuals. In addition, exposures to institutions increased, due to increased balances towards the parent company Swedbank AB.
The increase in IRB approach of SEK 1.6bn in net exposures per year end compared to average annual net exposures, is mainly explained by volume growth in mortgages within exposure class Retail.
Mortgage AB 9: Geographical breakdown of exposures (EU CRB-C), 31 December 2019
| Net carrying values | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| SEKm | Significant area: Nordic |
Sweden | Norway | Denmark | Finland | Significant area: Baltic |
Latvia | Rest of the world |
USA | Other geographical areas |
Total |
| Central governments or central banks | 518 | 518 | 518 | ||||||||
| Institutions | |||||||||||
| Corporates | 54 631 | 54 559 | 6 | 54 | 12 | 17 | 17 | 54 648 | |||
| Retail | 977 847 | 977 165 | 399 | 279 | 4 | 6 | 6 | 211 | 9 | 202 | 978 064 |
| Equity | |||||||||||
| Other exposures | 185 | 185 | 185 | ||||||||
| Total IRB approach | 1 033 181 | 1 032 427 | 405 | 333 | 16 | 6 | 6 | 228 | 9 | 219 | 1 033 415 |
| Central governments or central banks | |||||||||||
| Regional governments or local authorities | |||||||||||
| Public sector entities | |||||||||||
| Multilateral Development Banks | |||||||||||
| International Organisations | |||||||||||
| Institutions | 89 159 | 89 159 | 89 159 | ||||||||
| Corporates | |||||||||||
| Retail | |||||||||||
| Secured by mortgages on immovable property | |||||||||||
| Exposures in default | |||||||||||
| Items associated with particularly high risk | |||||||||||
| Covered bonds | |||||||||||
| Claims on institutions and corporates with a short-term credit assessment | |||||||||||
| Collective investments undertakings (CIU) | |||||||||||
| Equity exposures | |||||||||||
| Other exposures | |||||||||||
| Total SA approach | 89 159 | 89 159 | 89 159 | ||||||||
| Total | 1 122 340 | 1 121 586 | 405 | 333 | 16 | 6 | 6 | 228 | 9 | 219 | 1 122 574 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The increase in exposures of SEK 85.6bn compared to year-end 2018 was mainly due to increase in Institutions and Retail within Sweden.
| Agriculture, forestry, | Shipping and offshore | Finance and insurance | Residential properties | Professional services | Credit institutions | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Private mortgage | Tenant owner | Private other | Manufacturing | Public sector and | Construction | Transportation | Information and communication |
management | Industrial and | Other property management |
Other corporate | Other exposures | |||||||||||
| associations | utilities | restaurants Hotels and |
Property | Commercial | Warehouse | lending | |||||||||||||||||
| SEKm | fishing | Retail | Total | ||||||||||||||||||||
| Central governments or |
517 | ||||||||||||||||||||||
| central banks | 517 | ||||||||||||||||||||||
| Institutions Corporates |
723 | 228 | 3 377 | 50 | 878 | 297 | 284 | 97 | 402 | 71 | 700 | 45 833 | 36 324 | 7 113 | 698 | 1 698 | 648 | 1 061 | 54 649 | ||||
| Retail | 812 082 | 92 861 | 4 205 | 46 129 | 698 | 655 | 2 767 | 912 | 299 | 4 | 399 | 149 | 107 | 13 655 | 7 996 | 2 142 | 179 | 3 338 | 1 777 | 1 364 | 978 063 | ||
| Equity Other exposures |
186 | 186 | |||||||||||||||||||||
| Total IRB approach |
812 805 93 089 | 4 205 | 49 506 | 748 | 2 050 | 3 064 | 1 196 | 396 | 4 | 801 | 220 | 807 | 59 488 44 320 | 9 255 | 877 | 5 036 | 2 425 | 2 425 | 186 | 1 033 415 | |||
| Central | |||||||||||||||||||||||
| governments or central banks |
|||||||||||||||||||||||
| Regional | |||||||||||||||||||||||
| governments or | |||||||||||||||||||||||
| local authorities Public sector |
|||||||||||||||||||||||
| entities | |||||||||||||||||||||||
| Multilateral | |||||||||||||||||||||||
| Development Banks |
|||||||||||||||||||||||
| International | |||||||||||||||||||||||
| Organisations | |||||||||||||||||||||||
| Institutions Corporates |
89 159 | 89 159 | |||||||||||||||||||||
| Retail | |||||||||||||||||||||||
| Secured by | |||||||||||||||||||||||
| mortgages on immovable |
|||||||||||||||||||||||
| property | |||||||||||||||||||||||
| Exposures in | |||||||||||||||||||||||
| default | |||||||||||||||||||||||
| Items associated with particularly |
|||||||||||||||||||||||
| high risk | |||||||||||||||||||||||
| Covered bonds | |||||||||||||||||||||||
| Claims on | |||||||||||||||||||||||
| institutions and corporates with a |
|||||||||||||||||||||||
| short- term credit | |||||||||||||||||||||||
| assessment | |||||||||||||||||||||||
| Collective | |||||||||||||||||||||||
| investments undertakings (CIU) |
|||||||||||||||||||||||
| Equity exposures | |||||||||||||||||||||||
| Other exposures | |||||||||||||||||||||||
| Total SA | 89 159 | 89 159 | |||||||||||||||||||||
| approach Total |
812 805 93 089 | 4 205 | 49 506 | 748 | 2 050 | 3 064 | 1 196 | 396 | 4 | 801 | 220 | 807 | 59 488 44 320 | 9 255 | 877 | 5 036 | 2 425 | 2 425 | 89 159 | 186 | 1 122 574 | ||
Mortgage AB 10: Concentration of exposures by industry or counterparty type (EU CRB-D), 31 December 2019
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
Growth in net carrying values compared to year-end 2018 was mainly in Private mortgage and Credit institutions.
Mortgage AB 11: Maturity of exposures (EU CRB-E), 31 December 2019
| Net exposure value | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| SEKm | On demand | <= 1 year | > 1 year <= 5 years |
> 5 years | No stated maturity |
Total | |||
| Central governments or central banks | 18 | 499 | 517 | ||||||
| Institutions | |||||||||
| Corporates | 54 648 | 54 648 | |||||||
| Retail | 973 864 | 973 864 | |||||||
| Equity | |||||||||
| Other exposures | 181 | 181 | |||||||
| Total IRB approach | 18 | 1 029 011 | 181 | 1 029 210 | |||||
| Central governments or | |||||||||
| central banks | |||||||||
| Regional governments or local authorities | |||||||||
| Public sector entities | |||||||||
| Multilateral Development | |||||||||
| Banks | |||||||||
| International | |||||||||
| Organisations | 89 159 | 89 159 | |||||||
| Institutions Corporates |
|||||||||
| Retail | |||||||||
| Secured by mortgages on | |||||||||
| immovable property | |||||||||
| Exposures in default | |||||||||
| Items associated with particularly high risk | |||||||||
| Covered bonds | |||||||||
| Claims on institutions and corporates with a short- term credit assessment | |||||||||
| Collective investments | |||||||||
| undertakings (CIU) | |||||||||
| Equity exposures | |||||||||
| Other exposures | |||||||||
| Total SA approach | 89 159 | 89 159 | |||||||
| Total | 18 | 1 029 011 | 89 340 | 1 118 369 | |||||
| The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report. |
Maturity is the remaining contractual maturity as of 31 December 2019 and is more than five years for the vast majority of the loans. The balances with the parent company have no stated maturity.
Credit quality of exposures
Past due loans
Past due loans refer to overdrawn accounts and loans where amounts due for payment have not been paid in accordance with the terms of the loan agreements.
Credit impaired loans
Impaired loans are loans for which it is unlikely that the payments will be received in accordance with the contractual terms and where there is a risk that Swedbank will not receive full payment. A loan is considered credit-impaired when there is objective proof that an event has occurred on an individual level following the first reporting date of the loan, and that a risk of loss arises when the loan's anticipated future cash flows differ from the contractual cash flows. A loan in default is also always considered as an impaired loan, and vice versa.
Events on an individual level arise, implying an impairment test, e.g., when:
- A borrower incurs significant financial difficulties.
- It is likely that the borrower will enter into bankruptcy, liquidation or financial restructuring.
- Or there is a breach of contract, such as materially delayed or non–payment of interest or principal.
Exposures that are overdue by more than 90 days, or exposures where the terms have changed in a significant manner due to the borrower's financial difficulties, are considered as credit-impaired and as being in default. Impaired loans are moved to stage 3 according to the accounting framework IFRS 9. The provisioning level in stage 3 can either be assessed automatically by systems implemented by the bank or through individual assessment and decisions from authorised credit committee according to the bank's established principles.
Provisions
All loans, performing as well as non-performing, will carry a loss allowance (provision). It is not necessary for a loss event to occur before an impairment loss is recognized. This can also be described as the expected credit loss approach, i.e. all exposures in the Group's accounts will have an expected credit loss recognized directly after their origination, which is in line with the accounting standards IFRS 9.
All loans are subject to stage allocation and will carry a provision based on that allocation at each reporting date. The exposures are allocated to one of three stages:
- Stage 1 Performing exposures where the credit risk has not increased significantly since initial recognition.
- Stage 2 Performing exposures where the risk of default has increased significantly since initial recognition, but the asset is still not classified as credit-impaired.
- Stage 3 Credit-impaired exposures.
Regardless of which stage a loan is allocated to, the provisions
will be calculated according to Swedbank's models. For some large exposures in stage 3, the provisioning will be assessed manually by using scenario-based cash flows and then decided by the relevant credit decision-making body.
Mitigation of credit risk
Swedbank strives to obtain adequate collateral. Collateral is considered from a risk perspective even if the collateral cannot be recognised for capital adequacy purposes. The collateral, its value and risk mitigating effect are considered throughout the credit process.
The term collateral covers pledges and guarantees. The most common types of pledges are real estate and apartments. Netting agreements or covenants are not considered as collateral.
In special circumstances, Swedbank may buy credit derivatives or financial guarantees to hedge the credit risk, but this is not part of Swedbank's normal lending operations. Main types of guarantors and counterparties in credit derivatives and their creditworthiness are described in the main document under Counterparty credit risk.
Credits without collateral are mainly granted for small loans to private customers or loans to large companies with very solid repayment capacity. For the latter, special loan covenants are commonly created which entitle Swedbank to renegotiate or terminate the agreement if the borrower's repayment capacity deteriorates, or if the covenants are otherwise breached.
Collateral valuation
The valuation of collateral is based on a thorough review and analysis of the pledged assets and is an integrated part in the credit risk assessment of the borrower. The establishment of the collateral value is part of the credit decision. The value of the collateral is reassessed within periodic credit reviews of the borrower and in situations where Swedbank has reason to believe that the value has deteriorated, or the exposure has become a problem loan.
The established value of the collateral shall correspond to the most likely sales price at the date of valuation estimated in a qualitative process and characterised by prudence. For financial collateral, such as debt securities, equities and collective investment undertakings (CIUs), valuation is normally monitored on a daily basis.
Concentrations within mitigation instruments
Approximately 79% of Swedbank Mortgage AB's loans have private housing mortgages as collateral implicating a high concentration risk. However, the composition of the portfolio, with a large number of customers and a variation between customers in larger city areas and countryside as well as relatively small amounts on each borrower, mitigates the risks. Another 20% of the loans have other real estate collateral. This portfolio is also spread over a large number of customers and several geographies.
Mortgage AB 12: Credit quality of exposures by exposure classes and instruments (EU CR1-A), 31 December 2019
| Gross carrying values of which |
Credit risk | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Non | Specific credit | General | adjustment | ||||||
| Defaulted | defaulted | risk | credit risk | Accumulated | charges of the | ||||
| SEKm | exposures | exposures | adjustment | adjustment | write-offs | period | Net values | ||
| Central governments or central banks | 518 | 518 | |||||||
| Institutions | |||||||||
| Corporates | 71 | 54 755 | 178 | 49 | 16 | 54 648 | |||
| - of which Specialised Lending | |||||||||
| - of which SME | 71 | 48 817 | 130 | -6 | 48 758 | ||||
| Retail | 706 | 977 707 | 349 | 336 | -43 | 978 064 | |||
| - Secured by real estate property | 706 | 973 502 | 349 | 336 | -43 | 973 859 | |||
| --- SME | 61 | 102 053 | 45 | -9 | 102 069 | ||||
| --- Non-SME | 645 | 871 449 | 304 | 336 | -34 | 871 790 | |||
| - Qualifying revolving | |||||||||
| - Other Retail | 4 205 | 4 205 | |||||||
| --- SME | 1 | 1 | |||||||
| --- Non-SME | 4 204 | 4 204 | |||||||
| Equity | |||||||||
| Other exposures | 185 | 185 | |||||||
| Total IRB approach | 777 | 1 033 165 | 527 | 385 | -27 | 1 033 415 | |||
| Central governments or central banks | |||||||||
| Regional governments or local authorities | |||||||||
| Public sector entities | |||||||||
| Multilateral development banks | |||||||||
| International organisations | |||||||||
| Institutions | 89 159 | 89 159 | |||||||
| Corporates: | |||||||||
| - of which SME | |||||||||
| Retail | |||||||||
| - of which SME | |||||||||
| Secured by mortgages on immovable | |||||||||
| - of which SME | |||||||||
| Exposures in default | |||||||||
| Items associated with particularly high risk | |||||||||
| Covered bonds | |||||||||
| Claims on institutions and corporates with a | |||||||||
| short- term credit assessment | |||||||||
| Collective investments undertakings (CIU) | |||||||||
| Equity exposures | |||||||||
| Other exposures | |||||||||
| Total SA approach | 89 159 | 89 159 | |||||||
| Total | 777 | 1 122 324 | 527 | 385 | -27 | 1 122 574 | |||
| - of which Loans | 777 | 1 117 915 | 527 | 385 | -27 | 1 118 165 | |||
| - of which Debt Securities | |||||||||
| - of which Off-balance sheet exposures | 4 205 | 4 205 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
Net values increased by SEK 56bn as compared to end-June 2019. Intra group balances presented under institutions in the Standardised approach increased by SEK 55bn. Net values under IRB approach increased by SEK 1bn as compared to Q2 2019.
Mortgage AB 13: Credit quality of exposures by industry or counterparty type (EU CR1-B), 31 December 2019
| Gross carrying values of which | Specific | General | Credit risk | ||||
|---|---|---|---|---|---|---|---|
| SEKm | Defaulted exposures |
Non-defaulted exposures |
credit risk adjustment |
credit risk adjustment |
Accumulated write-offs |
adjustment charges |
Net values |
| Private mortgage | 564 | 812 448 | 207 | 336 | -17 | 812 805 | |
| Tenant owner associations | 49 | 93 057 | 17 | -5 | 93 089 | ||
| Private other | 4 205 | 0 | 4 205 | ||||
| Agriculture, forestry, fishing | 63 | 49 523 | 80 | 45 | -14 | 49 506 | |
| Manufacturing | 1 | 748 | 1 | -1 | 748 | ||
| Public sector and utilities | 2 058 | 8 | -4 | 2 050 | |||
| Construction | 36 | 3 043 | 15 | 8 | 3 064 | ||
| Retail | 1 199 | 3 | 1 196 | ||||
| Transportation | 398 | 2 | 396 | ||||
| Shipping and offshore | 4 | 0 | 4 | ||||
| Hotels and restaurants | 805 | 4 | 1 | 801 | |||
| Information and communication | 221 | 1 | 220 | ||||
| Finance and insurance | 809 | 2 | 1 | 807 | |||
| Property management | 45 | 59 600 | 157 | 4 | 20 | 59 488 | |
| - Residential properties | 44 418 | 98 | -4 | 44 320 | |||
| - Commercial | 40 | 9 243 | 28 | 15 | 9 255 | ||
| - Industrial and Warehouse | 896 | 19 | 4 | 877 | |||
| - Other property management | 5 | 5 043 | 12 | 4 | 5 | 5 036 | |
| Professional services | 4 | 2 430 | 9 | -2 | 2 425 | ||
| Other corporate lending | 15 | 2 431 | 21 | 0 | -14 | 2 425 | |
| Credit institutions | 89 159 | 89 159 | |||||
| Other exposures | 0 | 186 | 0 | 186 | |||
| Total | 777 | 1 122 324 | 527 | 385 | -27 | 1 122 574 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
Net values increased by SEK 56bn as compared to Q2 2019. Intra group balances presented under Credit institution increased by SEK 55bn, whereas net values in private mortgage grew by SEK 7bn. However, the increase was partly off-set by net values in Private other which decreased by SEK 3bn.
Mortgage AB 14: Credit quality of exposures by geography (EU CR1-C), 31 December 2019
| Gross carrying values of | |||||||
|---|---|---|---|---|---|---|---|
| SEKm | Defaulted exposures |
Non-defaulted exposures |
Specific credit risk adjustment |
General credit risk adjustment |
Accumulated write-offs |
Credit risk adjustment charges |
Net values |
| Significant area: Nordic | 776 | 1 122 091 | 527 | 382 | -27 | 1 122 340 | |
| - Sweden | 771 | 1 121 335 | 520 | 365 | -27 | 1 121 586 | |
| - Norway | 1 | 408 | 4 | 4 | 405 | ||
| - Denmark | 4 | 332 | 3 | 12 | 333 | ||
| - Finland | 16 | 0 | 1 | 16 | |||
| Significant area: Baltic | 6 | 0 | 6 | ||||
| - Latvia | 6 | 0 | 6 | ||||
| Rest of the world | 1 | 227 | 0 | 3 | 228 | ||
| - USA | 9 | 0 | 9 | ||||
| - Other geographical areas | 1 | 218 | 0 | 3 | 219 | ||
| Total | 777 | 1 122 324 | 527 | 385 | -27 | 1 122 574 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
The decrease in net values as compared to Q2 2019 is driven by increased intra group balances towards Swedbank AB of SEK 55bn.
| Gross carrying amount/nominal amount | Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions |
Collateral and financial guarantees received |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Performing exposures | Non-performing exposures | Performing exposures – accumulated impairment and provisions |
Non-performing exposures – accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions |
Accumulated partial write off |
On performing |
On non performing |
|||||||||
| SEKm | Of which stage 1 |
Of which stage 2 |
Of which stage 2 |
Of which stage 3 |
Of which stage 1 |
Of which stage 2 |
Of which stage 2 |
Of which stage 3 |
exposures | exposures | |||||
| Loans and advances | 1 117 766 1 075 053 | 42 713 | 926 | 926 | 373 | 43 | 330 | 154 | 154 | 1 026 598 | 773 | ||||
| Central banks | |||||||||||||||
| General governments | 883 | 883 | 1 | 1 | |||||||||||
| Credit institutions | 89 159 | 89 159 | |||||||||||||
| Other financial corporations | 42 | 42 | 14 | ||||||||||||
| Non-financial corporations Of which SMEs |
148 898 133 272 |
139 752 126 896 |
9 146 6 375 |
119 119 |
119 119 |
180 104 |
21 16 |
159 88 |
17 17 |
17 17 |
148 657 133 054 |
103 103 |
|||
| Households | 878 784 | 845 217 | 33 567 | 807 | 807 | 192 | 21 | 171 | 137 | 137 | 877 927 | 670 | |||
| Debt securities | |||||||||||||||
| Central banks | |||||||||||||||
| General governments | |||||||||||||||
| Credit institutions | |||||||||||||||
| Other financial corporations | |||||||||||||||
| Non-financial corporations | |||||||||||||||
| Off-balance-sheet exposures Central banks |
6 988 | 6 988 | |||||||||||||
| General governments | |||||||||||||||
| Credit institutions | |||||||||||||||
| Other financial corporations | |||||||||||||||
| Non-financial corporations | 659 | 659 | |||||||||||||
| Households | 6 329 | 6 329 | |||||||||||||
| Total | 1 124 754 1 082 041 | 42 713 | 926 | 926 | 373 | 43 | 330 | 154 | 0 | 154 | 1 026 598 | 773 |
Mortgage AB 15: Performing and non-performing exposures and related provisions, 31 December 2019
The performance of Swedbank's portfolio remains on a high stable level with less than 0.1% of non-performing exposures. Most of the defaults (stage 3) are within mortgage loans under households. Stage 2 (significantly increased credit risk) exposures remain on a low level of 4%, where real estate companies in non-financial corporations and mortgages in households contribute the most.
| Gross carrying amount/nominal amount | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Performing exposures | Non-performing exposures | |||||||||||
| SEKm | Not past due or past due ≤ 30 days |
Past due > 30 days ≤ 90 days |
Unlikely to pay that are not past due or are past due ≤ 90 days |
Past due > 90 days ≤ 180 days |
Past due > 180 days ≤ 1 year |
Past due > 1 year ≤ 2 years |
Past due > 2 years ≤ 5 years |
Past due > 5 years ≤ 7 years |
Past due > 7 years |
Of which defaulted |
||
| Loans and advances | 1 117 766 | 1 117 522 | 244 | 926 | 633 | 148 | 65 | 60 | 18 | 0 | 926 | |
| Central banks | ||||||||||||
| General governments | 883 | 883 | ||||||||||
| Credit institutions | 89 159 | 89 159 | ||||||||||
| Other financial corporations | 42 | 42 | ||||||||||
| Non-financial corporations | 148 898 | 148 892 | 6 | 119 | 47 | 59 | 3 | 10 | 119 | |||
| Of which SMEs | 133 272 | 133 266 | 6 | 119 | 47 | 59 | 3 | 10 | 119 | |||
| Households | 878 784 | 878 546 | 238 | 807 | 586 | 89 | 62 | 50 | 18 | 0 | 807 | |
| Debt securities | ||||||||||||
| Central banks | ||||||||||||
| General governments | ||||||||||||
| Credit institutions | ||||||||||||
| Other financial corporations | ||||||||||||
| Non-financial corporations | ||||||||||||
| Off-balance-sheet exposures Central banks |
6 988 | |||||||||||
| General governments | ||||||||||||
| Credit institutions | ||||||||||||
| Other financial corporations | ||||||||||||
| Non-financial corporations | 659 | |||||||||||
| Households | 6 329 | |||||||||||
| Total | 1 124 754 | 1 117 522 | 244 | 926 | 633 | 148 | 65 | 60 | 18 | 0 | 0 | 926 |
Mortgage AB 16: Credit quality of performing and non-performing exposures by past due days, 31 December 2019
The total exposures that are past due is low. Less than 0.1% of total exposures are past due more than 30 days. Most of the exposures that are non-performing are less than 90 days past due.
Mortgage AB 17: Credit quality of forborne exposures, 31 December 2019
| Performing forborne |
Gross carrying amount/nominal amount Non-performing forborne |
Accumulated impairment, accumulated negative changes in fair value due to credit risk and provisions On On non performing performing forborne forborne exposures exposures |
Collateral received and financial guarantees received on forborne exposures Of which collateral and financial guarantees received on non |
||||||
|---|---|---|---|---|---|---|---|---|---|
| SEKm | Of which defaulted |
Of which impaired |
performing exposures with forbearance measures |
||||||
| Loans and advances | 87 | 8 | 2 | 2 | 1 | 1 | 93 | 8 | |
| Central banks | |||||||||
| General governments | |||||||||
| Credit institutions | |||||||||
| Other financial corporations | |||||||||
| Non-financial corporations | 3 | 5 | 8 | 5 | |||||
| Households | 84 | 3 | 2 | 2 | 1 | 1 | 85 | 3 | |
| Debt Securities | |||||||||
| Loan commitments given | |||||||||
| Total | 87 | 8 | 2 | 2 | 1 | 1 | 93 | 8 |
Mortgage AB 18: Changes in stock of general and specific credit risk adjustments (EU CR2-A), 31 December 2019
| SEKm | Accumulated Specific credit risk adjustment |
Accumulated General credit risk adjustment |
|---|---|---|
| Opening balance | 553 | |
| Increases due to amounts set aside for estimated loan losses during the period | 119 | |
| Decreases due to amounts reversed for estimated loan losses during the period | -93 | |
| Decreases due to amounts taken against accumulated credit risk adjustments | -11 | |
| Transfers between credit risk adjustments | ||
| Impact of exchange rate differences | ||
| Business combinations, including acquisitions and disposals of subsidiaries | ||
| Other adjustments | -41 | |
| Closing balance | 527 | |
| Recoveries on credit risk adjustments recorded directly to the statement of profit | -3 | |
| or loss. | ||
| Specific credit risk adjustments recorded directly to the statement of profit or loss. | 6 | |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
Mortgage AB 19: Changes in stock of defaulted and impaired loans and debt securities (EU CR2-B), 31 December 2019
| SEKm | Gross carrying value defaulted exposures |
|---|---|
| Opening balance | 768 |
| Loans and debt securities that have defaulted or impaired since the last reporting period | 264 |
| Returned to non-defaulted status | -147 |
| Amounts written off | -17 |
| Other changes | -91 |
| Closing balance | 777 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
Mortgage AB 20: Collateral obtained by taking possession and execution processes, 31 December 2019
Swedbank Mortgage AB do not have any instruments that have been cancelled in exchange for the collateral obtained by taking possession. Hence, no table is presented.
Mortgage AB 21: Credit risk mitigation techniques – overview (EU CR3), 31 December 2019
| Exposures unsecured: | Exposures secured: | Exposures secured by | Exposures secured by financial | Exposures secured by credit | |
|---|---|---|---|---|---|
| SEKm | Carrying amount | Carrying amount | collateral | guarantees | derivatives |
| Total Loans | 94 193 | 1 023 972 | 1 018 760 | 5 212 | |
| Total Debt | |||||
| securities | |||||
| Other | 204 | ||||
| Total all | 94 397 | 1 023 972 | 1 018 760 | 5 212 | |
| exposures | |||||
| - of which | 4 | 624 | 624 | ||
| defaulted |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
Unsecured exposures increased compared to Q2 2019 mainly due to intra group balances. Secured exposure increased mainly due to growth in mortgage lending.
Mortgage AB 22: Credit risk exposure and credit risk mitigation (CRM) effects (EU CR4), 31 December 2019
| Exposures post-CCF | RWA and RWA | |||||
|---|---|---|---|---|---|---|
| Exposure classes, SEKm |
Exposures before CCF and CRM On-balance sheet amount |
Off-balance sheet amount |
and CRM On-balance sheet amount |
Off-balance sheet amount |
density RWA |
RWA density |
| Central governments or central banks Regional government or local authorities Public sector entities Multilateral development banks International organisations Institutions Corporates Retail Secured by mortgages on immovable property Exposures in default Higher-risk categories Covered bonds Institutions and corporates with a short term credit assessment collective investment undertakings Equity Other items |
89 159 | 89 171 | 0.00% | |||
| Total | 89 159 | 89 171 | 0.00% | |||
| The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report. |
The increase in on-balance sheet exposures compared to Q2 2019 is driven by increased intra group balances towards Swedbank AB of SEK 55bn.
Mortgage AB 23: RWA flow statements of credit risk exposures under IRB (EU CR8), 31 December 2019
| SEKm | RWA amounts | Capital requirements |
|---|---|---|
| RWA as at end of previous reporting period | 42 999 | 3 440 |
| Asset size | -104 | -8 |
| Asset quality | -1 095 | -88 |
| Model updates | ||
| Methodology and policy | ||
| Acquisitions and disposals | ||
| Foreign exchange movements | ||
| Other | -123 | -10 |
| RWA as at end of reporting period | 41 677 | 3 334 |
The corresponding information for Swedbank CS can be found in the Credit risk chapter of this Pillar 3 report.
RWA reported under IRB decreased by SEK 1.3bn as compared to Q3 2019, due to the following:
(1) RWA due to asset size decreased by SEK 0.1bn primarily driven by volume growth for Retail Mortgage and Retail Other by SEK 0.2bn offset by decrease in Other non-credit
obligations.
(2) Improved asset quality decreased REA by SEK 1.1bn, mainly due to PD and LGD changes for retail mortgage and corporates.
Leverage ratio disclosure
Swedbank Mortgage AB monitors and discloses its leverage ratio according to the requirements and will in the future eventually have to meet a minimum leverage ratio requirement of 3%. The leverage ratio has increased from 4.4% to 4.5% during Q4 2019, driven by a slight decrease in Tier 1 capital versus Q3 2019, whilst the total leverage ratio exposure also somewhat decreased.
Mortgage AB 24: Summary reconciliation of accounting assets and leverage ratio exposures (LRSum), 31 December 2019
| Summary reconciliation of accounting assets and leverage ratio exposures, | |
|---|---|
| SEKm | Applicable Amounts |
| Total assets as per published financial statements | 1 145 830 |
| Adjustment for entities which are consolidated for accounting purposes but are outside the scope of regulatory consolidation | |
| (Adjustment for fiduciary assets recognised on the balance sheet pursuant to the applicable accounting framework but excluded | |
| from the leverage ratio exposure measure in accordance with Article 429(13) of Regulation (EU) No 575/2013 "CRR") | |
| Adjustments for derivative financial instruments | 13 266 |
| Adjustments for securities financing transactions "SFTs" | |
| Adjustment for off-balance sheet items (i.e. conversion to credit equivalent amounts of off-balance sheet exposures) | 4 205 |
| (Adjustment for intragroup exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (7) of | -129 886 |
| Regulation (EU) No 575/2013) | |
| (Adjustment for exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (14) of Regulation | |
| (EU) No 575/2013) | |
| Other adjustments | -39 |
| Total leverage ratio exposure | 1 033 376 |
The corresponding information for Swedbank CS can be found in the Capital position chapter of this Pillar 3 report.
Mortgage AB 25: Leverage ratio common disclosure (LRCom), 31 December 2019
| Leverage ratio common disclosure | CRR leverage ratio exposures |
|---|---|
| On-balance sheet items (excluding derivatives, SFTs and fiduciary assets, but including collateral) | 1 118 368 |
| (Asset amounts deducted in determining Tier 1 capital) | -39 |
| Total on-balance sheet exposures (excluding derivatives, SFTs and fiduciary assets) (sum of lines 1 and 2) | 1 118 329 |
| Derivative exposures | |
| Replacement cost associated with all derivatives transactions (i.e. net of eligible cash variation margin) | 27 461 |
| Add-on amounts for PFE associated with all derivatives transactions (mark-to-market method) | 13 266 |
| Exposure determined under Original Exposure Method | |
| Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the applicable accounting | |
| framework | |
| (Deductions of receivables assets for cash variation margin provided in derivatives transactions) | |
| (Exempted CCP leg of client-cleared trade exposures) | |
| Adjusted effective notional amount of written credit derivatives | |
| (Adjusted effective notional offsets and add-on deductions for written credit derivatives) | |
| Total derivative exposures (sum of lines 4 to 10) | 40 727 |
| Securities financing transaction exposures | |
| Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions | |
| (Netted amounts of cash payables and cash receivables of gross SFT assets) | |
| Counterparty credit risk exposure for SFT assets | |
| Derogation for SFTs: Counterparty credit risk exposure in accordance with Article 429b (4) and 222 of Regulation (EU) No 575/2013 | |
| Agent transaction exposures | |
| (Exempted CCP leg of client-cleared SFT exposure) | |
| Total securities financing transaction exposures (sum of lines 12 to 15a) | |
| Other off-balance sheet exposures Off-balance sheet exposures at gross notional amount |
4 205 |
| (Adjustments for conversion to credit equivalent amounts) | |
| Other off-balance sheet exposures (sum of lines 17 to 18) | 4 205 |
| Exempted exposures in accordance with CRR Article 429 (7) and (14) (on and off balance sheet) | |
| (Exemption of intragroup exposures (solo basis) in accordance with Article 429(7) of Regulation (EU) No 575/2013 (on and off | |
| balance sheet)) | -129 886 |
| (Exposures exempted in accordance with Article 429 (14) of Regulation (EU) No 575/2013 (on and off balance sheet)) | |
| Capital and total exposures | |
| Tier 1 capital | 46 135 |
| Total leverage ratio exposures (sum of lines 3, 11, 16, 19, EU-19a and EU-19b) | 1 033 375 |
| Leverage ratio | |
| Leverage ratio | 4.46% |
| Choice on transitional arrangements and amount of derecognised fiduciary items | |
| Choice on transitional arrangements for the definition of the capital measure |
Amount of derecognised fiduciary items in accordance with Article 429(11) of Regulation (EU) NO 575/2013
The corresponding information for Swedbank CS can be found in the Capital position chapter of this Pillar 3 report.
Signatures of the Board of Directors, the President and the CRO
The Chair of Risk and Capital Committee of the Board of Directors, the President and CEO and the CRO hereby attest that the disclosures in Swedbank's Risk Management and Capital Adequacy Report (Pillar 3), provided according to Part Eight of Regulation (EU) No 575/2013, have been prepared in accordance with the internal controls and procedures set out in Swedbank's Policy on Pillar 3 disclosure requirements, approved by the Board of Directors. The Policy on Pillar 3 disclosure requirements stipulates the general principles that apply for the control processes and structures regarding the disclosure of risk and capital adequacy information in Swedbank. The policy ensures that the disclosed information is subject to effective, timely and adequate internal controls and monitoring structures. Furthermore, the policy outlines the distinguished responsibilities in the process and the frequency of the reporting.
Stockholm, 19 February 2020
Magnus Uggla Chair of Risk and Capital Committee of the Board of Directors
Jens Henriksson President and CEO
Gunilla Domeij Hallros Acting Chief Risk Officer