SEB — Capital/Financing Update 2009

Feb 20, 2009

Capital Adequacy and Risk Management report (Pillar 3) 2008

The Capital Adequacy and Risk Management report refers to the public disclosure in accordance with the Capital Requirements Directive (CRD), which implements the Basel II framework in the European Union; in Sweden the new regime is in effect since 1 February 2007.

SEB applies the Internal Ratings Based (IRB) approach for reporting of banking, corporate and household mortgage portfolios in Sweden, Germany and the Baltic states – corresponding to 80 per cent of the total credit volume. In 2008, retail, corporate and interbank exposures in Estonia, Latvia and Lithuania were approved for IRB reporting. Remaining portfolios are reported according to the Standardised Approach. SEB will gradually continue to roll-out the IRB approach to the vast majority of all operations.

Following supervisory approval, the Group reports operational risk according to the Advanced Measurement Approach from the second quarter of 2008. For market risk, the Group has been approved to use its internal VaR model for calculating capital requirements for general market risks in the parent company since 2001.

Whereas SEB views positively the increased transparency provided by pillar 3 reporting, SEB continues to analyse and report the RWA and capital ratios according to both Basel I and Basel II. The quality of the Group's credit portfolio and the internal risk management culture translate into substantial RWA reductions for the Group. However, this cannot be equated with a similar capital release, due to the framework's increased business cycle sensitivity, supervisory evaluation, transitional floors and rating agency considerations. SEB's long-term Tier I capital ratio target is 10 per cent, based on the Basel II framework applied without transition rules.

The Capital Adequacy and Risk Management report provides details on the Group's risk profile, e.g. business volumes by customer categories and risk classes, which form the basis for the calculation of the capital requirement. The report supplements the information provided in the Annual Report 2008 on corporate governance, risk and capital management as well as the Notes to the financial statements.

Information below is disclosed following Swedish regulation FFFS 2007:5 – Finansinspektionen's regulations and general guidelines regarding public disclosure of information concerning capital adequacy and risk management. English version of the regulation can be found at: www.fi.se/upload/90_English/30_Regulations/1_Regulatory%20code/FFFS0705_eng.pdf

Please note that whereas SEB during 2007 used a mixed approach, reporting capital requirements for SEB AB, SEB AG and SEB Gyllenberg according to Basel II, and with Basel I reporting for remaining companies in the Group, from 2008 all SEB's reporting follows Basel II. Thus the entire capital requirement for SEB at year-end 2008 is addressed in this document.

FFFS 2007:5	Description	Page
Chapter 3 § 1–2 Chapter 3 § 3 Chapter 4 § 3–5	SEB Financial Group of Undertakings 2 Risk management objectives and guidelines3 Strategies and methods for regulatory and internal capital 4
Chapter 4 § 1–2 Chapter 4 § 6–10 Chapter 4 § 4 Chapter 1 § 1	Capital base 5 Capital requirements6 Capital ratios7 Significant subsidiaries 8
Chapter 5 § 2 Chapter 5 § 3, 1 Chapter 5 § 3, 2 Chapter 5 § 3, 2	Credit exposure by exposure class 9 Credit exposure by exposure class and geography 10 Credit exposure by exposure class and industry 11 Credit exposure by remaining maturity12
Chapter 5 § 1 Chapter 5 § 4–5 Chapter 5 § 4–5 Chapter 5 § 4–5 Chapter 5 § 4–5	Definition of impairment, etc. 13 Impaired loans by industry 14 Impaired loans by geography15 Provisions and write-offs on impaired loans16 Change of reserves for impaired loans17
Chapter 5 § 6 Chapter 5 § 7–8 Chapter 5 § 9–12 Chapter 5 § 13 Chapter 5 § 15 Chapter 5 § 16 Chapter 5 § 17 Chapter 5 § 18 Chapter 5 § 19 Chapter 5 § 20 Chapter 5 § 23	Credit risk mitigation strategies18 Credit risk mitigation19 Securitisations 20 Standardised approach21 IRB approval and implementation plan22 Structure of risk class scale in PD dimension 23 Credit risk rating and estimation24 IRB reported credit exposures by risk class25 IRB reported exposures with own estimates of LGD26 IRB reported exposures with own estimates of CCF 27 Comparison between expected and actual losses28
Chapter 6	Counterparty risk in derivative contracts 29
Chapter 7	Operational risk 30
Chapter 8 Chapter 9 § 1–2 Chapter 9 § 3–4	Trading book market risk31 Banking book market risk32 Equity exposures not included in the trading book 33

SEB Financial Group of Undertakings

Parent company is Skandinaviska Enskilda Banken AB (publ), corporate registration number 502032-9081

		Consolidation
Company	Ownership, %	Full	Pro rata
Credit institutions
Möller Bilfinans AS, Oslo	51	✓
Njord AS, Oslo	100	✓
OJSB Factorial Bank, Kharkiv	98	✓
OJSC SEB Bank, Kiev	100	✓
SEB AG, Frankfurt am Main	100	✓
SEB Bank JSC, St Petersburg	100	✓
SEB Banka, AS, Riga	100	✓
SEB bankas, AB, Vilnius	100	✓
SEB Kort AB, Stockholm	100	✓
SEB Leasing Oy, Helsinki	100	✓
SEB Leasing, CJSC, St Petersburg	100	✓
SEB Pank, AS, Tallinn	100	✓
Skandinaviska Enskilda Banken A/S, Copenhagen	100	✓
Skandinaviska Enskilda Banken Corporation, New York	100	✓
Skandinaviska Enskilda Banken S.A., Luxembourg	100	✓
Skandinaviska Enskilda Ltd, London	100	✓
		✓
Investment operations
Aktiv Placering AB, Stockholm	100	✓
Key Asset Management (Sverige) AB, Stockholm	100	✓
Key Asset Management (Switzerland) SARL, Geneva	100	✓
Key Asset Management (UK) Limited, London	100	✓
Key Asset Management Norge ASA, Oslo	100	✓
Key Capital Management Inc, Tortola	100	✓
SEB AB, Stockholm	100	✓
SEB Asset Management America Inc, Stamford	100	✓
SEB Asset Management Norge AS, Oslo	100	✓
SEB Asset Management S.A., Luxembourg	100	✓
SEB Enskilda ASA, Oslo	100	✓
SEB Enskilda Corporate Finance Oy Ab, Helsinki	65	✓
SEB Enskilda Inc., New York	100	✓
SEB Fonder AB, Stockholm	100	✓
SEB Fondinvest AB, Stockholm	100	✓
SEB Fund Services S.A., Luxembourg	100	✓
SEB Förvaltnings AB, Stockholm	100	✓
SEB Gyllenberg Asset Management Ab, Helsinki	100	✓
SEB Gyllenberg Fondbolag Ab, Helsinki	100	✓
SEB Investment Management AB, Stockholm	100	✓
SEB Portföljförvaltning AB, Stockholm	100	✓
SEB Privatbanken ASA, Oslo	100	✓
SEB Strategic Investments AB, Stockholm	100	✓
SEB TFI SA (Towarzystwo Funduszy Inwestycyjnych), Warsaw	100	✓

Cont. SEB Financial Group of Undertakings

Parent company is Skandinaviska Enskilda Banken AB (publ), corporate registration number 502032-9081

		Consolidation
Company	Ownership, %	Full	Pro rata
Other operations
BDB Bankernas Depå AB, Stockholm	20		✓
BGC Holding AB, Stockholm	33		✓
Enskilda Kapitalförvaltning SEB AB, Stockholm	100	✓
Interscan Servicos de Consultoria Ltda., Sao Paulo	100	✓
Parkeringshuset Lasarettet HGB KB, Stockholm	99	✓
PM Leasing AB, Stockholm	100	✓
SEB Hong Kong Trade Services Ltd., Hong Kong	100	✓
SEB Internal Supplier AB, Stockholm	100	✓
SEB IT Partner Estonia OÜ, Tallinn	100	✓
SEB NET S.L., Barcelona	100	✓
Skandic Projektor AB, Stockholm	100	✓
Skandinaviska Kreditaktiebolaget, Stockholm	100	✓
Team SEB AB, Stockholm	100	✓

The SEB Group comprises banking, finance, securities and insurance companies. The capital adequacy rules apply to each individual Group company that has a licence to carry on banking, finance or securities operations as well as to the consolidated Financial Group of Undertakings. Group companies that carry on insurance operations have to comply with capital solvency requirements, but are excluded in the capital adequacy reporting and are thus not listed above.

Risk management objectives and guidelines

Managing risk is a core activity in a bank. In providing its customers with financial solutions and products SEB assumes various risks, of which credit risk is the most significant. Risk is closely related to business activities and business development and, therefore, to customer needs.

SEB's profitability is directly dependent upon its ability to evaluate, manage and price the risks encountered, while maintaining an adequate capitalization to meet unforeseen events. To secure the Group's financial stability, risk and capital-related issues are identified, monitored and managed early on. They also form an integral part of the long-term strategic planning and operational business planning processes performed throughout the Group.

The Group applies a modern framework for its risk management, having long since established independent risk control, credit analysis and credit approval functions. Board supervision, an explicit decision-making structure, a high level of risk awareness among staff, common definitions and principles, controlled risk-taking within established limits and a high degree of transparency in external disclosures.

Risk policy and mandate

The Board of Directors has the ultimate responsibility for the risk organisation and for the maintenance of satisfactory internal control. The Board establishes the overall risk and capital policies and monitors the development of risk exposure. The Board's Risk and Capital Committee works to ensure that all risks inherent in the Group's activities are identified, defined, measured, monitored and controlled in accordance with external and internal rules. The Board's risk policies are supplemented by instructions issued by the Group Risk Control function. Specific risk mandates are established by the Board and further allocated by board committees and executive management committees.

The President and CEO has the overall responsibility for managing SEB's overall risk level in accordance with the policies and intentions of the Board. The President and CEO shall ensure that the organisation and administration of SEB are appropriate and that activities undertaken are in compliance with law. In particular, the President and CEO shall present any essential risk information regarding SEB to the Board, including the utilisation of limits.

The primary responsibility for ensuring that the Board's intent regarding risk management and risk control is practically applied in SEB lies with the Group Asset and Liability Committee and the Group Credit Committee, both committees chaired by the President and CEO. These committees shall adopt risk policies which in further detail describe how such implementation is to be carried out, as well as management, control and follow-up. The Group Credit Committee is the highest credit-granting body within SEB. However, certain matters are reserved for the Risk and Capital Committee of the Board of Directors. The Group Asset and Liability Committee deals with issues related to the overall risk level of the Group and its various divisions, and decides on risk limits and risk-measuring methods and capital management, among other matters.

Group Risk Control is the unit responsible for monitoring the Group's risks, primarily credit risk, market risk, operational risk and liquidity risk. It is a function that is deeply embedded in, yet independent from, business operations at the divisional level.

Responsibility for day-to-day risk management within the Group rests with the divisions, Group Treasury and support functions, as outlined in the relevant policies and instructions, including the responsibility to take necessary actions to address risk problems. Each of these have dedicated risk organisations or, in the case of certain support functions, a dedicated risk manager. Group Treasury is responsible for analysis and management of SEB's balance sheet, including the management of structural market risk and liquidity risk as well as the funding of balance sheet assets.

For a detailed description of the Group's strategies, processes, organisation, measurement and reporting for risk management, please refer to the Risk and Capital Management and the Corporate Governance sections of the Annual Report.

Strategies and methods for regulatory and internal capital

The Group's capital policy defines how capital management should support the business goals. Shareholders' return requirements shall be balanced against the capital requirements of the regulators, the expectations of debt investors and other counterparties as regards SEB's rating, and the economic capital that represents the total risk of the Group. Scenario stress testing is used to assess an extra safety margin over and above the formal capital model requirements – covering e.g. the potential of a sharp decline in the macro-economic environment.

Good risk management notwithstanding, the Group must keep capital buffers against unexpected losses. The regulatory capital requirements serve as one measure of the necessary capital buffer to meet these risks. Requiring a more precise and risk-sensitive measure for internal capital assessment and performance evaluation, SEB uses an economic capital framework. This framework assesses how much capital is needed to carry out various business activities. The greater the risk – granted that all business is pursued within strong internal control procedures – the larger risk buffer is needed. This capital need constitutes SEB's Economic Capital and is based on a Capital at Risk (CAR) model.

Allocation of capital to divisions is an integral part of the regular planning process. The analysis is based upon actual and planned business volumes, and follows the methodology used for the Economic Capital framework. The model is largely built on the platform established by the Basel II capital adequacy rules, but extends this with further risk types to reach a higher risk sensitivity in capital assessment processes.

SEB continuously analyses the capital effects of the Basel II framework. The quality of the Group's credit portfolio and the internal risk management culture

translate into substantial RWA reductions – though limited by supervisory floors during the first years of the regime. Full roll-out of the Group's Basel II programme is foreseen to reduce overall RWA with 35 per cent as compared with Basel I, as an average over the business cycle. However, this cannot be equated with a similar capital release, due to the framework's increased business cycle sensitivity, supervisory evaluation and rating agency considerations. Careful capital management will be necessary during the transition period, at the same time anticipating further regulatory changes and refinements of the framework.

The Chief Financial Officer is responsible for the process, linked to overall business planning, to assess capital requirements in relation to the Group's risk profile, and to propose a strategy for maintaining the capital levels. Together with continuous monitoring, and reporting of the capital adequacy to the Board, this ensures that the relationships between shareholders' equity, economic capital, regulatory and rating-based requirements are managed in such a way that SEB does not jeopardise the profitability of the business and the financial strength of the Group.

Capital is managed centrally, meeting also local requirements as regards statutory and internal capital. The overarching principle is to channel retained earnings from the subsidiaries to the parent company to centralize the non-restricted equity. For capital injections from the parent bank to subsidiaries there is a clear governance process in place.

There are no legal restrictions for the capitalisation of the subsidiaries. The Group has not encountered and does not foresee any material practical or legal impediments to the transfer of non-restricted equity or other capital instruments.

Capital base

SEK m	2008-12-31
Total equity according to balance sheet (1)	83,729
./. Proposed dividend (excl repurchased shares)	0
./. Deductions for investments outside the financial group of undertakings (2)	–76
./. Other deductions outside the financial group of undertakings (3)	–2,878
= Total equity in the capital adequacy	80,775
Tier I capital contribution	12,371
Adjustment for hedge contracts (4)	–1,395
Net provisioning amount for IRB-reported credit exposures (5)	–1,133
Unrealised value changes on available-for-sale financial assets (6)	3,062
./. Goodwill (7)	–7,305
./. Other intangible assets	–2,090
./. Deferred tax assets	–1,822
= Tier I capital	82,463
Dated subordinated debt	21,552
./. Deduction for remaining maturity	–2,242
Perpetual subordinated debt	14,421
Net provisioning amount for IRB-reported credit exposures (5)	–1,133
Unrealised gains on available-for-sale financial assets (6)	1,221
./. Deductions for investments outside the financial group of undertakings (2)	–76
= Tier II capital	33,743
./. Deductions for investments in insurance companies (8)	–10,620
./. Deduction for pension assets in excess of related liabilities (9)	–863
= Capital base	104,723

Specification of the net provisioning amount above

Provisions and value adjustments for IRB reported credit exposures	9,391
./. Expected loss (EL)	–11,656
Net provisioning amount (5)	–2,265

To note: Total equity according to the balance sheet (1) includes the current year´s profit which has been reviewed by the auditors.

Deductions (2) for investments outside the financial group of undertakings should be made with equal parts from Tier I and Tier II capital. However, investments in insurance companies made before 20 July 2006 can be deducted from the capital base (8) – this holds for SEB's investments in insurance companies.

The deduction (3) consists of retained earnings in subsidiaries outside the financial group of undertakings.

The adjustment (4) refers to differences in how hedging contracts are acknowledged according to the capital adequacy regulation, as compared with the preparation of the balance sheet.

If provisions and value adjustments for credit exposures reported according to the Internal Rating Based approach fall short of expected losses on these

exposures, the difference (5) should be deducted in equal parts from Tier I and Tier II. A corresponding excess can, up to a certain limit, be added to the Tier II capital.

For Available For Sale portfolios (6) value changes on debt instruments should not be acknowledged for capital adequacy. Any surplus attributable to equity instruments may be included in the Tier II capital.

Goodwill in (7) relates only to consolidation into the financial group of undertakings. When consolidating the entire Group´s balance sheet further goodwill is created, of which SEK 5,721m is related to the insurance investments under (8) above.

Pension surplus values (9) should be deducted from the capital base, excepting such indemnification as prescribed in the Swedish Act on safeguarding of pension undertakings.

Capital requirements

SEK m	2008-12-31
Credit risk IRB approach:
Institutions	4,472
Corporates	37,158
Securitisation positions	572
Retail mortgages	4,627
Other exposure classes	559
Total credit risk IRB approach	47,388
Credit risk Standardised approach:
Central governments and central banks	122
Local governments and authorities	118
Administrative bodies, non-commercial undertakings	20
Institutions	246
Corporates	2,343
Retail	5,509
Exposures secured by real estate property	334
Past due items	146
Securitisation positions	127
Other items	2,645
Total credit risk Standardised approach	11,610
Market risk – Internal VaR model (used only in parent company)
Foreign exchange rate risk, general interest rate risk, general equity price risk	471
Market risk Standardised approach
Foreign exchange rate risk	570
General interest rate risk and general equity price risk	241
Specific interest rate risk	1,411
Specific equity price risk	606
Commodity risk	2
Settlement risk	44
Total market risk Standardised approach	2,874
Operational risk Advanced Measurement approach	3,080
Summary
Credit risk	58,998
Market risk	3,345
Operational risk	3,080
Total	65,423
Adjustment for flooring rules
Additional requirement according to transitional flooring	13,460
Total regulatory capital requirement	78,883

Capital ratios

SEK m	2008-12-31
Capital resources
Tier I capital	82,463
Capital base	104,723
Capital adequacy without transitional floor (Basel II)
Capital requirement	65,423
Expressed as Risk weighted assets (12.5 times capital requirement)	817,788
Tier I capital ratio	10.1%
Total capital ratio	12.8%
Capital adequacy quotient (capital base / capital requirement)	1.60
Capital adequacy as reported, with transitional rules (Basel II)
Transition floor applied	90%
Capital requirement	78,883
Expressed as Risk weighted assets (12.5 times capital requirement)	986,034
Tier I capital ratio	8.4%
Total capital ratio	10.6%
Capital adequacy quotient (capital base / capital requirement)	1.33
Capital adequacy with RWA according to Basel I
Capital requirement	90,164
Expressed as Risk weighted assets (12.5 times capital requirement)	1,127,054
Tier I capital ratio	7.3%
Total capital ratio	9.3%
Capital adequacy quotient (capital base / capital requirement)	1.16

Significant subsidiaries

Within the SEB Group, risk and capital are managed in a homogeneous fashion following group-wide policies established by the Board. Thus the description given above, and in the yearly report, holds for all companies in the Group.

The following subsidiaries are important on account of their size and their potential impact on financial stability. The capital adequacy reported here is really for the Financial Group of Undertakings where the subsidiary is the consolidating entity. Each such group is reported on a stand-alone basis i.e. exposures to

other companies within the SEB Group are included in the reporting. In reporting for subsidiaries, credit risk follows IRB and Standardised approaches as outlined under the heading IRB approval and implementation plan. Market risk is reported following the Standardised approach, while the Advanced Measurement approach is used for operational risk (except for SEB AG where the Basic Indicator approach is used).

2008-12-31, SEK m	Germany: SEB AG	Estonia: SEB Pank	Latvia: SEB Banka	Lithuania: SEB Bankas
Available capital
Tier I capital	16,870	5,227	3,712	6,242
Capital base	23,853	7,042	3,896	7,556
Capital requirements
Credit risk	13,801	2,836	2,582	4,378
Market risk	1,034	14	132	125
Operational risk	1,149	102	96	140
Total	15,984	2,952	2,809	4,643
Adjustment for flooring rules
Additional requirement according to transitional flooring	2,668	1,598	0	1,088
Total capital requirements	18,651	4,550	2,809	5,730
Capital requirements as percentage of Risk weighted asset	8%	10%	8%	8%
Risk weighted assets	233,143	45,498	35,117	71,630
Tier I capital ratio	7.2%	11.5%	10.6%	8.7%
Total capital ratio	10.2%	15.5%	11.1%	10.5%
Capital adequacy quotient (capital base / capital requirement)	1.28	1.55	1.39	1.32

Credit exposure by exposure class

Exposure 2008, SEK m	Year-end	Average
Institutions	341,969	364,762
Corporates	826,685	729,598
Securitisation positions	67,487	56,293
Retail mortgages	350,501	325,195
Other exposure classes	27,248	15,917
Total IRB approach	1,613,890	1,491,765
Central governments and central banks	176,674	173,439
Local governments and authorities	131,037	82,551
Administrative bodies, non-commercial undertakings	3,216	2,158
Institutions	18,610	22,694
Corporates	29,307	44,160
Retail	91,621	99,491
Exposures secured by real estate property	15,484	18,225
Past due items	1,378	1,411
Securitisation positions	3,163	2,476
Other items	38,196	28,720
Total Standardised approach	508,686	475,325
Total	2,122,576	1,967,090

Exposure amounts after eligible offsets; off balance sheet items after application of relevant conversion factors.

Following supervisory guidelines the averages are based on four quarterly observations.

In the quarterly numbers used to form averages, each quarter's distribution over exposure classes is used.

Credit exposure by exposure class and geography

		Other					Other
Exposure 2008-12-31, SEK m	Sweden	Nordic	Germany	Estonia	Latvia	Lithuania	Europe	Other	Total
Institutions	18,462	38,912	98,240	5	668	548	141,430	43,704	341,969
Corporates	299,771	110,917	149,893	27,534	29,276	54,412	86,568	68,314	826,685
Securitisation positions	1,321		291				42,099	23,776	67,487
Retail mortgages	220,534	298	72,267	18,249	11,477	25,934	972	770	350,501
Other exposure classes	17,675	3	4	3,573	3,306	2,667	5	15	27,248
Total IRB approach	557,763	150,130	320,695	49,361	44,727	83,561	271,074	136,579	1,613,890
Central governments
and central banks	81,595	10,795	49,282	5,663	5,363	9,632	10,393	3,951	176,674
Local governments and authorities	30,373	261	91,980	1,261	240	2,298	3,478	1,146	131,037
Administrative bodies,
non-commercial undertakings	236		2,661	14			7	298	3,216
Institutions	6,978	302	9,388		3	65	782	1,092	18,610
Corporates	7,367	5,337	7,298	5		346	452	8,502	29,307
Retail	39,499	22,601	18,561	2,694	1,996	3,409	623	2,238	91,621
Exposures secured by
real estate property	7,157	51	8,160			19	74	23	15,484
Past due items	125	353	795	18	67	1	8	11	1,378
Securitisation positions							1,394	1,769	3,163
Other items	14,826	954	2,410	1,221	1,061	3,013	12,943	1,768	38,196
Total Standardised approach	188,156	40,654	190,535	10,876	8,730	18,783	30,154	20,798	508,686
Total	745,919	190,784	511,230	60,237	53,457	102,344	301,228	157,377	2,122,576

Geographical distribution according to obligors' country of domicile.

Exposure amounts for off balance sheet items are after application of relevant conversion factors.

Credit exposure by exposure class and industry

Exposure, SEK m	2008-12-31
Institutions	341,969
Corporates	826,685
of which Finance and insurance	69,480
Wholesale and retail	66,143
Transportation	34,841
Shipping	34,671
Business and household services	111,445
Construction	15,721
Manufacturing	182,973
Agriculture, forestry and fishing	6,709
Mining and quarrying	16,547
Electricity, gas and water supply	37,606
Property management	216,984
Other	33,565
Securitisation positions	67,487
Retail mortgages	350,501
Other exposure classes	27,248
Total IRB approach	1,613,890
Central governments and central banks	176,674
Local governments and authorities	131,037
Administrative bodies, non-commercial undertakings	3,216
Institutions	18,610
Corporates	29,307
of which Finance and insurance	1,781
Wholesale and retail	1,484
Transportation	159
Shipping	180
Business and household services	6,106
Construction	134
Manufacturing	1,128
Agriculture, forestry and fishing	238
Mining and quarrying	9
Electricity, gas and water supply	1,018
Property management	5,453
Other	11,617
Retail	91,621
Exposures secured by real estate property	15,484
Past due items	1,378
Securitisation positions	3,163
Other items	38,196
Total Standardised approach	508,686
Total	2,122,576

Exposure amounts for off balance sheet items are after application of relevant conversion factors. The above does not include exposures that are reported according to trading book rules.

Credit exposure by remaining maturity

Exposure 2008-12-31, SEK m	< 3 months	3 < 6 months	6 < 12 months	1 < 5 years	5 years <	Total
Institutions	95,168	20,292	14,585	138,397	73,527	341,969
Corporates	195,688	51,082	78,269	297,213	204,433	826,685
Securitisation positions	2,579	335	2,883	2,272	59,418	67,487
Retail mortgages	12,602	3,018	4,113	20,727	310,041	350,501
Other exposure classes	1,382	907	19,210	4,905	844	27,248
Total IRB approach	307,419	75,634	119,060	463,514	648,263	1,613,890
Central governments and central banks	144,042	2,173	8,043	10,243	12,173	176,674
Local governments and authorities	45,217	4,869	8,759	47,419	24,773	131,037
Administrative bodies, non-commercial
undertakings	165	565	9	1,948	529	3,216
Institutions	6,695	7	1,129	7,489	3,290	18,610
Corporates	8,535	817	1,907	13,564	4,484	29,307
Retail	17,280	1,245	10,024	28,650	34,422	91,621
Exposures secured by real estate property	2,198	1,097	826	2,191	9,172	15,484
Past due items	682	9	370	106	211	1,378
Securitisation positions	1,672	44	1,394	53	0	3,163
Other items	13,054	16	1,189	20,210	3,727	38,196
Total Standardised approach	239,540	10,842	33,650	131,873	92,781	508,686
Total	546,959	86,476	152,710	595,387	741,044	2,122,576

Exposure amounts for off balance sheet items are after application of relevant conversion factors.

Definition of impairment, etc.

Like all financial assets on the balance sheet (except those classified at fair value through profit or loss) loans and receivables are tested for impairment on each balance sheet date. A financial asset or group of financial assets is impaired if there is objective evidence that something has happened after the asset was initially recognised ("loss event") that will impact the future cash flow according to the contract. Events of this nature may include

• restructuring of the loan where a concession is granted
• due to the borrower's financial difficulty
• a default in the payment of interest or principal • it is probable that the borrower will go bankrupt.

The impairment loss is measured as the difference between the carrying amount of the loan and the discounted value of the estimated future cash flow. A specific

provision of equal size is recorded in an allowance account. As soon as it is possible to determine the amount that cannot be recovered from the borrower or from a sale of collateral it is written off and the provision is reversed by the same amount. Similarly, the provision is reversed if the estimated recovery value exceeds the carrying amount.

In addition to an individual impairment test, a collective assessment is made of the value of loans that have not been deemed to be impaired on an individual basis. Loans with similar credit risk characteristics are grouped together and assessed collectively for impairment. The Group's internal risk classification system constitutes one of the components forming the basis for determining the total amount of the collective provision.

Certain homogeneous groups of individually insignificant credits (e.g. credit card claims) are valued on a portfolio basis only. Provision models have been established on the basis of historical credit losses and the status of these claims.

Impaired loans (gross) by industry

Corporate exposures in all exposure classes

	Impaired and	Impaired but
2008-12-31, SEK m	non-performing	performing	Total
Finance and insurance	38		38
Wholesale and retail	1,058	19	1,077
Transportation	156	3	159
Shipping	11		11
Business and household services	1,016	2	1,018
Construction	302	29	331
Manufacturing	1,392	199	1,591
Agriculture, forestry and fishing	66		66
Mining and quarrying			0
Electricity, gas and water supply	12	46	58
Property management	4,235	619	4,854
Other	1,116	11	1,127
Total	9,402	928	10,330

Impaired loans (gross) by geography

Total exposures in all exposure classes

2008-12-31, SEK m	Impaired and non-performing	Impaired but performing	Total
Sweden	1,556	32	1,588
Other Nordic	862		862
Germany	4,903	802	5,705
Estonia	1,161	126	1,287
Latvia	1,346		1,346
Lithuania	2,867		2,867
Other Europe	46	1	47
Other	209		209
Total	12,950	961	13,911

Geographical distribution according to lending company's country of domicile.

Provisions and write-offs on impaired loans

SEK m	2008-12-31
Provisions:
Net collective provisions	–1,303
Specific provisions	–1,718
Reversal of specific provisions no longer required	336
Net provisions for contingent liabilities	–56
Net provisions	–2,741
Write-offs:
Total write-offs	–1,428
Reversal of specific provisions utilized for write-offs	699
Write-offs not previously provided for	–729
Recovered from previous write-offs	239
Net write-offs	–490
Net credit losses	–3,231

Change of reserves for impaired loans

SEK m	Collective reserves	Specific reserves
Opening balance, 2008-01-01	2,601	3,787
Net collective provisions	1,303
Specific provisions		1,718
Reversal of specific provisions utilized for write-offs		–699
Reversal of specific provisions no longer required		–336
Currency differences, group structure changes, reclassifications etc.	293	552
Closing balance, 2008-12-31	4,197	5,022

Credit risk mitigation strategies

Credit approvals are based on an evaluation of the counterparty's creditworthiness and the type of credit arrangement, both for a transaction and in total for that counterparty. Consideration is given to the counterparty's current and projected financial condition and also to the protection given by covenants, collateral, etc. in the event of credit quality deterioration.

In the selection of a particular credit risk mitigation technique consideration is given to its legal enforceability, its suitability for the particular counterparty, and to the organisation's experience and capacity to manage and control the particular technique.

The most important credit risk mitigation techniques are different types of collateral arrangements, guarantees / credit derivatives and netting agreements. Real estate mortgages, high quality securities and cash represent the most common types of collaterals. Close-out netting agreements are widely used for derivative, repo and securities lending transactions (while on balance sheet netting is a less frequent practice).

For large corporate customers, credit risk is commonly mitigated through the use of covenants, including negative pledges. Independent and professional credit analysis is particularly important for this customer segment. The Merchant Banking division has a credit analysis function that provides independent analysis and credit opinions to the divisions' business units as well as to the credit committees.

Banks, securities firms and insurance companies are typically counterparties

in more sophisticated risk mitigation transactions, such as credit derivatives. SEB's credit policy requires the credit derivative counterparty to be of the highest credit quality.

The credit portfolio is continually analyzed for risk concentrations to geographical and industry sectors and to single large names - both as concerns direct exposures and for issuers of collateral, guarantees and credit derivatives.

All non-retail collateral values are reviewed at least annually by the relevant credit committee. Collateral values for watch-listed engagements are reviewed on a more frequent basis. The general rule is that the value of the collateral shall be calculated on the basis of the estimated market value of the asset with a conservative discount. The market value shall be documented by an independent external valuation or, when applicable, by a well justified internal estimate.

The general control process for various credit risk mitigation techniques includes credit review and approval requirements, specific credit product policies, and credit risk monitoring and control. The value of both the exposure and the mitigating collateral are monitored on a regular basis. The frequency depends on the type of counterparty, the structure of the transaction and the liquidity of the hedge instrument. The control process does differ among instruments and business units. For example within the Merchant Banking division there is a collateral management unit responsible for the daily collateralisation of exposures in trading products, i.e. FX and derivative contracts, repos and securities lending transactions.

Credit risk mitigation

		Protection via guarantees and	Protection via pledged	Of which, financial
2008-12-31, SEK m	Exposure	credit derivatives	collaterals	collaterals
Institutions	341,969	4,798	23,352	23,314
Corporates	826,685	37,843	189,702	41,368
Securitisation positions	67,487
Retail mortgages	350,501	5	273,900	378
Other exposure classes	27,248		2,901	33
Total IRB approach	1,613,890	42,646	489,855	65,093
Central governments and central banks	176,674	852	7,129	7,071
Local governments and authorities	131,037	55	134
Administrative bodies, non-commercial undertakings	3,216	204
Institutions	18,610	40	11	11
Corporates	29,307	9	34	34
Retail	91,621	19	280	257
Exposures secured by real estate property	15,484	15	12,464
Past due items	1,378		404
Securitisation positions	3,163
Other items	38,196
Total Standardised approach	508,686	1,194	20,456	7,373
Total	2,122,576	43,840	510,311	72,466

Exposure amounts for off balance sheet items are after application of relevant conversion factors.

Only CRM arrangements eligible in capital adequacy reporting are represented above.

Securitisations

SEB does not regularly securitise its assets, and has no outstanding own issues. In addition, the Group does not operate any Asset Backed Commercial Paper (ABCP) conduit or similar structure. Thus, most of the securitisation RWA framework is of less relevance for the Group.

SEB provides liquidity facilities to three US conduits; these can only be used for clients' trade, lease or consumer receivables transactions and not for other assets. The liquidity facilities have not been drawn by the conduits.

As part of its diversified investment portfolio SEB holds securitisation posi-

tions in others' issues. These are reported according to the External Rating approach, and the absolute majority consists of super senior tranches. Some holdings have been downgraded from AAA but all are performing. The highest risk weight (1.325%) is applicable for holdings with lower than BB rating.

Securitisation positions (except those held for trading) are accounted for as Available For Sale assets (market value changes do not affect profit & loss but are booked to the equity account) or as Loans and Receivables (on an amortized cost basis).

SEK m, 2008-12-31 S&P / Moody's Exposure Risk weight External rating AAA/Aaa 58,833 7.4% External rating AA/Aa 1,574 8.5% External rating A/A 5,141 11.0% External rating BBB/Baa 1,719 44.8% External rating BB/Ba 183 560.6% External rating BCCC/BCaa 21 1.325.0% Inferred rating AAA/Aaa equiv. 16 7.4% Standardised A/A 3,163 50.0% Total 70,650	Reporting approach
			RWA
			4,366
			133
			566
			770
			1,024
			284
			1
			1,581
			8,725

Securitisations by asset type

Total	70,650		8,725
Conduit financing	9,062	27.9%	2,524
Securities backed with other assets	10,429	7.4%	774
of which, sub-prime	1,311	75.6%	991
RMBS, Residential mortgage backed securitisations	24,298	13.6%	3,300
CMO, Collateralised mortgage obligations	7,063	7.4%	524
CMBS, Commercial mortgage backed securitisations	4,528	7.5%	339
CLO, Collateralised loan obligations	10,936	7.4%	811
CDO, Collateralised debt obligations	4,334	10.5%	453
SEK m, 2008-12-31	Exposure	Risk weight	RWA

Standardised approach

Credit quality step

SEB's reporting according to the Standardised approach mainly refers to exposures to the public sector, to retail companies, and to other household exposures than those secured by residential mortgage. A minor share of exposures to institutions and corporates also remains at the Standardised approach. Rolling out the Group's Basel II plan all of these except the public sector exposures will become part of IRB reporting over the next couple of years.

Thus, the overwhelming majority of exposures where external rating is used to determine the risk weight has to do with central governments, central banks and local governments and authorities. According to the regulation, either the rating from an export credit agency (such as Exportkreditnämnden in Sweden or Euler Hermes in Germany) shall be used, or the (second best) country rating from eligible credit assessment agencies Moody's, S&P, Fitch and DBRS. In no case has it been necessary to use an issue rating where an issuer rating was missing.

Following regulation, local authorities e.g. in Sweden and Germany are risk weighted based on the rating of the corresponding central government, and not on the local authorities' own rating.

The table below displays Basel II reported exposures to central governments, central banks and local governments and authorities, broken down by credit quality. As shown under the heading Credit risk mitigation these exposures are predominantly unsecured.

SEK m, 2008-12-31	Equivalent S&P rating	Exposure
1	AAA/AA	300,878
2	A	1,228
3	BBB	5,055
4/5	BB/B	545
6	CCC and worse	5
Total		307,711

IRB approval and implementation plan

SEB started to use internally developed credit risk models for the majority of the non-retail portfolios (Foundation IRB) and for retail mortgage portfolios (Advanced IRB) in Sweden and Germany in the calculation of legal capital requirements from 1 February 2007, when the Basel II framework came into force in Sweden.

Internally developed credit risk models for remaining non-retail and retail portfolios of significant size will be rolled-out in accordance with the SEB Group rollout plan which has been agreed with Finansinspektionen and local supervisors. During 2007 and 2008 SEB has continued to implement IRB models for the remaining credit risk portfolios in the Group where amongst others the non-retail and retail portfolios in the Group's banks in Estonia, Latvia and Lithuania were included. As the first bank in both Latvia and Lithuania SEB received an approval for IRB reporting from January 2008, and reports accordingly from the first quarter 2008. The majority of the Estonian exposures are IRB reported from the third quarter 2008.

SEB is currently rolling out revolving retail exposures and other portfolios in the Group's credit card business for IRB implementation, and continues implementation work for further exposure classes.

The ultimate target is Advanced IRB reporting for all the Group's credit exposures, except those to central governments, central banks and local governments and authorities, and excluding a small number of insignificant portfolios where IRB implementation would be statistically unreliable and too costly.

Structure of risk class scale in PD dimension

For mortgages and other retail exposures a scoring methodology is used at credit granting time, and for assignment of exposures to risk-wise homogeneous pools at RWA calculation time. Details of scoring criteria and pool structures depend on the kind of business pursued, and differ between portfolios and countries.

All non-retail obligors on whom the Group has credit exposure are assigned an internal risk class that reflects the risk of default on payment obligations. The risk classification scale has 16 classes, with 1 being the best possible risk and 16 being the default class. Risk classes 1–7 are considered "investment grade",

while classes 13–16 are classified as "watch list".

The table below exposes lower and upper probability of default (PD) values for aggregates of SEB risk classes, and displays an approximate relation to two rating agencies' scales. Such relation is based on similarity between the method and the definitions used by SEB and these agencies to rate obligors, a similarity which in turn leads to reasonable correspondence between SEB's mapping of risk classes onto PD values, and default statistics published by the agencies.

	Risk class	Lower PD	Upper PD	Moody's	S&P
Investment grade	1–4	0.00%	0.08%	AaaA3	AAAA–
	5–7	0.08%	0.32%	Baa	BBB
On-going business	8–10	0.32%	1.61%	Ba	BB
	11–12	1.61%	5.16%	B1/B2	B+/B
Watch list	13–16	5.16%	100.00%	B3C	B–D

SEB uses the risk classes for decisions on credit limits and for structuring the monitoring, managing and reporting of the credit portfolio.

The risk classes and associated PD estimates are also a fundamental input when calculating the economic capital attributable to exposures, thus linking into pricing and performance measurement processes. The Group's overall economic capital is an important factor in SEB's internal capital assessment process.

Likewise, estimates of Loss-Given-Default parameters are linked to these applications. Processes for managing and recognising credit risk protection are outlined in following sections.

The performance of the risk rating system itself is regularly reviewed by the Credit Risk Control Unit in accordance with the Instructions for Validation of Credit Risk Class Assignment Systems. The validation is done in order to both secure that the Credit Risk Class Assignment system is working satisfactorily and that it is used in accordance with the internal rules and instructions. Assessing the discriminatory power and evaluation of the through-the-cycle PD (SEB Masterscale) is monitored on a quarterly basis. The validation is performed by personnel within the bank who are independent of those responsible for risk class assignment of counterparties.

Credit risk rating and estimation

The SEB Group Risk Class Assignment (RCA) System is a tool for assigning risk classes between 1 and 16 to non-retail obligors covering financial institutions and corporates, including real estate lending and specialised lending. SEB uses the same risk classes, PD scale and overall rating approach for all obligors, with some fine tuning of components to reflect the special characteristics of certain industries, for example financial institutions and shipping.

The SEB Group RCA System is based on traditional standards of credit analysis covering business risk and financial risk, where the obligor's circumstances are assessed against a set of descriptive definitions. Financial ratios, peer group comparison and scoring tools are used to enhance the risk assessment of obligors. The SEB Group RCA System uses a template in the form of a Risk Class Worksheet which is reviewed by SEB's credit authorities in conjunction with review of the obligor and facilities in each Credit Application.

All risk classes are subject to a minimum annual review by a credit approval authority. High-risk exposures (risk classes 13–16) are subject to more frequent reviews in order to identify potential problems at an early stage, thereby increasing the chances of finding constructive solutions.

For retail exposures, assignment of exposures to PD pools is done via a scoring methodology where the most important factors are measures of payment behaviour. New exposures without a history in the bank are scored using a model provided by an external vendor using openly available information and well tested risk drivers.

SEB uses through-the-cycle PD estimates, which reflect the expected long term average default frequency over a full business cycle for a given risk class. The PD values are calculated as averages of the internal historical observed default frequencies over one or more full business cycles. In those geographies where internal data has been insufficient, external data has been used to extrapolate the time series to span full business cycles. This has been performed using sophisticated methods based on regression analysis of macro economic parameters and their correlation to internally observed default frequencies.

Similarly LGD and CCF estimates are based on the Group's historical data together with relevant external data used e.g. for business cycle calibration.

IRB reported credit exposures by risk class
---------------------------------------------	--	--	--	--	--

2008-12-31, SEK m	Risk class	PD Range	EAD	RWA	Average risk weight
Institutions	1–4	0 < 0.08%	289,358	36,225	12.5%
	5–7	0.08 < 0.32%	46,489	14,798	31.8%
	8–10	0.32 < 1.61%	4,111	2,968	72.2%
	11–12	1.61 < 5.16%	1,265	942	74.5%
	13–16	5.16 < 100%	746	967	129.6%
Total Institutions			341,969	55,900	16.3%
Corporates	1–4	0 < 0.08%	160,927	23,617	14.7%
	5–7	0.08 < 0.32%	203,898	82,573	40.5%
	8–10	0.32 < 1.61%	373,038	268,218	71.9%
	11–12	1.61 < 5.16%	53,908	54,543	101.2%
	13–16	5.16 < 100%	34,914	35,530	101.8%
Total Corporates			826,685	464,481	56.2%
Securitisation positions	AAA/Aaa		58,849	4,367	7.4%
	AA/Aa		1,574	133	8.5%
	A/A		5,141	566	11.0%
	BBB/Baa		1,719	770	44.8%
	BB/Ba		183	1,024	560.6%
	BCCC/BCaa		21	284	1.325.0%
Total Securitisation positions			67,487	7,144	10.6%
Retail mortgages		0 < 0.2%	91,919	3,419	3.7%
		0.2 < 0.4%	127,215	8,229	6.5%
		0.4 < 0.6%	27,356	6,252	22.9%
		0.6 < 1.0%	50,538	9,580	19.0%
		1.0 < 5.0%	38,535	17,199	44.6%
		5.0 < 10%	5,775	5,489	95.0%
		10 < 30%	4,435	5,204	117.3%
		30 < 50%	1,632	1,255	76.9%
		50 < 100%	3,096	1,209	39.1%
Total Retail mortgages			350,501	57,836	16.5%
Other IRB reported exposure classes			27,248	6,985	25.6%
Total IRB reported credit exposures			1,613,890	592,346	36.7%

Exposure amounts for off balance sheet items are after application of relevant conversion factors.

PD – Probability of Default - through-the-cycle adjusted one-year probability, estimated for each risk class (non-retail) and pool of homogeneous obligors (retail). The above does not include exposures that are reported according to trading book rules.

IRB reported exposures with own estimates of LGD

2008-12-31, SEK m	LGD	Exposure amount
Retail mortgages	0 < 1%	144,300
	1 < 10%	68,252
	10 < 20%	43,161
	20 < 30%	23,207
	30 < 40%	23,179
	40 < 50%	27,797
	50% <	20,605
Total	14,9%	350,501

LGD – Loss Given Default - statistically expected loss in the event of default, expressed as a percentage of exposure in the event of default. The overall average is a forward-looking estimate at 2008-12-31, thus it differs slightly from the value quoted under the heading "Comparison between expected and actual losses", which is forward-looking at 2007-12-31.

IRB reported exposures with own estimates of CCF

2008-12-31, SEK m		Original exposure	Exposure after CCF	Average CCF
Advanced IRB retail	Retail mortgages	19,919	14,325	71.9%
Total		19,919	14,325	71.9%

CCF – Credit Conversion Factor – statistically expected exposure in the event of default, expressed as a percentage of a contract' s nominal amount.

Comparison between expected and actual losses

Retail mortgages

For retail mortgages, reported as IRB Advanced, the average probability of default at end of year 2007 was 1.24% and the corresponding observed default frequency during 2008 was 0.64%. (Baltic portfolios are part of all averages reported here, even though they were not officially IRB reported at year end 2007 but rolled-out during 2008.) The average LGD estimate at end of 2007 of 16.1% is a recession adjusted value and since 2008 was still a quite strong year the actual LGD outcome during 2008 was lower, especially in Swedish and German portfolios.

The expected loss for non-defaulted exposures was estimated to 0.25 per cent at end of year 2007. The realised loss level through actual defaults during 2008 was 0.02 per cent. This is considerably lower than the expected loss for several reasons. Especially in Sweden, but also in Germany, the observed default rates for retail mortgages have been significantly below the long term average expected default rates for these portfolios. Higher recoveries than estimated have also contributed to observed LGD levels well below the down turn adjusted estimate.

In comparison (even though accounting loss differs in concept from economic loss in an capital adequacy sense) total credit losses 2008 for the Group's retail mortgages amounted to 430 MSEK, some 0.13 per cent of the average portfolio volume. This includes losses through outright defaults, as well as provisioning and build-up reserves for homogeneous groups of mortgage exposures.

Exposure at default for the retail mortgage portfolio is calculated using a credit conversion factor of 100 per cent except for undisbursed loan commitments, where an estimate of disbursal rate is made. The volume of undisbursed commitments is insignificant in this portfolio.

Non-retail portfolios

For the non-retail portfolios, reported as IRB Foundation, the counterparty weighted probability of default for 2008 was 1.61% (non-defaulted exposures only) and the corresponding observed default frequency was 0.77%. Thus the observed value falls short of the estimated long-term average in spite of the approaching economic down-turn.

Counterparty risk in derivative contracts

SEB enters into derivative contracts primarily to offer clients products for management of their financial exposures, and then manages the resulting positions through entering offsetting contracts in the market place. The Group also uses derivatives for the purpose of protecting the cash-flows and fair value of financial assets and liabilities from interest rate fluctuations.

Positive market values on derivative contracts imply a counterparty risk, which SEB actively manages. Close-out netting agreements (giving the ability to offset positive market values against negative market values) are disregarded in accounting but form a very important part of the Group's credit risk mitigation strategy. In order to reduce the counterparty exposure in event of default SEB strives to enter into close-out netting agreements as well as collateral agreements with all major derivative counterparties. The counterparties are mainly Swedish and international banks of very high quality.

Netting and collateral agreements could contain rating triggers. SEB has a

very restrictive policy in respect of rating-based levels for thresholds and minimum transfer amounts related to the provision of collateral in derivative master agreements. In addition, asymmetrical levels require specific approval from a deviation committee. Rating-based thresholds have only been accepted for a very limited number of counterparties. Further, rating triggered termination events are as a general rule not accepted. Deviations require approval from head of Group Treasury.

For capital adequacy reporting as well as for establishing and monitoring credit limits SEB uses the Current Exposure method (market value plus a schematic add-on for the potential future exposure). For calculation of internal capital an in-house developed model is used to calculate an Expected Positive Exposure style of measure. This calculation is based on the Group's Value at Risk model for market risk.

Derivative contracts

Credit risk mitigation effects, SEK m	08-12-31
Gross positive fair value of contracts	259,581
Netting benefits	–189,020
Value after netting benefits	70,561
Collateral benefits	–8,965
Value after netting and collateral benefits	61,596

The Group's total credit exposure for derivative contracts is SEK m 130,367.

This number is after netting benefits but before collateral benefits, and includes add-on for potential future exposure.

Credit derivatives
--------------------

Nominal amounts, 2008-12-31, SEK m	Reduces the risk	Adds to the risk
Credit derivatives hedging exposures in own credit portfolios
– Credit default swaps	2,241	0
– Total return swaps	0	0
– Credit linked notes	220	0
Subtotal	2,461	0
Credit derivatives in trading operations
– Credit default swaps	15,613	13,538
– Total return swaps	12,609	0
– Credit linked notes	75	0
Subtotal	28,297	13,538
Total	30,758	13,538

Credit derivatives in the trading operations to a large extent represent hedges of bonds that are held for trading.

Operational risk

During 2008 SEB received supervisory approval to use the Advanced Measurement approach (AMA) for operational risk on Group level, and reports accordingly starting from the second quarter. The approval is an acknowledgement of SEB's long-time experience and expertise in operational risk management, including incident reporting, operational loss reporting, capital modelling, quality assessment of processes etc.

SEB's AMA model is structured along the regulatory-defined business lines for operational risk, and income per such business line serves as a size measure in the calculation. Once the Group-level capital requirement has been decided, it can be sub-allocated to Group units in a fashion which is similar to the mechanics of the Standardised approach – however using capital multipliers representing each business line's riskiness as assessed in the model. This procedure is used both for reporting of legal capital requirements on lower levels than the Group (where approved by local supervisors, else the Basic Indicator approach is used), and for determining the operational risk component of internally allocated capital.

SEB quantifies operational risk with a Loss Distribution approach, using internal data and external information on operational losses that have actually occurred in the global financial sector. The AMA framework requires calculation

of both expected and unexpected operational losses. The calculation of expected losses takes into account internal SEB loss statistics while unexpected losses are calculated based on statistics of external losses larger than a certain threshold.

The quality of the risk management of the divisions, based upon their self-assessment, is taken into account as well. Effective operational risk management results in a lower allocation of capital.

SEB's AMA-derived capital requirement for operational risk is not affected by any insurance agreement to reduce or transfer the impact of operational risk losses.

The model is also used to calculate economic capital for operational risk, albeit on a higher confidence level and with the inclusion of loss events relevant for Life insurance operations.

As a supporting tool, SEB uses an IT-based infrastructure for management of operational risk, security and compliance. All staff in the Group is required to use the system to register risk-related issues and management at all levels to identify, assess, monitor and mitigate risks. This facilitates management of operational risk exposures and minimises the severity of incidents in progress.

Trading book market risk

Since 2001 SEB holds a supervisory approval to use its internally developed VaR model for calculating capital requirements for general interest rate, foreign exchange rate and equity price risk in the parent bank. The model maps positions onto risk buckets for market rates and other key risk drivers. For each modelled currency the model keeps track of the government and the swap yield curve. Equities are modelled against a set of equity indices, with beta adjustment for each position. Volatility in and correlation between risk drivers is measured over a one year history.

SEB also uses its VaR model for risk management and risk control across the entire Group, not only in the parent bank. For such internal applications certain model parameters are assigned slightly deviating values, compared to usage for regulatory reporting.

The use of the VaR model is supplemented with measures of interest rate and credit spread sensitivity, foreign exchange exposure and option activities. Scenario analyses and stress tests are made on a regular basis. For example, existing positions are analysed in historical or potential market crisis scenarios and risk levels in the portfolio are assessed without diversification effects. Six historical crisis scenarios from 1987 onwards are modelled in detail, and the performance of SEB's actual portfolio under each of those is reported to management on a monthly basis.

Backtesting is performed by comparison of daily trading result against the daily Value-at-Risk outcome. For this analysis, a theoretical result is calculated with updated market data where as the end-of-day positions are remained unchanged. The theoretical result is calculated as the sum of changes in modelled market prices times the market value exposed to each risk factor. Backtesting shall verify that losses have not exceeded the VaR level during significantly more than one per cent of the trading days. During the market turmoil in 2007 and 2008, SEB found that its VaR model, on average, underestimated the 99th percentile by 23 per cent looking at historical data. As a consequence, and with supervisory approval, the model has been re-calibrated to a 23 per cent higher level.

EU Directive 2006/49/EG is implemented in Swedish law and regulations, and is thus a binding constraint for the Group's risk management of positions in the trading book. Market risks in the trading operations arise from the Group's customer-driven trading activity, where SEB acts as a market maker for trading in the international foreign exchange, money and capital markets. The risks are managed at the different trading locations within a comprehensive set of limits in VaR, stoploss and delta-1 terms, with a supplementary limit structure for nonlinear risks. The risks are consolidated each day on a Group-wide basis by Market Risk Control for reporting to the Executive Management. Market Risk Control is present in the trading room and monitors limit compliance and market prices at closing, as well as valuation standards and the introduction of new products.

The following table summarises ten-day trading book VaR for SEB during the year. The measure was affected by the turbulence in the financial markets, which caused high volatility throughout the year. Even though the Group reduced trading book exposures, average trading VaR during 2008 was 65 per cent higher than in 2007.

Trading book VaR

SEK m	Min 2008	Max 2008	2008-12-31	Average 2008	Average 2007
Interest rate risk	57	282	203	146	64
Foreign exchange rate risk	4	165	132	34	21
Equity price risk	18	230	41	75	75
Diversification			–111	–104	–68
Total	69	308	265	151	92

Above numbers are for internal risk management and control purposes.

They are calculated for the entire Group, with a time-weighted market data history.

Thus they are not directly comparable to the VaR-based capital requirements stated above.

Which are for the parent bank only, with a supervisory scale-up, and with an un-weighted market data history.

(Both calculations use a ten-day horizon and a 99 per cent confidence level though.)

Banking book market risk

Market risks in the banking book arise because of mismatches in currencies, interest rate terms and periods in the balance sheet, as well as from limited equity related holdings not part of trading activities. Group Treasury has the overall responsibility for managing these risks, which are consolidated centrally through the internal funds transfer pricing system. Small market risk mandates are granted to subsidiaries where cost-efficient, in which case Group Treasury is represented on the local Asset and Liability Committee for co-ordination and information sharing. The centralised operations create a cost-efficient matching of liquidity and interest rate risk in all non-trading related business.

Banking book market risk is monitored both from a value perspective (Delta 1% and VaR) and from an income perspective (sensitivity in net interest income, NII).

NII is exposed to external factors such as yield curve movements and competitive pressure. The NII risk depends on the overall business profile, especially mismatches between interest-bearing assets and liabilities in terms of volumes and repricing periods (see below). The NII is also exposed to a "floor" risk. Asymmetries in pricing of products (deposit rates cannot really go below zero) create a margin squeeze in times of low interest rates, making it relevant to analyse both "up" and "down" changes.

As concerns the value perspective, the Delta 1% measure is defined as the change in market value of the Group's interest-bearing assets and liabilities arising from an adverse one percentage unit parallel shift in all interest rates in each currency. By year end this sensitivity amounted to SEK 1.46bn in the banking book.

The table below displays VaR for the banking book. The measure was affected by the turbulence in the financial markets, which caused high volatility throughout the year. In consequence, banking book VaR rose by 22 per cent compared to 2007. VaR for the banking book is calculated using unweighted market data, and thus shows a more protracted reaction to changes in volatility than does trading book VaR.

As a complement to VaR, foreign exchange risk is also measured by Single and Aggregated FX. Single FX represents the single largest net position, short or long, in non-SEK currencies. Aggregated FX is arrived at by calculating the sum of all short non-SEK positions and the sum of all long non-SEK positions. Aggregated FX is the largest of these two absolute values.

Banking book VaR

SEK m	Min 2008	Max 2008	2008-12-31	Average 2008	Average 2007
Interest rate risk	189	592	592	323	251
Foreign exchange rate risk	1	109	109	24	25
Equity price risk	1	137	53	54	47
Diversification			–146	–83	–63
Total	174	608	608	318	260

The following table exposes repricing periods for the Group's overall balance sheet

SEB Group, 2008-12-31, SEK m

Assets	< 1 month	1 < 3 months	3 < 6 months	6 < 12 months	1 < 3 years	3 < 5 years	5 years <	Non rate	Insurance	Total
Loans to credit
institutions	175,533	16,628	5,409	2,296	32,261	22,856	9,704	–96	1,772	266,363
Loans to the public	611,287	149,510	74,071	81,761	134,674	107,965	129,460	8,049		1,296,777
Financial assets	219,112	97,634	44,161	23,365	100,175	9,395	59,583	97,610	208,914	859,949
Other assets	924	95	87	183	3			68,577	17,744	87,613
Total	1,006,856	263,867	123,728	107,605	267,113	140,216	198,747	174,140	228,430	2,510,702
Liabilities and equity
Deposits by credit institutions	292,851	69,424	21,989	24,619	1,093	5,384	14,065			429,425

Deposits and borrowing
from the public	644,226	47,848	48,759	17,672	5,455	17,848	56,111	3,115		841,034
Issued securities	57,542	93,721	61,152	27,297	213,495	78,766	44,414	62		576,449
Other liabilities	128,343	3,272	5,790	8,189	41,503	21,120	59,760	98,443	213,645	580,065
Total equity	6,760	331		336				67,060	9,242	83,729
Total	1,129,722	214,596	137,690	78,113	261,546	123,118	174,350	168,680	222,887	2,510,702
Interest rate sensitive,
net	–122,866	49,271	–13,962	29,492	5,567	17,098	24,397	5,460	5,543
Cumulative sensitive	–122,866	–73,595	–87,557	–58,065	–52,498	–35,400	–11,003	–5,543

Equity exposures not included in the trading book

2008-12-31, SEK m	Book value	Fair value	Fair value of listed shares	Unrealised gains/losses	Realised gains/losses	Revaluation gains/losses
Associates (venture capital holdings)	1,030	1,030		–42	–61
Associates (strategic investments)	99	99			937
Other strategic investments	2,061	2,061	882		–44
Seized shares	50	50
Total	3,240	3,240	882	–42	832	0

Investments in associates held by the venture capital organisation of the Group have in accordance with IAS 28 been designated as at fair value through profit or loss. Therefore, are these holdings accounted for under IAS 39.

Strategic investments in associates are in the Group accounted for using the equity method.

Some entities where the bank has an ownership of less than 20 per cent, has been classified as investments in associates. The reason is that the bank is represented in the board of directors and participating in the policy making processes of those entities.

All financial assets within the Group's venture capital business are managed and its performance is evaluated on a fair value basis in accordance with documented risk management and investment strategies.

Fair values for investments listed in an active market are based on quoted market prices. If the market for a financial instrument is not active, fair value is established by using valuation techniques based on discounted cash flow analysis, valuation with reference to financial instruments that is substantially the same, and valuation with reference to observable market transactions in the same financial instrument.

Equity instruments measured at cost do not have a quoted market price in an active market. Further, it has not been possible to reliably measure the fair values of those equity instruments. Most of these investments are held for strategic reasons and are not intended to be sold in the near future.

In capital adequacy reporting the holdings detailed above are reported following the Standardised approach, in the Other items category.

Further information regarding accounting principles and valuation methodologies can be found in the annual report.