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SEB — Interim / Quarterly Report 2020
Jul 15, 2020
2966_ir_2020-07-15_c37d1668-0dd1-4d7b-8774-0e4776e0bb16.pdf
Interim / Quarterly Report
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Quarterly Report
Second quarter 2020 January –June2020
STOCKHOLM 15JULY 2020
"Our financial strength enables us to provide continued support to our customers."
Statement from Johan Torgeby
Some light at the end of the tunnel but uncertainty remains
As the Covid-19 pandemic continued to spread around the world, both the global health situation and economy remained challenged throughout the second quarter. Despite some signs of increasing optimism, with demand and output data being less negative than expected, the overall economic situation was characterised by remaining uncertainty and unknowns.
Governments, central banks and financial supervisory authorities implemented additional crisis relief measures, while countries continued to gradually re-open and ease restrictions. The total size of all measures implemented corresponds to around 20 per cent of global GDP, while the equivalent number for Sweden is 22 per cent of Swedish GDP.
On the back of this decisive stimulus and a recovering sentiment, equity markets developed strongly during the quarter, reaching close to pre-crisis levels and for some equity markets even record highs. S&P 500 rose with nearly 20 per cent, which was the largest quarterly increase during the last 20 years. This optimism, compared with the macroeconomic and political challenges that we experience globally, demonstrates the perceived disconnect between financial markets and the real economy.
During the Covid-19 crisis, Sweden has applied a less restrictive approach. As a result, mobility and hence consumption have declined less compared with more restrictive European countries such as Germany, France, UK, Spain and Italy. Similarly, leading economic indicators such as Purchasing Managers' Index for the manufacturing and service industries suggest that Sweden has experienced less of an economic downturn since the beginning of the crisis. While these numbers represent some, yet small, signs of light at the end of the tunnel, visibility remains low on how deep the expected economic recession will be. We have yet to see how this situation will unfold. The economic recovery, in Sweden as well as globally, will remain dependent on the effectiveness of policy responses, the measures taken to safeguard international trade as well
as the duration of the Covid-19 pandemic. Ensuring future employment levels will be a key component in this process.
SEB continues to support its customers
We have an ambition to adapt to changing market conditions and to support our customers throughout business cycles. To achieve this long-term resilience and flexibility, SEB continuously strives to have a strong capital and liquidity position.
Our financial strength has enabled us to provide continued support to our customers, throughout these two challenging quarters. Over the last few weeks, our dialogue with clients has been less focused on credit and liquidity requests strictly related to Covid-19, shifting towards a more normalised client interaction. This development has been reflected in a reduced new inflow of Covid-19 related credit requests as well as in the number of granted grace periods on household mortgage lending and corporate lending. Still, SEB has to date this year processed pandemic-related credit requests corresponding to an amount of around SEK 139bn, which is more than twice the volume we would typically see during a full year. We have also granted grace periods on lending and pension solutions for around 28,000 customers in need of additional liquidity.
As we believe collaboration will be essential to achieve safe and efficient exit strategies from Covid-19, we continue to engage with both the public and the private sector in all our home markets. As an example, we recently arranged a vaccine bond in collaboration with the International Finance Facility for Immunisation (IFFIm) with the purpose of financing the development of an inoculation against Covid-19. Together with the pension company AMF, the insurance company AFA Insurance, the Fourth Swedish National Pension Fund (AP4), as well as the foundation asset management company FAM, SEB has established a jointly owned company to support Swedish companies in need of capital to make it through the corona crisis. Out of a total investment capacity of SEK 5bn, SEB will
contribute SEK 1bn. In addition, by financing a joint project between the Swedish recruitment company Novare, the non-profit organisation Fryshuset and the City of Stockholm, SEB contributed to the creation of 1,000 summer jobs for youths in Sweden.
Safeguarding the well-being of our employees
Our employees are our most valuable asset, side by side with a strong capital and liquidity position. To safeguard the health of our employees has been key in order for SEB to remain available to our customers during the Covid-19 pandemic. In a survey conducted by SEB in order to better understand the effectiveness of our crisis management responses and activities, the vast majority of our employees confirmed that they feel well-supported by SEB. They feel confident in how to advise our customers while also requesting more digital collaboration tools, which we are currently improving.
Resilient underlying business
Turning to SEB's financial performance, the consequences of the Covid-19 pandemic influenced the reported financial results, while the underlying business continued to show resilience.
Net interest income decreased by 2 per cent quarter-on-quarter. The rate cut by the US Federal Reserve had a temporary negative impact on net interest income; at the same time there was a positive effect in net financial income. Net interest income increased by 6 per cent year-on-year.
Net fee and commission income fell by 6 per cent quarter-on-quarter as payment and card fees were subdued. Net fee and commission income decreased by 8 per cent year-on-year.
Net financial income increased to SEK 3.5bn from SEK -0.8bn in the first quarter. The negative development with falling asset prices and widening credit spreads in the first quarter was largely reversed in the second quarter, which combined with continued high customer activity within SEB's Markets business resulted in a strong recovery. On a year-on-year basis, net financial income more than doubled.
Operating expenses increased by 1 per cent quarter-on-quarter but was largely unchanged year-onyear. A higher SEB share price resulted in increased staff costs but was partly offset by lower travel costs. The cost development continues to be in line with SEB's 2021 cost target of SEK 23bn (+/- SEK 200m), assuming 2018 FX rates.
Net expected credit losses increased to SEK 2.7bn as we continued to make provisions in line with IFRS 9, driven by an updated macroeconomic forecast. We have earlier communicated that an expected credit loss level of around SEK 6bn in 2020 would be a good outcome given the severe economic downturn. With another quarter having passed, we believe that the probability of staying at that level has increased, assuming the macroeconomic outlook outlined in SEB Nordic Outlook. However, visibility on the future remains low.
Despite headwinds, we delivered an operating profit of SEK 4.6bn and a return on equity of 8.7 per cent. At the end of the quarter, SEB's capital buffer amounted to 410 basis points.
Our work against financial crime
Our work to protect the bank from being exploited for money laundering and other forms of financial crime remains high on our agenda. SEB's ambition is, and has always been, to adhere to current regulations and our internal requirements, and to have a high standard for corporate governance, regulatory compliance and risk management. We continuously develop our abilities to prevent, detect and report suspected activity.
On 25 June, the Swedish Financial Supervisory Authority (FSA) presented its sanction decision relating to SEB's routines and processes to avoid being exploited for money laundering in SEB's Baltic subsidiary banks. The FSA issued SEB a remark which is a lower degree of administrative sanction that is issued when a breach has not been deemed to be severe. The FSA also issued SEB an administrative fine of SEK 1bn.
SEB has now analysed the decision. Despite the fact that SEB does not agree with the FSA's decision in all parts, the bank has after an overall assessment decided not to proceed with an appeal. Hereby, all Swedish and Baltic supervisory authorities have concluded their reviews regarding SEB's anti-money laundering work.
Our work to strengthen SEB's defence against money laundering will continue to be of high priority for the bank. SEB is continuously adding resources and improving our know-your-customer-process and transaction monitoring. In addition, as part of our business plan, we have a dedicated Financial Crime Prevention Programme by which we further strengthen our work. SEB assesses that the implications of the FSA's decision, including our continued activities and measures, can be accommodated within the bank's 2021 cost target.
We have also formalised a new cooperation with the Swedish police and other Nordic banks. This project, named SAMLIT project (Swedish Anti-Money Laundering Intelligence Initiative), focuses on information sharing of suspicious activities with the aim to increase efficiency and reach results on a broader scale.
For us, our continuous work to do everything we can to counter this type of crime is not only about protecting the bank from criminal exploitation, but it is also about continuing to earn the trust that our shareholders and customers have placed in us – and it is about doing our part to increase the resilience of the entire financial system.
It has always been, and continues to be, our highest priority to support our customers and our longterm customer relationships through business cycles, in good times as well as in bad times. That is how we continue to create long-term value for our shareholders as well as for society at large.
President and CEO
Secondquarter 2020
The quarter in brief
- Encouraging client activity and resilient underlying business
- Positive turn-around in financial markets reversed valuation effects
- Return on equity of 8.7 per cent, despite increased provisioning and administrative fine
- Strong capital and liquidity position, well placed to continue supporting our customers
Summary
| Q2 | Q1 | Q2 | Jan–Jun | Full year | |||||
|---|---|---|---|---|---|---|---|---|---|
| SEK m | 2020 | 2020 | % | 2019 | % | 2020 | 2019 | % | 2019 |
| Total operating income | 13 999 | 10 089 | 39 | 12 197 | 15 | 24 089 | 24 103 | 0 | 50 134 |
| Total operating expenses | -5 712 | -5 646 | 1 | -5 708 | 0 | -11 358 | -11 329 | 0 | -22 945 |
| Net expected credit losses | -2 691 | -1 494 | 80 | - 386 | -4 185 | - 808 | -2 294 | ||
| Operating profit before | |||||||||
| items affecting comparability | 5 598 | 2 950 | 90 | 6 103 | -8 | 8 547 | 11 967 | -29 | 24 894 |
| Items affecting comparability1) | -1 000 | -1 000 | |||||||
| Operating profit | 4 598 | 2 950 | 56 | 6 103 | -25 | 7 547 | 11 967 | -37 | 24 894 |
| NET PROFIT | 3 501 | 2 355 | 49 | 4 892 | -28 | 5 856 | 9 573 | -39 | 20 177 |
| Return on equity, % Return on equity excluding items affecting |
8.7 | 6.0 | 13.9 | 7.4 | 13.2 | 13.7 | |||
| comparability, % | 11.2 | 6.0 | 13.9 | 8.6 | 13.2 | 13.8 | |||
| Basic earnings per share, SEK | 1.62 | 1.09 | 2.26 | 2.70 | 4.43 | 9.33 |
1) Administrative fine issued by the Swedish FSA. See note 6.
Volumes and key ratios
Liquidity coverage & leverage ratios
CET 1 capital ratio & return on equity Per cent
Table of contents
| SEB Group | |
|---|---|
| The second quarter ________ 6 | |
| The first six months ________ 8 | |
| Business volumes _________ 9 | |
| Risk and capital__________ 10 | |
| Business development___________ 11 | |
| Other information ________ 12 | |
| Financial statements – SEB Group | 13 |
| Income statement, condensed ___________ 13 | |
| Statement of comprehensive income _______ 13 | |
| Balance sheet, condensed ________ 14 | |
| Statement of changes in equity ___________ 15 | |
| Cash flow statement, condensed__________ 16 | |
| Other financial information – SEB Group | 17 |
| Key figures_____________ 17 | |
| Income statement on a quarterly basis______ 18 | |
| Business segments – SEB Group | 19 |
| Income statement by segment ___________ 19 | |
| Large Corporates & Financial Institutions __________ 20 | |
| Corporate & Private Customers___________ 21 | |
| Baltic___________ 22 | |
| Life ____________ 23 | |
| Investment Management & group functions ________ 24 | |
| Notes to the financial statements - SEB Group | 25 |
| Note 1 Accounting policies ________ 25 | |
| Note 2 Net interest income________ 26 | |
| Note 3 Net fee and commission income ___________ 26 | |
| Note 4 Net financial income _______ 28 | |
| Note 5 Net expected credit losses_________ 28 | |
| Note 6 Items affecting comparability_______ 29 Note 7 Pledged assets and obligations______ 29 |
|
| Note 8 Financial assets and liabilities_______ 30 | |
| Note 9 Assets and liabilities measured at fair value _________ 31 | |
| Note 10 Exposure and expected credit loss (ECL) allowances by stage _______ 33 | |
| Note 11 Movements in allowances for expected credit losses (ECL) ___ 36 | |
| Note 12 Loans and expected credit loss (ECL) allowances by industry ________ 37 | |
| SEB consolidated situation | 38 |
| Note 13 Capital adequacy analysis ________ 38 | |
| Note 14 Own funds _____________ 39 | |
| Note 15 Risk exposure amount ___________ 40 | |
| Note 16 Average risk-weight ____________ 41 | |
| Skandinaviska Enskilda Banken AB (publ) – parent company | 42 |
| Income statement ________ 42 | |
| Statement of comprehensive income _______ 42 | |
| Balance sheet, condensed ________ 43 | |
| Pledged assets and obligations ___________ 43 | |
| Capital adequacy ________ 44 | |
| Signatures of the President and the Board _________ 45 | |
| Auditor's review report __________ 46 | |
| Contacts and calendar ___________ 46 | |
| Definitions _____________ 47 |
SEB Group
The second quarter
The Covid-19 pandemic characterised the second quarter. While the short- and expected long-term economic effects affected customer activity and provisioning levels, the financial markets reversed and improved significantly. The financial effects were material for SEB and affected the result in many ways. Operating profit before items affecting comparability increased by 90 per cent to SEK 5,598m from SEK 2,950m in the first quarter 2020. Operating profit amounted to SEK 4,598m (2,950). Net profit amounted to SEK 3,501m (2,355).
Operating income
Total operating income increased by SEK 3,910m, 39 per cent, compared with the first quarter 2020 and amounted to SEK 13,999m (10,089). Compared with the second quarter 2019, total operating income increased by 15 per cent.
Net interest income amounted to SEK 6,047m, which represented a decrease of 2 per cent compared with the first quarter 2020 (6,201) and an increase of 6 per cent year-onyear.
| Q2 | Q1 | Q2 | |
|---|---|---|---|
| SEK m | 2020 | 2020 | 2019 |
| Customer-driven NII | 6 821 | 6 860 | 6 238 |
| NII from other activities | -774 | -659 | -546 |
| Total | 6 047 | 6 201 | 5 692 |
Customer-driven net interest income decreased slightly to SEK 6,821m from the first quarter 2020. There was a positive contribution from both deposit margins, deposit and lending volumes across most customer segments. This was offset by somewhat lower lending margins.
The negative effect on net interest income from other activities (including for instance funding and other Treasury activities, trading and regulatory fees) was SEK 115m lower than the first quarter 2020. The rate cut by the US Federal Reserve had a temporary negative impact on net interest income; at the same time there was a positive effect in net financial income. Financing costs were lower since an AT1 bond, for which replacement was arranged in the fourth quarter 2019, was repurchased in May 2020. The total resolution and deposit guarantee fees recognised in the second quarter amounted to SEK 300m (345). The resolution fee was SEK 45m lower than the first quarter due to the final invoiced amount.
Net fee and commission income decreased by 6 per cent from the first quarter 2020 and amounted to SEK 4,364m (4,624). Year-on-year, net fee and commission income decreased by 8 per cent. The main explanatory factor was card fees which decreased significantly with the lower customer activity levels in the wake of the Covid-19 pandemic. Net payments and card fees decreased by SEK 186m to SEK 710m compared with the first quarter, and by SEK 347m year-on-year. The Covid-19 related caution among corporate customers in the first quarter eased somewhat and SEB supported customers raising financing in the capital markets. Gross fees from the issuance of securities and advisory services improved by SEK 50m to SEK 301m in the second quarter. Even though equity markets recovered during the quarter, average asset prices were lower in the second quarter compared with the first. The gross fee income from custody and mutual funds, excluding performance fees, decreased by SEK 124m to SEK 1,821m. Year-on-year, the decrease was SEK 98m. Performance fees amounted to SEK 69m, an increase of SEK 18m compared with the first quarter. Year-on-year performance fees increased by SEK 13m. The net life insurance commissions related to the unit-linked insurance business increased by 9 per cent compared with the first quarter 2020, to SEK 276m.
Net financial income increased by SEK 4,345m to SEK 3,541m. Year-on-year, net financial income increased by SEK 2,059m. The negative development with falling asset prices and widening credit spreads in the first quarter after the breakout of Covid-19 was largely reversed in the second quarter and, similarly, the related first quarter unrealised losses reversed. With narrowing credit spreads, the fair value credit adjustment1) improved by SEK 1,863m to SEK 581m in the second quarter. The market valuation of certain strategic holdings increased by SEK 938m quarter-on-quarter. Positive market valuations, both in Treasury and Markets, in combination with the effect of continued high market volatility and customer activity improved net financial income by SEK 1,202m in the second quarter. Other life insurance income, net, primarily related to the traditional portfolios both in Sweden and the Baltic countries recovered from SEK -113m in the first quarter to SEK 228m in the second quarter.
Net other income amounted to SEK 47m (68). Realised capital gains as well as unrealised valuation and hedge accounting effects were included in this line item.
Comparative numbers (in parenthesis throughout the report) Unless otherwise stated:
-the result for the reporting quarter is compared with the prior quarter -the year-to-date result is compared with the corresponding period in the prior year
-business volumes are compared with the balances in the prior quarter
1) Unrealised valuation change from counterparty risk (CVA) and own credit risk standing in derivatives (DVA). Own credit risk for issued securities (OCA) is reflected in Other comprehensive income.
Operating expenses
Total operating expenses increased by 1 per cent to SEK 5,712m (5,646). They were unchanged year-on-year.
Staff costs increased by 5 per cent compared with the first quarter. With the higher SEB share price, the cost for longterm variable remuneration programmes increased after the Covid-19-related dip in the first quarter. The effect of Covid-19 related protection measures taken partially affected other expenses, which decreased by 15 per cent, with lower travelling costs among other things. Supervisory fees amounted to SEK 39m (41).
Net expected credit losses
Net expected credit losses increased by 80 per cent to SEK 2,691m in the second quarter (1,494), corresponding to a net expected credit loss level of 46 basis points. Asset quality indicators such as past due loans remained unchanged during the quarter.
There was limited impact from the Covid-19 pandemic on the larger portfolios such as large corporates, households, and small and medium-sized companies in Sweden and the Baltic countries, which to some extent may be due to various government support measures particularly targeted at small and medium-sized companies and households. Effects were mainly seen in exposures which were weaker already before the Covid-19 outbreak. This includes certain sub-segments of the oil portfolio, mainly offshore, which continued to be challenged by slow activity due to the low oil prices. This led SEB to increase provisions for a handful of specific counterparties in the sector explaining the majority of the quarter's net expected credit losses. Furthermore, the model overlay for the oil-related exposures made in the first quarter was increased by SEK 365m.
In the second quarter, more negative macroeconomic scenarios were applied in the impairment modelling, to reflect the expected impact caused by Covid-19, adding SEK 563m to the net expected credit losses. Since various state support measures for corporates and private individuals may have delayed the impact from the economic downturn on asset quality, the Covid-19-related model overlay made in the first quarter was increased by SEK 105m in the second quarter.
The majority of the net expected credit losses in the second quarter, SEK 2,211m, related to the Large Corporate & Financial Institutions division. See further comments on uncertainties on page 12 and note 10-12.
Items affecting comparability
Items affecting comparability amounted to SEK -1,000m (0). The Swedish Financial Supervisory Authority (FSA) finalised its review of SEB's governance and control of measures against money laundering in SEB's Baltic banks. The Swedish FSA decided to issue SEB a remark, which is a lower degree of an administrative sanction that is issued when a breach has not been deemed to be severe. The Swedish FSA also decided to issue SEB an administrative fine of SEK 1,000m, which corresponds to about 14 per cent of the maximum amount the Swedish FSA can impose in this case, as well as a precept to take certain measures to improve the transaction monitoring in Sweden.
Income tax expense
In line with the increase in the operating profit, the income tax expense rose to SEK 1,096m (595) with an effective tax rate of 24 per cent (20). The effective tax rate increase is explained by the fact that the administrative fine described above is not tax deductible.
Return on equity
Return on equity for the second quarter 2020 increased to 8.7 per cent (6.0). Return on equity excluding items affecting comparability was 11.2 per cent (6.0).
Other comprehensive income
Other comprehensive income amounted to SEK -546m (-989). The value of SEB's pension plan assets exceeded the defined benefit obligations to the employees. The pension obligation increased when the discount rate changed from 1.35 to 1.10 per cent. At the same time, as the conditions in the financial markets improved, the value of the pension assets increased, and the net value of the defined benefit pension plans increased which affected other comprehensive income by SEK 558m (-1,832).
The net effect from the valuation of balance sheet items that may subsequently be reclassified to the income statement, i.e. cash flow hedges and translation of foreign operations amounted to SEK -827m (571).
The first six months
The financial effect of the Covid-19 crisis was apparent when comparing the result for the first half of 2020 with the corresponding period 2019. Operating profit before items affecting comparability decreased by 29 per cent from SEK 11,967m to SEK 8,547m in the first six months of 2020. In the same period, operating profit decreased by 37 per cent to SEK 7,547m. Net profit amounted to SEK 5,856m (9,573).
Operating income
Total operating income amounted to SEK 24,089m, which was virtually unchanged compared with the corresponding period 2019 (24,103).
Net interest income amounted to SEK 12,249m, representing an increase of 11 per cent year-on-year (11,037). In December 2019, the Swedish central bank announced a repo rate increase from -0.25 to zero per cent.
| Jan–Jun | ||||||
|---|---|---|---|---|---|---|
| SEK m | 2020 | 2019 | % | |||
| Customer-driven NII | 13 681 | 12 604 | 9 | |||
| NII from other activities | -1 433 | -1 567 | -9 | |||
| Total | 12 249 | 11 037 | 11 |
Customer-driven net interest income increased by SEK 1,077m compared with the first six months of 2019. Lending and deposit volumes improved the net interest income and there was a significant positive effect from the repo rate increase on deposit margins. This was offset by a negative lending margin effect.
The negative effect on net interest income from other activities (including for instance funding and other Treasury activities, trading and regulatory fees) was SEK 134m lower than the first six months 2019. The resolution fund fee decreased to SEK 462m (864). In 2020, the resolution fund fee was lowered to 0.05 per cent of applicable balance sheet volumes versus 0.09 per cent in 2019. This fee rate will remain unchanged until the resolution fund target of 3 per cent of guaranteed deposits in Sweden is met. The total resolution fund and deposit guarantee fees amounted to SEK 645m (1,026).
Net fee and commission income was virtually unchanged compared with the corresponding period in 2019 and amounted to SEK 8,988m (9,026). Gross fees from the issuance of securities and advisory services increased by 7 per cent to SEK 552m compared with the first six months 2019. Traditional lending increased leading to higher gross lending fees which increased by 10 per cent to SEK 1,560m. Gross fee income from custody and mutual funds, excluding performance fees, increased by SEK 66m to SEK 3,767m year-on-year. Performance fees amounted to SEK 119m, an increase of SEK 51m compared with the first six months 2019. Net payment and card fees were significantly affected by the restricting Covid-19 related activity and decreased by 20 per cent to SEK 1,606m, year-on-year. The net life insurance commissions related to the unit-linked insurance business decreased by 10 per cent compared with the first six months 2019, to SEK 530m.
Net financial income decreased by SEK 863m to SEK 2,737m compared with the first six months 2019. Even though market values and credit spreads recovered from the Covid-19 related market downturn in the first quarter, the 2019 levels were not fully reached. Credit spreads widened and the fair value credit adjustment1) decreased net financial income by SEK 594m versus the corresponding six months of 2019. The market valuation of certain strategic holdings decreased by SEK 434m year-on-year. Other life insurance income, net, decreased by SEK 238m compared with the first six months 2019, primarily due to performance in the traditional portfolios both in Sweden and the Baltic countries. All this was counteracted by market valuations in Treasury as well as Markets holdings. In combination with Markets' underlying business, which contributed positively as market volatility and customer activity were high, net financial income was augmented by SEK410m year-on-year.
Net other income amounted to SEK 115m (440). Realised capital gains as well as unrealised valuation and hedge accounting effects were included in this line item.
Operating expenses
Total operating expenses were virtually unchanged compared with the corresponding period 2019 and amounted to SEK 11,358m (11,329).
Staff costs increased by 2 per cent year-on-year. The effect of the lock-down partially affected other expenses, which decreased by 9 per cent, with fewer consultants and lower travelling costs among other things. Supervisory fees amounted to SEK 80m (81).
The cost target in the business plan for 2019-2021 is described on page 12. Operating expenses related to the strategic initiatives increased according to plan and the threeyear cost target remains unchanged.
Net expected credit losses
Net expected credit losses increased by SEK 3,377m compared with the first half of 2019, to SEK 4,185m, corresponding to a net expected credit loss level of 35 basis points. The increase was driven by increased provisions for a handful of specific counterparties in the oil-related portfolios, more negative macroeconomic scenarios in the impairment modelling applied in the second quarter and model overlays. See comment for second quarter.
The majority of the net expected credit losses in the first half of 2020, SEK 3,117m, related to the Large Corporate & Financial Institutions division. See further comments on uncertainties on page 12 and note 10-12.
1) Unrealised valuation change from counterparty risk (CVA) and own credit risk standing in derivatives (DVA). Own credit risk for issued securities (OCA) is reflected in Other comprehensive income.
Item affecting comparability
The item affecting comparability consists of the administrative fine in the amount of SEK 1,000m that is described further on page 7.
Income tax expense
In line with the decrease in operating result income tax expense amounted to SEK 1,691m (2,394) with an effective tax rate of 22 per cent (20). The effective tax rate increase is explained by the fact that the administrative fine previously described is not tax deductible.
Return on equity
Return on equity for the first six months 2020 decreased to 7.4 per cent (13.2). Return on equity excluding items affecting comparability was 8.6 per cent (13.2).
Other comprehensive income
Other comprehensive income amounted to SEK -1,535m (-689). The value of SEB's pension plan assets exceeded the defined benefit obligations to the employees. The net value of the defined benefit pension plans decreased which affected other comprehensive income by SEK -1,275m (-861).
The net effect from the valuation of balance sheet items that may subsequently be reclassified to the income statement, i.e. cash flow hedges and translation of foreign operations amounted to SEK -255m (263).
Business volumes
Total assets at 30 June 2020 amounted to SEK 3,218bn, representing a decrease of SEK 68bn in the second quarter (3,286) and an increase of SEK 361bn since year-end. At year-end, total assets amounted to SEK 2,857bn.
Loans
| 30 Jun | 31 Mar | 31 Dec | |
|---|---|---|---|
| SEK bn | 2020 | 2020 | 2019 |
| General governments | 15 | 18 | 14 |
| Financial corporations | 75 | 89 | 83 |
| Non-financial corporations | 882 | 914 | 880 |
| Households | 641 | 637 | 632 |
| Collateral margin | 52 | 86 | 46 |
| Reverse repos | 237 | 202 | 184 |
| Loans to the public | 1 903 | 1 947 | 1 838 |
Loans to the public decreased by SEK 44bn during the second quarter and increased by SEK 65bn since year-end. The second quarter was significantly affected by adverse foreign exchange rates. Loans to non-financial corporations decreased by SEK 32bn in the quarter and were stable compared with year-end. Household lending grew by SEK 5bn in the first quarter and by SEK 4bn in the second quarter. Reverse repos (contractual agreements to buy and subsequently sell back securities) are generally short-term in nature. The increase was mainly due to seasonal factors.
Business volumes in the second quarter were mainly driven by credit commitments and other contingent liabilities which are included in the credit portfolio. Information about the credit portfolio is available on page 10.
Deposits and borrowings
| 30 Jun | 31 Mar | 31 Dec | |
|---|---|---|---|
| SEK bn | 2020 | 2020 | 2019 |
| General governments | 32 | 17 | 22 |
| Financial corporations | 341 | 292 | 215 |
| Non-financial corporations | 588 | 567 | 508 |
| Households | 376 | 362 | 346 |
| Collateral margin | 64 | 70 | 57 |
| Repos | 28 | 24 | 5 |
| Registered bonds | 5 | 6 | 8 |
| Deposits and borrowings from the public | 1 433 | 1 337 | 1 161 |
In the second quarter, deposits and borrowings from the public increased by SEK 96bn to SEK 1,433bn (1,337). The increase from year-end was SEK 272bn. Deposits from nonfinancial corporations and households increased by SEK 35bn in the second quarter 2020 and by SEK 110bn since year-end.
Assets under management and custody
Total assets under management amounted to SEK 1,909bn (1,758). Driven by the equity market appreciation during the second quarter, the market value increased by SEK 131bn. The net inflow of assets amounted to SEK 20bn during the quarter.
Assets under custody increased mainly driven by the equity market appreciation during the second quarter and amounted to SEK 10,053bn (8,992).
Risk and capital
SEB assumes credit, market, liquidity, IT and operational as well as life insurance risks. The risk composition of the group, as well as the related risk, liquidity and capital management, are described in SEB's Annual Report for 2019 (see page 52- 57 and notes 40 and 41), in the Capital Adequacy and Risk Management Report for 2019 as well as the quarterly additional Pillar 3 disclosures. Further information is available in the Fact Book that is published quarterly.
Credit risk and asset quality
| 30 Jun | 31 Mar | 31 Dec | |
|---|---|---|---|
| SEK bn | 2020 | 2020 | 2019 |
| Banks | 89 | 111 | 99 |
| Corporates | 1 331 | 1 324 | 1 268 |
| Commercial real estate management | 199 | 196 | 188 |
| Residential real estate management | 139 | 135 | 131 |
| Housing co-operative associations Sweden | 64 | 64 | 63 |
| Public administration | 77 | 64 | 72 |
| Household mortgage | 615 | 606 | 589 |
| Household other | 85 | 87 | 90 |
| Total credit portfolio | 2 599 | 2 587 | 2 498 |
SEB's credit portfolio, which includes loans, contingent liabilities and derivatives, increased by SEK 12bn to SEK 2,599bn in the second quarter (2,587). The corporate credit portfolio increased by SEK 7bn, reflecting strong demand for liquidity facilities among large corporates which was to a large extent offset by foreign exchange effects. The household credit portfolio increased by SEK 7bn and the commercial and residential real estate management portfolios increased by SEK 7bn combined.
Gross loan exposures in stage 3 (credit-impaired) increased during the quarter by SEK 2bn to SEK 14.9bn, driven mainly by oil-related exposures. See expected credit loss comment on page 7. The gross credit-impaired loans (stage 3) were 0.86 per cent of total loans (0.71) and the ECL coverage ratio for the credit-impaired loans was 44.16 per cent. Note 12 provides a more detailed breakdown of SEB's loan portfolio by industry and stage allocation as well as corresponding ECL allowances. Pages 25-26 in the Fact book provide a breakdown of SEB's credit portfolio and lending portfolio by industry and country.
Market risk
SEB's business model is mainly driven by customer demand. Volatility in the financial markets increased dramatically in March resulting in an increase in the 10-day Value-at-Risk (VaR) measurement since it is partially based on historical information. Average VaR in the trading book for the second quarter amounted to SEK 259m compared with SEK 158m for the first quarter 2020. The group does not expect to lose more than this amount, on average, during a period of ten trading days with 99 per cent probability.
Liquidity and long-term funding
Short-term funding in the form of commercial paper and certificates of deposit decreased by SEK 73bn during the quarter. SEK 61bn of long-term funding matured during the second quarter (of which SEK 40bn covered bonds and SEK 20bn senior debt). An AT1 bond in the amount of SEK 10bn was repurchased in May 2020. During the second quarter new issuance amounted to SEK 17bn of which
SEK 6bn constituted covered bonds and SEK 11bn senior preferred debt.
SEB entered the Covid-19 crisis with a strong liquidity and funding position and has maintained uninterrupted access to all our funding markets throughout the Covid-period. In the first six months, SEB's funding and liquidity position was further supported by a continuous inflow of deposits from our clients, which enabled SEB to gradually reduce market funding.
The liquid assets defined according to the liquidity coverage requirements amounted to SEK 717bn at 30 June 2020 (660). From 16 March 2020, the Swedish Financial Supervisory Authority (SFSA) allows banks to temporarily fall below the Liquidity Coverage Ratio (LCR) requirement for individual and total currencies which normally must be at least 100 per cent. At quarter-end, the LCR was 138 per cent (176).
The bank is committed to a stable funding base. SEB's internal structural liquidity measure, Core Gap, which measures the proportion of stable funding in relation to illiquid assets, was 114 per cent (111).
Rating
Fitch rates SEB's long-term senior unsecured debt at AA-. The rating is based on SEB's low risk appetite, stable and wellexecuted strategy, robust asset quality and capitalisation as well as a supportive operating environment. In March, Fitch placed SEB's rating on negative watch due to the downside risks posed by the Covid-19 outbreak, although the ultimate implications remain unclear.
Moody's rates SEB's long-term senior unsecured debt at Aa2 with a stable outlook based on the bank's strong asset quality, robust capital ratios and good profitability, albeit with a view that the corporate business focus might add earnings cyclicality. In March, Moody's affirmed the stable outlook of the Swedish banking system due to the strong capital position and capital generation capacity of banks.
S&P rates SEB's long-term senior unsecured debt at A+ with a stable outlook. The rating is based on the stable and low-risk operating environment in Sweden, the bank's stable revenue base and position among leading Nordic corporates, sound market shares in corporate and household mortgage lending, profitability in line with peers and strong capitalisation.
In July, after the conclusion of the supervisory authorities' reviews of SEB's anti-money laundering work, S&P affirmed SEB's rating. Fitch and Moody's have not taken any rating action following the finalisation of the supervisory reviews.
Capital position
The following table shows the risk exposure amount (REA) and capital ratios according to Basel III:
| 30 Jun | 31 Mar | 31 Dec | |
|---|---|---|---|
| Own funds requirement, Basel III | 2020 | 2020 | 2019 |
| Risk exposure amount, SEK bn | 745 | 782 | 746 |
| Common Equity Tier 1 capital ratio, % | 17.8 | 16.8 | 17.6 |
| Tier 1 capital ratio, % | 19.7 | 18.7 | 20.8 |
| Total capital ratio, % | 22.2 | 21.2 | 23.3 |
| Leverage ratio, % | 4.3 | 4.3 | 5.1 |
SEB's Common Equity Tier 1 (CET1) capital ratio was 17.8 per cent (16.8). SEB's applicable CET1 capital requirement per the end of the second quarter was 13.7 per cent (13.7), whereof the pillar 2 requirement was 3.6 per cent, including 2 per cent systemic risk. In response to the effects of the Covid-19 pandemic, the SFSA lowered its countercyclical buffer requirement from 2.5 to zero per cent in the first quarter. Authorities in other countries have also reduced or removed this requirement.
The bank aims to have a buffer of around 150 basis points above the capital requirement. The buffer shall cover sensitivity to currency fluctuations in REA, changes in the net value of the Swedish defined benefit pension plan as well as general macroeconomic uncertainties. Currently the buffer is 410 basis points.
SEB's annual general meeting, which was held on 29 June 2020, approved the Board of Directors' proposal that no dividend payment for 2019 will be made and that the entire amount available will be carried forward. Depending on how the Covid-19 situation develops, the Board may assess a dividend payment later this year and if deemed appropriate, convene an extraordinary general meeting to present a dividend proposal.
Risk exposure amount
| SEK bn | |
|---|---|
| Balance 31 Mar 2020 | 782 |
| Underlying credit risk change | -25 |
| - where of asset size | -3 |
| - where of asset quality | -2 |
| - where of foreign exchange movements | -20 |
| Underlying market risk change | 1 |
| - where of CVA risk | -1 |
| Underlying operational risk change | 0 |
| Model updates, methodology & policy, other | -12 |
| - where of credit risk | -12 |
| Balance 30 Jun 2020 | 745 |
The total risk exposure amount (REA) decreased by SEK 36bn to SEK 745bn in the second quarter. Credit risk REA decreased by 37bn, with the main contributors being foreign exchange movements and that capital requirements were lowered, related to the Covid-19 crisis, aiming to support credit flows to small and medium-sized companies and infrastructure investments. Market and operational risk REA were largely unchanged during the quarter.
Internally assessed capital requirement
As per 30 June 2020, the internally assessed capital requirement, including insurance risk, amounted to SEK 70bn (74). The internal capital requirement is assessed using SEB's internal models for economic capital and is not fully comparable to the estimated capital requirement published by the SFSA due to differences in assumptions and methodologies.
The internally assessed capital requirement for the parent company amounted to SEK 67bn (70).
Business development
During the second quarter, SEB continued to support the customers in weathering the Covid-19 storm. At the same time, the ongoing process of sharpening our product and service offering as well as our processes continued.
Advisory leadership
As part of the efforts to assist in the transition towards a lowcarbon economy, SEB served as the structural advisor for Daimler in the creation of a green framework to finance their shift towards a zero-emission vehicle fleet and sustainable production processes. Together with BNP Paribas, SEB also advised EQT on a sustainability-linked subscription financing facility with terms designed to improve the ESG performance of the EQT portfolio companies. SEB expanded its green loans offer by making green real estate financing available for small and medium-sized real estate companies. In addition, SEB initiated a pilot venture in collaboration with the energy company Eon in order to provide SEB's household mortgage customers access to solar panel installations at advantageous borrowing conditions.
Together with the Swedish pension company AMF, the Swedish insurance company AFA Insurance, the Fourth Swedish National Pension Fund, as well as the Swedish foundation asset management company FAM, SEB has established a jointly owned company to support Swedish companies in need of capital through the corona crisis.
SEB launched four new funds to assist customers to start saving in a simple and sustainable way and at a competitive price. The allocation between equities and interest-bearing alternatives is done automatically according to predetermined rules.
Operational excellence
In Sweden, SEB developed its mobile app to enable private customers to buy and sell funds. This was a first step in a planned roll-out which also will enable securities trading. Further, the mobile app for private customers was developed to enable digital communication between customers and advisors through secure messaging.
The Swedish Anti-Money Laundering Intelligence Initiative, SAMLIT, was initiated by SEB in collaboration with the Swedish police and other Nordic banks with the purpose of sharing information to more efficiently combat financial crime and terrorist financing.
Extended presence
SEB continued to develop its strategic partnerships as part of its ambition to be available on customers' terms. As an example, in collaboration with the third-party provider Verified, SEB rolled out a cloud-based e-sign solution for large and medium-sized companies in Sweden and Norway, enabling digital signing of agreements.
In the Baltic countries, SEB entered a partnership with Fitek, which provides an e-invoice portal through which SEB's corporate customers are able to sign contracts, use e-invoices, collect payments and archive invoices – all in one place. Initially, this service will be available via the internet bank in Estonia.
Other information
Long-term financial targets
SEB's long-term financial targets are:
-to pay a yearly dividend that is 40 per cent or above of the earnings per share,
-to maintain a Common Equity Tier 1 capital ratio of around 150 bps above the current requirement from the SFSA, and -to generate a return on equity that is competitive with peers.
In the long term, SEB aspires to reach a sustainable return on equity of 15 per cent.
Cost target
SEB's business plan for 2019-2021 defines a number of strategic initiatives which, on an accumulated basis, are estimated to lead to total additional investments of SEK 2-2.5bn during the three-year period 2019-2021. This translates into an annual cost increase of SEK 1bn by 2021, and a new total cost target of around SEK 23bn by 2021, assuming 2018 foreign exchange rates. With the foreign exchange rates as of 30 June 2020, the cost target implies a cost level of around SEK 23.2bn in 2021. The pace of investments will be dependent on progress and will be gradually ramped up over the three years. The strategic initiatives are expected to lead to both improved revenue growth and cost efficiencies, improving return on equity over time.
Currency effects
The currency effect on the result for the second quarter 2020 was negligible since average exchange rates in SEB's main currencies were virtually flat.
Compared with the first quarter 2020, the stronger Swedish krona decreased loans to and deposits from the public by SEK 40bn and SEK 30bn, respectively. Total REA decreased by SEK 20bn while the decrease of total assets was SEK 66bn. Compared with year-end 2019, the Swedish krona exchange rate was fairly stable and the effect on business volumes was smaller.
Uncertainties
The pandemic outbreak of Covid-19 and governments' response measures in an attempt to limit its spread, have rapidly and significantly affected societies, economies and financial markets globally. The negative financial and economic consequences may be extensive in SEB's home markets. At the same time, the recent oil price development is a challenge for the oil and gas industry. SEB will continuously assess the asset quality of its credit portfolio using several different scenarios for the pandemic and the economic development, including the oil industry development. The assessment includes the effects of the measures taken by governments and the full consequences on the economy.
Financial markets are expected to continue to be volatile given the prevailing uncertainty. This may adversely impact fair values of certain financial instruments and holdings, and, consequently, net financial income and capital.
The interest rate levels – in Sweden in particular the repo rate – are key factors affecting net interest income and operating profit. The Swedish central bank does not currently forecast any change to its repo rate, which is currently zero per cent, until the end of 2023.
The German Federal Ministry of Finance issued a circular on 17 July 2017 with administrative guidance in relation to withholding taxes on dividends in connection with certain cross-border securities lending and derivative transactions; so-called cum-cum transactions. The circular states an intention to examine transactions executed prior to the change in tax legislation that was enacted 1 January 2016. Ongoing audits by the local tax administration have to date resulted in preliminary minor reclaims on selected tax years. SEB has requested that these reclaims should be revoked. Following a review, SEB is of the opinion that the cross-border securities lending and derivative transactions of SEB in Germany up until 1 January 2016 were conducted in compliance with then prevailing rules. Hence, to date no provisions have been made. Nevertheless, it cannot be ruled out that the outcome of potential future tax claims may have a negative financial effect on SEB.
SEB is subject to various legal regimes and requirements in all jurisdictions where the bank operates. Over the past years, the rules and regulations of the financial industry have expanded and further sharpened, and the regulators have increased their supervision. This is a development which is expected to continue to evolve. Supervisory authorities regularly conduct reviews of SEB's regulatory compliance, including areas such as financial stability, transaction reporting, anti-money laundering, investor protection, and data privacy. SEB has policies and procedures in place with the purpose to always comply with applicable rules and regulations. It cannot, however, be ruled out that current and future supervisory reviews could lead to criticism or sanctions.
Organisational changes
Sara Öhrvall, currently Chief Digital, Customer Experience and Communication Officer, has been appointed Chief Transformation Officer. She remains a member of SEB's Group Executive Committee and continues to report to the President and CEO. Karin Lepasoon has been appointed Head of Group Marketing and Communication and member of SEB's Group Executive Committee. She will report to the President and CEO. Both changes will be effective as of 1 November 2020.
Financial statements – SEB Group
Income statement, condensed
| Q2 | Q1 | Q2 | Jan–Jun | Full year | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| SEK m | Note | 2020 | 2020 | % | 2019 | % | 2020 | 2019 | % | 2019 |
| Net interest income | 2 | 6 047 | 6 201 | -2 | 5 692 | 6 | 12 249 | 11 037 | 11 | 22 950 |
| Net fee and commission income | 3 | 4 364 | 4 624 | -6 | 4 735 | -8 | 8 988 | 9 026 | 0 | 18 709 |
| Net financial income | 4 | 3 541 | - 804 | 1 482 | 139 | 2 737 | 3 600 | -24 | 7 617 | |
| Net other income | 47 | 68 | -30 | 287 | -84 | 115 | 440 | -74 | 858 | |
| Total operating income | 13 999 | 10 089 | 39 | 12 197 | 15 | 24 089 | 24 103 | 0 | 50 134 | |
| Staff costs | -3 794 | -3 619 | 5 | -3 618 | 5 | -7 413 | -7 250 | 2 | -14 660 | |
| Other expenses | -1 362 | -1 598 | -15 | -1 680 | -19 | -2 960 | -3 270 | -9 | -6 623 | |
| Depreciation, amortisation and impairment | ||||||||||
| of tangible and intangible assets | - 557 | - 429 | 30 | - 410 | 36 | - 985 | - 809 | 22 | -1 662 | |
| Total operating expenses | -5 712 | -5 646 | 1 | -5 708 | 0 | -11 358 | -11 329 | 0 | -22 945 | |
| Profit before credit losses | 8 287 | 4 443 | 87 | 6 489 | 28 | 12 730 | 12 774 | 0 | 27 190 | |
| Gains less losses from tangible and | ||||||||||
| intangible assets | 1 | 0 | 122 | 0 | 1 | 1 | 143 | - 2 | ||
| Net expected credit losses | 5 | -2 691 | -1 494 | 80 | - 386 | -4 185 | - 808 | -2 294 | ||
| Operating profit before | ||||||||||
| items affecting comparability | 5 598 | 2 950 | 90 | 6 103 | -8 | 8 547 | 11 967 | -29 | 24 894 | |
| Items affecting comparability | 6 | -1 000 | -1 000 | |||||||
| Operating profit | 4 598 | 2 950 | 56 | 6 103 | -25 | 7 547 | 11 967 | -37 | 24 894 | |
| Income tax expense | -1 096 | - 595 | 84 | -1 211 | -10 | -1 691 | -2 394 | -29 | -4 717 | |
| NET PROFIT | 3 501 | 2 355 | 49 | 4 892 | -28 | 5 856 | 9 573 | -39 | 20 177 | |
| Attributable to shareholders of | ||||||||||
| Skandinaviska Enskilda Banken AB | 3 501 | 2 355 | 49 | 4 892 | -28 | 5 856 | 9 573 | -39 | 20 177 | |
| Basic earnings per share, SEK | 1.62 | 1.09 | 2.26 | 2.70 | 4.43 | 9.33 | ||||
| Diluted earnings per share, SEK | 1.61 | 1.08 | 2.25 | 2.69 | 4.40 | 9.28 |
Statement of comprehensive income
| Q2 | Q1 | Q2 | Jan–Jun | Full year | |||||
|---|---|---|---|---|---|---|---|---|---|
| SEK m | 2020 | 2020 | % | 2019 | % | 2020 | 2019 | % | 2019 |
| NET PROFIT | 3 501 | 2 355 | 49 | 4 892 | -28 | 5 856 | 9 573 | -39 | 20 177 |
| Cash flow hedges | - 10 | - 51 | -80 | - 156 | -93 | - 61 | - 329 | -81 | - 298 |
| Translation of foreign operations | - 816 | 622 | 257 | - 194 | 592 | 145 | |||
| Items that may subsequently be | |||||||||
| reclassified to the income statement: | - 827 | 571 | 101 | - 255 | 263 | - 153 | |||
| Own credit risk adjustment (OCA)1) | - 277 | 272 | - 73 | - 5 | - 92 | -95 | - 53 | ||
| Defined benefit plans | 558 | -1 832 | - 265 | -1 275 | - 861 | 48 | 1 366 | ||
| Items that will not be reclassified to the | |||||||||
| income statement: | 281 | -1 560 -118 | - 339 | -1 279 | - 952 | 34 | 1 313 | ||
| OTHER COMPREHENSIVE INCOME | - 546 | - 989 | -45 | - 237 | 130 | - 1 535 | - 689 | 123 | 1 160 |
| TOTAL COMPREHENSIVE INCOME | 2 956 | 1 366 | 116 | 4 655 | -37 | 4 322 | 8 884 | -51 | 21 336 |
| Attributable to shareholders of | |||||||||
| Skandinaviska Enskilda Banken AB | 2 956 | 1 366 | 116 | 4 655 | -37 | 4 322 | 8 884 | -51 | 21 336 |
1) Own credit risk adjustment from financial liabilities at fair value through profit or loss.
Balance sheet, condensed
| 30 Jun | 31 Mar | 31 Dec | |
|---|---|---|---|
| SEK m | 2020 | 2020 | 2019 |
| Cash and cash balances at central banks | 319 387 | 329 384 | 146 691 |
| Loans to central banks | 937 | 2 578 | 4 494 |
| Loans to credit institutions2) | 48 296 | 58 830 | 46 995 |
| Loans to the public | 1 903 059 | 1 947 400 | 1 837 605 |
| Debt securities | 363 143 | 317 935 | 238 578 |
| Equity instruments | 59 259 | 62 028 | 78 482 |
| Financial assets for which the customers bear the | |||
| investment risk | 301 581 | 277 416 | 316 776 |
| Derivatives | 157 007 | 225 482 | 139 427 |
| Other assets | 65 188 | 64 814 | 47 598 |
| TOTAL ASSETS | 3 217 858 | 3 285 866 | 2 856 648 |
| Deposits from central banks and credit institutions | 180 405 | 203 268 | 88 041 |
| Deposits and borrowings from the public1) | 1 433 051 | 1 336 827 | 1 161 485 |
| Financial liabilities for which the customers bear the | |||
| investment risk | 303 188 | 278 974 | 317 574 |
| Liabilities to policyholders | 27 413 | 26 733 | 26 547 |
| Debt securities issued | 778 964 | 902 390 | 858 173 |
| Short positions | 36 225 | 33 202 | 27 343 |
| Derivatives | 137 896 | 187 964 | 122 192 |
| Other financial liabilities | 2 256 | 1 978 | 2 449 |
| Other liabilities | 158 246 | 157 357 | 97 144 |
| Total liabilities | 3 057 643 | 3 128 693 | 2 700 947 |
| Equity | 160 214 | 157 174 | 155 700 |
| TOTAL LIABILITIES AND EQUITY | 3 217 858 | 3 285 866 | 2 856 648 |
| 1) Deposits covered by deposit guarantees | 337 364 | 325 341 | 313 779 |
2) Loans to credit institutions and liquidity placements with other direct participants in interbank fund transfer systems.
A more detailed balance sheet is available in the Fact Book.
Statement of changes in equity
| Other reserves1) | |||||||
|---|---|---|---|---|---|---|---|
| Translation | Defined | ||||||
| Share | Cash flow | of foreign | benefit | Retained | |||
| SEK m | capital | OCA2) | hedges | operations | plans | earnings | Equity |
| Jan-Jun 2020 | |||||||
| Opening balance | 21 942 | -339 | 15 | -170 | 3 898 | 130 355 | 155 700 |
| Net profit | 5 856 | 5 856 | |||||
| Other comprehensive income (net of tax) | -5 | -61 | -194 | -1 275 | -1 535 | ||
| Total comprehensive income | -5 | -61 | -194 | -1 275 | 5 856 | 4 322 | |
| Equity-based programmes4) | 258 | 258 | |||||
| Change in holdings of own shares | -65 | -65 | |||||
| Closing balance | 21 942 | -344 | -46 | -364 | 2 624 | 136 404 | 160 214 |
| Jan-Dec 2019 | |||||||
| Opening balance | 21 942 | -286 | 313 | -315 | 2 533 | 124 604 | 148 789 |
| Effect of applying IFRS 163) | -244 | -244 | |||||
| Restated balance at 1 January 2019 | 21 942 | -286 | 313 | -315 | 2 533 | 124 360 | 148 545 |
| Net profit | 20 177 | 20 177 | |||||
| Other comprehensive income (net of tax) | -53 | -298 | 145 | 1 366 | 1 160 | ||
| Total comprehensive income | -53 | -298 | 145 | 1 366 | 20 177 | 21 336 | |
| Dividend to shareholders | -14 069 | -14 069 | |||||
| Equity-based programmes4) | -136 | -136 | |||||
| Change in holdings of own shares | 24 | 24 | |||||
| Closing balance | 21 942 | -339 | 15 | -170 | 3 898 | 130 355 | 155 700 |
| Jan-Jun 2019 | |||||||
| Opening balance | 21 942 | -286 | 313 | -315 | 2 533 | 124 604 | 148 789 |
| Effect of applying IFRS 163) | |||||||
| -244 | -244 | ||||||
| Restated balance at 1 January 2019 | 21 942 | -286 | 313 | -315 | 2 533 | 124 360 | 148 545 |
| Net profit | 9 573 | 9 573 | |||||
| Other comprehensive income (net of tax) | -92 | -329 | 592 | -861 | -689 | ||
| Total comprehensive income | -92 | -329 | 592 | -861 | 9 573 | 8 884 | |
| Dividend to shareholders | -14 069 | -14 069 | |||||
| Equity-based programmes4) | -523 | -523 | |||||
| Change in holdings of own shares | -30 | -30 | |||||
| Closing balance | 21 942 | -378 | -16 | 277 | 1 672 | 119 310 | 142 807 |
1) Amounts under Other reserves may be reclassified in the future to the income statement under certain circumstances, e.g. if they are related to dissolved Cash flow hedges or Translation of foreign operations when SEB ceases to consolidate a foreign operation. Amounts related to OCA and Defined benefit plans will not be reclassified to the income statement.
2) Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in own credit risk.
3) IFRS 16 Leases is applied from 1 January 2019.
4) Number of shares owned by SEB:
| Jan-Jun | Jan-Dec | Jan-Jun | |
|---|---|---|---|
| Number of shares owned by SEB, million | 2020 | 2019 | 2019 |
| Opening balance | 31.5 | 30.3 | 30.3 |
| Repurchased shares for equity-based programmes | 0.3 | 8.7 | 8.7 |
| Sold/distributed shares | -5.3 | -7.4 | -5.1 |
| Closing balance | 26.5 | 31.5 | 33.9 |
| Market value of shares owned by SEB, SEK m | 2 141 | 2 774 | 2 911 |
In accordance with the decision by the Annual General Meeting, SEB holds own shares of Class A for the long-term equity-based programmes. The transactions may take place at one or several occasions during the year. The acquisition cost for the purchase of own shares is deducted from shareholders' equity. The item includes changes in nominal amounts of equity swaps used for hedging of equity-based programmes.
Cash flow statement, condensed
| Jan–Jun | Full year | |||
|---|---|---|---|---|
| SEK m | 2020 | 2019 | % | 2019 |
| Cash flow from the profit and loss statement | 9 392 | - 5 506 | 4 002 | |
| Increase (-)/decrease (+) in portfolios | - 96 509 - 112 197 | - 14 | - 100 712 | |
| Increase (+)/decrease (-) in issued short term securities | - 89 399 | 138 928 | 179 214 | |
| Increase (-)/decrease (+) in lending | - 71 413 - 173 946 | - 59 | - 168 396 | |
| Increase (+)/decrease (-) in deposits and borrowings | 363 917 | 100 756 | 2 801 | |
| Increase/decrease in other balance sheet items | 54 939 | 16 852 | 21 578 | |
| Cash flow from operating activities | 170 927 | - 35 112 | - 61 513 | |
| Cash flow from investment activities | - 58 | - 6 074 | - 99 | - 612 |
| Cash flow from financing activities | - 14 069 - 100 | - 5 227 | ||
| Net increase in cash and cash equivalents | 170 869 | - 55 255 | - 67 352 | |
| Cash and cash equivalents at the beginning of year | 159 335 | 219 579 | - 27 | 219 579 |
| Exchange rate differences on cash and cash equivalents | - 128 | 7 015 | 7 108 | |
| Net increase in cash and cash equivalents | 170 869 | - 55 255 | - 67 352 | |
| Cash and cash equivalents at the end of period1) | 330 076 | 171 339 | 93 | 159 335 |
1) Cash and cash equivalents at the end of period is defined as Cash and cash balances with central banks and Loans to other credit institutions payable on demand.
Otherfinancial information – SEB Group
Key figures
| Q2 | Q1 | Q2 | Jan–Jun | Full year | ||
|---|---|---|---|---|---|---|
| 2020 | 2020 | 2019 | 2020 | 2019 | 2019 | |
| Return on equity, % | 8.7 | 6.0 | 13.9 | 7.4 | 13.2 | 13.7 |
| Return on equity excluding items affecting | ||||||
| comparability1), % | 11.2 | 6.0 | 13.9 | 8.6 | 13.2 | 13.8 |
| Return on tangible equity, % | 9.3 | 6.3 | 14.7 | 7.8 | 14.0 | 14.5 |
| Return on tangible equity excluding items affecting | ||||||
| comparability1), % | 11.9 | 6.3 | 14.7 | 9.1 | 14.0 | 14.6 |
| Return on total assets, % | 0.4 | 0.3 | 0.7 | 0.4 | 0.7 | 0.7 |
| Return on risk exposure amount, % | 1.8 | 1.2 | 2.6 | 1.5 | 2.6 | 2.7 |
| Cost/income ratio | 0.41 | 0.56 | 0.47 | 0.47 | 0.47 | 0.46 |
| Basic earnings per share, SEK | 1.62 | 1.09 | 2.26 | 2.70 | 4.43 | 9.33 |
| Weighted average number of shares1), millions | 2 167 | 2 164 | 2 161 | 2 165 | 2 162 | 2 162 |
| Diluted earnings per share, SEK Weighted average number of diluted shares2), |
1.61 | 1.08 | 2.25 | 2.69 | 4.40 | 9.28 |
| millions | 2 180 | 2 177 | 2 172 | 2 180 | 2 174 | 2 175 |
| Net worth per share, SEK | 79.79 | 78.09 | 72.78 | 79.79 | 72.78 | 78.42 |
| Equity per share, SEK | 73.91 | 72.58 | 66.11 | 73.91 | 66.11 | 71.99 |
| Average shareholders' equity, SEK, billion | 160.1 | 156.8 | 141.2 | 158.6 | 145.3 | 146.9 |
| Net ECL level, % | 0.46 | 0.25 | 0.07 | 0.35 | 0.07 | 0.10 |
| Stage 3 Loans / Total Loans, gross, % | 0.86 | 0.71 | 0.64 | 0.86 | 0.64 | 0.67 |
| Stage 3 Loans / Total Loans, net, % | 0.48 | 0.38 | 0.41 | 0.48 | 0.41 | 0.36 |
| Liquidity Coverage Ratio (LCR)3), % | 138 | 176 | 149 | 138 | 149 | 218 |
| Own funds requirement, Basel III | ||||||
| Risk exposure amount, SEK m | 745 457 | 781 687 | 763 519 | 745 457 763 519 | 745 637 | |
| Expressed as own funds requirement, SEK m | 59 637 | 62 535 | 61 082 | 59 637 | 61 082 | 59 651 |
| Common Equity Tier 1 capital ratio, % | 17.8 | 16.8 | 16.6 | 17.8 | 16.6 | 17.6 |
| Tier 1 capital ratio, % | 19.7 | 18.7 | 18.7 | 19.7 | 18.7 | 20.8 |
| Total capital ratio, % | 22.2 | 21.2 | 21.1 | 22.2 | 21.1 | 23.3 |
| Leverage ratio, % | 4.3 | 4.3 | 4.6 | 4.3 | 4.6 | 5.1 |
| Number of full time equivalents4) | 15 329 | 15 261 | 14 988 | 15 247 | 14 852 | 14 939 |
| Assets under custody, SEK bn | 10 053 | 8 992 | 8 704 | 10 053 | 8 704 | 10 428 |
| Assets under management, SEK bn | 1 909 | 1 758 | 1 932 | 1 909 | 1 932 | 2 041 |
1) The number of issued shares was 2,194,171,802. SEB owned 31,499,321 Class A shares for the equity based programmes at yearend 2019. During 2020 SEB has purchased 296,142 shares and 5,264,309 shares have been sold. Thus, at 30 June 2020 SEB owned 26,531,154 Class A-shares with a market value of SEK 2,141m.
2) Calculated dilution based on the estimated economic value of the long-term incentive programmes.
3) In accordance with the EU delegated act.
4) Quarterly numbers are for end of quarter. Accumulated numbers are average for the period. During the first quarter 2020, the definition of FTEs was harmonised for the SEB Group. Approximately one third of the increase in the number of FTEs in that quarter is related to the unified definition.
In SEB's Fact Book, this table is available with nine quarters of history.
Income statement on a quarterly basis
| Q2 | Q1 | Q4 | Q3 | Q2 | |
|---|---|---|---|---|---|
| SEK m | 2020 | 2020 | 2019 | 2019 | 2019 |
| Net interest income | 6 047 | 6 201 | 5 930 | 5 983 | 5 692 |
| Net fee and commission income | 4 364 | 4 624 | 4 989 | 4 693 | 4 735 |
| Net financial income | 3 541 | - 804 | 2 822 | 1 196 | 1 482 |
| Net other income | 47 | 68 | 349 | 70 | 287 |
| Total operating income | 13 999 | 10 089 | 14 089 | 11 942 | 12 197 |
| Staff costs | -3 794 | -3 619 | -3 807 | -3 603 | -3 618 |
| Other expenses | -1 362 | -1 598 | -1 746 | -1 607 | -1 680 |
| Depreciation, amortisation and impairment of | |||||
| tangible and intangible assets | - 557 | - 429 | - 474 | - 379 | - 410 |
| Total operating expenses | -5 712 | -5 646 | -6 026 | -5 589 | -5 708 |
| Profit before credit losses | 8 287 | 4 443 | 8 063 | 6 353 | 6 489 |
| Gains less losses from tangible and intangible assets | 1 | 0 | - 3 | 1 | 0 |
| Net expected credit losses | -2 691 | -1 494 | - 997 | - 489 | - 386 |
| Operating profit before | |||||
| items affecting comparability | 5 598 | 2 950 | 7 063 | 5 864 | 6 103 |
| Items affecting comparability | -1 000 | ||||
| Operating profit | 4 598 | 2 950 | 7 063 | 5 864 | 6 103 |
| Income tax expense | -1 096 | - 595 | -1 232 | -1 092 | -1 211 |
| NET PROFIT | 3 501 | 2 355 | 5 831 | 4 772 | 4 892 |
| Attributable to shareholders of Skandinaviska | |||||
| Enskilda Banken AB | 3 501 | 2 355 | 5 831 | 4 772 | 4 892 |
| Basic earnings per share, SEK | 1.62 | 1.09 | 2.70 | 2.21 | 2.26 |
| Diluted earnings per share, SEK | 1.61 | 1.08 | 2.68 | 2.20 | 2.25 |
Business segments – SEB Group
Income statement by segment
| Large | Investment | ||||||
|---|---|---|---|---|---|---|---|
| Corporates & Financial |
Corporate & Private |
Management & group |
|||||
| Jan-Jun 2020, SEK m | Institutions | Customers | Baltic | Life | functions | Eliminations | SEB Group |
| Net interest income | 5 361 | 5 915 | 1 633 | - 16 | - 570 | - 76 | 12 249 |
| Net fee and commission income | 3 330 | 2 433 | 780 | 1 197 | 1 240 | 8 | 8 988 |
| Net financial income | 1 957 | 186 | 129 | 117 | 353 | - 5 | 2 737 |
| Net other income | 14 | 17 | 0 | 1 | 85 | - 2 | 115 |
| Total operating income | 10 662 | 8 551 | 2 542 | 1 300 | 1 109 | - 75 | 24 089 |
| Staff costs | -2 089 | -1 718 | - 442 | - 437 | -2 735 | 8 | -7 413 |
| Other expenses | -2 606 | -1 973 | - 566 | - 368 | 2 485 | 68 | -2 960 |
| Depreciation, amortisation and | |||||||
| impairment of tangible and intangible | |||||||
| assets | - 34 | - 35 | - 16 | - 11 | - 890 | - 985 | |
| Total operating expenses | -4 728 | -3 726 | -1 025 | - 815 | -1 140 | 75 | -11 358 |
| Profit before credit losses | 5 934 | 4 825 | 1 517 | 485 | - 31 | 0 | 12 730 |
| Gains less losses from tangible and | |||||||
| intangible assets | 0 | 0 | 1 | 0 | 1 | ||
| Net expected credit losses | -3 117 | - 747 | - 337 | 0 | 16 | 1 | -4 185 |
| Operating profit before | |||||||
| items affecting comparability | 2 817 | 4 078 | 1 181 | 485 | - 14 | 1 | 8 547 |
| Items affecting comparability | -1 000 | -1 000 | |||||
| Operating profit | 2 817 | 4 078 | 1 181 | 485 | -1 014 | 1 | 7 547 |
| Large | Investment | ||||||
|---|---|---|---|---|---|---|---|
| Corporates | Corporate & | Management | |||||
| Jan-Jun 2019, SEK m | & Financial Institutions |
Private Customers |
Baltic | Life | & group functions |
Eliminations | SEB Group |
| Net interest income | 4 479 | 5 445 | 1 564 | - 6 | - 458 | 14 | 11 037 |
| Net fee and commission income | 3 122 | 2 692 | 799 | 1 235 | 1 145 | 33 | 9 026 |
| Net financial income | 2 275 | 269 | 140 | 352 | 563 | 1 | 3 600 |
| Net other income | 248 | 11 | - 3 | 49 | 139 | - 4 | 440 |
| Total operating income | 10 124 | 8 417 | 2 500 | 1 630 | 1 388 | 44 | 24 103 |
| Staff costs | -2 089 | -1 693 | - 412 | - 424 | -2 640 | 8 | -7 250 |
| Other expenses | -2 588 | -1 934 | - 533 | - 351 | 2 187 | - 52 | -3 270 |
| Depreciation, amortisation and | |||||||
| impairment of tangible and intangible | |||||||
| assets | - 34 | - 30 | - 15 | - 10 | - 720 | - 809 | |
| Total operating expenses | -4 711 | -3 657 | - 960 | - 785 | -1 173 | - 44 | -11 329 |
| Profit before credit losses | 5 413 | 4 760 | 1 540 | 845 | 216 | 0 | 12 774 |
| Gains less losses from tangible and | |||||||
| intangible assets | 0 | 0 | 0 | 0 | 1 | ||
| Net expected credit losses | - 583 | - 172 | - 53 | - 1 | 9 | - 8 | - 808 |
| Operating profit before | |||||||
| items affecting comparability | 4 830 | 4 588 | 1 488 | 844 | 225 | - 8 | 11 967 |
| Items affecting comparability | |||||||
| Operating profit | 4 830 | 4 588 | 1 488 | 844 | 225 | - 8 | 11 967 |
Large Corporates & Financial Institutions
The division offers commercial and investment banking services to large corporate and institutional clients in the Nordic region, Germany and the United Kingdom. Customers are also served through an international network in some 20 offices.
Income statement
| Q2 | Q1 | Q2 | Jan–Jun | Full year | |||||
|---|---|---|---|---|---|---|---|---|---|
| SEK m | 2020 | 2020 | % | 2019 | 2020 | 2019 | % | 2019 | |
| Net interest income | 2 697 | 2 664 | 1 | 2 201 | 23 | 5 361 | 4 479 | 20 | 9 371 |
| Net fee and commission income | 1 656 | 1 674 | - 1 | 1 644 | 1 | 3 330 | 3 122 | 7 | 6 558 |
| Net financial income | 2 430 | - 473 | 921 | 164 | 1 957 | 2 275 | - 14 | 4 462 | |
| Net other income | 34 | - 20 | 237 | - 86 | 14 | 248 | - 94 | 221 | |
| Total operating income | 6 817 | 3 845 | 77 | 5 003 | 36 | 10 662 10 124 | 5 | 20 613 | |
| Staff costs | -1 063 | -1 026 | 4 | -1 056 | 1 | -2 089 | -2 089 | 0 | -4 293 |
| Other expenses | -1 284 | -1 322 | - 3 | -1 304 | - 2 | -2 606 | -2 588 | 1 | -5 186 |
| Depreciation, amortisation and impairment of tangible | |||||||||
| and intangible assets | - 17 | - 16 | 3 | - 17 | 0 | - 34 | - 34 | - 2 | - 69 |
| Total operating expenses | -2 364 | -2 365 | 0 | -2 377 | - 1 | -4 728 | -4 711 | 0 | -9 548 |
| Profit before credit losses | 4 453 | 1 481 | 2 626 | 70 | 5 934 | 5 413 | 10 | 11 065 | |
| Gains less losses from tangible and intangible assets | 0 | 0 | 0 | 0 | 0 | 1 | |||
| Net expected credit losses | -2 211 | - 907 | 144 | - 261 | -3 117 | - 583 | -1 812 | ||
| Operating profit before items affecting comparability | 2 243 | 574 | 2 365 | - 5 | 2 817 | 4 830 | - 42 | 9 254 | |
| Items affecting comparability | |||||||||
| Operating profit | 2 243 | 574 | 2 365 | - 5 | 2 817 | 4 830 | - 42 | 9 254 | |
| Cost/Income ratio | 0.35 | 0.61 | 0.48 | 0.44 | 0.47 | 0.46 | |||
| Business equity, SEK bn | 74.4 | 69.0 | 67.6 | 71.7 | 65.7 | 67.9 | |||
| Return on business equity, % | 9.2 | 2.5 | 10.7 | 6.0 | 11.2 | 10.4 | |||
| Number of full time equivalents1) | 2 089 | 2 104 | 2 056 | 2 093 | 2 040 | 2 057 |
1) Quarterly numbers are for end of quarter. Accumulated numbers are average for the period.
- High demand for liquidity facilities from large corporate clients
- Institutional clients sought closer relationships and advisory services
- Operating profit amounted to SEK 2,243m and return on business equity was 9.2 per cent
Comments on the second quarter
The quarter was characterised by uncertainty related to the effects of Covid-19, although some stabilisation in the markets was seen towards the end of the period.
Large Corporate clients continued to focus on liquidity management, leading to high demand for lending and deposit products. Corporate exposures increased by SEK 70bn during the quarter, excluding foreign exchange effects. The cautious sentiment from the previous quarter persisted and activity related to mergers and acquisitions remained low. In the second half of the quarter activity within the capital markets increased and the investment grade market for bond issuance returned to more normal levels. Due to the pandemic Financial Sponsor clients slowed down their activities significantly during the period, even though more activity was seen towards the end of the quarter.
Activity in the financial markets continued at high levels from the first quarter and Financial Institutions met the volatility with hedged positions in currency and interest rates. Larger institutions appreciated the close relationship and turned to SEB for advisory services, liquidity and joint projects. A slight increase in demand for larger investments such as
illiquid assets, private equity and private placements was seen during the period after prices started to stabilise. In addition, there was a strong demand for sustainable investments, mainly in projects related to the effects of Covid-19. Assets under custody increased to SEK 10,053bn (8,992), a result of the improved market values.
Operating income increased to SEK 6,817m. Net interest income amounted to SEK 2,697m which is in line with the previous quarter but up from last year, partly due to lower resolution fees. Net fee and commission income was in line with both the first quarter and year-on-year and amounted to SEK 1,656m. Net financial income increased to SEK 2,430m, a result of the high volatility in the financial markets. The negative effect from the elevated credit spreads in the first quarter turned around with lower uncertainty in the second quarter which affected the fair value credit adjustment positively. Operating expenses were flat versus the previous quarter.
Net expected credit losses amounted to SEK 2,211m with a net expected credit loss level of 74 basis points. See page 7.
Corporate & Private Customers
The division offers full banking and advisory services to private individuals and small and medium-sized corporate customers in Sweden, as well as card services in four Nordic countries. Nordic high net-worth individuals are offered leading private banking services with global reach.
Income statement
| Q2 | Q1 | Q2 | Jan–Jun | Full year | |||||
|---|---|---|---|---|---|---|---|---|---|
| SEK m | 2020 | 2020 | % | 2019 | 2020 | 2019 | % | 2019 | |
| Net interest income | 2 913 | 3 002 | - 3 | 2 673 | 9 | 5 915 | 5 445 | 9 | 10 721 |
| Net fee and commission income | 1 118 | 1 315 | - 15 | 1 408 | - 21 | 2 433 | 2 692 | - 10 | 5 546 |
| Net financial income | 77 | 109 | - 29 | 122 | - 37 | 186 | 269 | - 31 | 507 |
| Net other income | 5 | 12 | - 59 | 4 | 9 | 17 | 11 | 48 | 25 |
| Total operating income | 4 113 | 4 437 | - 7 | 4 208 | - 2 | 8 551 | 8 417 | 2 | 16 798 |
| Staff costs | -844 | -874 | - 3 | - 822 | 3 | -1 718 | -1 693 | 1 | -3 372 |
| Other expenses | -1 003 | -970 | 3 | - 974 | 3 | -1 973 | -1 934 | 2 | -3 979 |
| Depreciation, amortisation and impairment of tangible | |||||||||
| and intangible assets | - 16 | - 19 | - 17 | - 16 | - 3 | - 35 | - 30 | 17 | - 68 |
| Total operating expenses | -1 863 | -1 863 | 0 | -1 811 | 3 | -3 726 | -3 657 | 2 | -7 418 |
| Profit before credit losses | 2 251 | 2 575 | - 13 | 2 396 | - 6 | 4 825 | 4 760 | 1 | 9 380 |
| Gains less losses from tangible and intangible assets | 0 | 0 - 100 | 0 - 100 | 0 | 0 | - 4 | |||
| Net expected credit losses | -228 | -519 | - 56 | - 101 | 125 | - 747 | - 172 | - 393 | |
| Operating profit before items affecting comparability | 2 023 | 2 055 | - 2 | 2 295 | - 12 | 4 078 | 4 588 | - 11 | 8 983 |
| Items affecting comparability | |||||||||
| Operating profit | 2 023 | 2 055 | - 2 | 2 295 | - 12 | 4 078 | 4 588 | - 11 | 8 983 |
| Cost/Income ratio | 0.45 | 0.42 | 0.43 | 0.44 | 0.43 | 0.44 | |||
| Business equity, SEK bn | 47.8 | 45.9 | 44.6 | 46.8 | 44.8 | 44.9 | |||
| Return on business equity, % | 13.0 | 13.7 | 15.7 | 13.3 | 15.7 | 15.3 | |||
| Number of full time equivalents1) | 3 590 | 3 553 | 3 601 | 3 557 | 3 593 | 3 564 |
1) Quarterly numbers are for end of quarter. Accumulated numbers are average for the period.
- Customer satisfaction among private customers reached all time high levels for both advisory and customer service
- Strong growth in deposits and continued mortgage volume growth
- Operating profit amounted to SEK 2,023m and return on business equity was 13.0 per cent
Comments on the second quarter
Customer behaviour changed during the quarter in light of the Covid-19 pandemic, significantly reducing customer branch office visits. Customer satisfaction, as measured by Net Promoter Score (NPS), increased compared with previous quarter and reached record levels for Personal Banking customers.
In the corporate segment the net inflow of full-service customers continued, and corporate deposit growth was high. Underlying corporate lending increased by SEK 1.3bn, however the reduced corporate credit card utilisation decreased total corporate lending during the quarter. Total corporate lending volumes amounted to SEK 251bn (252). Among private customers, deposit growth was also high, and the mortgage business maintained a steady lending growth, increasing new sales market share compared with the previous quarter. Mortgage volumes grew by SEK 9bn and amounted to SEK 523bn. There was a strong inflow of mortgage amortisation grace applications in the beginning of the quarter, but they decreased significantly towards quarterend. In total, lending volumes increased by SEK 7bn to SEK 834bn. Deposits volumes grew by SEK 34bn and amounted to SEK 507bn.
Mutual fund volumes increased as the equity market recovered throughout the period. Within Private Banking, assets under management recovered supported by the strong equity market growth. Net sales picked up during the quarter resulting in positive year-to-date flow.
Operating profit decreased by 2 per cent. Net interest income decreased by 3 per cent, or SEK 88m, primarily explained by higher funding cost related to the market volatility, which was to some extent offset by increased lending and deposit volumes, stronger deposit margin and reduced resolution fee. Net fee and commission income decreased by 15 per cent mainly as a result of lower transaction volumes within the corporate card segment, lower fund values affecting fund fees and brokerage income returning to normal levels after having been unusually high in March. Total operating expenses were unchanged.
Net expected credit losses amounted to SEK 228m with a net expected credit loss level of 9 basis points. See page 7.
Baltic
The division provides full banking and advisory services to private individuals and small and medium-sized corporate customers in Estonia, Latvia and Lithuania.
Income statement
| Q2 | Q1 | Q2 | Jan–Jun | Full year | |||||
|---|---|---|---|---|---|---|---|---|---|
| SEK m | 2020 | 2020 | % | 2019 | 2020 | 2019 | % | 2019 | |
| Net interest income | 784 | 849 | - 8 | 802 | - 2 | 1 633 | 1 564 | 4 | 3 218 |
| Net fee and commission income | 381 | 399 | - 4 | 424 | - 10 | 780 | 799 | - 2 | 1 638 |
| Net financial income | 96 | 32 | 196 | 69 | 39 | 129 | 140 | - 8 | 321 |
| Net other income | 0 | 0 | - 144 | - 2 | - 106 | 0 | - 3 | - 95 | - 8 |
| Total operating income | 1 262 | 1 280 | - 1 | 1 293 | - 2 | 2 542 | 2 500 | 2 | 5 169 |
| Staff costs | - 218 | - 225 | - 3 | - 209 | 4 | - 442 | - 412 | 7 | - 856 |
| Other expenses | - 288 | - 278 | 4 | - 271 | 7 | - 566 | - 533 | 6 | -1 123 |
| Depreciation, amortisation and impairment of tangible | |||||||||
| and intangible assets | - 8 | - 8 | 0 | - 7 | 10 | - 16 | - 15 | 7 | - 30 |
| Total operating expenses | - 514 | - 511 | 1 | - 487 | 6 | -1 025 | - 960 | 7 | -2 009 |
| Profit before credit losses | 748 | 770 | - 3 | 806 | - 7 | 1 517 | 1 540 | - 1 | 3 159 |
| Gains less losses from tangible and intangible assets | 0 | 0 | - 3 | 0 | 1 | 0 | 2 | ||
| Net expected credit losses | - 260 | - 77 | - 33 | - 337 | - 53 | - 58 | |||
| Operating profit before items affecting comparability | 488 | 693 | - 30 | 773 | - 37 | 1 181 | 1 488 | - 21 | 3 104 |
| Items affecting comparability | |||||||||
| Operating profit | 488 | 693 | - 30 | 773 | - 37 | 1 181 | 1 488 | - 21 | 3 104 |
| Cost/Income ratio | 0.41 | 0.40 | 0.38 | 0.40 | 0.38 | 0.39 | |||
| Business equity, SEK bn | 13.3 | 13.3 | 10.6 | 13.3 | 10.5 | 10.8 | |||
| Return on business equity, % | 12.5 | 17.9 | 25.0 | 15.2 | 24.1 | 24.7 | |||
| Number of full time equivalents1) | 2 299 | 2 339 | 2 366 | 2 322 | 2 326 | 2 350 |
1) Quarterly numbers are for end of quarter. Accumulated numbers are average for the period.
- Customer usage of digital and remote services surged
- Financial effects from strict lock-downs due to the Covid-19 pandemic
- Operating profit amounted to SEK 488m and return on business equity was 12.5 per cent
Comments on the second quarter
Lockdowns and other Covid-19 containment measures introduced in the Baltic countries towards the end of the first quarter were broadly successful. Upon their easing towards the end of the quarter, a recovery in private demand and consumer confidence started, hindered by the increase in unemployment. Exporters delayed investment decisions due to falling demand resulting from the pandemic.
Whilst house prices stayed almost unchanged, activity in the private residential market sharply declined during the second quarter, which led to a relatively flat development in mortgage lending in local currency. Usage of cards and payment products in the private segment was demonstrably affected by Covid-19, with the usual second quarter seasonal demand now absent. With physical customer meetings restricted, usage of SEB's digital service offerings surged.
Lending volumes in the already cautious corporate segment decreased. Led by the reduced corporate demand, total lending volumes decreased by 2 per cent in local currency in the second quarter and amounted to SEK 156bn (166). Strong growth in deposits continued in all segments. Total deposits grew by 6 per cent in local currency and amounted to SEK 169bn (167).
Compared with the first quarter, operating profit decreased by 30 per cent, or by SEK 205m, to SEK 488m. Net interest income decreased by 8 per cent due in part to higher costs in managing excess liquidity, as well as higher fees for Baltic resolution funds.
Net fee and commission income was down 4 per cent, due mainly to decreased activity caused by Covid-19.
Net financial income increased by 196 per cent, due mostly to the recovery of market valuations of government bonds in the treasury liquidity portfolios, reflecting the general decrease of bond credit spreads and rebounding from the market volatility related to Covid-19. The currency effect on the result this quarter was small.
Operating expenses were 1 per cent higher mainly as a result of the EUR 1m administrative fine issued by the Estonian FSA arising from the closure of the previously disclosed antimoney laundering review. It was partially offset by savings mainly from a reduced number of staff.
Net expected credit losses amounted to SEK 260m with a net expected credit loss level of 55 basis points. See page 7.
Life
The division offers life insurance solutions to private as well as corporate and institutional clients mainly in the Nordic and Baltic countries.
Income statement
| Q2 | Q1 | Q2 | Jan–Jun | Full year | |||||
|---|---|---|---|---|---|---|---|---|---|
| SEK m | 2020 | 2020 | % | 2019 | 2020 | 2019 | % | 2019 | |
| Net interest income | - 8 | - 8 | 1 | - 3 | 147 | - 16 | - 6 | 145 | - 16 |
| Net fee and commission income | 593 | 605 | - 2 | 635 | - 7 | 1 197 | 1 235 | - 3 | 2 531 |
| Net financial income | 235 | - 118 | 199 | 18 | 117 | 352 | - 67 | 711 | |
| Net other income | 6 | - 5 | - 2 | 1 | 49 | - 98 | 77 | ||
| Total operating income | 825 | 475 | 74 | 829 | 0 | 1 300 | 1 630 | - 20 | 3 304 |
| Staff costs | - 216 | - 220 | - 2 | - 206 | 5 | - 437 | - 424 | 3 | - 860 |
| Other expenses | - 183 | - 184 | 0 | - 178 | 3 | - 368 | - 351 | 5 | - 706 |
| Depreciation, amortisation and impairment of tangible | |||||||||
| and intangible assets | - 5 | - 6 | - 9 | - 5 | - 1 | - 11 | - 10 | 5 | - 21 |
| Total operating expenses | - 405 | - 410 | - 1 | - 390 | 4 | - 815 | - 785 | 4 | -1 587 |
| Profit before credit losses | 420 | 64 | 439 | - 4 | 485 | 845 | - 43 | 1 716 | |
| Gains less losses from tangible and intangible assets | 0 | 0 | |||||||
| Net expected credit losses | 0 | 0 | - 1 | 0 | - 1 | - 94 | - 1 | ||
| Operating profit before items affecting comparability | 420 | 64 | 438 | - 4 | 485 | 844 | - 43 | 1 715 | |
| Items affecting comparability | |||||||||
| Operating profit | 420 | 64 | 438 | - 4 | 485 | 844 | - 43 | 1 715 | |
| Cost/Income ratio | 0.49 | 0.86 | 0.47 | 0.63 | 0.48 | 0.48 | |||
| Business equity, SEK bn | 5.3 | 5.5 | 5.4 | 5.4 | 5.4 | 5.4 | |||
| Return on business equity, % | 29.7 | 4.4 | 30.2 | 16.8 | 29.0 | 29.4 | |||
| Number of full time equivalents1) | 1 043 | 1 054 | 1 037 | 1 049 | 1 048 | 1 046 |
1) Quarterly numbers are for end of quarter. Accumulated numbers are average for the period.
- Recovery in asset values
- Positive market share development
- Operating profit amounted to SEK 420m and return on business equity was 29.7 per cent
Comments on the second quarter
Customer fund values rebounded with equity markets recovering strongly during the quarter, driving an increase in assets under management by 8 per cent. Customers were highly active seeking advice on the effects of Covid-19 and advisors supported them both remotely and digitally. There was a downward trend in the number of companies interested in grace periods, premium free, for their occupational pension with customers perceiving lower uncertainty around the Covid-19 development compared with the previous quarter.
SEB's market share for new business increased from 8.1 to 10.61 per cent, driven by strong performance from portfolio bond and collective occupational pension. SEB is thereby number three in the total Swedish life insurance market. Sales in the second quarter slowed as a consequence of lower activity among the Swedish corporate clients as well as an effect of the lock-down in the Baltic region for some time. Sales were down 13 percent for the division compared with the first quarter.
Total assets under management for both the traditional and unit-linked insurance segments increased to SEK 369bn from SEK 343bn at beginning of the quarter, mainly from a market value increase but also a positive net inflow.
Operating profit increased by SEK 356m during the quarter to SEK 420m. Net fee and commission income decreased by 2 per cent compared with the previous quarter due to lower average asset values in the unit-linked business. Net financial income increased by SEK 353m to SEK 235m. The more stable fixed income markets in combination with improved equity markets affected the income positively from traditional portfolios both in Sweden and the Baltic countries. During the quarter approximately SEK 60m of the negative unrealised market effects in the traditional portfolios during the first quarter was recovered.
1 Latest available market statistics from the Swedish insurance trade association, measured as new business
Investment Management & group functions
The Investment Management division manages SEB funds and mandates for customers channelled via the other divisions. Group functions consist of technology, business support, treasury, staff units and German runoff operations.
Income statement
| Q2 | Q1 | Q2 | Jan–Jun | Full year | |||||
|---|---|---|---|---|---|---|---|---|---|
| SEK m | 2020 | 2020 | % | 2019 | 2020 | 2019 | % | 2019 | |
| Net interest income | - 294 | - 276 | 7 | - 85 | - 570 | - 458 | 24 | - 378 | |
| Net fee and commission income | 634 | 607 | 4 | 617 | 3 | 1 240 | 1 145 | 8 | 2 392 |
| Net financial income | 705 | - 352 | 169 | 353 | 563 | - 37 | 1 605 | ||
| Net other income | 3 | 82 | - 96 | 45 | - 93 | 85 | 139 | - 39 | 554 |
| Total operating income | 1 048 | 61 | 747 | 40 | 1 109 | 1 388 | - 20 | 4 173 | |
| Staff costs | -1 457 | -1 278 | 14 | -1 328 | 10 | -2 735 -2 640 | 4 | -5 294 | |
| Other expenses | 1 335 | 1 150 | 16 | 1 167 | 14 | 2 485 | 2 187 | 14 | 4 465 |
| Depreciation, amortisation and impairment of tangible | |||||||||
| and intangible assets | - 511 | - 379 | 35 | - 365 | 40 | - 890 | - 720 | 24 | -1 475 |
| Total operating expenses | - 633 | - 507 | 25 | - 526 | 20 | -1 140 -1 173 | - 3 | -2 304 | |
| Profit before credit losses | 416 | - 446 | - 193 | 222 | 88 | - 31 | 216 | - 114 | 1 869 |
| Gains less losses from tangible and intangible assets | 0 | 0 | - 95 | 0 | - 97 | 0 | 0 | - 37 | - 1 |
| Net expected credit losses | 7 | 10 | - 30 | 11 | - 36 | 16 | 9 | 90 | - 22 |
| Operating profit before items affecting comparability | 422 | - 436 | - 197 | 233 | 82 | - 14 | 225 | - 106 | 1 846 |
| Items affecting comparability | -1 000 | -1 000 | 0 | ||||||
| Operating profit | - 578 | - 436 | 32 | 233 | -1 014 | 22506 | 1 846 | ||
| Number of full time equivalents1) | 6 308 | 6 210 | 5 928 | 6 227 | 5 846 | 5 922 | |||
| SEB labelled mutual funds, SEK bn2) | 614 | 562 | 647 | 614 | 647 | 685 |
1) Quarterly numbers are for end of quarter. Accumulated numbers are average for the period.
2) As of 1 January 2020, the definition of AuM was further clarified for SEB-labelled mutual funds, leading to an overall lower AuM figure. Historical periods were adjusted proforma. The management of Baltic pension funds was moved to the Life division.
- SEB-labelled mutual funds' asset values increased to SEK 614bn
- Operating profit before items affecting comparability amounted to SEK 422m
- An administrative fine amounting to SEK 1,000m was issued by the Swedish FSA
Comments on the second quarter
Investment Management and group functions are reported combined but are distinctly different. Their combined operating profit of SEK -578m is best commented one by one.
Investment Management: The Covid-19 pandemic had a large effect and the market environment was challenging with elevated volatility across asset classes. In order to protect unit holders, the assets most exposed to the consequences of the pandemic were proactively minimised freeing up liquidity to meet potential unknown challenges. Assets under management were slowly increasing and SEB-labelled mutual funds amounted to SEK 614bn (562). Net sales for the quarter amounted to SEK 8bn. SEB's assets under management fulfilling SEB's sustainability criteria amounted to SEK 229bn, representing 37 per cent of the SEB-labelled mutual funds.
Total operating income amounted to SEK 518m (583). Base commission amounted to SEK 488m which was a decrease of 8 per cent compared with the previous quarter. Base commission is calculated daily, and average volumes were lower than the first quarter. The overall market functionality was satisfactory during the quarter and
performance fees amounted to SEK 59m (46). Operating expenses decreased and amounted to SEK 200m. Operating profit amounted to SEK 318 (354).
Treasury: The USD rate cut by the US Federal Reserve in the first quarter had a negative effect on Treasury's net interest income in the second quarter compared with the first. On the other hand, the rate cut had a positive effect on net financial income through mark-to-market valuations. The prefinanced AT1 was repurchased in May giving a positive effect on net interest income.
Support and staff units: Technology provides IT operations and development as well as architecture. Business support handles back office services for the divisions. Staff units include for instance compliance and risk functions and other various units. All relevant costs are charged to the divisions to be reflected in their results.
Net financial income reflected positive market valuation effects of SEK 938m on certain strategic holdings.
The Swedish FSA issued SEB an administrative fine of SEK 1,000m. See page 7.
Notes to the financial statements - SEB Group
Note 1 Accounting policies
This Report is presented in accordance with IAS 34 Interim Financial Reporting. The group's consolidated accounts have been prepared in accordance with the International Financial Reporting Standards (IFRS) and interpretations of these standards as adopted by the European Commission. The accounting also follows the Annual Accounts Act for Credit Institutions and Securities Companies (1995:1559) and the regulation and general guidelines issued by the Swedish Financial Supervisory Authority: Annual Reports in Credit Institutions and Securities Companies (FFFS 2008:25). In addition, the Supplementary Accounting Rules for Groups (RFR 1) from the Swedish Financial Reporting Board have been applied. The Parent Company has prepared its accounts in accordance with Swedish Annual Act for Credit Institutions and Securities Companies, the Swedish Financial Supervisory Authority's Regulations and General Guidelines (FFFS 2008:25) on Annual Reports in Credit Institutions and Securities Companies and the Supplementary Accounting Rules for Legal Entities (RFR 2) issued by the Swedish Financial Reporting Board.
As of January 2020, the group adopted Definition of Material (Amendments to IAS 1 and IAS 8). The amendments provide a new definition of material that states that
"information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity". The IASB has issued a revised Conceptual Framework for Financial Reporting. The purpose of the Conceptual Framework is to assist the IASB in developing standards, to help preparers develop consistent accounting policies where there is no applicable standard in place and to assist all parties to understand and interpret the standards. An amendment to IFRS 3 Business Combinations clarifies that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. The changes have not had a material effect on the financial statements of the group or on capital adequacy and large exposures.
In all other material aspects, the group's and the parent company's accounting policies, basis for calculations and presentations are unchanged in comparison with the 2019 Annual Report.
Note 2 Net interest income
| Q2 | Q1 | Q2 | Jan–Jun | Full year | |||||
|---|---|---|---|---|---|---|---|---|---|
| SEK m | 2020 | 2020 | % | 2019 | % | 2020 | 2019 | % | 2019 |
| Interest income1) | 9 507 | 10 342 | - 8 | 10 540 | -10 | 19 849 | 20 489 | - 3 | 41 722 |
| Interest expense | -3 459 | -4 141 | - 16 | -4 848 | -29 | -7 600 | -9 452 | - 20 | -18 772 |
| Net interest income | 6 047 | 6 201 | - 2 | 5 692 | 6 | 12 249 | 11 037 | 11 | 22 950 |
| 1) Of which interest income calculated using the effective interest method |
7 898 | 8 540 | - 8 | 8 909 | -11 | 16 439 | 17 501 | - 6 | 35 217 |
Note 3 Net fee and commission income
| Q2 | Q1 | Q2 | Jan–Jun | Full year | |||||
|---|---|---|---|---|---|---|---|---|---|
| SEK m | 2020 | 2020 | % | 2019 | % | 2020 | 2019 | % | 2019 |
| Issue of securities and advisory services | 301 | 251 | 20 | 284 | 6 | 552 | 516 | 7 | 1 312 |
| Secondary market and derivatives | 491 | 622 | - 21 | 549 | -11 | 1 112 | 1 073 | 4 | 2 047 |
| Custody and mutual funds | 1 890 | 1 996 | - 5 | 1 975 | -4 | 3 886 | 3 769 | 3 | 7 782 |
| Whereof performance fees | 69 | 51 | 35 | 56 | 22 | 119 | 68 | 75 | 121 |
| Payments, cards, lending, deposits, | |||||||||
| guarantees and other | 2 486 | 2 760 | - 10 | 2 877 | -14 | 5 246 | 5 582 | - 6 | 11 293 |
| Whereof payments and card fees | 1 167 | 1 454 | - 20 | 1 613 | -28 | 2 620 | 3 096 | - 15 | 6 299 |
| Whereof lending | 790 | 769 | 3 | 737 | 7 | 1 560 | 1 420 | 10 | 2 869 |
| Life insurance commissions | 393 | 381 | 3 | 447 | -12 | 774 | 882 | - 12 | 1 741 |
| Fee and commission income | 5 561 | 6 009 | - 7 | 6 133 | -9 | 11 570 | 11 823 | - 2 | 24 176 |
| Fee and commission expense | -1 197 | -1 385 | - 14 | -1 398 | -14 | -2 582 | -2 797 | - 8 | -5 467 |
| Net fee and commission income | 4 364 | 4 624 | - 6 | 4 735 | -8 | 8 988 | 9 026 | 0 | 18 709 |
| Whereof Net securities commissions | 2 062 | 2 079 | - 1 | 2 106 | -2 | 4 141 | 3 870 | 7 | 8 179 |
| Whereof Net payment and card fees | 710 | 896 | - 21 | 1 057 | -33 | 1 606 | 1 997 | - 20 | 4 096 |
| Whereof Net life insurance commissions | 276 | 254 | 9 | 305 | -10 | 530 | 587 | - 10 | 1 198 |
| Whereof Other commissions | 1 316 | 1 395 | - 6 | 1 266 | 4 | 2 710 | 2 573 | 5 | 5 236 |
Fee and commission income by segment
| Large | Investment | ||||||
|---|---|---|---|---|---|---|---|
| Corporates | Corporate & | Management | |||||
| & Financial | Private | & group | |||||
| SEK m | Institutions | Customers | Baltic | Life | functions | Eliminations | SEB Group |
| Q2 2020 | |||||||
| Issue of securities and advisory | 280 | 15 | 6 | 0 | 0 | 301 | |
| Secondary market and derivatives | 392 | 92 | 9 | 0 | - 3 | 0 | 491 |
| Custody and mutual funds | 846 | 412 | 46 | 50 | 1 378 | - 842 | 1 890 |
| Payments, cards, lending, deposits, | |||||||
| guarantees and other | 1 225 | 883 | 479 | 49 | 152 | - 302 | 2 486 |
| Life insurance commissions | 747 | - 354 | 393 | ||||
| Fee and commission income | 2 743 | 1 402 | 541 | 846 | 1 527 | -1 498 | 5 561 |
| Q1 2020 | |||||||
| Issue of securities and advisory | 242 | 4 | 4 | 0 | 251 | ||
| Secondary market and derivatives | 501 | 117 | 10 | 0 | - 6 | 0 | 622 |
| Custody and mutual funds | 846 | 443 | 47 | 52 | 1 495 | - 887 | 1 996 |
| Payments, cards, lending, deposits, | |||||||
| guarantees and other | 1 225 | 1 143 | 507 | 47 | 119 | - 282 | 2 760 |
| Life insurance commissions | 772 | - 391 | 381 | ||||
| Fee and commission income | 2 815 | 1 707 | 568 | 872 | 1 608 | -1 561 | 6 009 |
| Jan-Jun 2020 | |||||||
| Issue of securities and advisory | 522 | 19 | 11 | 0 | 0 | 552 | |
| Secondary market and derivatives | 893 | 209 | 19 | 0 | - 9 | 0 | 1 112 |
| Custody and mutual funds | 1 693 | 855 | 93 | 102 | 2 873 | -1 729 | 3 886 |
| Payments, cards, lending, deposits, | |||||||
| guarantees and other | 2 450 | 2 026 | 986 | 97 | 271 | - 584 | 5 246 |
| Life insurance commissions | 1 519 | - 746 | 774 | ||||
| Fee and commission income | 5 558 | 3 109 | 1 109 | 1 718 | 3 135 | -3 059 | 11 570 |
| Jan-Jun 2019 | |||||||
| Issue of securities and advisory | 493 | 13 | 9 | 0 | 1 | 516 | |
| Secondary market and derivatives | 839 | 227 | 10 | 0 | - 4 | 0 | 1 073 |
| Custody and mutual funds | 1 638 | 762 | 93 | 81 | 2 939 | -1 744 | 3 769 |
| Payments, cards, lending, deposits, | |||||||
| guarantees and other | 2 331 | 2 565 | 996 | 111 | 231 | - 652 | 5 582 |
| Life insurance commissions | 1 613 | - 731 | 882 | ||||
| Fee and commission income | 5 302 | 3 568 | 1 108 | 1 805 | 3 167 | -3 127 | 11 823 |
Fee and commission income is disaggregated in major types of service tied to primary geographical markets and operating segments. Revenues from Issue of securities and advisory, Secondary market and derivatives, Payments, cards, lending and deposits are mainly recognised at a point in time. Revenues from Custody and mutual funds and Life insurance commissions are mainly recognised over time.
Note 4 Net financial income
| Q2 | Q1 | Q2 | Jan–Jun | Full year | |||||
|---|---|---|---|---|---|---|---|---|---|
| SEK m | 2020 | 2020 | % | 2019 | % | 2020 | 2019 | % | 2019 |
| Equity instruments and related derivatives | 1 159 | -1 489 -178 | 449 | 158 | - 330 | 1 287 -126 | 2 628 | ||
| Debt instruments and related derivatives | 900 | - 456 | - 153 | 444 | - 213 | - 37 | |||
| Currency and related derivatives | 1 054 | 1 513 | -30 | 941 | 12 | 2 567 | 2 037 | 26 | 4 119 |
| Other life insurance income, net | 228 | - 113 | 200 | 14 | 115 | 353 | 722 | ||
| Other | 200 | - 259 -177 | 46 | - 59 | 135 -144 | 185 | |||
| Net financial income | 3 541 | - 804 | 1 482 | 139 | 2 737 | 3 600 | 7 617 | ||
| Whereof unrealized valuation changes from | |||||||||
| counterparty risk and own credit standing in | |||||||||
| derivatives | 581 | -1 282 | -145 | - 102 | - 702 | - 108 | - 1 |
The result within Net financial income is presented on different line items based on type of underlying financial instrument.
For the second quarter the effect from structured bonds offered to the public was approximately SEK 550m (Q1 2020: -1 160) in Equity related derivatives and a corresponding effect in Debt related derivatives SEK -440m (Q1 2020: 1 455).
Note 5 Net expected credit losses
| Q2 | Q1 | Q2 | Jan–Jun | Full year | |||||
|---|---|---|---|---|---|---|---|---|---|
| SEK m | 2020 | 2020 | % | 2019 | % | 2020 | 2019 | % | 2019 |
| Impairment gains or losses - Stage 1 | - 396 | - 476 | -17 | 50 | - 872 | 3 | 24 | ||
| Impairment gains or losses - Stage 2 | - 293 | - 287 | 2 | 198 | - 580 | 229 | 457 | ||
| Impairment gains or losses - Stage 3 | -1 890 | - 705 | 168 | - 655 | 188 | -2 595 | -1 083 | 140 | -2 777 |
| Impairment gains or losses | -2 579 | -1 468 | 76 | - 408 | -4 047 | - 852 | -2 296 | ||
| Write-offs and recoveries | |||||||||
| Total write-offs | - 966 | - 226 | - 413 | 134 | -1 192 | - 639 | 87 | -1 113 | |
| Reversals of allowance for write-offs | 805 | 154 | 351 | 129 | 959 | 520 | 84 | 845 | |
| Write-offs not previously provided for | - 161 | - 72 | 124 | - 62 | 161 | - 233 | - 119 | 96 | - 269 |
| Recovered from previous write-offs | 50 | 46 | 7 | 84 | -41 | 96 | 163 | -41 | 271 |
| Net write-offs | - 112 | - 25 | 22 | - 137 | 44 | 2 | |||
| Net expected credit losses | -2 691 | -1 494 | 80 | - 386 | -4 185 | - 808 | -2 294 | ||
| Net ECL level, % | 0.46 | 0.25 | 0.07 | 0.35 | 0.07 | 0.10 |
Exposure and expected credit loss (ECL) allowances by stage, Movements in allowances for expected credit losses and loans and Expected credit loss allowances by industry are presented in notes 10-12.
Note 6 Items affecting comparability
| Q2 | Q1 | Q2 | Jan–Jun | Full year | |||||
|---|---|---|---|---|---|---|---|---|---|
| SEK m | 2020 | 2020 | % | 2019 | % | 2020 | 2019 | % | 2019 |
| Other expenses | -1 000 | -1 000 | |||||||
| Total operating expenses | -1 000 | -1 000 | |||||||
| Items affecting comparability | -1 000 | -1 000 | |||||||
| Income tax on IAC | |||||||||
| Items affecting comparability after tax | -1 000 | -1 000 |
The table shows the rows in which the Items affecting comparability would have been reported if not presented as an item affecting comparability.
Items affecting comparability 2020
The Swedish Financial Supervisory Authority (FSA) finalised its review of SEB's governance and control of measures against money laundering in SEB's Baltic banks. The Swedish FSA decided to issue SEB a remark, which is a lower degree of an administrative sanction that is issued when a breach has not been deemed to be serious. The Swedish FSA also decided to issue SEB an administrative fine of SEK 1,000m, which corresponds to about 14 per cent of the maximum amount the Swedish FSA can impose in this case, as well as a precept to take certain measures to improve the transaction monitoring in Sweden.
Note 7 Pledged assets and obligations
| 30 Jun | 31 Mar | 31 Dec | |
|---|---|---|---|
| SEK m | 2020 | 2020 | 2019 |
| Pledged assets for own liabilities1) | 461 891 | 536 544 | 496 406 |
| Pledged assets for liabilities to insurance policyholders | 330 601 | 305 707 | 344 121 |
| Other pledged assets2) | 124 792 | 129 294 | 91 477 |
| Pledged assets | 917 284 | 971 545 | 932 004 |
| Contingent liabilities3) | 142 082 | 145 150 | 139 462 |
| Commitments | 705 535 | 637 328 | 638 348 |
| Obligations | 847 618 | 782 477 | 777 810 |
1) Of which collateralised for own issued covered bonds SEK 338,668m (377,189; 368,955).
2) Of which securities lending SEK 2,905m (3,668; 5,389) and pledged but unencumbered bonds
SEK 95,641m (95,112; 58,523).
3) Of which financial guarantees SEK 8,356m (8,693; 8,705).
Note 8 Financial assets and liabilities
| 30 Jun 2020 | 31 Mar 2020 | 31 Dec 2019 | ||||
|---|---|---|---|---|---|---|
| SEK m | Carrying amount |
Fair value | Carrying amount |
Fair value | Carrying amount |
Fair value |
| Loans1) | 2 269 530 | 2 281 622 | 2 335 950 | 2 350 242 | 2 033 280 | 2 033 650 |
| Debt securities | 363 143 | 362 876 | 317 935 | 317 766 | 238 578 | 238 878 |
| Equity instruments | 59 259 | 59 259 | 62 028 | 62 028 | 78 482 | 78 482 |
| Financial assets for which the customers bear the | ||||||
| investment risk | 301 581 | 301 581 | 277 416 | 277 416 | 316 776 | 316 776 |
| Derivatives | 157 007 | 157 007 | 225 482 | 225 482 | 139 427 | 139 427 |
| Other | 33 713 | 33 713 | 32 797 | 32 797 | 16 584 | 16 584 |
| Financial assets | 3 184 234 | 3 196 059 | 3 251 608 | 3 265 731 | 2 823 127 | 2 823 797 |
| Deposits Financial liabilities for which the customers bear the |
1 613 456 | 1 614 254 | 1 540 096 | 1 539 096 | 1 249 526 | 1 248 839 |
| investment risk | 303 188 | 303 188 | 278 974 | 278 974 | 317 574 | 317 574 |
| Debt securities issued2) | 813 967 | 824 040 | 951 086 | 956 243 | 902 812 | 896 194 |
| Short positions | 36 225 | 36 225 | 33 202 | 33 202 | 27 343 | 27 343 |
| Derivatives | 137 896 | 137 896 | 187 964 | 187 964 | 122 192 | 122 192 |
| Other | 95 750 | 95 752 | 83 611 | 83 613 | 18 449 | 18 451 |
| Financial liabilities | 3 000 482 | 3 011 355 | 3 074 933 | 3 079 092 | 2 637 896 | 2 630 593 |
1) Loans includes Cash balances at central banks (excluding Cash), Loans to central banks, Loans to credit institutions and Loans to the public.
2) Debt securities issued includes Debt securities issued and Subordinated liabilities (part of Other liablitiies).
SEB has classified its financial instruments by class taking into account the characteristics of the instruments. The fair value of each class of financial assets and liabilities are compared with its carrying amount. A description of the characteristics of the classes can be found in note 37 in the 2019 Annual Report.
Note 9 Assets and liabilities measured at fair value
| SEK m | 30 Jun 2020 | 31 Dec 2019 | ||||||
|---|---|---|---|---|---|---|---|---|
| Valuation | Valuation | Valuation | Valuation | |||||
| Quoted | technique | technique | Quoted | technique | technique | |||
| prices in | using | using non | prices in | using | using non | |||
| active | observable | observable | active | observable | observable | |||
| markets | inputs | inputs | markets | inputs | inputs | |||
| Assets | (Level 1) | (Level 2) | (Level 3) | Total | (Level 1) | (Level 2) | (Level 3) | Total |
| Loans | 243 405 | 243 405 | 190 090 | 190 090 | ||||
| Debt securities | 184 910 | 164 990 | 293 | 350 193 | 110 101 | 113 884 | 5 | 223 990 |
| Equity instruments | 42 892 | 2 628 | 13 738 | 59 259 | 59 029 | 6 403 | 13 050 | 78 482 |
| Financial assets for which the customer | ||||||||
| bear the investment risk | 295 497 | 5 562 | 523 | 301 581 | 308 909 | 7 236 | 631 | 316 776 |
| Derivatives | 1 045 | 155 454 | 508 | 157 007 | 1 006 | 137 943 | 478 | 139 427 |
| Investment in associates1) | 82 | 415 | 496 | 85 | 381 | 466 | ||
| Total | 524 426 | 572 039 | 15 476 1 111 942 | 479 130 | 455 557 | 14 544 | 949 231 | |
| Liabilities | ||||||||
| Deposits | 36 400 | 36 400 | 15 103 | 15 103 | ||||
| Financial liabilities for which the | ||||||||
| customer bear the investment risk | 297 192 | 5 483 | 514 | 303 188 | 309 772 | 7 178 | 625 | 317 574 |
| Liabilities to policyholders - insurance | 26 220 | 1 192 | 27 413 | 25 399 | 1 147 | 26 547 | ||
| Debt securities issued | 13 392 | 13 392 | 20 207 | 20 207 | ||||
| Short positions | 28 610 | 7 614 | 36 225 | 25 634 | 1 669 | 41 | 27 343 | |
| Derivatives | 897 | 136 566 | 433 | 137 896 | 1 554 | 120 296 | 342 | 122 192 |
| Other financial liabilities at fair value | 134 | 2 122 | 2 256 | 44 | 2 405 | 2 449 | ||
| Total | 353 053 | 202 769 | 946 | 556 769 | 362 402 | 168 004 | 1 008 | 531 414 |
1) Venture capital activities designated at fair value through profit and loss.
Fair value measurement
The objective of the fair value measurement is to arrive at the price at which an orderly transaction would take place between market participants at the measurement date under current market conditions.
The group has an established control environment for the determination of fair values of financial instruments that includes a review, independent from the business, of valuation models and prices. If the validation principles are not adhered to, the Head of Group Finance shall be informed. Exceptions of material and principal importance require approval from the GRMC (Group Risk Measurement Committee) and the ARC (Accounting Reporting Committee).
In order to arrive at the fair value of a financial instrument SEB uses different methods; quoted prices in active markets, valuation techniques incorporating observable data and valuation techniques based on internal models. For disclosure purposes, financial instruments carried at fair value are classified in a fair value hierarchy according to the level of market observability of the inputs. Group Risk classifies and continuously reviews the classification of financial instruments in the fair value hierarchy. The valuation process is the same for financial instruments in all levels.
An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on an ongoing basis. The objective is to arrive at a price at which a transaction without modification or repackaging would occur in the principal market for the instrument to which SEB has immediate access.
Fair value is generally measured for individual financial instruments, in addition portfolio adjustments are made to cover the credit risk. To reflect counterparty risk and own credit risk in OTC derivatives, adjustments are made based on the net exposure towards each counterpart. These adjustments are calculated on a counterparty level based on estimates of exposure at default, probability of default and recovery rates. Probability of default and recovery rate information is generally sourced from the CDS markets. For counterparties where this information is not available, or considered unreliable due to the nature of the exposure, alternative approaches are taken where the the probability of default is based on generic credit indices for specific industry and/or rating.
When valuing financial liabilities at fair value SEB's own credit standing is reflected.
In order to arrive at the fair value of investment properties a market participant's ability to generate economic benefit by using the asset in its highest and best use are taken into account. The highest and best use takes into account the use of the asset that is physically possible, legally permissible and financially feasible. The current use of the investment properties in SEB is in accordance with the highest and best use. The valuation of investment properties is described in the accounting policies in Annual Report note 1. The valuation of the investment properties is performed semi-annually, they are presented and approved by the board in each real estate company. The valuation principles used in all entities are in accordance with regulations provided by the local Financial Supervisory Authorities (FSA) which is in accordance with international valuation principles and in accordance with IFRS.
Level 1: Quoted market prices
Valuations in Level 1 are determined by reference to unadjusted quoted market prices for identical instruments in active markets where the quoted prices are readily available and the prices represent actual and regularly occurring market transactions on an arm's length basis.
Examples of Level 1 financial instruments are listed equity securities, debt securities, and exchange-traded derivatives. Instruments traded in an active market for which one or more market participants provide a binding price quotation on the balance sheet date are also examples of Level 1 financial instruments.
Level 2: Valuation techniques with observable inputs
In Level 2 valuation techniques, all significant inputs to the valuation models are observable either directly or indirectly. Level 2 valuation techniques include using discounted cash flows, option pricing models, recent transactions and the price of another instrument that is substantially the same.
Examples of observable inputs are foreign currency exchange rates, binding securities price quotations, market interest rates (Stibor, Libor, etc.), volatilities implied from observable option prices for the same term and actual transactions with one or more external counterparts executed by SEB. An input can transfer from being observable to being unobservable during the holding period due to e.g. illiquidity of the instrument. Examples of Level 2 financial instruments are most OTC derivatives such as options and interest rate swaps based on the Libor swap rate or a foreign-denominated yield curve. Other examples are instruments for which SEB recently entered into transactions with third parties and instruments for which SEB interpolates between observable variables.
Note 9, continued. Assets and liabilities measured at fair value
Level 3: Valuation techniques with significant unobservable inputs
Level 3 valuation techniques incorporate significant inputs that are unobservable. These techniques are generally based on extrapolating from observable inputs for similar instruments, analysing historical data or other analytical techniques. Examples of Level 3 financial instruments are more complex OTC derivatives, long dated options for which the volatility is extrapolated or derivatives that depend on an unobservable correlation. Other examples are instruments for which there is currently no active market or binding quotes, such as unlisted equity instruments, private equity holdings and investment properties.
If the fair value of financial instruments includes more than one unobservable input, the unobservable inputs are aggregated in order to determine the classification of the entire instrument. The level in the fair value hierarchy within which a financial instrument is classified is determined on the basis of the lowest level of input that is significant to the fair value in its entirety.
Significant transfers and reclassifications between levels
Transfers between levels may occur when there are indications that market conditions have changed, e.g. a change in liquidity. The Valuation/Pricing committee of each relevant division decides on material shifts between levels. The largest open market risk within Level 3 financial instruments remains in the traditional life insurance investment portfolios within the insurance business.
| Gain/loss in | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Opening | Other | Closing | |||||||||
| balance | Gain/loss in | compre | Transfers | Transfers | Exchange | balance | |||||
| 1 Jan | Reclassi | Income | hensive | Settle | into | out of | rate | 30 Jun | |||
| Changes in level 3, SEK m | 2020 | fication | statement1) | income | Purchases | Sales | ments | Level 3 | Level 3 | differences | 2020 |
| Assets | |||||||||||
| Debt securities | 5 | -9 | -5 | 6 | 296 | 293 | |||||
| Equity instruments | 13 050 | -573 | 2 109 | -853 | 6 | 13 739 | |||||
| Financial assets for which the customer | |||||||||||
| bear the investment risk | 631 | -52 | 3 | -9 | -54 | 4 | 523 | ||||
| Derivatives | 478 | 12 | 88 | -70 | 508 | ||||||
| Investment in associates | 381 | -3 | 36 | 1 | 415 | ||||||
| Total | 14 544 | -625 | 2 236 | -867 | -64 | 296 | -54 | 10 | 15 476 | ||
| Liabilities | |||||||||||
| Financial liabilities for which the | |||||||||||
| customer bear the investment risk | 625 | -52 | -8 | -54 | 3 | 514 | |||||
| Short positions | 41 | -53 | 11 | 1 | 0 | ||||||
| Derivatives | 342 | -57 | 88 | 60 | 433 | ||||||
| Total | 1 008 | -162 | 91 | 60 | -54 | 3 | 946 |
1) Fair value gains and losses recognised in the income statement are included in Net financial income and Net other income.
Sensitivity of Level 3 assets and liabilities to unobservable inputs
The table below illustrates the potential Profit or Loss impact of the relative uncertainty in the fair value of assets and liabilities that for their valuation are dependent on unobservable inputs. The sensitivity to unobservable inputs is assessed by altering the assumptions to the valuation techniques, illustrated below by changes in index-linked swap spreads, implied volatilities, credit spreads or comparator multiples. It is unlikely that all unobservable inputs would be simultaneously at the extremes of their ranges of reasonably possible alternatives.
| 30 Jun 2020 | 31 Dec 2019 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| SEK m | Assets | Liabilities | Net Sensitivity | Assets | Liabilities | Net Sensitivity | |||
| Derivative instruments2) 5) | 507 | -433 | 74 | 18 | 478 | -342 | 136 | 36 | |
| Debt securities1) | 293 | 293 | 15 | ||||||
| Equity instruments3) 6) 7) | 3 222 | 3 222 | 644 | 3 187 | -40 | 3 147 | 632 | ||
| Insurance holdings - Financial instruments4) 5) 7) 8) | 10 638 | 10 638 | 1 237 | 9 960 | 9 960 | 1 110 |
1) Sensitivity quantified as the absolute value of range prices per maturity bucket multiplied by exposure in bps, and standard deviation multiplied by the confidence interval 1.28 and exposure in basis points.
2) Volatility valuation inputs for Bermudan swaptions are unobservable. Volatilities used for ordinary swaptions are adjusted further in order to reflect the additional uncertainty associated with the valuation of Bermudan style swaptions. The sensitivity is calculated from shift in implied volatilities and aggregated from each currency and maturity bucket.
3) Valuation is estimated in a range of reasonable outcomes. Sensitivity analysis is based on 20 per cent shift in market values.
4) Sensitivity for debt securities is generally quantified as shift in market values of 5 per cent except for credit opportunity 10 per cent and for distressed debt and structured credits 15 per cent.
5) Shift in implied volatility by 10 per cent.
6) Sensitivity analysis is based on a shift in market values of hedge funds 5 per cent, private equity of 20 per cent, structured credits 15 per cent.
7) Sensitivity from a shift of investment properties/real estate funds market values of 10 per cent and infrastructure/infrastructure funds market values of 20 per cent.
8) The sensitivity show changes in the value of the insurance holdings which do not at all times affect the P/L of the Group since any surplus in the traditional life portfolios are consumed first.
Note 10 Exposure and expected credit loss (ECL) allowances by stage
| SEK m 2020 2020 2019 Stage 1 (12-month ECL) Debt securities 12 951 14 728 14 589 Loans1) 1 658 392 1 738 616 1 623 030 Financial guarantees and Loan commitments 720 957 638 327 636 447 Gross carrying amounts/Nominal amounts Stage 1 2 392 300 2 391 671 2 274 066 Debt securities -1 -1 -1 Loans1) -1 287 -1 035 -643 Financial guarantees and Loan commitments -402 -290 -189 ECL allowances Stage 1 -1 689 -1 326 -832 Debt securities 12 951 14 727 14 588 Loans1) 1 657 105 1 737 581 1 622 387 Financial guarantees and Loan commitments 720 555 638 037 636 258 Carrying amounts/Net amounts Stage 1 2 390 611 2 390 345 2 273 234 Stage 2 (lifetime ECL) Loans1)2) 65 133 69 372 72 459 Financial guarantees and Loan commitments 16 080 16 256 13 900 Gross carrying amounts/Nominal amounts Stage 2 81 213 85 629 86 360 Loans1)2) -1 496 -1 288 -1 058 Financial guarantees and Loan commitments -228 -203 -127 ECL allowances Stage 2 -1 724 -1 491 -1 185 Loans1)2) 63 637 68 085 71 401 Financial guarantees and Loan commitments 15 852 16 053 13 773 Carrying amounts/Net amounts Stage 2 79 489 84 138 85 174 Stage 3 (credit impaired/lifetime ECL) Loans1)3) 14 927 12 890 11 396 Financial guarantees and Loan commitments3) 825 457 441 Gross carrying amounts/Nominal amounts Stage 3 15 753 13 347 11 836 Loans1)3) -6 694 -5 999 -5 211 Financial guarantees and Loan commitments3) -263 -91 -138 ECL allowances Stage 3 -6 957 -6 090 -5 349 Loans1)3) 8 233 6 891 6 184 Financial guarantees and Loan commitments3) 562 366 303 Carrying amounts/Net amounts Stage 3 8 796 7 256 6 487 |
30 Jun | 31 Mar | 31 Dec |
|---|---|---|---|
The note continues on the next page.
| 30 Jun | 31 Mar | 31 Dec | |
|---|---|---|---|
| SEK m | 2020 | 2020 | 2019 |
| Total | |||
| Debt securities | 12 951 | 14 728 | 14 589 |
| Loans1)2)3) | 1 738 452 | 1 820 878 | 1 706 885 |
| Financial guarantees and Loan commitments3) | 737 862 | 655 040 | 650 788 |
| Gross carrying amounts/Nominal amounts | 2 489 266 | 2 490 646 | 2 372 262 |
| Debt securities | -1 | -1 | -1 |
| Loans1)2)3) | -9 477 | -8 321 | -6 912 |
| Financial guarantees and Loan commitments3) | -893 | -584 | -454 |
| ECL allowances | -10 370 | -8 907 | -7 367 |
| Debt securities | 12 951 | 14 727 | 14 588 |
| Loans1)2)3) | 1 728 976 | 1 812 556 | 1 699 972 |
| Financial guarantees and Loan commitments3) | 736 969 | 654 456 | 650 335 |
| Carrying amounts/Net amounts | 2 478 895 | 2 481 740 | 2 364 895 |
Note 10, continued. Exposure and expected credit loss (ECL) allowances by stage
1) Excluding demand deposits credit institutions and including trade and client receivables presented as other assets.
2) Whereof gross carrying amounts SEK 1,339m (1,316; 1,372) and ECL allowances SEK 0m (2; 2) under Lifetime ECLs simplified approach for trade receivables.
3) Whereof gross carrying amounts SEK 2,962m (2,509; 2,309) and ECL allowances SEK 1,507m (1,222; 1,002) for Purchased or Originated Credit Impaired loans.
The table shows gross carrying amounts for exposures on balance and nominal amounts for exposures off-balance divided by stage as a mean to put ECL allowances in context to overall exposure levels. For trade receivables a simplified approach based on past-due information is used to calculate loss allowances.
| Stage 3 loans / Total loans, gross, % | 0.86 | 0.71 | 0.67 |
|---|---|---|---|
| Stage 3 loans / Total loans, net, % | 0.48 | 0.38 | 0.36 |
| ECL coverage ratio Stage 1, % | 0.07 | 0.06 | 0.04 |
| ECL coverage ratio Stage 2, % | 2.12 | 1.74 | 1.37 |
| ECL coverage ratio Stage 3, % | 44.16 | 45.63 | 45.19 |
| ECL coverage ratio, % | 0.42 | 0.36 | 0.31 |
Development of exposures and ECL allowances by stage
Gross exposures in Stage 3 increased by SEK 2,406m to SEK 15,753m in the second quarter mainly due to certain oilrelated exposures migrating from Stage 2. In the second quarter, ECL allowances in Stage 1 and 2 increased mainly due to more negative macroeconomic scenarios, while the model overlay for the oil portfolio affected ECL allowances in Stage 2 and 3. ECL allowances in Stage 3 also increased due to a handful of counterparties in the LC&FI division, predominantly in the oil portfolio.
The note continues on the next page.
Note 10, continued. Exposure and expected credit loss (ECL) allowances by stage
Measurement of ECL allowances
SEB uses both models and expert credit judgement (ECJ) for calculating ECL allowances. The degree of judgement depends on model outcome, materiality and information available and ECJ may be applied to incorporate factors not captured by the models. Expert credit judgement was used for the Covid-19- and oil-related model overlays made in the first and second quarters of 2020. The model overlays were determined through top-down scenario analysis combined with bottom-up customer analysis of larger corporate customers in the Large Corporates &Financial Institutions, Corporate &Private Customers and Baltic divisions and exposed sector analysis for other customer segments.
Significant increase in credit risk (SICR)
SEB uses both quantitative and qualitative indicators for determining significant increase in credit risk. Following the Covid-19 pandemic, governments have enabled measures to support corporates and private individuals, including amortisation exemptions for household mortgages. In line with the SFSA's recommendations, such measures do not automatically trigger a significant increase in credit risk, and thereby a transfer to stage 2 and increased ECL allowances, under EBA's guidelines.
Key macroeconomic variable assumptions for calculating ECL allowances
SEB reviews and updates the macroeconomic scenarios and scenario probability weightings for calculation of ECL allowances on a quarterly basis. The scenarios and probability weightings applied changed significantly in the second quarter following SEB's revised economic outlook as a result of the Covid-19 pandemic. The economic forecasts of the three scenarios - base, positive and negative scenarios - are based on different assumptions around how rapidly economies will reopen, which may depend both on strategic trade-offs between medical and economic aspects, but also to what extent there will be setbacks in the form or renewed outbreaks when restrictions are lifted. The base scenario assumes that economies reopen gradually and cautiously starting in May 2020, implying that there will be a relatively clear economic recovery in Q3 as consumption patterns in some areas normalise and industrial production that is dependent on functioning cross-border supply chains restarts. In many other areas, it is assumed that it will take time before the situation normalises.
The main macroeconomic variable assumptions of the base scenario used for the ECL allowances as of 30 June 2020 are set out below. Individual scenarios for SEB's home markets are used.
| Base scenario assumptions | 2020 | 2021 | 2022 |
|---|---|---|---|
| World GDP (PPP) growth | -3.3% | 5.7% | 4.0% |
| OECD GDP growth | -7.0% | 5.1% | 3.0% |
| Sweden | |||
| GDP growth | -6.5% | 5.0% | 3.0% |
| Household consumption expenditure growth | -5.0% | 3.0% | 4.0% |
| Interest rate (STIBOR) | 0.15% | 0.15% | 0.15% |
| Residential real estate price growth | -12.0% | 0.0% | 3.0% |
| Baltic countries | |||
| GDP growth | -8.7% − -9.8% | 5% − 6.5% | 3.5% − 4.0% |
| Unemployment rate | 9.8% − 10.2% | 8.5% − 8.8% | 7.5% − 7.6% |
| Inflation rate | 0.3% − 0.8% | 1.8% − 2.8% | 2.2% − 2.5% |
| Nominal wage growth | 0.3% − 1.0% | 3.0% − 3.5% | 4.5% |
The negative scenario assumes that economic recovery is significantly delayed compared to the base scenario and that important parts of the economy do not restart during the second half of 2020. The positive scenario assumes that the virus spread situation turns out to be more favourable than expected or that for other reasons economies reopen earlier than in the main scenario.
The probability of the three scenarios was estimated to 60 per cent for the base scenario, 20 per cent for the positive scenario, and 20 per cent for the negative scenario.
Should the positive and negative scenarios be assigned 100 per cent probability, the model calculated ECL allowances would decrease by 7 per cent and increase by 12 per cent respectively compared to the probability-weighted calculation.
SEB's measurement of ECL allowances and related assumptions according to IFRS9 can be found on pages 88-89 and 122-123 in the Annual Report 2019.
Note 11 Movements in allowances for expected credit losses (ECL)
| Stage 3 | ||||
|---|---|---|---|---|
| Stage 1 | (credit impaired/ | |||
| SEK m | (12-month ECL) |
Stage 2 (lifetime ECL) |
lifetime ECL) |
Total |
| Loans and Debt securities | ||||
| ECL allowance as of 31 December 2019 | 644 | 1 058 | 5 211 | 6 913 |
| New and derecognised financial assets, net | 180 | -357 | 474 | 298 |
| Changes due to change in credit risk | 509 | 767 | 1 996 | 3 272 |
| Changes due to modifications | 1 | 13 | 0 | 14 |
| Changes due to methodology change | -35 | 50 | -1 | 14 |
| Decreases in ECL allowances due to write-offs | -959 | -959 | ||
| Exchange rate differences | -11 | -35 | -29 | -75 |
| ECL allowance as of 30 Jun 2020 | 1 287 | 1 496 | 6 694 | 9 477 |
| Financial guarantees and Loan commitments | ||||
| ECL allowance as of 31 December 2019 | 189 | 127 | 138 | 454 |
| New and derecognised financial assets, net | 41 | -9 | -48 | -15 |
| Changes due to change in credit risk | 209 | 107 | 173 | 489 |
| Changes due to methodology change | -33 | 9 | 0 | -24 |
| Exchange rate differences | -4 | -6 | 0 | -10 |
| ECL allowance as of 30 Jun 2020 | 402 | 228 | 263 | 893 |
| Total Loans, Debt securities, Financial guarantees and Loan commitments | ||||
| ECL allowance as of 31 December 2019 | 832 | 1 185 | 5 349 | 7 367 |
| New and derecognised financial assets, net | 221 | -365 | 426 | 282 |
| Changes due to change in credit risk | 719 | 873 | 2 169 | 3 761 |
| Changes due to modifications | 1 | 13 | 0 | 14 |
| Changes due to methodology change | -68 | 59 | -1 | -9 |
| Decreases in ECL allowances due to write-offs | -959 | -959 | ||
| Exchange rate differences | -15 | -41 | -28 | -85 |
| ECL allowance as of 30 Jun 2020 | 1 689 | 1 724 | 6 957 | 10 370 |
Note 12 Loans and expected credit loss (ECL) allowances by industry
| Net carrying | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Gross carrying amounts | ECL allowances | amount | |||||||
| Stage 3 | Stage 3 | ||||||||
| Stage 1 | Stage 2 | (credit | Stage 1 | Stage 2 | (credit | ||||
| (12-month | (lifetime | impaired/ | (12-month | (lifetime | impaired/ | ||||
| SEK m | ECL) | ECL) | lifetime ECL) | Total | ECL) | ECL) | lifetime ECL) | Total | Total |
| 30 Jun 2020 | |||||||||
| Banks | 76 487 | 1 348 | 5 | 77 839 | -3 | -2 | -2 | -7 | 77 833 |
| Finance and insurance | 115 866 | 1 332 | 12 | 117 211 | -33 | -25 | -5 | -64 | 117 147 |
| Wholesale and retail | 71 965 | 2 805 | 726 | 75 496 | -104 | -77 | -554 | -735 | 74 761 |
| Transportation | 33 239 | 776 | 82 | 34 097 | -42 | -41 | -15 | -99 | 33 999 |
| Shipping | 52 766 | 1 790 | 1 967 | 56 523 | -31 | -37 | -1 039 | -1 108 | 55 415 |
| Business and household services | 155 384 | 7 081 | 2 517 | 164 982 | -277 | -207 | -1 083 | -1 566 | 163 415 |
| Construction | 13 070 | 1 097 | 213 | 14 380 | -23 | -28 | -73 | -124 | 14 257 |
| Manufacturing | 90 815 | 3 559 | 2 593 | 96 967 | -115 | -81 | -1 194 | -1 391 | 95 576 |
| Agriculture, forestry and fishing | 19 622 | 1 393 | 118 | 21 133 | -19 | -11 | -42 | -72 | 21 062 |
| Mining, oil and gas extraction | 22 249 | 3 980 | 3 447 | 29 676 | -72 | -503 | -1 279 | -1 854 | 27 822 |
| Electricity, gas and water supply | 43 498 | 333 | 229 | 44 060 | -29 | -36 | -91 | -155 | 43 905 |
| Other | 34 769 | 3 238 | 82 | 38 089 | -35 | -27 | -39 | -101 | 37 988 |
| Corporates | 653 244 | 27 384 | 11 987 | 692 615 | -780 | -1 073 | -5 415 | -7 268 | 685 347 |
| Commercial real estate management | 162 817 | 2 025 | 498 | 165 340 | -90 | -28 | -147 | -265 | 165 075 |
| Residential real estate management | 120 324 | 1 319 | 42 | 121 685 | -50 | -3 | -2 | -54 | 121 631 |
| Real Estate Management | 283 140 | 3 345 | 540 | 287 025 | -139 | -31 | -149 | -319 | 286 706 |
| Housing co-operative associations | 53 463 | 7 281 | 2 | 60 747 | -3 | 0 | 0 | -3 | 60 744 |
| Public Administration | 14 317 | 76 | 55 | 14 448 | -1 | -2 | -4 | -8 | 14 441 |
| Household mortgages | 539 276 | 21 944 | 1 137 | 562 357 | -72 | -139 | -371 | -582 | 561 776 |
| Other Households |
38 464 577 741 |
3 755 25 699 |
1 201 2 338 |
43 420 605 778 |
-288 -360 |
-249 -388 |
-752 -1 123 |
-1 290 -1 872 |
42 131 603 906 |
| TOTAL | 1 658 392 | 65 133 | 14 927 | 1 738 452 | -1 287 | -1 496 | -6 694 | -9 477 | 1 728 976 |
| 31 Dec 2019 | |||||||||
| Banks | 64 952 | 1 665 | 0 | 66 617 | -5 | -2 | 0 | -7 | 66 610 |
| Finance and insurance | 111 610 | 960 | 57 | 112 627 | -33 | -10 | -5 | -49 | 112 579 |
| Wholesale and retail | 78 052 | 3 080 | 1 092 | 82 224 | -48 | -38 | -706 | -792 | 81 433 |
| Transportation | 35 169 | 581 | 41 | 35 791 | -17 | -4 | -14 | -35 | 35 757 |
| Shipping | 54 975 | 1 871 | 1 771 | 58 616 | -24 | -11 | -669 | -704 | 57 912 |
| Business and household services | 136 838 | 9 673 | 843 | 147 354 | -154 | -408 | -421 | -983 | 146 372 |
| Construction | 11 201 | 1 083 | 201 | 12 484 | -8 | -9 | -83 | -101 | 12 384 |
| Manufacturing | 97 737 | 3 280 | 2 671 | 103 688 | -56 | -44 | -1 331 | -1 431 | 102 257 |
| Agriculture, forestry and fishing | 21 654 | 1 501 | 190 | 23 345 | -8 | -7 | -44 | -58 | 23 287 |
| Mining, oil and gas extraction | 26 608 | 5 695 | 1 343 | 33 645 | -12 | -53 | -558 | -624 | 33 021 |
| Electricity, gas and water supply | 43 940 | 407 | 211 | 44 558 | -17 | -34 | -78 | -129 | 44 429 |
| Other | 39 564 | 2 762 | 151 | 42 477 | -22 | -46 | -49 | -117 | 42 360 |
| Corporates | 657 347 | 30 894 | 8 571 | 696 812 | -398 | -666 | -3 959 | -5 022 | 691 789 |
| Commercial real estate management | 150 747 | 2 287 | 377 | 153 410 | -14 | -12 | -140 | -166 | 153 244 |
| Residential real estate management | 114 923 | 1 804 | 48 | 116 775 | -8 | -1 | -1 | -10 | 116 765 |
| Real Estate Management | 265 670 | 4 091 | 425 | 270 186 | -22 | -13 | -141 | -176 | 270 009 |
| Housing co-operative associations | 52 598 | 7 410 | 3 | 60 011 | 0 | 0 | -2 | -3 | 60 008 |
| Public Administration | 15 284 | 276 | 53 | 15 613 | -1 | -4 | -2 | -6 | 15 607 |
| Household mortgages | 527 100 | 22 765 | 1 137 | 551 003 | -49 | -136 | -360 | -546 | 550 457 |
| Other | 40 079 | 5 358 | 1 207 | 46 644 | -167 | -239 | -747 | -1 153 | 45 491 |
| Households | 567 179 | 28 124 | 2 344 | 597 646 | -216 | -375 | -1 107 | -1 698 | 595 948 |
| TOTAL | 1 623 030 | 72 459 | 11 396 | 1 706 885 | -643 | -1 059 | -5 212 | -6 913 | 1 699 972 |
The tables above show only the exposures and ECL allowances for Loans and excludes Debt securities, Financial guarantees and Loan commitments. Loans are excluding demand deposits from credit institutions and including trade and client receivables presented as other assets.
SEB consolidated situation
Note 13 Capital adequacy analysis
| SEK m | 30 Jun 2020 | 31 Mar 2020 | 31 Dec 2019 |
|---|---|---|---|
| Own funds | |||
| Common Equity Tier 1 capital | 132 491 | 131 346 | 131 155 |
| Tier 1 capital | 146 492 | 146 388 | 155 398 |
| Total own funds | 165 259 | 165 552 | 173 382 |
| Own funds requirement | |||
| Risk exposure amount | 745 457 | 781 687 | 745 637 |
| Expressed as own funds requirement | 59 637 | 62 535 | 59 651 |
| Common Equity Tier 1 capital ratio | 17.8% | 16.8% | 17.6% |
| Tier 1 capital ratio | 19.7% | 18.7% | 20.8% |
| Total capital ratio | 22.2% | 21.2% | 23.3% |
| Own funds in relation to own funds requirement | 2.77 | 2.65 | 2.91 |
| Regulatory Common Equity Tier 1 capital requirement including buffer | 10.1% | 10.1% | 11.5% |
| of which capital conservation buffer requirement | 2.5% | 2.5% | 2.5% |
| of which systemic risk buffer requirement | 3.0% | 3.0% | 3.0% |
| of which countercyclical capital buffer requirement | 0.1% | 0.1% | 1.5% |
| Common Equity Tier 1 capital available to meet buffer 1) | 13.3% | 12.3% | 13.1% |
| Leverage ratio | |||
| Exposure measure for leverage ratio calculation | 3 395 891 | 3 418 557 | 3 063 481 |
| of which on balance sheet items | 2 870 907 | 2 881 737 | 2 554 625 |
| of which off balance sheet items | 524 984 | 536 820 | 508 856 |
| Leverage ratio | 4.3% | 4.3% | 5.1% |
1) CET1 ratio excluding buffers and minimum capital requirement of 4.5%.
Note 14 Own funds
| SEK m | 30 Jun 2020 | 31 Mar 2020 | 31 Dec 2019 |
|---|---|---|---|
| Shareholders equity according to balance sheet 1) | 160 214 | 157 174 | 155 700 |
| Deductions related to the consolidated situation and other foreseeable charges 2) | -18 575 | -15 913 | -14 075 |
| Common Equity Tier 1 capital before regulatory adjustments 3) | 141 639 | 141 261 | 141 626 |
| Additional value adjustments | -1 264 | -1 915 | -1 033 |
| Intangible assets | -6 556 | -6 674 | -6 688 |
| Deferred tax assets that rely on future profitability | -6 | -6 | |
| Fair value reserves related to gains or losses on cash flow hedges | 46 | 36 | -15 |
| Negative amounts resulting from the calculation of expected loss amounts | -816 | ||
| Gains or losses on liabilities valued at fair value resulting from changes in own credit standing | -85 | -474 | 19 |
| Defined-benefit pension fund assets | -1 124 | -748 | -1 761 |
| Direct and indirect holdings of own CET1 instruments | -161 | -134 | -176 |
| Total regulatory adjustments to Common Equity Tier 1 | -9 149 | -9 915 | -10 471 |
| Common Equity Tier 1 capital | 132 491 | 131 346 | 131 155 |
| Additional Tier 1 instruments4) | 14 002 | 15 043 | 24 243 |
| Tier 1 capital | 146 492 | 146 388 | 155 398 |
| Tier 2 instruments | 19 366 | 20 341 | 19 326 |
| Net provisioning amount for IRB-reported exposures | 1 050 | 472 | 309 |
| Holdings of Tier 2 instruments in financial sector entities | -1 650 | -1 650 | -1 650 |
| Tier 2 capital | 18 766 | 19 164 | 17 985 |
| Total own funds | 165 259 | 165 552 | 173 382 |
1) The Swedish Financial Supervisory Authority has approved SEB's application to use the net profit in measuring own funds on condition that the responsible auditors have reviewed the surplus, that the surplus is calculated in accordance with applicable accounting frameworks, that predictable costs and dividends have been deducted in accordance with EU regulation No 575/2013 (CRR) and that the calculation was made in accordance with EU regulation No 241/2014.
2) Depending on how the Covid-19 situation develops, the Board may assess a dividend payment later this year, if deemed appropriate. Hence the accumulated dividend has been excluded from CET1 capital.
3) The Common Equity Tier 1 capital is presented on a consolidated basis, and differs from total equity according to IFRS. The insurance business contribution to equity is excluded and there is a dividend deduction calculated according to Regulation (EU) No 575/2013 (CRR).
4) Following an approval from the Swedish FSA in March to call the 2014 AT1-instrument of USD 1.1bn, this instrument was excluded from the bank's Tier 1 and from total own funds from 31 March 2020.
Note 15 Risk exposure amount
| SEK m | 30 Jun 2020 | 31 Mar 2020 | 31 Dec 2019 | ||||
|---|---|---|---|---|---|---|---|
| Risk exposure | Own funds | Risk exposure | Own funds | Risk exposure | Own funds | ||
| Credit risk IRB approach | amount | requirement 1) | amount | requirement 1) | amount | requirement 1) | |
| Exposures to central governments or central banks | 14 879 | 1 190 | 13 942 | 1 115 | 12 283 | 983 | |
| Exposures to institutions | 48 191 | 3 855 | 58 414 | 4 673 | 54 421 | 4 354 | |
| Exposures to corporates | 365 412 | 29 233 | 390 814 | 31 265 | 369 055 | 29 524 | |
| Retail exposures | 64 484 | 5 159 | 66 683 | 5 335 | 67 255 | 5 380 | |
| of which secured by immovable property | 40 357 | 3 229 | 40 930 | 3 274 | 39 616 | 3 169 | |
| of which retail SME | 5 219 | 418 | 5 867 | 469 | 7 094 | 567 | |
| of which other retail exposures | 18 908 | 1 513 | 19 885 | 1 591 | 20 546 | 1 644 | |
| Securitisation positions | 2 176 | 174 | 2 217 | 177 | 1 195 | 96 | |
| Total IRB approach | 495 142 | 39 611 | 532 071 | 42 566 | 504 210 | 40 337 | |
| Credit risk standardised approach | |||||||
| Exposures to central governments or central banks | 344 | 28 | 259 | 21 | 1 361 | 109 | |
| Exposures to institutions | 664 | 53 | 902 | 72 | 1 057 | 85 | |
| Exposures to corporates | 5 468 | 437 | 6 576 | 526 | 6 505 | 520 | |
| Retail exposures | 13 242 | 1 059 | 13 804 | 1 104 | 13 691 | 1 095 | |
| Exposures secured by mortgages on immovable property | 1 917 | 153 | 2 092 | 167 | 2 278 | 182 | |
| Exposures in default | 79 | 6 | 80 | 6 | 82 | 7 | |
| Exposures associated with particularly high risk | 998 | 80 | 963 | 77 | 933 | 75 | |
| Exposures in the form of collective investment undertakings (CIU) | 55 | 4 | 54 | 4 | 58 | 5 | |
| Equity exposures | 3 638 | 291 | 4 038 | 323 | 3 589 | 287 | |
| Other items | 10 311 | 825 | 10 105 | 808 | 10 735 | 859 | |
| Total standardised approach | 36 716 | 2 937 | 38 873 | 3 110 | 40 290 | 3 223 | |
| Market risk | |||||||
| Trading book exposures where internal models are applied | 28 396 | 2 272 | 24 573 | 1 966 | 21 195 | 1 696 | |
| Trading book exposures applying standardised approaches | 9 412 | 753 | 11 255 | 900 | 6 913 | 553 | |
| Total market risk | 37 809 | 3 025 | 35 827 | 2 866 | 28 107 | 2 249 | |
| Other own funds requirements | |||||||
| Operational risk advanced measurement approach | 46 963 | 3 757 | 47 227 | 3 778 | 47 444 | 3 796 | |
| Settlement risk | 32 | 3 | 40 | 3 | 0 | 0 | |
| Credit value adjustment | 8 272 | 662 | 9 486 | 759 | 7 932 | 635 | |
| Investment in insurance business | 16 633 | 1 331 | 16 633 | 1 331 | 16 633 | 1 331 | |
| Other exposures | 3 850 | 308 | 3 981 | 318 | 4 870 | 390 | |
| Additional risk exposure amount2) | 100 040 | 8 003 | 97 550 | 7 804 | 96 151 | 7 692 | |
| Total other own funds requirements | 175 790 | 14 063 | 174 916 | 13 993 | 173 030 | 13 842 | |
| Total | 745 457 | 59 637 | 781 687 | 62 535 | 745 637 | 59 651 |
1) Own funds requirement 8% of risk exposure amount according to Regulation (EU) No 575/2013 (CRR).
2) Additional risk exposure amount according to Article 458, Regulation (EU) No 575/2013 (CRR), for risk-weight floors in the Swedish mortgage portfolio.
Note 16 Average risk-weight
The following table summarises average risk-weights (risk exposure amount divided by exposure at default, EAD) for exposures, where the risk exposure amount is calculated according to the internal ratings based (IRB) approach. Repos and securities lending transactions are excluded from the analysis, since they carry low risk-weights, and can vary considerably in volume, thus making numbers less comparable.
| IRB reported credit exposures (less repos and securities lending) | |||
|---|---|---|---|
| Average risk-weight | 30 Jun 2020 | 31 Mar 2020 | 31 Dec 2019 |
| Exposures to central governments or central banks | 2.5% | 2.6% | 3.7% |
| Exposures to institutions | 22.1% | 23.7% | 24.9% |
| Exposures to corporates | 28.5% | 30.4% | 30.2% |
| Retail exposures | 9.7% | 10.1% | 10.3% |
| of which secured by immovable property | 6.8% | 7.0% | 6.9% |
| of which retail SME | 49.8% | 53.1% | 57.3% |
| of which other retail exposures | 30.7% | 31.9% | 31.8% |
| Securitisation positions | 17.0% | 18.1% | 9.6% |
Skandinaviska Enskilda Banken AB (publ) – parent company
Income statement
| In accordance with FSA regulations | Q2 | Q1 | Q2 | Jan–Jun | Full year | ||||
|---|---|---|---|---|---|---|---|---|---|
| SEK m | 2020 | 2020 | % | 2019 | % | 2020 | 2019 | % | 2019 |
| Interest income | 7 956 | 8 806 | -10 | 8 753 | -9 | 16 762 | 17 090 | -2 | 34 826 |
| Leasing income | 1 346 | 1 390 | -3 | 1 448 | -7 | 2 736 | 2 872 | -5 | 5 792 |
| Interest expense | -3 126 | -3 909 | -20 | -4 370 | -28 | -7 035 | -8 618 | -18 | -17 217 |
| Dividends | 617 | 2 | 1 195 | -48 | 619 | 3 893 | -84 | 5 168 | |
| Fee and commission income | 3 407 | 3 590 | -5 | 3 416 | 0 | 6 997 | 6 577 | 6 | 13 544 |
| Fee and commission expense | - 764 | - 884 | -14 | - 791 | -3 | -1 648 | -1 590 | 4 | -3 083 |
| Net financial income | 2 857 | - 351 | 1 276 | 124 | 2 506 | 2 856 | -12 | 5 838 | |
| Other income | 86 | 218 | -61 | 183 | -53 | 304 | 582 | -48 | 1 762 |
| Total operating income | 12 378 | 8 863 | 40 | 11 111 | 11 | 21 241 | 23 663 | -10 | 46 631 |
| Administrative expenses | -5 051 | -4 024 | 26 | -4 040 | 25 | -9 075 | -8 083 | 12 | -16 345 |
| Depreciation, amortisation and impairment | |||||||||
| of tangible and intangible assets | -1 498 | -1 438 | 4 | -1 430 | 5 | -2 936 | -2 838 | 3 | -5 749 |
| Total operating expenses | -6 549 | -5 462 | 20 | -5 470 | 20 | -12 011 | -10 921 | 10 | -22 094 |
| Profit before credit losses | 5 829 | 3 401 | 71 | 5 641 | 3 | 9 230 | 12 742 | -28 | 24 537 |
| Net expected credit losses | -2409 | -1402 | 72 | -328 | -3 811 | - 685 | -2 044 | ||
| Impairment of financial assets | - 220 | -100 | - 220 | - 315 | -30 | - 741 | |||
| Operating profit | 3 420 | 1 779 | 92 | 5 314 | -36 | 5 199 | 11 742 | -56 | 21 752 |
| Appropriations | 346 | 238 | 46 | 445 | -22 | 584 | 765 | -24 | 2 694 |
| Income tax expense | -1 453 | - 242 | - 857 | 69 | -1 695 | -1 723 | -2 | -4 189 | |
| Other taxes | 39 | 115 | -66 | 1 | 154 | 1 | 48 | ||
| NET PROFIT | 2 353 | 1 890 | 25 | 4 903 | -52 | 4 243 | 10 785 | -61 | 20 305 |
Statement of comprehensive income
| Q2 | Q1 | Q2 | Jan–Jun | Full year | |||||
|---|---|---|---|---|---|---|---|---|---|
| SEK m | 2020 | 2020 | % | 2019 | % | 2020 | 2019 | % | 2019 |
| NET PROFIT | 2 353 | 1 890 | 25 | 4 903 | -52 | 4 243 | 10 785 | -61 | 20 305 |
| Cash flow hedges | - 10 | - 51 | -80 | - 155 | -94 | - 61 | - 328 | -81 | - 298 |
| Translation of foreign operations | - 56 | - 53 | 7 | 7 | - 109 | 36 | 33 | ||
| Items that may subsequently be | |||||||||
| reclassified to the income statement: | - 66 | - 104 | -36 | - 148 | -55 | - 170 | - 292 | -42 | - 265 |
| OTHER COMPREHENSIVE INCOME | - 66 | - 104 | -36 | - 148 | -55 | - 170 | - 292 | -42 | - 265 |
| TOTAL COMPREHENSIVE INCOME | 2 287 | 1 786 | 28 | 4 755 | -52 | 4 073 | 10 493 | -61 | 20 040 |
Balance sheet, condensed
| 30 Jun | 31 Mar | 31 Dec | |
|---|---|---|---|
| SEK m | 2020 | 2020 | 2019 |
| Cash and cash balances with central banks | 291 292 | 300 546 | 110 104 |
| Loans to central banks | 891 | 2 521 | 2 904 |
| Loans to credit institutions | 75 213 | 92 728 | 89 546 |
| Loans to the public | 1 690 872 | 1 719 157 | 1 601 243 |
| Debt securities | 336 489 | 293 866 | 211 417 |
| Equity instruments | 41 967 | 44 784 | 61 802 |
| Derivatives | 152 351 | 221 446 | 135 713 |
| Other assets | 120 163 | 123 831 | 105 943 |
| TOTAL ASSETS | 2 709 239 | 2 798 879 | 2 318 672 |
| Deposits from central banks and credit institutions | 209 920 | 231 206 | 126 891 |
| Deposits and borrowings from the public1) | 1 268 117 | 1 169 407 | 973 834 |
| Debt securities issued | 778 821 | 902 239 | 857 968 |
| Short positions | 36 225 | 33 202 | 27 343 |
| Derivatives | 134 546 | 184 438 | 119 511 |
| Other financial liabilities | 2 256 | 1 978 | 2 449 |
| Other liabilities | 135 571 | 134 995 | 72 267 |
| Untaxed reserves | 19 875 | 19 875 | 19 875 |
| Equity | 123 908 | 121 540 | 118 535 |
| TOTAL LIABILITIES, UNTAXED RESERVES | |||
| AND EQUITY | 2 709 239 | 2 798 879 | 2 318 672 |
| 1) Private and SME deposits covered by deposit guarantee | 228 123 | 217 147 | 210 576 |
| Private and SME deposits not covered by deposit guarantee | 132 623 | 124 425 | 110 625 |
| All other deposits | 907 370 | 827 835 | 652 633 |
| Total deposits from the public | 1 268 117 | 1 169 407 | 973 834 |
Pledged assets and obligations
| 30 Jun | 31 Mar | 31 Dec | |
|---|---|---|---|
| SEK m | 2020 | 2020 | 2019 |
| Pledged assets for own liabilities | 455 600 | 528 954 | 486 823 |
| Other pledged assets | 121 887 | 125 626 | 86 088 |
| Pledged assets | 577 487 | 654 580 | 572 911 |
| Contingent liabilities | 148 429 | 151 372 | 146 166 |
| Commitments | 644 189 | 579 183 | 578 619 |
| Obligations | 792 617 | 730 555 | 724 786 |
Capital adequacy
| SEK m | 30 Jun 2020 | 31 Mar 2020 | 31 Dec 2019 |
|---|---|---|---|
| Own funds | |||
| Common Equity Tier 1 capital | 115 516 | 114 402 | 113 893 |
| Tier 1 capital | 129 518 | 129 445 | 138 136 |
| Total own funds | 148 217 | 148 794 | 155 921 |
| Own funds requirement | |||
| Risk exposure amount | 677 597 | 708 659 | 668 708 |
| Expressed as own funds requirement | 54 208 | 56 693 | 53 497 |
| Common Equity Tier 1 capital ratio | 17.0% | 16.1% | 17.0% |
| Tier 1 capital ratio | 19.1% | 18.3% | 20.7% |
| Total capital ratio | 21.9% | 21.0% | 23.3% |
| Own funds in relation to capital requirement | 2.73 | 2.62 | 2.91 |
| Regulatory Common Equity Tier 1 capital requirement including buffers | 7.1% | 7.1% | 8.6% |
| of which capital conservation buffer requirement | 2.5% | 2.5% | 2.5% |
| of which countercyclical capital buffer requirement | 0.1% | 0.1% | 1.6% |
| Common Equity Tier 1 capital available to meet buffers 1) | 12.5% | 11.6% | 12.5% |
1) CET1 ratio excluding buffers and minimum capital requirement of 4.5%.
Signatures of the President and the Board
The President and the Board of Directors declare that this financial report for the period 1 January 2020 through 30 June 2020 provides a fair overview of the parent company's and the group's operations, their financial position and results and describe material risks and uncertainties facing the parent company and the group.
Stockholm, 15 July 2020
Johan Torgeby President and Chief Executive Officer Director
* Appointed by the employees
Auditor's review report
To the Board of Directors in Skandinaviska Enskilda Banken AB (publ), 502032-9081
Introduction
We have reviewed the condensed interim financial statements (interim report) for Skandinaviska Enskilda Banken AB (publ) as at 30 June 2020 and for the six-month period ending as at this date. The Board of Directors and the President and Chief Executive Officer are responsible for the preparation and presentation of the interim report in accordance with IAS 34 and the Annual Accounts Act for Credit Institutions and Securities Companies. Our responsibility is to express a conclusion on this interim report based on our review.
Scope of review
We have conducted our review in accordance with the International Standard on Review Engagements ISRE 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review consists of making inquiries, primarily to persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review differs from and is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and other generally accepted auditing standards in Sweden. The procedures performed in a review do not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that this interim report is not prepared, in all material respects, in accordance with IAS 34 and the Annual Accounts Act for Credit Institutions and Securities Companies regarding the group, and in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies regarding the parent company.
Stockholm, 15 July 2020 Ernst & Young AB
Hamish Mabon Authorised Public Accountant
Contacts and calendar
Results presentation at telephone conference
The presentation of the results will be held (in English) at 9.30 am, Swedish time, on 15 July 2020 at a conference call. Please call, at least 10 minutes in advance, +44 (0)203 0095710 and quote conference id: 6967887. The conference can be followed live on sebgroup.com/ir where a replay will also be available afterwards.
The President and CEO, Johan Torgeby, and the Chief Financial Officer, Masih Yazdi, will present and comment upon the results, followed by a Q&A session with Johan Torgeby, Masih Yazdi and Christoffer Geijer, Head of Investor Relations.
Further information is available from:
Masih Yazdi, Chief Financial Officer Tel: +46 771 621 000 Christoffer Geijer, Head of Investor Relations Tel: +46 70 762 10 06 Frank Hojem, Head of Corporate Communication Tel: +46 70 763 99 47
Skandinaviska Enskilda Banken AB (publ.)
SE-106 40 Stockholm, Sweden Tel: +46 771 621 000 sebgroup.com Corporate organisation number: 502032-9081
Further financial information is available in SEB's Fact Book and in the additional Pillar 3 disclosures which are published quarterly on sebgroup.com/ir.
Financial information calendar 2020
22 October 2020 Quarterly Report January-September 2020 The silent period starts on 1 October 2020
The financial information calendar for 2021 will be published in conjunction with the Quarterly Report for January-September 2020.
Definitions
Including Alternative Performance Measures1)
Items affecting comparability
To facilitate the comparison of operating profit between current and previous periods, items with significant impact that management considers affect the comparability or are relevant for the understanding of the financial result, are identified and presented separately, for example impairment of goodwill, restructuring, gains and losses from divestments and other income or costs that are not recurring.
Operating profit
Total profit before tax.
Operating profit before items affecting comparability
Total profit before items affecting comparability and tax.
Net profit
Total profit after tax.
Return on equity
Net profit attributable to shareholders in relation to average2) shareholders' equity.
Return on equity excluding items affecting comparability
Net profit attributable to shareholders, excluding items affecting comparability and their related tax effect, in relation to average2) shareholders' equity.
Return on tangible equity
Net profit attributable to shareholders in relation to average2) shareholders' equity less intangible assets.
Return on tangible equity excluding items affecting comparability
Net profit attributable to shareholders, excluding items affecting comparability and their related tax effect, in relation to average2) shareholders' equity less intangible assets and items affecting comparability.
1) Alternative Performance Measures, APMs, are financial measures of historical or future financial performance, financial position, or cash flows, other than those defined in the applicable financial reporting framework (IFRS) or in the EU Capital Requirements Regulation and Directive CRR/CRD IV. APMs are used by SEB when relevant to assess and describe SEB's financial situation and provide additional relevant information and tools to enable analysis of SEB's performance. APMs on basic earnings per share, diluted earnings per share, net worth per share, equity per share, return on equity, return on tangible equity, return on total assets and return on risk exposure amount provide relevant information on the performance in relation to different investment measurements. The cost/income ratio provides information on SEB's cost efficiency. APMs related to lending provide information on provisions in relation to credit risk. All these measures may not be comparable to similarly titled measures used by other companies.
2)Average year-to-date, calculated on month-end figures.
3)Average, calculated on a daily basis.
Return on business equity
Operating profit by division, reduced by a standard tax rate, in relation to the divisions' average2) business equity (allocated capital).
Return on total assets
Net profit attributable to shareholders, in relation to average2) total assets.
Return on risk exposure amount
Net profit attributable to shareholders in relation to average2) risk exposure amount.
Cost/income ratio
Total operating expenses in relation to total operating income.
Basic earnings per share
Net profit attributable to shareholders in relation to the weighted average3) number of shares outstanding before dilution.
Diluted earnings per share
Net profit attributable to shareholders in relation to the weighted average3)diluted number of shares. The calculated dilution is based on the estimated economic value of the longterm equity-based programmes.
Net worth per share
The total of shareholders' equity, the equity portion of any surplus values in the holdings of debt securities and the surplus value in life insurance operations in relation to the number of shares outstanding.
Equity per share
Shareholders' equity in relation to the number of shares outstanding.
Core gap ratio
Structural liquidity risk measure defined as total liabilities deemed to mature beyond one year in relation to total assets deemed to mature beyond one year.
Expected credit losses, ECL
Probability-weighted credit losses with the respective risk of a default.
ECL allowances
The allowance for expected credit losses on financial assets, contract assets, loan commitments and financial guarantee contracts.
Net ECL level
Net credit impairments in relation to the opening balance of the year of debt securities, loans to the public and loans to credit institutions measured at amortised cost, financial guarantees and loan commitments, net of ECL allowances.
ECL coverage ratio
ECL allowances in relation to underlying gross carrying amounts for loans and debt securities as well as nominal amounts of financial guarantees and loan commitments.
Stage 3 loans / Total loans, gross
Gross carrying amount for stage 3 loans (credit-impaired loans) in relation to gross carrying amount for total loans measured at amortised cost (excluding demand deposits credit institutions and including trade and client receivables presented as other assets).
Stage 3 loans / Total loans, net
Carrying amount for stage 3 loans (credit-impaired loans) in relation to carrying amounts for total loans measured at amortised cost (excluding demand deposits credit institutions and including trade and client receivables presented as other assets).
The excel file Alternative Performance Measures, available on sebgroup.com/ir, provides information on how the measures are calculated.
Definitions
According to the EU Capital Requirements Regulation no 575/2013 (CRR)
Risk exposure amount
Total assets and off-balance sheet items, risk-weighted in accordance with capital adequacy regulations for credit risk and market risk. The operational risks are measured and added as risk exposure amount. Risk exposure amounts are only defined for the consolidated situation, excluding insurance entities and exposures deducted from own funds.
Common Equity Tier 1 capital
Shareholders' equity excluding proposed dividend, deferred tax assets, intangible assets and certain other regulatory adjustments defined in EU Regulation no 575/2013 (CRR).
Tier 1 capital
Common Equity Tier 1 capital plus qualifying forms of subordinated loans liabilities, so-called additional tier 1 instruments.
Tier 2 capital
Mainly subordinated loans liabilities not qualifying as Tier 1 capital contribution.
Own funds
The sum of Tier 1 and Tier 2 capital.
Common Equity Tier 1 capital ratio
Common Equity Tier 1 capital as a percentage of risk exposure amount.
Tier 1 capital ratio
Tier 1 capital as a percentage of risk exposure amount.
Total capital ratio
Total own funds as a percentage of risk exposure amount.
Leverage ratio
Tier 1 capital as a percentage of total assets including off balance sheet items with conversion factors according to the standardised approach.
Liquidity Coverage Ratio (LCR)
High-quality liquid assets in relation to the estimated net liquidity outflow over the next 30 calendar days.
This is SEB
| Our vision | To deliver world-class service to our customers. |
|---|---|
| Our purpose | We believe that entrepreneurial minds and innovative companies are key to creating a better world. We are here to enable them to achieve their aspirations and succeed through good times and bad. |
| Our overall ambition | To be the undisputed leading Nordic bank for corporations and institutions and the top universal bank in Sweden and the Baltic countries. |
| Whom we serve | 2,000 large corporations, 1,100 financial institutions, 272,000 SME and 1.4 million private full-service customers bank with SEB. |
| Business plan focus areas | Advisory leadership – Offer customers proactive, customised and valuable advice, based on their specific needs and behaviours, through human and digital interaction. |
| Operational excellence – Improve customer value by increasing the pace of digitalisation and automation while extending the use of data and analytics. |
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| Extended presence – Meet our customers on their terms in their digital ecosystems and offer a combination of products and services from SEB and our partners. |
|
| Values | Guided by our Code of Business Conduct and our core values: customers first, commitment, collaboration and simplicity. |
| People | Around 15,000 highly skilled employees serving customers from locations in some 20 countries – covering different time zones, securing reach and local market knowledge. |
| History | More than 160 years of business, trust and sharing knowledge. The bank has always acted responsibly in society promoting entrepreneurship, international outlook and long-term relationships. |
Additional financial information is available in SEB's Fact Book which is published quarterly on sebgroup.com/ir.