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Roadshow, Lehman Brothers Global Financial Services Conference

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Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to ...

Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to contribute to a sustainable development of society and our environment. We are strongly committed to society as a whole and keen to help bring about a sustainable form of societal development. Our Swedish operations hold an ISO 14001 environmental certification, and environmental work is an integral part of our business activities.

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Roadshow, Lehman Brothers Global Financial Services Conference Presentation Transcript

  • 1. Lehman Brothers Global Financial Services Conference 9 September 2008 Mikael Inglander CFO
  • 2. Continued solid results in Q2 • Continued solid results in all • Credit quality remains good and in business areas line with expectations – Net profit for the period Jan-Jun • The macro environment in the increased by 8 percent to Baltic states has deteriorated SEK 6 504m (6 022) compared with expectations in • Conversion to covered bonds on Q1, affected by a weaker 21 April – decreased spreads, European economy increased liquidity and facilitated • Net gains and losses on financial funding items were positively affected by • New capital adequacy objective unrealized valuation effects – for full Basel 2 – Tier 1 capital valuation volatility expected to ratio is to be 8.5-9.0 percent decrease as from Q3 2008. (2)
  • 3. H1 2008 – best half-year so far Swedish Banking Baltic Banking International Banking Swedbank Markets SEKm SEKm SEKm SEKm 1 300 450 150 2,000 400 1 250 125 350 1 200 300 1,500 1 150 100 250 1 100 200 1 050 75 1,000 150 1 000 100 50 950 50 500 900 0 25 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 07 07 07 07 08 08 Q1 Q2 Q3 Q4 Q1 Q2 07 07 07 07 08 08 06 06 06 07 07 07 07 08 08 07 07 07 07 08 08 Profit for the period Profit for the period of which First Securities Profit for the period Profit for the period (3)
  • 4. Initiatives in line with our strategy Sweden Baltics Ukraine and Russia • Structural initiatives – • Productivity improvement • Build-up of critical functions operation and branches • Cross-border capabilities and growth management • Channel management • IT management and • Grow distribution network - • Corporate market and development ATMs, branches and agency metropolitan areas • Corporate sector – leverage on network • Private banking, life and pan-Baltic position • Broaden product range pension, environmentally • Broaden customer offerings • Re-branding completed friendly products and services • Re-branding starting in autumn • Capture future growth Growth and Future growth and Stable base experience profitability Share of lending: 80 % Share of lending: 16 % Share of lending: 2 % (4)
  • 5. The Swedish economy is slowing • The Swedish economy has performed better than the EU average. However, GDP growth, CPI and other indicators show that the Swedish economy will grow more slowly in the next few quarters • Higher inflation, rising interest rates and weaker disposable income for households are expected to lead to weakening household consumption and credit growth. Real GDP growth CPI growth 3.0% 4.0% 2.5% 3.0% 2.0% 2.0% 1.5% 1.0% 1.0% 2007 2008F 2009F 0.0% 2007 2008F 2009F Sweden Euro-zone Sweden Euro-zone (5) Source: Swedbank, Economic Secretariat
  • 6. Real GDP growth, % YoY Baltic macro development 15 10 Estonia • Baltic growth decelerates 5 Latvia % Lithuania – Less favourable global situation, e.g. weaker 0 export demand, more expensive borrowing Q1 02 Q1 03 Q1 04 Q1 05 Q1 06 Q1 07 Q1 08 -5 – Imbalances built up during the times of rapid Domestic Credit and Housing Loans, % of GDP credit growth weigh heavy on the economies 100 EE Domestic 75 credit EE Housing loans % 50 LV Domestic • Need of restructuring evident credit LV Housing 25 loans – To return to a sustainable growth path, a move LT Domestic credit 0 away from non-tradables and towards tradables Q1 02 Q1 03 Q1 04 Q1 05 Q1 06 Q1 07 Q1 08 LT Housing loans is necessary: restructuring is costly and takes Average Labour Productivity growth, % YoY time 15 – There are signs of restructuring underway, but it 10 Estonia is far from complete Latvia 5 % Lithuania – The deepest slowing likely to be seen in LV where imbalances have been largest 0 Q1 02 Q1 03 Q1 04 Q1 05 Q1 06 Q1 07 Q1 08 (6) -5
  • 7. Baltic macro outlook • Fall in activity will be shallower and recovery faster than benchmark’s (busts in industrial countries) – Less institutional rigidities – Fiscal and monetary policies likely to be less pro-cyclical, support from EU funds – Low actual level of leverage in the economy • Household consumption will contract • Investment will contract • Imports will contract due to shrinking consumption and investment • Recovery in late 2009–2010 depends on global recovery in H2 2009 Export development outlook – Producer price inflation of exported goods has swiftly decreased – By 2009 energy prices will have converged to the levels of western Europe – Companies are increasingly investing to improve their productivity thus improving their resistance to negative shocks • Real estate market will lag behind overall recovery as consumers will be unsure about the start of recovery and will try to rebuild their depleted savings first (7)
  • 8. Summary – economy and banking sector • Baltic economies have strong long term growth potential, e.g. – Average labour productivity being at 60-70% of the EU 27 average provides ample opportunities for productivity convergence – EU funds are expected to amount to ca 2% of annual GDP till 2013, providing support to real convergence – Only 15-25% of households have mortgages – Good institutional framework, e.g. in the World Bank’s Doing Business 2008 index Latvia ranked 22nd among 175 countries • Significant restructuring of the economies and the banking sector is expected - different risk assessment, different pricing and labour lay-offs – Successful return to sustainable growth path and stability achieved only if successful structural reforms are implemented to boost productivity (8)
  • 9. Credit quality, Group SEKm % 600 0.60 500 0.50 Loan losses, net 400 0.40 300 0.30 Loan loss ratio 200 0.20 *Loan losses, net = write-offs + 100 0.10 provisions - recoveries + change in 0 0.00 property taken over -100 -0.10 Q2-07 Q1-05 Q2-05 Q3-05 Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q3-07 Q4-07 Q1-08 Q2-08 Q4-03 Q1-04 Q2-04 Q3-04 Q4-04 Q1-03 Q2-03 Q3-03 -200 -0.20 SEKm % 6,000 0.50 0.45 5,000 0.40 Impaired loans 4,000 0.35 0.30 3,000 0.25 Share of impaired loans 0.20 2,000 0.15 1,000 0.10 0.05 0 Q4-07 0.00 Q1-08 Q2-08 Q3-07 Q3-05 Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-03 Q4-03 Q1-04 Q2-04 Q3-04 Q4-04 Q1-05 Q2-05 (9)
  • 10. Credit quality, Baltic Banking Loan loss ratio, net* Q4 07 Q1 08 Q2 08 H1 08 Estonia 0.58% 0.38% 0.55% 0.48% Latvia 0.63% 0.53% 0.73% 0.64% Lithuania 0.10% 0.25% 0.30% 0.28% Group level provision adjustment -0.18% Baltic Banking 0.28% 0.39% 0.54% 0.47% *Loan loss ratio, net = (changes in provisions + net write-offs) / credit portfolio at the beginning of the period Overdue ratio (more than 60 days)* Q4 07 Q1 08 Q2 08 Corporate 0.65% 0.79% 1.24% Private 0.75% 0.92% 1.11% Baltic Banking 0.71% 0.86% 1.20% *Overdue ratio (more than 60 days) = volume of loans more than 60 days overdue /12 month-old credit portfolio (10)
  • 11. Baltic banking overdues vs market Estonia - overdue over 30 days / current Estonia - overdue over 60 days / current portfolio portfolio 3.0% 2.0% 2.5% 2.0% 1.5% 1.5% 1.0% 1.0% 0.5% 0.5% 0.0% 0.0% 31.12.05 30.06.06 31.12.06 30.06.07 31.12.07 30.04.08 31.12.05 30.06.06 31.12.06 30.06.07 31.12.07 30.04.08 Rest of the market HB Bank Rest of the market HB Bank Latvia - overdue over 30 days / current portfolio Latvia - overdue over 90 days / current portfolio 5% 3,0% 4% 2,5% 3% 2,0% 2% 1,5% 1% 1,0% 0% 0,5% 0,0% 31.12.04 30.06.05 31.12.05 30.06.06 31.12.06 30.06.07 31.12.07 31.12.04 30.06.05 31.12.05 30.06.06 31.12.06 30.06.07 31.12.07 Rest of the market HBA Bank Rest of the market HBA Bank (11) Source: Swedbank, Bank of Estonia, and Financial and Capital Market Commission (Latvia)
  • 12. Observations so far during Q3 • Baltic macro development continue to be weak – no surprises in credit quality • Signs of declining lending growth in Sweden foremost in private sector but also towards corporates • Tight funding markets with increasing spreads for all players – The funding market is expected to remain tough throughout 2008 • Trading, especially equities, continues to be slow • Internal risk rating, risk profile, watch list and loan losses has remained stable in Sweden • Swedish macro development is slowing – isolated customers in segments such as capital goods and retail trade are getting more stressed (12)
  • 13. Swedbank lending and funding Lending to the public, SEK 1,169bn Russia Ukraine 1% 1% Nordic; 3% Lithuania 5% Latvia Swedbank 5% Swedbank Group, excl. Estonia 7% Mortgage Swedbank Swedbank SEK 573bn Mortgage Mortgage 49% - Exclusively Swedish SEK 596bn mortgage lending Sweden 30% Distribution of Net Funding Need Swedbank Treasury (excluding Mortgage) Swedbank Mortgage Funding Equity 12% 5% Commercial • Large deposits Papers Swedbank Mortgage Equity • Liquidity reserves 8% 22% constitutes a larger part of Swedbank Group’s balance • Net lender in the interbank market sheet than other financial • Liquidity limits – conservative view institutions Covered Bonds (13) Deposits 73% 80%
  • 14. Maturity profile Swedbank long-term funding Swedbank AB - Long term funding, maturity profile June 30 2008 SEK bn 80 60 40 20 0 2008 2009 2010 2011 2012 2013 2014- Senior Subordinated Swedbank Mortgage - Long term funding, maturity profile June 30 2008 SEK bn 120 100 80 60 40 20 0 2008 2009 2010 2011 2012 2013 2014- (14) Covered
  • 15. New capital adequacy target – mid-term • New target: The capital ratios will at least meet the level that at any given time is considered appropriate to maintain sustainable financial stability and develop operations. Considering full effect of Basel 2, the Tier 1 capital ratio is to be 8.5-9.0%. • Swedbank is currently well capitalized given the current risk profile and the risk development under an adverse scenario • Swedbank is currently capitalized in line with European peers in full Basel 2 • In relative terms Swedbank has a low risk business model with a predominance of Swedish mortgage business and low counterparty risks, which indicates a lower than average Tier 1 capital ratio. Growing presence in Eastern Europe indicates higher Tier 1 capital ratio (15)
  • 16. Summary • Swedbank offers a strong and stable banking operation with high profitability across several geographical areas • Baltics is continuing to slow down, need for further restructuring, strong long-term growth potential intact • Signs off a gradual slow down of lending growth in Sweden, credit quality remains strong • Focus on efficiency to secure continued profitable growth • Solid results in H1 2008 (16)