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Roadshow, Paris, Mikael Inglander

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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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  • 1. Paris roadshow 15 September 2008 Mikael Inglander CFO
  • 2. (2) Continued solid results in Q2 • Continued solid results in all business areas – Net profit for the period Jan-Jun increased by 8 percent to SEK 6 504m (6 022) • Conversion to covered bonds on 21 April – decreased spreads, increased liquidity and facilitated funding • New capital adequacy objective for full Basel 2 – Tier 1 capital ratio is to be 8.5-9.0 percent • Credit quality remains good and in line with expectations • The macro environment in the Baltic states has deteriorated compared with expectations in Q1, affected by a weaker European economy • Net gains and losses on financial items were positively affected by unrealized valuation effects – valuation volatility expected to decrease as from Q3 2008.
  • 3. (3) H1 2008 – best half-year so far 0 50 100 150 200 250 300 350 400 450 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Profit for the period of which First Securities SEKm Swedish Banking Baltic Banking International Banking Swedbank Markets 500 1,000 1,500 2,000 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Profit for the period SEKmSEKm 900 950 1 000 1 050 1 100 1 150 1 200 1 250 1 300 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Profit for the period SEKm 25 50 75 100 125 150 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Profit for the period SEKm
  • 4. (4) Initiatives in line with our strategy Ukraine and RussiaBalticsSweden Stable base Growth and experience Future growth and profitability • Structural initiatives – operation and branches • Channel management • Corporate market and metropolitan areas • Private banking, life and pension, environmentally friendly products and services • Build-up of critical functions and growth management • Grow distribution network - ATMs, branches and agency network • Broaden product range • Re-branding completed • Capture future growth • Productivity improvement • Cross-border capabilities • IT management and development • Corporate sector – leverage on pan-Baltic position • Broaden customer offerings • Re-branding starting in autumn Share of lending: 80 % Share of lending: 16 % Share of lending: 2 %
  • 5. (5) The Swedish economy is slowing Real GDP growth 1.0% 1.5% 2.0% 2.5% 3.0% 2007 2008F 2009F Sweden Euro-zone CPI growth 0.0% 1.0% 2.0% 3.0% 4.0% 2007 2008F 2009F Sweden Euro-zone • 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. Source: Swedbank, Economic Secretariat
  • 6. (6) Baltic macro development • Baltic growth decelerates – Less favourable global situation, e.g. weaker export demand, more expensive borrowing – Imbalances built up during the times of rapid credit growth weigh heavy on the economies • Need of restructuring evident – To return to a sustainable growth path, a move away from non-tradables and towards tradables is necessary: restructuring is costly and takes time – There are signs of restructuring underway, but it is far from complete – The deepest slowing likely to be seen in LV where imbalances have been largest Real GDP growth, % YoY -5 0 5 10 15 Q1 02 Q1 03 Q1 04 Q1 05 Q1 06 Q1 07 Q1 08 % Estonia Latvia Lithuania Domestic Credit and Housing Loans, % of GDP 0 25 50 75 100 Q1 02 Q1 03 Q1 04 Q1 05 Q1 06 Q1 07 Q1 08 % EEDomestic credit EEHousing loans LV Domestic credit LV Housing loans LT Domestic credit LT Housing loans Average Labour Productivity growth, % YoY -5 0 5 10 15 Q1 02 Q1 03 Q1 04 Q1 05 Q1 06 Q1 07 Q1 08 % Estonia Latvia Lithuania
  • 7. (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
  • 8. (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
  • 9. (9) Credit quality, Group *Loan losses, net = write-offs + provisions - recoveries + change in property taken over Loan losses, net Loan loss ratio -200 -100 0 100 200 300 400 500 600 Q1-03 Q2-03 Q3-03 Q4-03 Q1-04 Q2-04 Q3-04 Q4-04 Q1-05 Q2-05 Q3-05 Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 -0.20 -0.10 0.00 0.10 0.20 0.30 0.40 0.50 0.60 SEKm % Impaired loans Share of impaired loans 0 1,000 2,000 3,000 4,000 5,000 6,000 Q3-03 Q4-03 Q1-04 Q2-04 Q3-04 Q4-04 Q1-05 Q2-05 Q3-05 Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 SEKm %
  • 10. (10) Credit quality, Baltic Banking 0.54% 0.30% 0.73% 0.55% Q2 08 0.39% 0.25% 0.53% 0.38% Q1 08 0.47% 0.28% 0.64% 0.48% H1 08 -0.18%Group level provision adjustment 0.28%Baltic Banking 0.10%Lithuania 0.63%Latvia 0.58%Estonia Q4 07 *Loan loss ratio, net = (changes in provisions + net write-offs) / credit portfolio at the beginning of the period Loan loss ratio, net* Overdue ratio (more than 60 days)* 0.86% 0.92% 0.79% Q1 08 1.20% 1.11% 1.24% Q2 08 0.71%Baltic Banking 0.75%Private 0.65%Corporate Q4 07 *Overdue ratio (more than 60 days) = volume of loans more than 60 days overdue /12 month-old credit portfolio
  • 11. (11) Baltic banking overdues vs market Estonia - overdue over 60 days / current portfolio 0.0% 0.5% 1.0% 1.5% 2.0% 31.12.05 30.06.06 31.12.06 30.06.07 31.12.07 30.04.08 Rest of the market HB Bank Estonia - overdue over 30 days / current portfolio 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 31.12.05 30.06.06 31.12.06 30.06.07 31.12.07 30.04.08 Rest of the market HB Bank Latvia - overdue over 30 days / current portfolio 0% 1% 2% 3% 4% 5% 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 Latvia - overdue over 90 days / current portfolio 0,0% 0,5% 1,0% 1,5% 2,0% 2,5% 3,0% 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 Source: Swedbank, Bank of Estonia, and Financial and Capital Market Commission (Latvia)
  • 12. (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
  • 13. (13) Swedbank lending and funding Swedbank Treasury (excluding Mortgage) • Large deposits • Liquidity reserves • Net lender in the interbank market • Liquidity limits – conservative view Swedbank Mortgage constitutes a larger part of Swedbank Group’s balance sheet than other financial institutions Distribution of Net Funding Need Swedbank Mortgage Lending to the public, SEK 1,169bn Swedbank Group, excl. Swedbank Mortgage SEK 596bn Swedbank Mortgage SEK 573bn - Exclusively Swedish mortgage lending Funding 12% Equity 8% Deposits 80% Covered Bonds 73% Equity 5% Commercial Papers 22% Ukraine 1% Russia 1% Lithuania 5% Latvia 5% Estonia 7% Swedbank Mortgage 49% Sweden 30% Nordic; 3%
  • 14. (14) Maturity profile Swedbank long-term funding Swedbank Mortgage - Long term funding, maturity profile June 30 2008 0 20 40 60 80 100 120 2008 2009 2010 2011 2012 2013 2014- SEK bn Covered Swedbank AB - Long term funding, maturity profile June 30 2008 0 20 40 60 80 2008 2009 2010 2011 2012 2013 2014- SEK bn Senior Subordinated
  • 15. (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
  • 16. (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
  • 17. Additional questions? Johannes Rudbeck Investor relations johannes.rudbeck@swedbank.se +46858593322