Interim report January-June 2013 Page 2 of 58
Cautiously positive economic development at the startof the year in large parts of the world continued duringthe second quarter. Several central banks have begunto announce that they are nearing the point when theywill gradually scale back their stimulus measures, whichhas periodically led to increased volatility in the financialmarkets.
Swedbank continued to report a stable result. The returnon equity for continuing operations was 14 per cent for the second quarter. Net interest income rose slightly,mainly as a result of stronger net interest income fromcorporate lending. Margins on new mortgages inSweden continued to fall during the second quarter andhad a slightly negative impact on net interest income. Atthe same time we have gradually increased our share of new lending during the year. Deposit margins werestable due to unchanged short-term market interestrates. In the Baltic countries we are continuing toactively reassess our loan pricing to better reflect risk aswell as capital and return. Strong business activity,
especially as regards LC&I’s
financing solutions,contributed to improved net commission income.Repurchases of outstanding government guaranteedbonds and rising long-term interest rates producednegative valuation effects. Expenses were stable. I seecost efficiencies as an increasingly important long-termcompetitive factor that at the same time facilitate futureinvestments. The second quarter result was negativelyaffected by larger than usual writedowns within Ektornetas well as IT writedowns.In May we finalised the sale of the Ukrainian subsidiary. As previously announced, the earnings impact was SEK-1.9bn within discontinued operations and does notaffect the bank's equity, since a corresponding positiveamount is recognised in other comprehensive income.The Board of Directors will not take this into account inits dividend proposal for 2013.
Focus on business
It is gratifying to see the LC&I business area further strengthen its position. Our strategy of sector teams,with focus on selected customers for whom the bank ismost appropriate, has led to improved growth andprofitability. The customer-driven portion of tradingoperations has gradually grown in recent years, whichhas meant more stable revenue. Increased activity incorporate advice during the second quarter largelyoffset a lower result in fixed income and currencytrading.Our customers increasingly use digital channels, whichover time will entail a new relationship with the bank.This confirms that we have made the right decision togradually increase investments in these channels. Wewill continue to simplify and improve the digital channelswith the goal that our customers will choose them for practically all their daily transactions. This will free upmore time for proactive customer contacts and qualifiedadvice at the branches. At the same time the advice weprovide in our digital channels will be improved andbecome more proactive. The goal is to create a better,more personal experience for every customer, at thesame time that we become more efficient. A recentexample is the option to trade mutual funds through theMobile Bank, which was introduced in June. On the veryfirst trading day 13 per cent of fund purchases and 8 per cent of sales were made through the Mobile Bank. Withthe reorganisation of the Retail business area at thebeginning of the year, when the Channel & Conceptsunit was established, we have taken another step in thisdirection.
Continued focus on capital
Swedbank’s capitalisation was further strengthened
during the second quarter. The Common Equity Tier 1capital ratio is now 17.2 per cent (Basel 3*). We areawaiting approval from the Swedish FinancialSupervisory Authority to use an advanced model tocalculate risk weights for our Swedish corporate lending,which will further strengthen the Common Equity Tier 1capital ratio.The Board of Directors has not yet decided on the
bank’s capital objectives, since several new regulations
that will affect them have not been finalised. Based onthe Swedish
Financial Supervisory Authority’
s finalproposal on mortgage risk weights
executive management today believes that the CommonEquity Tier 1 capital ratio needs to be around 15 per cent according to Basel 3*.Swedbank has continued to reduce its risks in the lastyear, as confirmed by our new scenario-based stresstests for 2013. The stress test in the Riksbank
recent stability report also underscored Swedbank’s low
risks.On 4 June the credit rating agency
-term rating from A2 to A1. We areworking actively for further recognition of the extensiverisk reduction Swedbank has made and expect over time that this will continue to positively affect our ratings.Relative funding costs will continue to decline and willbe a sustainable competitive advantage for the bank.On 9 July Latvia received final approval to adopt theeuro on 1 January 2014, which demonstrates how well ithas managed the crisis. For Swedbank it also means areduction in currency risks.
We continue to plan for an environment with low interestrates and weak credit demand, even though there arepositive signs in the markets. Our intent is to maintaintotal expenses at the same level in 2013 as in 2012. Wecontinue to focus on profitability and capital efficiency atthe same time that we invest in a better customer experience and development opportunities for our employees.Michael Wolf President and CEO
* According to Swedbank’s interpretation of future regulations.