Roadshow, Öhman Baltic Banking Day, Priit Perens

47
Swedbank Estonia Q3 2008 Priit Perens

description

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.

Transcript of Roadshow, Öhman Baltic Banking Day, Priit Perens

Page 1: Roadshow, Öhman Baltic Banking Day, Priit Perens

Swedbank Estonia

Q3 2008

Priit Perens

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I Overview of the macroeconomic situation

II Overview of the Banking sector in Estonia

III Swedbank Estonia

- Market shares/volumes

- Financial results

- Credit portfolio

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Estonian economy is rebalancing

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Estonian macroeconomic environment

• 2006-2007 Estonian rapid GDP growth was based on internal consumption and inflow of external money

• Now GDP growth is negative (-0,5%, Eurostat)• Consumer confidence is dropping bringing down internal consumption• Residential real estate market is illiquid and prices are down around 20 %• Import is declining (-6% in August yoy), export growth is still strong (+8% in August

yoy)• Economy is rebalancing, but further development depends on success in building

more competitive export companies.• Dependence on foreign funding still high – loan deposit ratio ca 189%

• KEY Issues: – How are our export target countries economies doing?– Access to liquidity?

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GDP growth has dropped to negative area

-15%

-10%

-5%

0%

5%

10%

15%

1990 1993 1996 1999 2002 2005 2008p 2011p

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Belief into the future has vanished

But there is strong effect of international financial crisis

Confidence indexes

-60

-40

-20

0

20

40

60

May-02 May-03 May-04 May-05 May-06 May-07 May-08

industryconsumerconstructionretailservice

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Low confidence is reflected in the consumption

Annual growth of retail sales

-40%

-20%

0%

20%

40%

60%

80%

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08

retail total cars and related items other goods clothes furnishings etcDuring the last months the car sales down average by 38%, incl. new cars 24%, used cars 47%

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Without consumption there is no production …

Growth of industrial production

-10%

-5%

0%

5%

10%

15%

20%

25%

Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08

industrial productionmanufacturing industry productionexport salesinternal market sales

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But rumors about death of core Estonian export are exaggerated

Annual export growth

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08

-400%

-300%

-200%

-100%

0%

100%

200%

300%

400%

500%

electronics passanger cars other goods mineral products (rhs)

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Labor cost per hour in Euros/ 2006

0 10 20 30 40

Estonia

Latvia

Lithuania

Finland

Sweden

Germany

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There is no dominant sector in Estonian export(Jan-Aug 2008, change in the brackets)

groceries (13.8%)

chemical products (18.3%)

electronics (+13.2%)

machinery etc (+7.8%)

vehicles (-0.1%)

others (6.5%)

textiles (-1.8%) mineral products

(-21.2%)

wood, paper (-2.7%)

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CAD, % to GDP

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

05(I) 05(III) 06(I) 06(III) 07(I) 07(III) 08(I)

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

goods services income transfers export growth import growth

Rebalancing of economy

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The components of CAD, % to GDP

-25

-20

-15

-10

-5

0

5

10

2007 2008 6M

goods and services FDI reinvestedFDI dividends interestsother private sector return/transfers EU fundsEstonian government payments

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Real estate market: EstoniaGradual correction in residential market since April 2007

Market situation• Lower numbers of transactions, longer sale

periods and decreasing prices in residential real estate

• Apartment prices down -22% from peak in Apr’07. Further decrease is likely.

• Difficult to sell apartments in unfinished buildings• Largest decrease in transactions of land plots due

to higher construction costs and higher risk to complete the construction without a profit

Market outlook• Several developers have liquidity problems and

stock of unsold apartments is increasing. It is likely that prices on new apartments will continue to decrease

• Risk of tenants reducing their office areas. Start-up office projects and office buildings with weak concepts and poor quality will be most affected

• The quality of tenant mix, rental agreements, location, popularity of retail centers will be crucial 10

12

14

16

18

20

2002 2003 2004 2005 2006 2007

EUR

/m2/

mon

th

0%

5%

10%

15%

20%

25%

Vac

ancy

rate

Rent rate Vacancy rate

Tallinn apartment price and transaction development

Tallinn office rent and vacancy development

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

1,800

Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08

EUR

/m2

02004006008001,0001,2001,4001,6001,800

No

of tr

ansa

ctio

ns

No of deals (rhs) Average price (lhs)

Source:* Residential data – Estonia land board** Office data – credit analysts data

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Banking market

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Estonian Banking Sector: Financing* and Deposits

0

2,000

4,000

6,000

8,000

10,000

12,000

03/03 09/03 03/04 09/04 03/05 09/05 03/06 09/06 03/07 09/07 03/08 09/08

mio

EU

R

50%

70%

90%

110%

130%

150%

170%

190%

Financing - Corporate Financing - Private Deposits - CorporateDeposits -Private Loan/deposits (rhs)

*Financing – loan, leasing, factoring

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Estonian Banking Sector: Credit quality

0%

1%

2%

3%

4%

5%

09-97

09-98

09-99

09-00

09-01

09-02

09-03

09-04

09-05

09-06

09-07

09-08

Overdue >60 days Provisions

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Bank debt to GDP

• Note: Outstanding bank debt only. Leasing/factoring excluded; other forms of corporate financing excluded. Financial institutions excluded. Public sector under corporate.

Outstanding bank debt to GDP - Estonia

13% 13% 15%20% 20% 19% 18% 18% 18% 20%

24%

32%

43%47%

2% 2% 3% 6% 5% 7% 7% 8% 11%14%

19%

28%

38%45%

0%

10%

20%

30%

40%

50%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Corporate Private

Outstanding bank debt to GDP (2007)

0%

100%

200%

300%

400%

Est

onia

Latv

ia

Lith

uani

a

Cze

ch R

epub

lic

Hun

gary

Slo

vaki

a

Slo

veni

a

Pol

and

Por

tuga

l

Spa

in

Irela

nd

Den

mar

k

Finl

and

Sw

eden

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Swedbank Estonia

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Highlights

• Long-term focus maintained on core strategic strengths - performance culture, credit skills, wide distribution and strong team

• Short-term focus on managing the business through the economic cycle with particular focus on productivity and asset quality

• Steps taken in the beginning of 2007 have slowed down credit growth and the trend is expected to continue throughout 2008. As a result, minor deterioration in market shares has been visible and is also expected going forward. However, no major change is expected.

• Employee productivity is being monitored closely and employee growth will be negative during 2008 given slowdown in volume growth. Operational efficiency program is gradually rolled out in all countries.

• Credit teams have been strengthened and work-out processes are being reviewed to a more pro-active stance. Asset quality indicators (credit losses, overdues) have risen according to expectations

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Loans and Deposits

Deposits (group consolidated) *

90117

-115

-150

-100

-50

0

50

100

150

1Q 08 2Q 08 3Q 08

EU

Rm

Loans (incl leasing&factoring) change *

229 255

118

0

50

100

150

200

250

300

1Q 0

8

2Q 0

8

3Q 0

8

EU

Rm

Loan (incl leasing&factoring) change 9m 2008

602

1,411

0

200

400

600

800

1,000

1,200

1,400

1,600

BB Est MarketE

UR

m

Deposits' change 9m 2008 (bank solo)

155

408

-50

200

450

700

BB Est Market

EU

Rm

Loan (inl leasing and factoring) to deposits

100%

150%

200%

250%

12/06 03/07 06/07 09/07 12/07 03/08 06/08 09/08Rest of the Market Swedbank Estonia

* According to Management reporting (consolidated). Trade Finance portfolio was taken into Estonian books from January (loan +111 m EUR; deposits +71 m EUR) This change was eliminated from 1Q 2008 change

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Market SharesDec 06 Dec 07 Jun 08 Sept 08

Mortgage 49.2% 48.9% 48.7% 48.6%

Consumer finance 59.0% 55.0% 55.3% 55.3%

Corporate financing 46.0% 43.4% 43.1% 42.9%

Car leasing 56.1% 53.6% 52.7% 52.2%

Deposits 53.2% 53.0% 54.4% 52.4%

P2S 52.3% 52.4% 52.6% 53.0%

Funds 53.9% 57.6% 56.4% 54.9%

Domestic payments 65.4% 65.0% 65.0% 64.9%

POS 61.2% 62.3% 65.9% 68.0%

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Quarterly trend - Estonia

Net profit

57 60 6247 52 49 52

0

10

20

30

40

50

60

70

Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08

mln

EU

R

Cost - Income ratio

36.1% 37.6%34.4%

42.5%37.9% 39.9%

36.3%

0%5%

10%15%20%25%30%35%40%45%

Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08

Return on Equity

41% 41% 39%28% 33% 32% 32%

0%5%

10%15%20%25%30%35%40%45%

Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08

Credit losses

3 2

810

711

14

0

24

68

10

1214

16

Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08

mln

EU

R

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Performance against mid-term financial targets

*Net loan losses = (changes in general and special provisions + net write offs) / credit portfolio at the beginning of the year

<0.35%0.55%0.76%Net loan losses

168.9%

38%

32%

-14%

YTD 2008

<42%

>20%

>20%

BBTarget

168.9%Loan to deposit ratio

36%Cost-income

32%ROE on actual equity

-15%EBT growth, YoY

Q3 2008Estonia

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Financial highlights - Estonia

36.0%38.0%34.4%36.3%Cost-income

2.75%2.57%2.74%2.76%Net interest margin

-7%2,7292,528Employees (FTE)

12%4,3604,883Deposits (mln EUR)

14%

-15%

88%

5%

-1%

YoY %

32%

153

32

113

298

2008 YTD

7,2178,246Loans (mln EUR)

39%39%32%Return on Equity

-14%1786252Net profit (mln EUR)

13

107

298

2007 YTD

147%

6%

0%

YTD %

8

36

105

Q3 07

14Net Loan Losses (mln EUR)

38Expenses (mln EUR)

104Revenues (mln EUR)

Q3 08

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Contribution to net income change ‘08 vs ‘07 YTD

Net Fees & Commissions

67.8

75.4

2.9 -0.5 -0.5-4.5

-5.0

50.0

55.0

60.0

65.0

70.0

75.0

80.0

07 YTD Card Loans Cash Securities Other Sept 08

EU

Rm

By main P&L items

153.2178.1

-19.2

-25.922.0

-4.4-1.73.2

-7.5

8.7

130140150160170180190200210220

NI 07 NII

Net Fees

Trading inc

Inc fr Ins

Other inc

Pers exp

Other Exp NLL

NI 08

EU

Rm

Trading Income

1.6

27.4

-0.3-9.4

-1.8

-11.6

-1.2-1.60

5

10

15

20

25

30

07 YTD MarketsEq

AssetMan Eq

Life InsEq

P&C InsEq

TreasuryFI

FX & clmargins

08 YTD

EU

Rm

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0

20

40

60

80

100

120

1Q08 2Q08 3Q08 4Q08

Reveue 2007 Revenue 20080

20

40

60

80

1Q08 2Q08 3Q08 4Q08

Net interest income

Other income

Net fees and commissions

-10.0%

Revenue

-20

0

20

40

60

80

1Q08 2Q08 3Q08 4Q08

0

20

40

60

80

1Q08 2Q08 3Q08 4Q08

0

20

40

60

80

1Q08 2Q08 3Q08 4Q08

+12.1%

-94.3% YoY

+0.2% YoY

+53.8%

Trading

0

20

40

60

80

1Q08 2Q08 3Q08 4Q08

+120.1%

Income from insurance

120.1%7.215.95.4%0.35.35.6Income from insurance

0.2%297.9298.35.2%5.199.4104.5Total revenues

53.8%5.99.12.3%0.13.23.3Other income

-94.3%27.41.6-125.3%-5.04.0-1.0Trading income-10.0%75.467.8-0.9%-0.222.522.3Net fee income12.1%182.0204.015.5%10.064.374.3Net interest incomeYoY%

YTD 2007

YTD 2008QoQ%Delta2Q 20083Q 2008EUR in millions

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Operating expenses

0

10

20

30

40

50

1Q08 2Q08 3Q08 4Q08

Total OpEx 2007 Total OpEx 2008

0

10

20

1Q08 2Q08 3Q08 4Q08

0

10

20

1Q08 2Q08 3Q08 4Q08

0

10

20

1Q08 2Q08 3Q08 4Q08

0

10

20

1Q08 2Q08 3Q08 4Q08

0

20

40

1Q08 2Q08 3Q08 4Q080

10

20

1Q08 2Q08 3Q08 4Q08

Personnel IT Admin

Marketing Other Group

+3.7% YoY +8.0% YoY +27.8% YoY

-9.4% YoY +24.0% YoY -34.1% YoY

+5.7% YoY

-115-261-1.7-0.50.0

-0.7-0.21.1

-0.4-1.0

Delta

-7.4%2 7292 528-9.4%2 7892 528Employees (FTE)-7.8%2 7202 506-4.4%2 6212 506Employees (FTE) excl pr

5.7%107.2113.4-4.3%39.637.9Operating expenses-34.1%10.16.7-16.2%3.02.5Group adjustments

5.8%2.32.5-1.4%0.80.8Depreciation31.1%6.17.9-22.7%3.22.5Other expenses-9.4%4.54.1-11.1%1.51.3Marketing27.8%16.621.215.7%7.08.1Administration8.0%21.022.7-5.6%8.07.5IT expenses3.7%46.548.3-6.0%16.215.2Personnel

YoY%YTD 2007YTD 2008QoQ%2Q 20083Q 2008EUR in millions

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Portfolio disclosure

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Private portfolio risk profile

0

750

1,500

1 2 3 4 5 6 7 8 9 10 11 12

EU

Rm

Q4 2007 Q2 2008 Q3 2008

SME/SSE risk profile

050

100150200250300350

A A- B B- C C- D D- E E- F

EU

Rm

Q4 2007 Q2 2008 Q3 2008

Large corporate risk profile

0

500

1,000

1 1- 2 2- 3 3- 4 4- 5 5- 6 6- 7

EU

Rm

Q4 2007 Q2 2008 Q3 2008

Estonia risk exposure (9 053 mEUR)*, Q3 2008SME/SSE

16%mortgage

79%

revolving3%

Large corporate

42%leasing

8%

Private43%

consumer10%

* Risk exposure: on-balance + off-balance portfolio

PD<1%Non-

performing

Non-performing

Credit quality of the loan bookRisk profile remains balanced

• Well diversified portfolio dominated by retail exposures

• Macro developments have triggered some downgrades in all segments:

– Real estate sector drives downgrades in large corporate segment (exposure > 0.8 mio EUR). Downgrades counterweighted by new lending to low risk clients

– SME/SSE has been the most sensitive to downturn. Acceptable risk profile (55% of portfolio with PD<1)

– Private portfolio has low risk profile (78% with PD<1%)

Non-performing

PD<1%

PD<1%

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Credit qualitySwedbank Estonia overdue performance considerably better than the rest of the market

Overdue over 60 days / current portfolio

0%

1%

2%

3%

Dec

.05

Mar

.06

Jun.

06

Sep

.06

Dec

.06

Mar

.07

Jun.

07

Sep

.07

Dec

.07

Mar

.08

Apr

.08

May

.08

Jun.

08

Jul.0

8

Aug

.08

Sep

.08

Rest of the market Swedbank Estonia (Bank)

Provisions / current portfolio

0%

1%

2%

3%

Dec

.05

Mar

.06

Jun.

06

Sep

.06

Dec

.06

Mar

.07

Jun.

07

Sep

.07

Dec

.07

Mar

.08

Jun.

08

Sep

.08

Rest of the market Swedbank Estonia (Bank)

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Corporate >60 day overdues

Corporates (rating cust)

1.89%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

12-06

03-07

06-07

09-07

12-07

03-08

06-08

09-08

SSE

2.38%

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%

12-06

03-07

06-07

09-07

12-07

03-08

06-08

09-08

All Corporates

1.99%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

12-06

03-07

06-07

09-07

12-07

03-08

06-08

09-08

SME

2.08%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

12-06

03-07

06-07

09-07

12-07

03-08

06-08

09-08

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Large corporate portfolio Credit losses relatively isolated in the real estate sector

Estonia Rating 6&7 exposures by industries

0 20 40 60 80 100

Commercial realestate

Production

Retailing

Transportation

Other EURm

Q4 2007

Q2 2008

Q3 2008

Large corporate risk profile

0%

5%

10%

15%

20%

25%

1 1- 2 2- 3 3- 4 4- 5 5- 6 6- 7

Q4 2007

Q2 2008

Q3 2008

• Downgrades in large corporate (exposure > EUR 0.8m) portfolio has been counterbalanced with lending to customers with low risk

• The main part of 6&7 ratings comes from real estate sector (in particular residential real estate development & early development)

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Lending by sectors

Portfolio, (9053 EURm) Sept 2008

Other22%

Individuals44%

Transport5%

Retail & Wholesale

5%

Real-estate mgmt15%

Construction3%

Industry6%

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Real estate portfolioMost sensitive part of portfolio to current changes in macro environment. Developments according to expectation.

• The residential real estate development is the most sensitive sector in Baltic Banking portfolio.Sensitivity’ has started to appear in overdue and default figures of corporate portfolio.

• Around 60% from total Real Estate portfolio are cash flow generating properties with good tenant mix.

• Properties under development process (25% of RE portfolio) are currently affected the most by decreasing prices and liquidity in the market.

• Additional defaults in residential real estate development sector are anticipated in 2008, but no major surprises are expected due to previously implemented portfolio limitations and individual level monitoring. Restructuring capacity has been put in place.

Real Estate

23%

6%

25%

25%

15%

6%

Office

Production &WarehouseResidential

Retail

Land plots

Other

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Other sectors under close watch

TransportationTrucking companies are facing problems due to increasing fuel prices and lagging freight rates. This global problem has started to reflect in Baltic Banking provisions (especially in SME segments) since the beginning of the year.

Retail & wholesaleWell performing sector with low levels of overdues, but potentially vulnerable to decreasing consumption

Wood processingRaw material price increase coupled with sales price downwards pressure have a negative impact on Baltic wood processing industry. Current portfolio quality is around average with only few problem cases observed. Additional problems may occur after export duties will be imposed on Russian round wood as there is dependence on imported round wood in Estonia.

* Overdues over 60 days / 12 months old portfolio

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37

13%

8%

79%Private >60 day overdues

Mortgage

0.43%

0.88%

0.32%0.12%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

12-06

03-07

06-07

09-07

12-07

03-08

06-08

09-08

Consumer finance

1.01%1.60%

2.44%

1.81%

0.0%0.5%

1.0%1.5%2.0%

2.5%3.0%

12-06

03-07

06-07

09-07

12-07

03-08

06-08

09-08

Car leasing

0.63% 0.87%

1.35%

0.99%

0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%

12-06

03-07

06-07

09-07

12-07

03-08

06-08

09-08

Total private

0.28% 0.48%

1.04%

0.58%

0.0%0.2%0.4%0.6%0.8%1.0%1.2%

12-06

03-07

06-07

09-07

12-07

03-08

06-08

09-08

mortgage

consumer

leasing

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Mortgage delinquency rates*Percentage of outstanding amount of loans

0

1

2

3

4

5

6

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

SwedbankEstonia

USA

UKSpain

Australia

Canada

France

Finland

Portfolio quality better than in more stabledeveloped markets

*Mortgages >90 days in overdues / portfolioNote: Loans refer to mortgages for all countries except Finland and Italy where they include all loans to the households sector.For Italy, they refer to new bad debts during the year as a percentage of outstanding loans.

Page 39: Roadshow, Öhman Baltic Banking Day, Priit Perens

39

Mortgage portfolio

Mortgage risk profile

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1 2 3 4 5 6 7 8 9 10 11 12

Portfolio, Dec-07 Portfolio, Sept-08

0

50

100

150

200

250

3Q 0

5

4Q 0

5

1Q 0

62Q

06

3Q 0

6

4Q 0

6

1Q 0

7

2Q 0

7

3Q 0

7

4Q 0

71Q

08

2Q 0

8

3Q 0

8

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Growth Portfolio (right hand scale)

Portfolio

• Employers in difficulties – lower workload, loss of work, problems with salary (drop or delay in payment): mainly in companies connected to real estate, construction, transport, industrial goods, furniture and wood industry

• Change of employment

Main reasons for payment difficulty

Page 40: Roadshow, Öhman Baltic Banking Day, Priit Perens

40

Mortgage LTV (indexed market values)Portfolio average LTV below 60%

• Apartment / private house price drop in EE (- 22% from peak) has reduced positive effect from portfolio ‘maturing’

• Higher LTV portfolio issued for safe ‘home loan’ segment

• No difference observed in overdue / default levels for ‘high’ and ‘low’ LTV segments.

Estonia

64%68%63%

0

250

500

750

1000

2000 2001 2002 2003 2004 2005 2006 2007 2008

EURm

-20%

0%

20%

40%

60%

80%

21yAverage maturity

59%LTV, total portfolio - August '08

*Should be treated as conservative evaluation (do not account for guarantees and other non-residential RE collaterals)

EE

Indexed LTV values and maturity for private apartments / houses*

Mortgage LTV and portfolio by year of origination

Mortgage portfolio - LTV

0%

10%

20%

0-10%

10-20

20-30

30-40

40-50

50-60

60-70

70-80

80-90

90-100

>100

Back book, Sept 08

Page 41: Roadshow, Öhman Baltic Banking Day, Priit Perens

41

Summary

• Growth of Estonian economy has stopped • Resulting fast rebalancing of the economy. • Still high dependence on foreign funding (but not directly from the

international markets)• Swedbank Estonia is showing relatively strong results, yoy income declined

by 14% caused by increasing loan losses and losses from equities trading.• Efficiency still high• The Bank’s main activity is managing credit portfolio and improving

efficiency• Credit portfolio quality is deteriorating. Residential real estate development

under growing stress. No spillover to other sectors.

Page 42: Roadshow, Öhman Baltic Banking Day, Priit Perens

Thank you!

Page 43: Roadshow, Öhman Baltic Banking Day, Priit Perens

43

Portfolio qualityCredit losses driven by real estate defaults

• Credit losses mostly driven by worsening macro situation • Real estate (in particular residential real estate development projects) is the main driver of credit losses • Trend is in line with updated credit loss forecast level

Estonia

0.55%31.6 Total

0.06%0.1 - Other

0.34%0.6 - Car leasing

1.79%3.0 - Consumer products

1.30%1.0 - Revolving

0.13%2.7 - Mortgage

0.27%7.5 Private individuals

0.67%6.4 SME/SSE companies (exposure <0.8m EUR)

0.32%2.1 - Other

-0.16%-0.4 - Transportation

0.45%0.8 - Retailing

0.43%1.0 - Production

1.76%14.3 - Commercial real estate

0.84%17.8 Rated companies (exposure >0.8m EUR)

RatioEURmNet loan losses, YTD 9m 2008

Page 44: Roadshow, Öhman Baltic Banking Day, Priit Perens

44

Key financialsEstonia

29 bp57 bp50 bp58 bp76 bpNet loan losses

2.57%

38.0%

32.2%

83

153

153

113

298

YTD2008

2.75%

36.0%

40.0%

131

178

178

107

298

YTD2007

-7%

-37%

-15%

-15%

5%

-1%

12%

14%

Q3% ∆YoY

-261

2

3

3

-2

5

-115

118

Q3∆ QoQ

2,789

2.41%

39.9%

31.5%

26

49

49

40

99

4,998

8,128

Q22008

-36%

-14%

-14%

6%

0%

YTD% ∆ YoY

4428EVA on allocated equity

2,7292,528Employees (FTE)2

105104Revenues

3638Expenses

2.74%

34.4%

38.5%

62

62

4,360

7,217

Q32007

52EBT

8,246Loans

4,883Deposits

2.76%Net interest margin

36.3%Cost-income

32.2%Return on equity1

52Net income

Q32008

in millions of EUR

1 ROE is calculated based on Swedbank capital allocation: 8.4% for the Baltics2 without Group and IT

Page 45: Roadshow, Öhman Baltic Banking Day, Priit Perens

45

Provisioning principles

• Credit portfolio losses are recognised through special and portfolio provisions• Main guidelines for estimating provisions:

• Key regulations for provision estimation are: provisioning principles and provisioning rates• Supplementary regulations are: LGD methodology and rating methodology

• Current provisions constitute 1.05% of credit portfolio (111 EURm portfolio provisions and 106 EURm special provisions)

• General and special provision rates are back-tested once per year. Historically provisions have always covered loan losses with a reserve

product specific LGDOverdue >90 daysFixed rate based on product typeRetail

fixed LGD (based on asset type for leasing)Overdue >90 daysFixed rate for all portfolioSME

Individual assessment based on Net present value (based on discounted value of revalued collateral and cash flow)

Rating 6 - 7default frequency (based on rating) * LGD (based on credit analyst estimate)Large corporate

Special provisioning for impaired assetsImpairment triggerPortfolio provisions

(for performing portfolio)Portfolio segment

LGD – loss given default

Page 46: Roadshow, Öhman Baltic Banking Day, Priit Perens

46

Regular process of outstanding loan review • Portfolio quality improvement measures introduced already in 2007

– Increased risk margin in certain sectors (eg real-estate)– Portfolio limitation and close individual level monitoring for higher risk segments– Stricter product conditions (LTV, service ratio, previous credit history). Ongoing review

and adjustments Improved credit assessment process through better credit decision support applications (scoring/rating tools)

• Share of real estate sector decreasing, existing portfolio regularly scrutinized• Strengthened risk units

– Increased number of people dealing with problem loans– Strengthened workout team– Increasing cooperation with Swedabnk FR&R team– Improved the quality and increased frequency of portfolio quality reporting

• Targets for new origination quality• Regular loan review process includes

– Overall portfolio stress test once a year – Extensive portfolio analysis 2x per year, monthly/quarterly portfolio reviews + ad hoq

individual portfolio deep-dive analysis– Monthly "watch list” report– IRB portfolio scoring 1x per month

• On the individual loan basis:– Client rating review minimum 1x per year + review subject to material events– Rating classes 5 and higher are subject to more frequent assessment– Quarterly financials/covenants assessment– For SME/SSE and private portfolio weekly overdue report (with client names identified)

Page 47: Roadshow, Öhman Baltic Banking Day, Priit Perens

47

Credit quality management process• Proactive management of watch list clients

– Private clients - communication on step-by-step actions to take before falling into overdues. Development of standard remedial action to ensure serviceability of the credit (assistance in family budget planning, restructuring of payments, postponement of payments for temporary income loss; assistance in voluntary sale of assets)

– Corporate clients - proactive communication, frequent client meetings and positive attitude to find solutions

• Overdue management - concentrates on time horizon from occurrence of distress situation (either through late payment or on the bases of client information) to moving credit over to restructuring or workout phase. The primary focuses in overdue management is:

– Process design for fast and prudent management of overdues, clear process ownership– Constant re-evaluation of the tactics on their effectiveness and adequacy– Clearly set timing and channel of client contacts– Build capacity to work with distressed clients and adequate training of employees– Centralized decision making– Internal target setting and incentives to reach targets– Up to time reporting and follow up on taken activities

• Distressed debt restructuring– Defined tactics of restructuring. Solutions to ensure client serviceability of the debt

(based on industry of the client, collateral structure)– Extended capacity to work with distressed clients– Effective solutions for collected collaterals handling