Liquidity and capitalisation
The funding structure of banks and other financial players was an important reason for the financial crisis, which peaked in 2008. In search of higher profits, many players, including Swedbank, allowed themselves to become overly dependent on short-term funding. As a result, many banks quickly faced liquidity problems when the funding markets stopped working normally. Emergency measures were needed to secure the financial system. Huge support packages were introduced by central banks around the world.
Swedbank, whose liquidity reserves have been adapted to current conditions, is working long-term to reduce liquidity risk by establishing a balanced funding structure. This means, among other things, that the share of short-term capital market funding (with maturities of less than one year) will be reduced over time and replaced by long-term capital market funding. The average maturity of the long-term funding will be extended as well. Moreover, Swedbank is trying to increase the share of local financing in markets where the bank is active, e.g., by increasing deposits in relation to loans.
Activities and development in 2009
In 2009 Swedbank extended the average maturity of its capital market funding (including repos) by about eight months, to 22 months at year-end. During the first half-year funding was arranged with the help of the state guarantee. During the second half-year access to funding markets improved and funding was arranged without the state guarantee, largely through covered bonds.
Swedbank improved its access to funding during the latter half of 2009 largely by showing the market that the measures the bank had taken to improve credit quality and strengthen capitalisation had reduced uncertainty. A rights issue in the autumn raised SEK 15.1bn (Swedbank also implemented a rights issue of SEK 12.4bn in late 2008) to improve the bank’s financial position and allow it to operate from a position of strength. The capital base was also strengthened by reducing risk-weighted assets by SEK 93bn, mainly by actively trimming lending where risk-adjusted returns were considered inadequate and by allocating provisions for impaired loans. The stronger capital base has strengthened confidence in the bank among debt investors and shareholders. Moreover, liquidity generally improved in international capital markets over the course of the year.
In addition to extending its funding profile, Swedbank significantly increased its liquidity reserve. This means that it can manage outside the funding markets for an extended period if necessary. The bank also has sufficient liquidity for other events that necessitate large monetary outflows.
