Follow-up of 2010 priorities

 Customer satisfaction

After the significant decline in 2009, customer satisfaction rose slightly in most of our markets in 2010. However, there is still great potential for improvement before we reach desired levels.

Through our new service concepts within Retail, we improve service and give customers a better overview of their financial situation. In the same way, we have consolidated our best and most useful services for small businesses. The concept has produced a clearer customer offering with higher sales and revenue.

In Baltic Banking, the organisation has gradually transitioned from a product focus to a customer focus.

To better meet the demand from large companies and institutions with more complex needs, the Large Corporates & Institutions business area was formed during the year. Here a new sector-oriented organisation has been created to enhance our competitive edge. In November the remaining 49 per cent of the Norwegian investment bank First Securities was acquired. This strengthens our competence and offering of capital market-related services for private customers, companies and institutions.

Measures to improve governance and monitoring have facilitated a more decentralised organisation where decision-making authority, with a larger mandate and faster decisions, has shifted closer to customers.

Lower risk level

Improved macroeconomic conditions, coupled with active efforts to reduce credit and liquidity risks, led to a significant reduction in the total risk level during the year.

Since the end of 2008 the exposure to Eastern Europe has been reduced by more than SEK 100bn. At the same time corporate lending to other countries (primarily Sweden) has decreased by about SEK 60bn, while Swedish residential mortgage lending increased by SEK 65bn. This has significantly lowered credit risk, and the dependence on unsecured funding has been reduced by about SEK 150bn.
In addition, risks were further reduced when Estonia joined the EMU.

Lending in Sweden accounted for 86 per cent of total lending on 31 December 2010, compared with 83 per cent on 31 December 2009.

Because the inflow of new impaired loans during the year was low, credit impairments gradually decreased to the point where net recoveries were reported during the fourth quarter.

Earnings

Profit for the year increased by approximately SEK 18bn mainly due to lower credit impairments.

Profit before impairments decreased by 21 per cent during the year. Net interest income was under pressure due to low interest rates and a decline in lending volumes mainly in the Baltic countries, Russia and Ukraine. In addition, trading-related income was unusually high in 2009 due to very favourable market conditions. During the second quarter 2010 Swedbank’s net interest income bottomed out. The Riksbank has begun to raise its repo rate, which primarily helped net interest income in Retail. Baltic Banking has also seen a positive trend in net interest income as local interest rates have fallen. Credit demand among Swedish companies gradually increased during the year. Rising demand is also evident in the Baltic countries.

During the year expenses decreased by SEK 200m at the same time that variable staff costs rose by SEK 323m. The decrease mainly consists of currency effects and further capacity adjustments to lower business volumes in the Baltic countries, Russia and Ukraine. The number of employees was reduced by 2 053 during the year to 17 224.

Liquidity and capitalisation

The average maturity of capital market funding was extended by another 6 months and at year-end was 27 months. During the year Swedbank also strenghtened its liquidity buffer significantly. The bank’s lower risk level, combined with active measures to inform the market, has led to great investor interest in Swedbank’s bonds. In April the bank left the state guarantee programme. No funding has been arranged under the state guarantee since summer 2009. All repos with central banks expired during the year at the same time that the state guaranteed funding was reduced from about SEK 240bn to SEK 150bn, half of which matures in 2011. Today Swedbank’s dependence on capital market funding largely consists of covered bonds, which have been a relatively stable funding source through the crisis. The bank’s strong deposit base limits its dependence on unsecured funding. This provides predictability, security and competitive strength.

The core Tier 1 capital ratio rose from 12.0 to 13.9 per cent during the year (Basel 2). This was the result of net profit for the year and because risk-weighted assets decreased by SEK 62bn.