Glossary

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Capital adequacy ratio

The ratio of the capital base to risk-weighted assets.

Capital base

The sum of tier 1 and 2 capital less items in sccordance with chapter 3 section 5-8 of the Capital Adequacy and Large Exposures Act.

Capital quotient

The ratio of the capital base to the capital requirement.

Compliance risk

The risk of legal or judicial consequences, major economic damage or the loss of reputation that Swedbank could suffer due to failure to comply with laws, regulations, other external policies and instructions, and internal rules, including ethical guidelines that govern how the Group conducts its operations.

Concentration risk

A part of the banks credit risk referring to large exposures or concentrations in the credit portfolio to certain regions or industries.

Core tier 1 capital

Tier 1 capital less equity contributions and reserves that may be included in the capital base as tier 1 capital according to chapter 3 section 4 of the Capital Adequacy and Large Exposures Act.

Core tier 1 capital ratio

Core tier 1 capital in relation to the risk-weighted amount.

Counterparty risk

Arises as an effect of the possible failure by the counterparty in a financial transaction to meet its obligations.

Credit conversion factor (CCF)

The portion of an off-balance sheet commitment drawn in the event of a future default. The conversion factor is expressed as a percentage. The conversion factor is used to calculate the exposure at default (EAD).

Credit risk

The risk that a counterparty, or obligor, failing to meet contractual obligations to Swedbank and the risk that collateral will not cover the claim.

Currency risk

The risk that the value of Swedbank’s assets, liabilities and derivatives may be affected negatively as a consequence of changes in exchange rates.

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Default

Credit exposures are regarded to be in default if there has been an assessment indicating that the counterpart is unlikely to pay its credit obligations as agreed or if the counterpart is past due more than 90 days.

Duration

The average weighted maturity of payment flows calculated at present value and expressed in number of years.

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Equity price risk

The risk that the value of Swedbank’s holdings of equities and equity-related derivatives may be affected negatively as a consequence of changes in prices for equities.

Expected loss (EL)

The product of the three risk dimensions: Probability of Default (PD), Loss Given Default (LGD) and Exposure at Default (EAD). Expected loss shall provide an indication of the mean value of the credit losses that Swedbank may reasonably be expected to incur.

Exposure amount

The value of an exposure in accordance with FFFS 2007:1 either Chapter 15 or 40 depending on whether the standardised approach or IRB approach is used. The exposure amount for large exposures is determined in accordance with Chapters 34–35 FFFS 2007:1.

Exposure at default (EAD)

Measures the utilized exposure at default. For on balance-sheet exposures, EAD is the gross value of the exposure without provisions being taken into account. For off balance-sheet exposures, EAD is calculated by using a credit conversion factor (CCF) estimating the future utilization level of unutilized amounts.

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Financial risk

Financial risks are divided into two main classes: market risks and liquidity risk. Market risks refers to the risk that changes in interest rates, exchange rates and equity prices will lead to a decline in the value of Swedbank’s net assets, including derivatives. Liquidity risk refers to the risk that Swedbank cannot fulfil its payment commitments on any given due date without significantly raising the cost of obtaining means of payments.

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Impaired loans

Loans where payments are unlikely to be made in accordance with contract terms. Such loans are not considered impaired if there is collateral that covers principal, interest and any late fees by a safe margin.

Internal Capital Adequacy Assessement Process (ICAAP)

The purpose of the internal capital adequacy assessment is to ensure that Swedbank has adequate capitalization to cover its risks and to carry on and develop its operations.

Interest rate risk

The value of Swedbank’s assets, liabilities and interest-related derivatives may be negatively affected by changes in interest levels.

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Liquidity risk

The risk that Swedbank cannot fulfil its payment commitments on any given due date without significantly raising the cost of obtaining means of payments.

Loss given default (LGD)

Measures how large a proportion of the exposure amount is lost in the event of default.

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Market risk

The risk that changes in interest rates, exchange rates and equity prices will lead to a decline in the value of Swedbank’s net assets, including derivatives.

Maturity

The time remaining until an asset or liability’s terms change or its maturity date.

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Number of employees

The number of employees at year-end, excluding long-term absences, in relation to the number of hours worked expressed in terms of full-time positions.

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Operational risk

The risk of losses due to inadequate or failed internal processes, human error and incorrect systems, or external events.

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Past due loans

Overdrafts or loans where, according to the terms of the loan, amounts due for payment have not been paid.

Probability of Default (PD)

Indicates the risk that a counterparty or contract will default within a 12-month period.

Provision ratio for individually identified impaired loans

Specific provisions for loans assessed individually and provisions for homogenous groups of loans assessed collectively in relation to impaired loans, gross.

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Return on total capital

Operating profit in relation to average total assets.

Risk

Risk denotes a potentially negative impact on a company that can arise due to current internal processess or future internal or external events. The concept of risk comprises bith the likelihood that an event will occur and the impact it would have on the company.

Risk-weighted amount

Total assets on the balance sheet and off-balance sheet commitments divided by credit and market risks measured and risk-weighted according to current capital adequacy regulations.

Risk weighted assests (RWA)

A calculated value that takes into account PD, LGD and EAD, but RWA also accounts for the type of counterparty and its size. Is used to calculate Unexpected loss.

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Share of impaired loans

Impaired loans, net, in relation to the book value of loans to credit institutions and the public.

Supplementary capital

Supplementary capital (Tier 2 capital) includes fixed term subordinated loans, in some cases less term reductions if the remaining maturity is less than five years, undated subordinated loans and other capital contributions and provisions permitted for inclusion in the capital base as supplementary capital, as well as deductions to be made in accordance with Chapter 3 of the Capital Adequacy Act.

Supplementary capital (Tier 2 capital) is eligible for inclusion in the capital base up to an amount equal to Primary Capital (Tier 1 capital).

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Tier 1 capital

Equity less the proposed dividend, deferred tax assets, intangible assets and certain other adjustments. Equity contributions and reserves that may be incuded in the capital base as tier 1 capital according to chapter 3 section 4 of the Capital adequacy and Large Exposures Act are added as well.

Tier 1 capital ratio

Tier 1 capital in relation to the risk-weighted amount.

Tier 2 capital

Fixed-term subordinated liabilitie, less a certain reduction if their remaining maturity is less than five years, undated subordinated liabilities, equity contributions and reserves that may be included in the capital base as tier 2 capital according to chapter 3 section 4 of the Capital Adequacy and large Exposures Act.

Total exposure

Exposure + accrued interest + (off balance-sheet exposures * credit conversion factor).

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Unexpected loss (UL)

A capital buffer against unexpected losses (UL) to protect itself against credit loss peaks exceeding the anticipated level.

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Yield

Dividend per share in relation to the share price at year-end.