The risk that a counterparty, or obligor, fails to meet contractual obligations to Swedbank and the risk that collateral will not cover the claim. Credit risk also includes counterparty risks, concentration risk, and settlement risk.
For Swedbank, whose customer base mainly consists of private individuals and small and medium-sized companies, credit risk is the predominant risk. Credit risks can be found on the asset side of the balance sheet, mainly in the form of lending to customers, but also outside the balance sheet in the form of loan commitments to customers and guarantees, which could entail increased future credit risk. Swedbank’s lending to the public largely consists of mortgages in Sweden, with low risk. They are primarily financed through borrowing from the capital market in the form of covered bonds. Corporate lending is dominated by small and medium-sized companies in Sweden and is mainly financed through funds deposited by the public. The level of risk here is somewhat higher, though still relatively low. The risk in lending to the Baltic countries is also higher, but differs between the countries. Estonia, which joined the eurozone in 2011, has recovered the fastest of the Baltic countries and is considered to have a lower risk profile than Latvia and Lithuania.
Swedbank’s credit and asset quality continued to improve in 2012, mainly driven by a continued decrease in problem loans in the Baltic operations and the divestment of parts of the Ukrainian credit portfolio. The Swedish operations reported continued low credit impairments. The credit portfolio in the Baltic countries reported recoveries, though to a smaller extent than before. In Ukraine, credit impairments increased, primarily related to the decision to exit the retail segment, where large parts of the retail portfolio have been sold.
Global unease during the year has not had a major impact on the bank’s balance sheet. This was partly the result of a careful credit analysis, but also because customers have been quick to adapt to market uncertainty and have shown great resilience. The bank carefully monitors changes in the credit portfolio. In the Internal Capital Adequacy Assessment Process (ICAAP), the Swedish Financial Supervisory Authority’s stress test and the Riksbank’s Stability Report, Swedbank’s resilience was considered good should the situation in Europe worsen significantly. Because asset quality improved in 2012, the results of the 2013 ICAAP are expected to show that Swedbank’s resilience has further improved.