Swedbank defines liquidity risk as the risk that Swedbank cannot fulfil its payment commitments at maturity or when they fall due.
Liquidity risks arise because the maturity structures on the asset and liability sides of the balance sheet do not coincide, since lending is generally longer than deposits. Access to longterm financing is imperative in order to adequately manage liquidity risk. Swedbank has therefore established diversified funding through a number of short- and long-term programmes in several different capital markets. Other than borrowings from the public, Swedbank’s covered bonds, which are secured by low-risk Swedish mortgage loans, are the Group’s most important financing source. To ensure resilience in the event of disruptions in the capital markets, Swedbank maintains a liquidity reserve consisting of securities with a high level of creditworthiness which can be pledged to central banks or divested at very short notice. The key element in the bank’s financing strategy to limit and control liquidity risk is the internal measure survival horizon, which gauges how long the bank can meet its contractual obligations without access to financing from the capital market. The bank’s financing strategy also has a strong connection to the credit quality of the assets, since a perceived decline in credit quality, all else being equal, increases the investor risk and hence investors’ yield requirements. One of Swedbank’s focus areas is to manage the liquidity risk and therefore to ensure that the quality in lending remains very high.
Swedbank saw strong demand from domestic and international debt investors in 2012. During the year the bank attracted new investors and thereby broadened its investor base.
Swedbank’s liquidity reserve, which is reported in accordance with the Swedish Bankers’ Association’s definition, amounted to SEK 216bn on 31 December 2012 (247). In addition to the liquidity reserve, liquid securities in other parts of the Group amounted to SEK 58bn (62). The liquidity reserve and the Liquidity Coverage Ratio (LCR) will fluctuate over time depending, among other things, on the maturity structure of the bank’s issued securities. According to current Swedish regulations, the Group’s LCR amounted to 130 per cent as of 31 December (139). Distributed by USD and EU R, LCR was 296 per cent and 267 per cent, respectively. Based on the new, updated Swedish regulations (FFF S 2012:6), which apply as of 1 January 2013, LCR amounts to 139 per cent. In early 2013 the Basel Committee published a new recommendation on the definition of LCR, which would make Swedbank’s LCR level significantly higher than in the Swedish Financial Supervisory Authority’s definition. According to Swedbank’s interpretation of the current draft regulations the Group’s Net Stable Funding Ratio (NSFR) was 91 per cent on 31 December (94). In the Riksbank’s Financial Stability Report published in November 2012 the average NSFR was 84 per cent for the four major Swedish banks, based on reports as per September 2012.
The main liquidity measure used by the Board of Directors and executive management is the so-called survival horizon, which shows how long the bank can manage long periods of stress in capital markets, where access to new financing would be limited. At present, the bank would be able to survive for more than 12 months with the capital markets completely shut down. This applies to the Group’s total liquidity as well as liquidity in USD and EUR.
The bank’s positive development in recent years has been noted by the rating agencies. Among other things Fitch upgraded Swedbank’s long-term rating from A to A+ during the summer. Swedbank’saim is to have a credit rating on the same level as the highest rated banks in the Nordic region.