Credit risk

Swedbank has defined the desired risk profile for its credit portfolio; it should be well diversified with a low risk profile and a high profitability. This ambition shall be reflected both at group level as well as at each business area's lending operations. A low level of risk is achieved through lending to customers with a high debt service ratio, good collateral and diversification within and between sectors and regions. A high profitability is achieved by setting clear targets for the required risk adjusted return.

Credit risk is defined as the risk of a counterparty, or obligor, failing to meet contractual obligations to the lender and the risk that collateral will not cover the claim. The term counterparty risk is often used instead of credit risk when measuring credit exposure in financial instruments and arises as an effect of the possible failure by the counterparty in a financial transaction to meet its obligations. This risk is often expressed as the current market value of the contract adjusted with an add-on for future potential movements in the underlying risk factors. Credit risk also includes concentration risk, which refers to e.g. large exposures or concentrations in the credit portfolio to certain regions or industries.