Stadshypotek's interim report January - September 2008

Performance
Stadshypotek's operating profit for the period was SEK 2,685m
(3,110). As of August 2008, Stadshypotek's branch in Norway has been
included, which had a SEK 47m effect on operating profit for the
period. Thus, excluding the branch in Norway, operating profit was
down by SEK 472m compared with corresponding period in 2007. The
decrease was partly due to the net interest income being SEK 204m
lower than the same period in the previous year. In addition, net
gains/losses on financial operations decreased by SEK 297m, compared
to the same period the previous year. This was mainly due to
unrealised changes in market value of financial assets and
liabilities subject to hedge accounting and derivatives. Unrealised
changes in market value were adversely affected in the third quarter,
due to the fall in longer-term market interest rates. On the other
hand, during the first half of the year, unrealised changes in the
market value were positively affected, due to rising market rates.

For a number of years the competition for private customers' mortgage
loans has led to reduced margins, which has had a negative impact on
net interest income. However, margins for mortgage loans where the
rate is newly set were stable in the second half of 2007 and
increased during the January to September 2008 period. Stadshypotek's
lending volume in the private market continued to perform well during
the period. However, when comparing the net interest income to the
corresponding period in the previous year, the increase could not
offset the falling lending margins. Net interest income was also
negatively affected due to the remaining effects from previously
repurchased bonds. The crisis on the financial markets has caused an
increase in funding costs, chiefly in relation to our short-term
borrowing. The rising funding costs have led to increased lending
rates to customers.

Loan losses
Recoveries exceeded new loan losses and the net amount recovered was
SEK 88m (58), which corresponds to a loan loss ratio of -0.02%
(-0.02) of lending.

Before deduction of the provision for probable loan losses, the
volume of bad debts was SEK 230m (273). SEK 38m (35) of the bad debts
were non-performing loans, while SEK 192m (238) were loans on which
the borrowers pay interest and amortisation, but which are considered
doubtful in view of the uncertainty as to the borrowers' future
repayment capacity and the value of the collateral. In addition,
there were non-performing loans of SEK 604m (297) that are not
assessed as being bad debts. After deduction of the provision for
probable loan losses, the volume of bad debts was SEK 164m (197).

Growth in lending
Lending to the public totalled SEK 605bn. This was an increase of SEK
82bn, of which SEK 48bn was attributable to the branch in Norway
which was added during the third quarter. Stadshypotek's share of the
private market in Sweden was unchanged at around 25%. Stadshypotek
retained its strong position as a leading player on the Swedish
corporate market, with a market share of some 32%.

Capital adequacy
On 1 February 2007, new capital adequacy regulations were implemented
- the Basel II regulations. The new regulations entail major changes
in how the capital requirement is to be calculated and how a
satisfactory capital base is to be ensured. They will be implemented
gradually, since the transitional regulations allow for an adaptation
over three years. As at 30 September 2008, the capital ratio was 9.6%
(9.7). As at 30 September 2008, the Tier 1 capital ratio was 6.8%
(6.9). Further information concerning capital adequacy is provided in
the 'Capital base and Capital requirement' section.

Rating
Stadshypotek's rating was unchanged.


Stadshypotek      Long-term Short-term
Moody's           Aa1       P-1
Standard & Poor's AA-       A-1+
Fitch             AA-       F1+
Covered bonds
Moody's                     Aaa


Accounting policies
The accounts comply with the IASB accounting standards adopted by the
EU. The regulations of the Annual Accounts Act for Credit
Institutions and Securities Companies and the directives issued by
the Swedish Financial Supervisory Authority are also applied. The
accounting policies are unchanged from the previous annual report.

Stockholm, 22 October 2008

Lars Kahnlund
Chief executive


The report can be downloaded from the following link: