Interim report January ­‑ March 2016

SBAB’s CEO, Klas Danielsson, comments:

Our strong earnings trend continues and our operations are still performing well
despite a lower pace of new lending compared with recent quarters, albeit with
continued favourable growth in deposits. Our deposit offering, which provides
favourable savings rates for both private individuals and businesses, is growing
stronger in a market where the major banks are offering zero interest at best.
In January, we completed the acquisition of booli.se, a provider of housing
services and a search engine for housing. Booli is performing well and we are
continuing our efforts to develop the Group’s future housing services. Although
demand for residential mortgages and housing financing remains high, our new
lending has slowed because, as a consequence of soaring housing prices and
rising household debt, we have introduced more stringent credit rules and more
strictly enforced amortisation rules, which, at high loan-to-value ratios, meet
the new amortisation requirements detailed below. In the preceding quarter, we
also terminated two mortgage brokering partnerships, resulting in a reduction in
new lending during a phase-out period in 2016.

Intensive regulatory development
On 20 April 2016, Finansinspektionen (the Swedish Financial Supervisory
Authority) published the amortisation regulations that are to take effect from 1
June 2016. These include an amortisation rate of 2 percent per year for
residential mortgages with a loan-to-value ratio of more than 70 percent and 1
percent per year down to a loan-to-value ratio of 50 percent. The regulations
will also affect a number of other factors. What is of concern is that they
include rules that complicate the market, weakening competition in the
residential mortgage market, since it is likely that customers will find it
harder to switch banks, and causing lock-in effects that reduce mobility in the
housing market. For example, the five-year amortisation-free period for newly
built homes may cause temporary differences in prices for similar homes during
that five-year period. Complicated rules and a lack of clarity when re
-mortgaging for the purpose of renovating a home or building an extension can,
if this affects the value of the property, cause different assessments between
banks, thus distorting competition. Customers with the old, interest-only
mortgages will avoid moving and having to sign a new mortgage requiring
amortisation, leading to lock-in effects and a housing market that works even
worse than before. Such official regulation should not be needed to curb rising
debt and housing prices, if the housing market and tax system were reformed
instead.

We expect extensive regulatory development to continue over the coming years.
This will probably make it more expensive to finance residential mortgages, with
increased capital requirements helping push mortgage rates up in the long term.
New capital rules will also affect our lending volume, which, everything else
being equal, will need to show lower growth in the coming years compared with
2015.

The combination of more and stricter lending rules, new amortisation rules,
increased capital requirements affecting credit volume growth and mortgage rates
probably having bottomed out, could decrease housing prices, despite a continued
strong need for additional housing in the foreseeable future.

We take responsibility – all the way
The fact that we take responsibility – all the way, is one of four values
constituting the core of our value-driven corporate culture. As a bank, we
fulfil an important function in society. We are part of a financial
infrastructure that makes it possible for private individuals to purchase their
own homes and for companies to finance residential properties. Turning dreams
into homes – that is what our brand represents. In our deposit operations, we
manage funds entrusted to SBAB by the public.

Our role requires that we take responsibility and adopt a long-term approach,
and that we build trusting relationships, based on good business ethics, with
our customers and the world around us. We also strive to assume greater social
responsibility within the framework of our mission – we contribute to better
housing and improved housing finances. As an example, I would like to mention
our commitment to homeless people combating homelessness through our
partnerships with Stockholms Stadsmission (Stockholm City Mission) and Situation
Stockholm.

We want to make our offering sustainable for our stakeholders. In our
sustainability strategy, we are working towards a green cycle of money, where we
borrow green and lend green. As a part of these efforts, we launched a green
loan in 2015, targeting tenant-owner associations, and have recently also
launched a green retail loan, Energilånet (the Energy Loan). Most recently, in
April of this year, we launched a beta version of our energy app, Energiguiden
(the Energy Guide), aimed at helping our customers’ reduce their household
electricity consumption. Within the near future, we also intend to start
environmentally sustainable funding by issuing our first green bond.

First quarter 2016 (fourth quarter 2015)

  · Lending increased to a total of SEK 299.4 billion (297.0).
  · Deposits increased to a total of SEK 81.2 billion (76.6).
  · Operating profit rose to SEK 439 million (402), and SEK 420 million (395)
excluding net income/expense from financial instruments and restructuring costs.
  · Net interest income amounted to SEK 630 million (647).
  · Expenses totalled SEK 212 million (235), of which restructuring costs
accounted for SEK 0 million (17).
  · Net loan losses amounted to SEK 1 million (11).
  · Return on equity was 11.2% (10.7), and 10.7% (10.5) excluding net
income/expense from financial instruments and restructuring costs.
  · The Common Equity Tier 1 capital ratio amounted to 27.6% (28.6).

January–March 2016 (January–March 2015)

  · Operating profit totalled SEK 439 million (450), and 420 (336) excluding net
income/expense from financial instruments and restructuring costs.
  · Net interest income increased to SEK 630 million (555).
  · Expenses totalled SEK 212 million (194), of which restructuring costs
accounted for SEK 0 million (1).
  · Net loan losses amounted to SEK 1 million (3).
  · Return on equity was 11.2% (12.5), and 10.7% (9.4) excluding net
income/expense from financial instruments and restructuring costs.
  · The Common Equity Tier 1 capital ratio amounted to 27.6% (27.5).

Download the full report:
www.sbab.se/investor (https://www.sbab.se/1/in_english/investor_relations/sbab_g
r 
oup/financial_reports/sbab.html)

For further information, please contact:

Klas Danielsson, CEO
Telephone: +46 8-614 43 01, klas.danielsson@sbab.se

Mikael Inglander, CFO
Telephone: +46 8-614 43 28, mikael.inglander@sbab.se
SBAB’s business idea is to apply innovation and consideration to offer loans and
savings products to private individuals, tenant-owner associations and property
companies in Sweden. SBAB was founded in 1985 and is owned by the Swedish state.
SBAB has about 350,000 customers and 450 employees. SBAB had Sweden’s most
satisfied residential mortgage customers in 2014 and 2015, according to Svenskt
Kvalitetsindex (SKI, Swedish Quality Index). Read more at sbab.se,
twitter.com/sbabbank, facebook.com/sbabbank.