Interim Report January ­– September 2016

SBAB’s Interim Report for January – September 2016 is now available for download
on www.sbab.se/IR.

Klas Danielsson, CEO of SBAB, comments:

Once again, we are reporting strong quarterly figures in terms of high net
interest income, strong earnings, low loan losses, a low C/I ratio and a healthy
return on equity. Margins on residential mortgages remain high driven by a
combination of factors, including raised capital requirements, expectations of
forthcoming additional capital requirements, a strong market for covered bonds,
high rates of saving with strong deposit inflows, a robust housing market with
high demand for residential mortgages and rising property market risks with
increasing restraint in credit granting by residential mortgage providers.

Our lending increased SEK 2.3 billion in Q3 and totalled SEK 305.0 billion.
However, our total lending and market share for residential mortgages will
decrease in the fourth quarter, attributable to partnerships currently being
discontinued. The main contributory factor is the transfer of slightly more than
SEK 12 billion in residential mortgages to Swedbank in October following the
already discontinued partnerships with Sparbanken Skåne and Sparbanken Öresund.
Excluding the partnerships under discontinuation, the volume trend for
residential mortgages remains healthy.

Our strong volume growth in deposits continues. Deposits increased SEK 5.4
billion in Q3 and totalled SEK 93.4 billion. We offer a savings rate that is one
of the highest offered by Swedish banks. In a market where the major banks are
not paying any interest on savings and where consumer savings are at record
highs, we are winning many new savings customers.

A modern IT structure
During Q3, we signed an agreement to replace our base system over a three-year
period. This project also includes changing much of our existing IT structure.
Consequently, our investment and development costs will increase in the coming
years, though in the long-term, the project aims to increase efficiency and
reduce marginal costs in a number of areas.

We are committed to creating the market’s most efficient, digital mortgage
process, in parallel with our work developing tomorrow’s homes and household
financial services. If we are to achieve our vision — to offer the best
residential mortgages in Sweden — by developing customer relations and not
losing ground to new players in a rapidly changing environment, we need to be
quick-footed and innovative in our work and in our processes. A modern and
flexible IT infrastructure is a prerequisite for this.

A mortgage licence — it stands to reason
Under the EU Mortgage Credit Directive mortgage directive, an EU directive from
2014, the personnel at organisations that offer credit, credit brokering or
advisory services in the field of consumer mortgage credits to consumers are
required to possess certain knowledge and skills. As part of the work with the
Mortgage Credit Directive and together with Swedish industry body SwedSec
Licensing AB, the Swedish Bankers’ Association has developed a separate
competence test for personnel who work with mortgages, which leads to a license
to be able to work with mortgages. Improved consumer protection in the mortgage
market is welcome, and we believe an industry-wide standard comprising a
competence test and a licence for mortgage loans to be extremely positive. The
vast majority of SBAB’s employees will be licensed for mortgage loans and
licencing started in Q3.

The housing market’s fundamental problems are still there
On 1 June this year, a new repayment requirement was introduced with the aim of
counteracting rising household debt and indirectly tempering the house price
trend through lower demand for mortgages. Thus far, the repayment requirement
has had limited market impact, even if it is too early to draw any conclusions.
The limited impact is partly due to many banks having already implemented
various types of repayment requirements, but perhaps mostly due to the continued
housing shortage in Sweden. It remains my opinion that we need to adapt the tax
system to increase housing-market mobility and to use the existing housing stock
more efficiently, and take the requisite political decisions to facilitate,
accelerate and increase construction.

Financial highlights:

Q3 2016 (Q2 2016)

  · Lending increased and totalled SEK 305.0 billion (302.7).
  · Deposits rose to a total of SEK 93.4 billion (88.0).
  · Operating profit increased to SEK 534 million (490), and to SEK 517 million
(486) excluding the net result of financial items.
  · Net interest income grew to SEK 745 million (692).
  · Expenses amounted to SEK 214 million (224).
  · The C/I ratio was 28% (31).
  · Net loan losses totalled SEK 20 million (recovery: 1).
  · Return on equity was 12.3% (11.8), and 12.0% (11.7) excluding the net result
of financial items.
  · The Common Equity Tier 1 (CET1) capital ratio was 28.5% (28.4).

January – September 2016 (January – September 2015)

  · Lending increased and totalled SEK 305.0 billion (284.0).
  · Deposits rose to a total of SEK 93.4 billion (71.5).
  · Operating profit increased to SEK 1,463 million (1,090), and to SEK 1,423
million (1,116) excluding the net result of financial items and restructuring
costs.
  · Net interest income grew to SEK 2,067 million (1,795).
  · Expenses amounted to SEK 650 million (574).
  · The C/I ratio was 30% (34).
  · Net loan losses totalled SEK 20 million (29).
  · Return on equity was 11.9% (10.1), and 11.6% (10.4) excluding the net result
of financial items and restructuring costs.
  · The CET1 capital ratio was 28.5% (25.6).

For further information, please contact:

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

Mikael Inglander, CFO SBAB Telephone: +46 8-614 43 28, email:
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.