Financial Stability Report June 2009

Increased loan losses are the greatest risk Swedish banks can cope with increased loan losses and are well-capitalised in an international comparison Measures taken by the authorities are still an important condition for ensuring that the Swedish financial system is stable There is great uncertainty and the external risks have increased Financial Stability Report 2009:1

Results before loan losses and loan losses, net, in the major Swedish banks Totalled over four quarters, SEK billion, fixed prices, 31 March 2009 Chart 3:13 Sources: The banks’ reports and the Riksbank

The Riksbank’s main scenario Loan losses during the years Based on publicly-available statistics at sector level in the banks The real economic developments stated are the Riksbank’s forecasts and consensus All industries and countries are affected, but credit quality is affected to different extents

Results before loan losses and loan losses, net, in the major Swedish banks Totalled over four quarters, SEK billion, fixed prices, 31 March 2009 Chart 3:13 Sources: The banks’ reports and the Riksbank Increased loan losses

Breakdown of loan losses per region in the Riksbank’s main scenario Per cent Sources: The banks’ reportsChart 3:14

Assessment of stability Increased loan losses… …but good resilience The banks can withstand higher losses than in the main scenario Measures are an important condition for financial stability

External risks have increased  Developments in the financial markets  The effects of a poorer development in the real economy  Developments in the Baltic countries

External risks have increased  Developments in the financial markets  The effects of a poorer development in the real economy  Developments in the Baltic countries

Note. In Sweden refers to the difference between 3-month Stibor and T/N swap (STINA) Chart 1.2 Source: Bloomberg Developments in the financial markets Basis spread

External risks have increased  Developments in the financial markets  The effects of a poorer development in the real economy  Developments in the Baltic countries

The effects of a poorer development in the economy Recessions reinforced by and in conjunction with financial crises can become more protracted and the recovery can be both weaker and more long drawn out In such a scenario there is a risk that credit granting and loan losses will be affected

External risks have increased  Developments in the financial markets  The effects of a poorer development in the real economy  Developments in the Baltic countries

Swedish banks in the Baltic countries March 2009 The Baltic countries’ share of the banks’ lending and results before tax Lending SEB12% Swedbank 16% Nordea 3% Operating profit, last four quarters (previous report) SEBNeg (20%) Swedbank 1% (27%) Nordea 2% (2%) Market shares of lending in per cent and number of inhabitants per country Source: The banks’ reports and the Riksbank No. inhabitants 1.3 million. No. inhabitants 2.3 million No. inhabitants 3.4 million.

GDP in the Baltic countries Annual percentage change Source: Reuters EcoWinChart 2:44

Unemployment in the Baltic countries Per cent Source: EurostatChart 2:48

Late payments in Estonia and Latvia Per cent of outstanding lending Sources: Eesti Pank and the Financial and Capital Market CommissionChart 2:55

Stress test To assess how less probable negative events might affect the banks’ resilience A much worse development than in the main scenario in the years Based on publicly-available information The banks are passive and take no measures

The stress test shows… The banks can cope with a much more negative development than in the main scenario The loan losses for the four major banks would amount to just over SEK 300 billion for those two years All of the banks would manage to meet the statutory Tier 1 capital ratio of 4 per cent

The banks’ Tier 1 capital ratios in the stress test Per cent Source: The RiksbankChart 3:22

Article Global recession and financial stability Illustrates a number of financial crises and the interplay between loan losses and real economic developments The importance of measures for both loan losses and the length of time taken before the countries recovered from the crisis

Assessment of stability Increased loan losses… …but good resilience The banks can withstand higher losses than in the main scenario Measures are an important condition for financial stability

The central banks’ balance sheets Index, January 2000=100 Sources: Reuters Ecowin and BloombergChart 1:1

Exposures to eastern Europe as a share of the home country’s GDP 2008 Per cent Source: The BIS and the IMFChart B5

Households’ liabilities and interest expenditure after tax Per cent of disposable income Sources: Statistics Sweden and the RiksbankChart 2:8

Households below the margin, impaired loans and potential loan losses Per cent Sources: Statistics Sweden and the RiksbankChart 2:9

Percentage of liabilities, financial assets and real assets held by indebted households in different income groups Per cent Chart 2:10 Sources: Statistics Sweden and the Riksbank

Breakdown of loan losses in 2009 and 2010 in the Riksbank’s main scenario Per cent Sources: The banks’ reports and the RiksbankChart 3:15

Real wages in the Baltic countries Annual percentage change Sources: Reuters EcoWin and the RiksbankChart 2:49

Households’ borrowing in the Baltic countries Percentage change from the previous month, calculated on an annual rate Sources: NCBs, Reuters EcoWin and the RiksbankChart 2:52

Corporate borrowing in the Baltic countries Percentage change from the previous month, calculated on an annual rate Sources: NCBs, Reuters EcoWin and the RiksbankChart 2:53

GDP growth during a number of crises Annual percentage change Source: Reuters EcoWinChart 3

Percentage of problem loans and GDP falls internationally during a selection of earlier crises. Per cent Source: Laeven, Luc and Valencia (2008),”Systemic Banking Crises: A New Database” IMF Working PaperChart 5