DBRS: SEB Reports Strong Q4; Customer Growth Continues

Summary:
•Strong quarterly performance with revenues up 7% and net profit up 12% QoQ.
•Income contribution from new clients continues to increase.
•DBRS rates SEB at AA (low) with a Stable trend for Senior Unsecured Debt & Deposits.

DBRS Ratings Limited (DBRS) views Skandinaviska Enskilda Banken AB’s (SEB or the Bank) Q413 results as strong. Net profit increased 12% quarter-on-quarter (QoQ) driven by a 7% increase in revenues and a smaller tax charge. Expenses were up 4% in the quarter; this was mainly a result of IT development and customer-oriented activities, however, on a like-for-like basis expenses were down 2% in 2013 compared to 2012. The Bank has now extended to 2015 its SEK 22.5 billion cost cap, and this, together with the solid income generation, should lead to consistent earnings over the next two years.

DBRS notes positively that, despite the muted economic environment in the Nordic region, the Bank reported a 4% rise in both net interest income (NII) and in fee and commission income. The Q4 rise in NII was driven by both improved volume and margins, and compared to Q4 2012 higher volumes mitigated to a certain degree the lower interest rates. The Bank has been successful in recent years in attracting new corporate clients and this is now being reflected in the income generation. In 2013 new clients contributed 10% of income in the Large Corporates and Financial Institutions division, up from 2% in 2010. DBRS views this positively. The Bank’s asset quality remained stable and the capital position continues to improve.

In recent years the Bank’s asset quality has improved as the Baltic region has recovered and the core Swedish book has remained strong. In Q413 these trends continued with the Bank reporting a further decrease in the level of impaired loans, across the different business lines and geographies. As of end-2013, non-performing loans accounted for 0.7% of total lending, down from 1% at end-2012 and 1.4% at end-2011.

As of end-2013 the Bank reported a Common Equity Tier 1 ratio (according to Basel 3) of 15%, up from 13.1% at end-2012 (based on SEB's interpretation of future regulation). The Swedish authorities intend to increase the risk weight floor for residential mortgages, within the Pillar 2 calculation to 25%, from the current 15%. DBRS notes that if this was included in the Pillar 1 calculation, SEB would still maintain a strong Basel 3 Common Equity Tier 1 ratio. As a result, and due to the Bank’s internal capital generation DBRS views the Bank as well placed to manage the impact of the evolving regulatory environment.

DBRS rates SEB at AA (low) with a Stable trend for Senior Unsecured Debt & Deposits.

Notes:
All figures are in Swedish krona (SEK) unless otherwise noted.

[Amended on December 23th, 2014 to remove unnecessary disclosures.]