January-December 2016

Fourth quarter 2016

Equity and balances

Healthy new lending

During 2016 SEK has focused on raising awareness about itself and has seen, for SEK, a significant increase in new customers both in large and medium-sized companies. In the last quarter of the year, SEK’s new lending amounted to Skr 9.6 billion (4Q15: Skr 21.6 billion). For the full-year 2016, SEK posted lending of Skr 54.8 billion (2015: Skr 104.6 billion). The decline compared to the prior year pertains mainly to SEK’s financing of Brazil’s purchase of Saab’s Gripen aircraft in 2015 amounting to Skr 41.9 billion. During the full-year 2016, new lending to Swedish exporters amounted to Skr 18.1 billion (2015: Skr 19.3 billion) and new lending to exporters’ customers amounted to Skr 36.7 billion (2015: Skr 85.3 billion). At the start of the year, export credits, both at a fixed rate (CIRR) and the floating market rate, were mainly requested for exporters’ customers. During the latter part of 2016, increased demand was noted for working capital financing through direct lending to exporters. Export credits are often large transactions, which means that new lending for them often varies between quarters.

In 2016, SEK has focused on broadening its client base and product offerings. SEK has performed strongly in soliciting new clients and the customer base has had, for SEK, a significant increase. These new customers are in both of SEK’s customer groups: large and medium-sized companies. As a part of the cooperation with Team Sweden SEK is now established in Gothenburg together with the Swedish Export Credits Guarantee Board and Almi Företagspartner AB which enables closer contact with companies in the west of Sweden. Work is ongoing at Team Sweden with the other export promotion agencies and the joint effort to improve the competitiveness of Sweden’s export industry continue.

SEK’s markets for new lending 2016

New lending

1                         Of which Skr 0.1 billion (year-end 2015: Skr 0.9 billion) had not been disbursed at period end.

2                         Of which Skr 8.3 billion (year-end 2015: Skr 52.5 billion) had not been disbursed at period end.

Capacity for new lending remains healthy

2016 was a year marked by political turbulence and, consequently, volatile markets. Ahead of major events, such as the Brexit referendum in the UK and the presidential election in the US, SEK secured its liquidity position through good planning in terms of borrowings, which were invested in high-quality assets that have generally suffered no significant impact from the occasionally turbulent markets. During the year, SEK issued three benchmark bonds of USD 1.3, 1.5 and 1.2 billion, which were all well-received by the market. SEK has had favorable access to the international investor base in the public debt market and, in 2016, SEK continued to have a significant presence in the Japanese Uridashi market. Despite an overall decline in this market, SEK has maintained the same borrowing volumes as before. SEK is now the largest foreign issuer in Japan’s Uridashi market, which is due to a long-standing presence and a solid reputation.

SEK continues to maintain high liquidity for new lending and is well-prepared for consequences that political turbulence in the macro environment may have for the Swedish export sector financing possibilities.

SEK’s markets for new borrowing 2016

SEK´s borrowing

January–December 2016

Operating profit amounted to Skr 1,002 million (2015: Skr 1,535 million). Net profit amounted to Skr 780 million (2015: Skr 1,187 million).

Net interest revenues

Net interest revenues amounted to Skr 1,747 million (2015: Skr 1,662 million).  Borrowing costs decreased compared to last year, at the same time as average margin on interest-bearing assets increased as a result of somewhat higher lending margins. In addition, the average market interest rate slightly increased year-on-year. This was offset by a lower average volume of interest-bearing assets.

Net results of financial transactions

Net results of financial transactions amounted to Skr -110 million (2015: Skr 400 million), which was primarily due to unrealized losses in value attributable to currency swaps and basis spreads. This was offset by a positive impact from repurchases and early redemption of SEK’s own debt. During the previous year, the change in fair value of SEK’s debt, which originated from changes in SEK’s credit spread, made a positive contribution. Unrealized gains on financial instruments at fair value, which are included in hedges, also had a positive impact last year.

Operating expenses

The increase in other administrative expenses is explained by intensive development work on methods and processes for market risk measurement. This has led to development of IT systems with increased use of consultants. Furthermore, a larger proportion of this expenditure was expensed compared to previous year. The decrease in depreciation and impairment of non-financial assets was due to a Skr -55 million impairment of intangible assets taken in the previous year. There was no provision taken for the employee incentive scheme in 2016 (2015: Skr - million). However, a Skr 4 million  reversal of earlier provisions for the employee incentive scheme for 2015 was recorded in 2016 (2015: Skr 6 million).

The yield from the  scheme for employees is based on return on equity, and may not exceed two months’ salary. For 2016, the scheme covered all permanent employees with the exception of the CEO, other members of the executive management and employees working in risk and compliance functions.

Net credit losses

Net credit losses amounted to Skr -16 million (2015: Skr 36 million).  The year-on-year change was mainly attributable to the reversal in 2015 of Skr 70 million from the portfolio-based reserve (i.e., the reserve not attributable to a specific counterparty). The portfolio-based reserve amounted to Skr 170 million at year-end 2016 (year-end 2015: Skr 170 million).

Fourth quarter of 2016

Operating profit for the fourth quarter amounted to Skr 213 million (4Q15: Skr 342 million).  Net profit was Skr 166 million (4Q15: Skr 260 million).

Net interest revenues

Net interest revenues for the fourth quarter amounted to Skr 457 million (4Q15: Skr 428 million), an increase of 7 percent. The increase is mainly attributable to an increase in interest-bearing assets, due to appreciation of the USD, and a higher market interest rate during the period. The interest expense was also affected by higher market interest rates.

Net results of financial transactions

Net results of financial transactions for the fourth quarter of 2016 amounted to Skr -60 million (4Q15: Skr 159 million),

mainly due to unrealized losses attributable to currency swaps. During the fourth quarter of 2016, SEK adopted a new valuation method for derivatives. The new valuation method led to a negative impact on operating profit. Net results of financial transactions during the corresponding period in the previous year was mainly due to a positive result from early redemption of SEK’s own debt.

Operating expenses

The decrease in operating expenses compared to the same period the previous year is attributable to a Skr -55 million impairment of intangible assets taken in the fourth quarter of 2015.

Net credit losses

For the fourth quarter of 2016, net credit losses amounted to Skr -15 million (4Q15: Skr -33 million).

Statement of Financial Position

Total assets and liquidity investments

The increase in total assets was mainly due to increased liquidity investments since the beginning of the year. Liquidity investments have increased to ensure a healthy financial capacity in light of global concerns.

No significant change has taken place in the composition of SEK’s counterparty exposure, see Note 11. Total exposures amounted to Skr 340.7 billion on December 31, 2016 (year-end 2015: Skr 326.2 billion). This increase mainly is attributable to increased corporate exposures.

Liabilities and equity

As of December 31, 2016, the aggregate volume of available funds and shareholders’ equity exceeded the aggregate volume of loans outstanding and loans committed at all maturities. Accordingly, SEK considers all of its outstanding commitments to be covered through maturity.

In 2016, SEK had a credit facility in place with the Swedish National Debt Office of up to Skr 125 billion. To date, SEK has not utilized the credit facility. The credit facility can only be utilized for loans covered by the officially supported export credits system (CIRR). In December 2016, the Swedish Parliament confirmed that the credit facility will continue to be available in 2017 in an amount up to Skr 125 billion.

Capital adequacy

SEK has a strong capitalization, with a total capital ratio of 25.1 percent and healthy liquidity.

Dividend

The Board of Directors has resolved to propose at the Annual General Meeting, the payment of a dividend of Skr 234 million (2015: Skr 356 million).

Rating

Risk factors and the macro environment

Various risks arise as part of SEK’s operations. Our primary exposure is to credit risk, but we are also exposed to market, liquidity, refinancing, operational and sustainability risks. For

a more detailed description of SEK’s risk factors, refer to the Risk and Capital Management section in SEK’s 2015 Annual Report.

Global growth remains muted and the risk of new setbacks persists despite the recent strengthening of global growth. Relatively low interest rates entail a risk that the functionality of the bond market may decline with lower turnover and less liquidity, even though the general upturn in interest rates over the last few months has slightly mitigated this risk. Furthermore, low interest rates translate into greater risk of increased debt levels, rising asset prices and heightened financial risk taking. The presidential election in the US, Brexit and the forthcoming elections in Europe have increased political risk and could lead to increased volatility in the capital markets. Interest-rate margins, profitability, risk assumption, asset quality and capitalization could be adversely affected by these aforementioned factors, which risks the prospect of a less robust financial system. The annualized rate of Swedish GDP growth was 2.8 percent for the third quarter and the unemployment rate was 6.8 percent (November 2016). The consumer price index rose 1.7 percent on an annualized basis (December 2016) and the repo rate remained unchanged at negative 0.5 percent. According to Statistics Sweden (SCB), in the third quarter, Swedish exports grew 1.3 percent compared

to the prior quarter. Exports of goods rose 0.9 percent and exports of services increased 2.2 percent.

Financial targets

This condensed Year-end Report is presented in accordance with IAS 34, Interim Financial Reporting. The Group’s consolidated accounts have been prepared in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) together with the interpretations from IFRS Interpretations Committee (IFRS IC). The IFRS standards applied by SEK are all endorsed by the European Union (EU). The accounting also follows the additional standards imposed by the Annual Accounts Act for Credit Institutions and Securities Companies (1995:1559) and the regulation and general guidelines issued by the Swedish Financial Supervisory Authority, “Annual Reports in Credit Institutions and Securities Companies” (FFFS 2008:25). In addition to this, the supplementary accounting rules for groups (RFR 1) issued by the Swedish Financial Reporting Board have been applied. SEK also follows the state’s general guidelines regarding external reporting in accordance with its corporate governance policy and guidelines for state-owned companies.

The Consolidated Group’s and the Parent Company’s accounting policies, methods of computation and presentation are, in all material aspects, the same as those used for the 2015 annual financial statements, except for changes related to amendment in ÅRKL. Due to amendments in ÅRKL and FFFS 2008:25, memorandum items are now presented in Note 9 Pledged assets and contingent liabilities. Revaluations of defined benefit plans in the consolidated accounts are now presented in a separate reserve in total equity; reserve for defined benefit plans, instead of retained earnings. The change was

applied retroactively from the adoption of IAS19R. For financial guarantees documented as derivative agreements, a voluntary change in accounting policy has been made during the fourth quarter of 2016. They are now accounted for as derivatives in line with current accounting practice and measured at fair value compared to earlier as guarantees at amortized cost. The effect of the accounting policy change is not material for current or prior period.

A new restricted reserve was established in the Parent Company in accordance with ÅRKL, Capitalized development costs reserve, for costs of development accounted for as intangible assets. Other changes in accounting standards have not had any material impact on accounting during the year. The Condensed Year-End Report does not include all the disclosures required in the annual financial statements, and should be read in conjunction with the Company’s annual financial statements as of December 31, 2015.

Future changes to IFRS

IFRS 9 Financial instruments covering classification and measurement, impairment and general hedge accounting was adopted by IASB in 2014. The adoption of IFRS 9 becomes mandatorily effective beginning January 1, 2018, with early adoption permitted. In 2015, SEK set up a project with members from Risk, Credit, Lending, Finance, Accounting and IT to prepare for IFRS 9 implementation. The project has entered the implementation phase, with a parallel run planned for the second half of 2017, and adoption in 2018. From a classification and measurement perspective SEK anticipates a limited impact on SEK’s lending portfolio, as most of it will be measured at amortized cost under IFRS 9. Financial assets and liabilities at fair value through profit or loss are expected to continue to be measured at fair value through profit or loss. The majority of debt securities classified as available for sale under IAS 39 are expected to be measured at amortized cost or fair value through other comprehensive income. Some securities, however, will be classified at fair value through profit or loss, either because of their contractual cash flow characteristics or the business model within which they are held. For financial liabilities the gains or losses arising from SEK’s own credit risk relating to liabilities designated as fair value through profit or loss will be presented in other comprehensive income, which probably

will decrease the profit or loss volatility. The new general rules on hedge accounting give the opportunity to improve and simplify hedge accounting, and the changes will primarily have an effect on the administrative process for hedge accounting. SEK plans for an adoption of IFRS 9 hedge accounting from January 1, 2018. IFRS 9 will also fundamentally change the loan loss impairment methodology, by replacing IAS 39’s incurred loss approach with a forward-looking expected loss approach, which is expected to be the greatest impact from IFRS 9. IFRS 9 requires an allowance for expected losses for all financial assets measured at amortized cost or fair value through other comprehensive income, together with loan commitments and financial guarantee contracts. This is a change from IAS 39 where the allowance for incurred but not yet identified impairment does not include off-balance sheet items or financial assets classified as available for sale. The allowance is based on the expected credit losses associated with the probability of default in the next twelve months unless there has been a significant increase in credit risk since origination, in which case, the allowance is based on the probability of default over the life of the asset.

SEK is in the process of evaluating the effects from IFRS 9, and in line with the parameters established in accordance with IFRS 9, the simulated expected loss amount will be closer to the expected loss amount in accordance to IFRS 9. For now, no conclusions have been reached as to any effects on SEK’s financial statements, capital adequacy or large exposures. The magnitude of the effect on capital adequacy, will depend, among other things, on whether the capital rules are amended to reflect IFRS 9.

The IASB has also adopted IFRS 15 Revenue from Contracts with Customers, which is applicable from January 1, 2018. IFRS 15 is not applicable for financial instruments or leasing agreements.  IFRS 15 is not expected to have any material effects on SEK’s financial statements, capital adequacy or large exposures.

There are no other IFRS or IFRS IC interpretations that are not yet applicable that are expected to have a material impact on SEK’s financial statements, capital adequacy or large exposures.

SEK’s general business model is to hold financial instruments measured at fair value to maturity. The net fair value changes that occur, mainly related to changes in credit spreads on SEK’s own debt and basis-spreads, and recognized in net results of financial transactions, which could be significant in a single reporting period, will not affect earnings over time since the lifetime cumulative changes in the instrument’s market value will net to zero if it is held to maturity and is a performing instrument. When financial instruments are not held to

maturity, realized gains and losses can occur, as in the cases when SEK repurchases its own debt, or if lending is repaid early and the related hedging instruments are terminated prematurely.

These effects are presented under “Derecognicition of financial instruments not measured at fair value through profit or loss”, “Financial assets or liabilities at fair value through profit or loss” and “Financial instruments under fair-value hedge accounting”.