January-June 2019

(Compared to January-June 2018)

·         Net interest income Skr 850 million (1H18: Skr 728 million)

·         Operating profit Skr 680 million (1H18: Skr 416 million)

·         Net profit Skr 536 million (1H18: Skr 312 million)

·         New lending Skr 45.4 billion (1H18: Skr 26.6 billion)

·         Basic and diluted earnings per share Skr 134 (1H18: Skr 78)

·         After-tax return on equity 5.8 percent (1H18: 3.5 percent)

Second quarter of 2019

(Compared to second quarter of 2018)

·         Net interest income Skr 455 million (2Q18: Skr 346 million)

·         Operating profit Skr 328 million (2Q18: Skr 236 million)

·         Net profit Skr 262 million (2Q18: Skr 176 million)

·         New lending Skr 32.1 billion (2Q18: Skr 13.6 billion)

·         Basic and diluted earnings per share Skr 66 (2Q18: Skr 44)

·         After-tax return on equity 5.7 percent (2Q18: 3.9 percent)

Equity and balances

(Compared to December 31, 2018)

·         Total capital ratio 19.9 percent (year-end 2018: 20.1 percent)

·         Total assets Skr 314.8 billion (year-end 2018: Skr 302.0 billion)

·         Loans, outstanding and undisbursed Skr 276.4 billion (year-end 2018: Skr 260.0 billion)

High activity levels and many new clients

High activity levels during the second quarter led to increases in lending volume and the number of new clients. Demand from major corporations was primarily for working capital and export credits, while demand from medium-sized companies was mainly for working capital and trade finance, which enabled longer credit periods for the exporters’ customers abroad. In terms of volume, the U.S was the biggest market for new lending during the quarter.

SEK aims to be a relevant option for more Swedish exporters and our recruitment of new clients has been successful. As from year-end, SEK has increased the number of clients by 12 percent. Our focus on medium-sized companies was the main factor in generating business with new clients. SEK has also broadened its business with many existing clients who now utilize a larger portion of the company’s offering.

New lending

1       Of which Skr 0.1 billion (1H18: Skr 1.2 billion; year-end 2018: Skr 0.0 billion) had not been disbursed at period end.

2       Of which Skr 16.0 billion (1H18: Skr 2.9 billion; year-end 2018: Skr 5.1 billion) had not been disbursed at period end.

Lowered borrowing cost

During the second quarter, SEK also achieved a lower borrowing cost compared to the prior year. The company issued a two-year, fixed interest rate benchmark bond and, during the second quarter, issued short-term floating interest rate bonds in response to high market demand, which has resulted in a decrease in the tenors for borrowing. Moreover, SEK has increased borrowing diversification in terms of instruments and currencies. We continue to retain a high market share in the Japanese bond market. SEK continues to have high liquidity for new lending and is well prepared to meet the future financing needs of the Swedish export industry.

SEK’s borrowing

First six months of 2019

Operating profit amounted to Skr 680 million (1H18: Skr 416 million). Net profit amounted to Skr 536 million (1H18: Skr 312 million). The increase compared to the same period in the previous year was due to increased Net interest income and Net results of financial transactions.

Net interest income

Net interest income amounted to Skr 850 million (1H18: Skr 728 million), an increase of 17 percent compared to the same period in the previous year. Net interest income was affected positively by Skr 48 million due to a lower resolution fee that amounted to a total of Skr 85 million (1H18: Skr 133 million), which SEK is required to pay to a fund to support the recovery of credit institutions. In 2019, the resolution fee amounts to 0.09 percent of the calculation basis (2018: 0.125 percent), which essentially corresponds to SEK’s debt financed assets less the CIRR loans. In 2020, the resolution fee will be 0.05 percent. A weak Swedish krona and a higher Swedish policy rate (the repo rate) together with slight volume growth have also positively impacted net interest income.

The table below shows average interest-bearing assets and liabilities.

1       Since 2019, SEK has chosen to exclude cash collateral under the security agreements for derivative contracts from liquidity investments. Comparative figures  have been adjusted.

Net results of financial transactions

Net results of financial transactions amounted to Skr 155 million (1H18: Skr -32 million). The result was mainly due to unrealized changes in fair value of assets in the liquidity portfolio and derivatives and improvements in the method of valuation of derivatives.

Operating expenses

Operating expenses increased 3 percent compared to the same period in the previous year, due to increased personnel expenses and depreciation and impairment of non-financial assets. In 2019, a provision of Skr 5 million was made in the system for individual variable remuneration (1H18: Skr – million).

Due to IFRS 16 Leases, all leases are to be recognized as assets subject to depreciation, and therefore, operating lease expense has been replaced by an expense for depreciation of the lease asset. Due to this change, Skr 16 million is now reported as a depreciation of the lease asset instead of a lease expense under other administrative expenses.

Net credit losses

Net credit losses amounted to Skr -4 million (1H18: recovery Skr 30 million). The net credit losses were attributable to new credits entering stage 3, which were offset by the reversal of the excess of previously recorded reserves for established losses above the realized loss. Loss allowances as of June 30, 2019 amounted to Skr -122 million compared to Skr -139 million as of December 31, 2018 of which exposures in stage 3 amounted to Skr -71 million (year-end 2018: Skr -84 million). The reserve was affected negatively by exchange rate effects.

Taxes

Tax costs amounted to Skr -144 million (1H18: Skr -104 million), and the effective tax rate amounted to 21.2 percent (1H18: 25.0 percent). The decline was due to a redemption in November 2018 of subordinated debt which has non-deductible interest expenses. The nominal tax rate for 2019 is 21.4 percent (2018: 22.0 percent).

Other comprehensive income (OCI)

Other comprehensive income before tax amounted to Skr 19 million (1H18: Skr 141 million), mainly due to positive changes in own credit risk, which were offset by the revaluation of defined benefit plans. The hedge reserve related to cash-flow hedges has been redeemed and reclassified to profit or loss during the first half of 2019, which had a negative effect on OCI.

April-June 2019

Operating profit for the second quarter amounted to Skr 328 million (2Q18: Skr 236 million). Net profit amounted to Skr 262 million (2Q18: Skr 176 million). The increase compared to the same period in the previous year was mainly due to increased Net interest income.

Net interest income

Net interest income for the second quarter amounted to Skr 455 million (2Q18: Skr 346 million), an increase of 32 percent compared to the same period in the previous year. Net interest income was affected positively by Skr 19 million due to a lower resolution fee that amounted to a total of Skr 44 million (2Q18: Skr 63 million).

A weak Swedish krona and a higher repo rate, together with slight volume growth, have also positively impacted Net interest income.

The table below shows average interest-bearing assets and liabilities.

1       Since 2019, SEK has chosen to exclude cash collateral under the security agreements for derivative contracts from liquidity investments. Comparative figures  have been adjusted.

Net results of financial transactions

Net results of financial transactions for the second quarter amounted to Skr 50 million (2Q18: Skr 27 million). The result was mainly due to unrealized changes in fair value of derivatives and improvements in the method of valuation.

Operating expenses

Operating expenses increased 3 percent compared to the same period in the previous year, due to increased personnel expenses and depreciation and impairment of non-financial assets. For the second quarter of 2019, a provision of Skr 3 million was made for the individual variable remuneration in the system (2Q18: Skr - million). The increase in personnel expenses was also attributable to other items affecting comparability during the previous year.

Net credit losses

Net credit losses for the second quarter amounted to Skr -13 million (2Q18: Skr 25 million). The net credit losses during the second quarter were attributable to new credits entering stage 3 and changed risk factors in accordance with IFRS 9, which were offset by the reversal of the excess of previously recorded reserves for established losses above the realized loss. Loss allowances as of June 30, 2019 amounted to Skr -122 million compared to Skr -139 million as of December 31, 2018 of which exposures in stage 3 amounted to Skr -71 million (year-end 2018: Skr -84 million).  The reserve was affected negatively by exchange rate effects.

Taxes

Tax costs amounted to Skr -66 million (2Q18: Skr -60 million), and the effective tax rate amounted 20.4 percent (2Q18: 25.4 percent). The nominal tax rate for 2019 is 21.4 percent (2018: 22.0 percent).

Other comprehensive income (OCI)

Other comprehensive income before tax amounted to Skr 26 million (2Q18: Skr 87 million), mainly due to positive changes in own credit risk, which were offset by the revaluation of defined benefit plans.

Statement of Financial Position

Total assets and liquidity investments

Total assets increased compared to the end of 2018, mainly due to exchange rate effects and increased lending volume.

1       Since 2019, SEK has chosen to exclude cash collateral under the security agreements for derivative contracts from liquidity investments. Comparative figures  have been adjusted.

Total exposures amounted to Skr 343.9 billion on June 30, 2019 (year-end 2018: Skr 337.4 billion). SEK’s exposures to most counterparties have increased, but exposures to central governments and regional governments have decreased since year-end 2018. See Note 10.

Liabilities and equity

As of June 30, 2019, 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 2019, SEK has 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 CIRR and should be a reserve when funding markets are not available to SEK.

Capital adequacy

As of June 30, 2019, SEK’s total Own funds amounted to Skr 17,910 million (year-end 2018: Skr 17,531 million). The total capital ratio was 19.9 percent (year-end 2018: 20.1 percent). SEK maintains strong capitalization in relation to the capital target, with a total capital ratio that exceeds the total capital adequacy requirement of Finansinspektionen (the Swedish FSA) by 3.5 percentage points, and has healthy liquidity.

1   During the second quarter of 2019, SEK has chosen to change its methodology for calculating the NSFR.

Rating

Other events

The company held an extraordinary general meeting on June 17, 2019, at which the meeting approved the Board of Director’s proposal to set SEK’s total capital ratio to exceed the Swedish FSA’s requirement by 2 to 4 percentage points and to exceed the requirement for Common Equity Tier 1 capital ratio by at least 4 percentage points.

SEK has recruited Mr. Peter Svensén as Chief Risk Officer (CRO). Peter Svensén joins SEK from the state-owned bank SBAB where he currently holds the same position. Mr. Svensén will take up his new position at SEK no later than October 28, 2019. SEK has also announced that Anna-Lena Söderlund will take the role of Acting Chief Risk Officer effective August 21, 2019.  Ms. Söderlund is expected to serve as Acting Chief Risk Officer until Mr. Svensén takes his new position as CRO.  Stefan Friberg previously served as CRO until January 1, 2019, when he was appointed Chief Financial Officer. Since that date, Irina Slinko has been serving as Acting Chief Risk Officer.

Risk factors and the macro environment

Various risks arise as part of SEK’s operations, which primarily consist of credit risks, but also include market, liquidity, refinancing, operational and sustainability risks. For a more detailed description of these risks, refer to the separate risk report Capital Adequacy and Risk Management Report — Pillar 3 2018 and Note 30 in SEK’s 2018 Annual Report on Form 20-F. According to Statistics Sweden, the annualized rate of Swedish GDP growth was 2.1 percent in the first quarter of 2019 and the unemployment rate was 6.4 percent as of May 2019. The consumer price index rose 2.2 percent on an annualized basis in May 2019 and the repo rate remained at negative 0.25 percent. In the first quarter of 2019, Swedish exports grew 0.8 percent compared with the prior quarter. The Swedish economy has continued to post a healthy growth rate, albeit at a somewhat diminished pace. Public finances remain extremely strong. Growth in world trade has slowed during the year. In June 2019, the World Bank revised its growth projections downward. Global macro indicators have weakened (even if the US economy is still performing relatively strongly), and expectations are rising for a global economic slowdown as is concern regarding trade and geopolitical risks. The negotiations for the UK’s withdrawal from the EU, which still remains unresolved, and the trade conflict between the US and China continue to generate global uncertainty.

This condensed interim report is presented in accordance with International Accounting Standard (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) (ÅRKL) and the regulation and general guidelines issued by Finansinspektionen (the Swedish FSA), “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 accounting policies, methods of computation and presentation of the Consolidated Group and the Parent Company are, in all material aspects, the same as those used for the 2018 annual financial statements, except for the application of the new and amended standards from IASB that entered into force beginning January 1, 2019 and the amendments to FFFS 2008:25. This interim 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, 2018.

As of June 15, 2019, FFFS 2008:25 was amended to include new disclosure requirements for annual and interim reports related to capital requirements and Own funds. The new disclosure requirements are included in Note 9 Capital adequacy.

As of January 1, 2019, SEK began applying IFRS 16 Leases to the Consolidated Group and the Parent Company. The standard replaces IAS 17 and related interpretations with changes for lessees. The standard became applicable January 1, 2019. All leases (with the exception of short-term and low-value leases) are to be recognized as right-of-use assets subject to depreciation with corresponding liabilities in the lessee’s balance sheet, and the lease payments are to be recognized as repayments and interest expenses. As a result, the straight-line operating lease expense is replaced by an expense for depreciation of the right-of-use lease assets and an interest expense on the lease liability.

Lessor accounting remains essentially unchanged. IFRS 16 has primarily affected SEK’s recognition of operational leases for rental premises, as the lease definition and lease criteria have not resulted in other agreements being regarded as leases as compared to IAS 17. SEK has also decided to apply the exceptions for short-term and low-value leases. The right-of-use asset is accounted for under Tangible and intangible assets and the leasing liability is accounted for under Other liabilities. The lease term is determined as the non-cancellable period of a lease, together with any extension or termination options when SEK is reasonably certain to exercise them. The future cash flows are discounted using SEK’s incremental borrowing rate.

SEK applied the simplified approach during the transition to IFRS 16, and measured the right-of-use asset at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to the lease. The standard imposes new disclosure requirements for lessees, which will be presented in the 2019 annual financial statements. Right-of-use assets, leasing liabilities, depreciations and interest expenses are not expected to have any material impact on SEK’s financial statements or capital adequacy or large exposure ratios.

The table shows the transition effect of IFRS 16 reconciling the closing balances under IAS 17 as of December 31, 2018, with the opening balances under IFRS 16 as of January 1, 2019.

Other changes from IASB have not had any material impact on SEK’s financial reporting for 2019 and 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 exposure ratios.