First quarter of 2020

(Compared to the first quarter of 2019)

·           Net interest income Skr 405 million (3M19: Skr 395 million)

·           Operating profit Skr 157 million (3M19: Skr 352 million)

·           Net profit Skr 123 million (3M19: Skr 274 million)

·           New lending Skr 33.3 billion (3M19: Skr 13.3 billion)

·           Basic and diluted earnings per share Skr 31 (3M19: Skr 69)

·           After-tax return on equity 2.6 percent (3M19: 5.9 percent)

Equity and balances

(Compared to December 31, 2019)

·           Total capital ratio 19.9 percent
(year-end 2019: 20.6 percent)

·           Total assets Skr 365.9 billion
(year-end 2019: Skr 317.3 billion)

·           Loans, outstanding and undisbursed Skr 290.2 billion
(year-end 2019: Skr 269.7 billion)

Substantial increase in new lending

The effects of the COVID-19, the novel strain of coronavirus (“COVID-19”), pandemic are noticeable in SEK’s business by the substantial increase in demand for financing. Around two thirds of SEK’s total lending during the quarter took place in March. SEK has completed two major export credits in partnership with the Swedish Export Credits Guarantee Board and international banks. One credit was granted to a borrower in India and the other to a borrower in Tanzania. Furthermore, during this period, working capital finance to Swedish exporters and their suppliers has been in the greatest demand. Business in this area accelerated rapidly in conjunction with the spread of COVID-19 across Europe. Most of this business has tenors of less than two years and is primarily intended to strengthen clients’ liquidity.

In an unprecedented global chain of events, with difficult-to-understand consequences for the export industry, credit risks in the banking system and credit pricing are difficult to assess. The measures implemented by the Swedish government to strengthen the Swedish export credit system through new guarantee facilities and liquidity to the banking system are crucial for ensuring the long-term competitiveness of Sweden’s export industry.

A further effect of the COVID-19 pandemic may be that our clients may request deferral of payments or other relief under their loan agreements. SEK has high standards of know your customer procedures in place and long relationships with most of its clients, and is motivated to identify solutions to the challenges presented.

New lending

1      Of which Skr 1.1 billion (3M19: 0.4 billion; year-end 2019: Skr 1.8 billion) had not been disbursed at period end.

2      Of which Skr 0.4 billion (3M19: 1.0 billion; year-end 2019: Skr 16.3 billion) had not been disbursed at period end.

Record size borrowing transaction

In the first quarter, SEK launched two public offerings, a USD 0.6 billion two-year fixed rate bond in January and a USD 1.75 billion three-year fixed rate benchmark bond, the largest issuance in SEK’s history, at the end of March. Toward the end of the quarter, the cost of new borrowing increased in the midst of the COVID-19 pandemic. The share of structured debt was lower year-on-year, while diversification of borrowing between different markets remained healthy.

During the first quarter, SEK actively cooperated with, among others, the Swedish National Debt Office and the Swedish Central Bank to ensure it had sufficient liquidity to be able to meet the increased financing needs of Swedish exporters. SEK utilized the credit facility it has with the Swedish National Debt Office and borrowed Skr 10 billion as an active measure to meet the export companies greatly increased need for financing.

SEK’s borrowing

January-March 2020

Operating profit amounted to Skr 157 million (3M19: Skr 352 million). Net profit amounted to Skr 123 million (3M19: Skr 274 million). The decrease compared to the same period in the previous year was due to lower net results of financial transactions, which was affected negatively by unrealized changes in market values, in addition to an increase in the provision for expected credit losses.

Net interest income

Net interest income amounted to Skr 405 million (3M19: Skr 395 million), an increase of 3 percent compared to the same period in the previous year. Net interest income increased by Skr 15 million due to a lower resolution fee that amounted to a total of Skr 26 million (3M19: Skr 41 million), which SEK is required to pay to a fund to support the recovery of credit institutions. In 2020, the resolution fee amounts to 0.05 percent of the calculation basis (2019: 0.09 percent), which essentially corresponds to SEK’s debt financed assets less the CIRR loans.

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

Net results of financial transactions

Net results of financial transactions amounted to Skr -67 million (3M19: Skr 105 million). The result was mainly due to a decrease in valuation of bonds in the liquidity investment portfolios, increased SEK credit value adjustments (CVA) as the market price for counterparty risk increased, and increased overnight index swap (OIS) adjustments due to wider spreads between Fed-funds and 3 month USD LIBOR.

Operating expenses

Operating expenses increased 3 percent compared to the same period in the previous year, which was mainly due to an increase in other administrative expenses. No provision was made for the individual variable remuneration program (3M19: Skr 3 million).

Net credit losses

Net credit losses amounted to Skr -24 million (3M19: Skr 9 million) and consist of increased provisions for expected credit losses. Credit losses in the first quarter of 2020 were attributable to market conditions in the wake of the COVID-19 pandemic. Among other items, SEK has noted an increase in stage 2 expected credit losses. During the first quarter, SEK made a general adjustment to expected credit losses calculated pursuant to IFRS 9 as of March 31, 2020. The downturn SEK is currently experiencing in the global economy due to the pandemic is more extreme than the one used in the quantitative expected credit loss model, meaning that the previous calculations no longer reflect the losses SEK can expect. A risk adjustment has been made for companies in sectors deemed vulnerable and which lack a high credit rating.

Loss allowances as of March 31, 2020 amounted to Skr -158 million compared to Skr -128 million as of December 31, 2019, of which exposures in stage 3 amounted to Skr -68 million (year-end 2019: Skr -64 million). SEK had no new stage 3 credits during the period. The reserve was affected negatively by exchange rate effects.

Taxes

Tax costs amounted to Skr 34 million (3M19: Skr 78 million), and the effective tax rate amounted to 21.4 percent (3M19: 22.1 percent).

Other comprehensive income (OCI)

Other comprehensive income before tax amounted to Skr 102 million (3M19: Skr -7 million), mainly due to a positive result related to changes in own credit risk, which was offset by a negative result related to the revaluation of defined benefit plans.

Statement of Financial Position

Total assets and liquidity investments

Total assets increased compared to the end of 2019, mainly driven by increased lending volume and increased lending capacity due to the COVID-19 pandemic. During the period, SEK has had a substantial increase in demand for financing from existing and new clients, which has also led to an increase in committed loans.

Total net exposures amounted to Skr 370.4 billion on March 31, 2020 (year-end 2019: Skr 347.5 billion). SEK’s exposures to most counterparties have increased, but exposures to regional governments, public sector entities and financial institutions have decreased since year-end 2019. See Note 10.

Liabilities and equity

As of March 31, 2020, 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.

SEK has a credit facility in place with the Swedish National Debt Office of up to Skr 125 billion. To ensure coverage of the increased expected demand from clients within the CIRR framework, SEK utilized Skr 10 billion from the facility during March. The credit facility can only be utilized for loans covered by the CIRR-system and is intended as a reserve when funding markets are not available to SEK. For a description of proposed changes to the terms of the credit facility, see “Other events”.

Capital adequacy

As of March 31, 2020, SEK’s total own funds amounted to Skr 18.7 billion (year-end 2019: Skr 18.3 billion). The total capital ratio was 19.9 percent (year-end 2019: 20.6 percent), representing a margin of 4.9 percentage points above the requirement of 15.0 percent from Finansinspektionen (the Swedish FSA).

The corresponding Common Equity Tier 1 ­capital­ requirement was 10.1 percent. Given that SEK’s own funds are comprised solely of Common Equity Tier 1 capital, this represents a margin of 9.8 percentage points above the requirement. Overall, SEK is strongly capitalized and has healthy liquidity.

1      In the first quarter of 2020, SEK has changed its methodology for calculating LCR and NSFR as an adaptation to future regulatory requirements.

Rating

Other events

Due to the substantial disruption of the financial system and the negative effects for Sweden’s export industry that the COVID-19 pandemic has had, SEK and its owner have implemented two measures, with the aim to strengthen SEK’s lending capacity and thus provide the company with better prerequisites to support Swedish exporters. The measures consist of a resolution passed at the annual general meeting on March 26, 2020, whereby it was resolved that no dividend would be paid for 2019, and a proposal from the Swedish government to the Swedish parliament to increase SEK’s credit facility with the Swedish National Debt Office from Skr 125 billion to Skr 200 billion, and to allow the credit facility to also be used to provide commercial credits to Swedish exporters in addition to CIRR loans.

The macro environment

According to Statistics Sweden, the annualized rate of Swedish GDP growth was 0.8 percent in the fourth quarter of 2019 and the unemployment rate was 7.6 percent as of February 2020. The consumer price index rose 1.0 percent on an annualized basis in February and the repo rate remained unchanged at zero percent. In the fourth quarter of 2019, Swedish exports decreased 1.7 percent compared with the previous quarter.

Growth in global trade slowed in 2019 and at the start of 2020. However, these downward revisions are almost irrelevant given the monumental downturn we are now experiencing in global growth, trade and essentially all other indicators as a result of the COVID-19 pandemic. This crisis overshadows everything else and means that macro figures, which are by definition of a historic nature, are of considerably less significance. Moreover, previous concerns such as the withdrawal of the United Kingdom (“UK”) from the European Union (“EU”) (commonly referred to as “Brexit”), trade conflicts and geopolitical risks, are overshadowed by the COVID-19 pandemic and related containment measures, including the effects of the closure of the majority of societal functions worldwide. The current strong state of Sweden’s public finances, with low public debt, is advantageous in terms of the possibility to use fiscal stimuli. The UK officially left the EU on January 31, 2020. SEK has ensured that all of its agreements and limits with the banks the company does business with continue to apply.

The COVID-19 pandemic will probably have a negative impact on Swedish exports and could therefore also adversely affect SEK’s business volumes. It is however possible that business volumes remain unchanged or even increase, if the conditions arise in which the general banking system is unable to offer Sweden’s exporters the borrowings they require.

Further, SEK has assets and liabilities which are accounted for at fair value. Increased volatility in prices on the financial markets might increase the volatility in SEK’s unrealized results.

Risk factors

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 2019 and Note 30 to the financial statements included in SEK’s 2019 Annual Report on Form 20-F.

The following risk factors supplement the “Risk Factors” section in SEK’s 2019 Annual Report on Form 20-F.

COVID-19 could have an adverse effect on SEK’s business.

While the direct and indirect impact of the global COVID-19 outbreak remains uncertain, a number of central banks and governments have announced financial stimulus packages in anticipation of a very significant negative impact on gross domestic product during 2020. Concerns remain as to whether these policy tools will counter anticipated macro-economic risks. A prolongation of the outbreak could significantly adversely affect global economic growth, and impact business operations across the global economy generally, both as a result of weakened economic activity and in terms of the health and wellbeing of employees being affected. Such weakening of the economy and or operations could have a material adverse impact on the financial performance or operations of counterparties to SEK, and correspondingly impact SEK, or the cost of funding for SEK, which could have an adverse impact on SEK’s business, financial condition, results of operations and liquidity.

Disruptions in the financial markets or economic recessions, including as a result of geopolitical instability and as a result of the recent global outbreak of COVID-19, may have an adverse effect on SEK’s financial performance.

SEK’s business and earnings are affected by general business, economic and market conditions, especially within Sweden and Europe. Uncertainties remain concerning the outlook and the future economic environment related to recent events in those regions, such as the impacts of the global outbreak of COVID-19, a continuing weak economic outlook in certain European countries and the uncertainty surrounding the economic effect of the withdrawal of the UK from the EU on January 31, 2020. Although SEK does not have operations in the UK, a large portion of SEK’s borrowings are arranged through banks in the UK. If SEK fails to maintain these agreements on favorable terms following Brexit or the agreements completed with such UK banks’ EU-based affiliates cannot be utilized effectively, SEK’s business and financial performance will suffer. Uncertainties remain as to what, if any, impact a new regulatory regime in the UK and in the EU will have on these agreements.

Additionally, even in the absence of slow economic growth or recessions, other economic circumstances — including, but not limited to, volatility in energy prices, contractions in infrastructure spending, fluctuations in market interest or exchange rates, and concerns over the financial health of sovereign governments and their instrumentalities — may have negative consequences for the companies and industries that the Group provides financing to (as well as the financial condition of SEK’s financial counterparties) and could, in addition to the other factors cited above, have material adverse effects on the Group’s business prospects, financial condition or ability to fulfill its debt obligations.

Disruptions in the financial markets or economic recessions (including as a result of the recent global outbreak of COVID-19) may negatively affect the credit quality of borrowers and cause risk to other counterparties, which may cause SEK to incur credit losses or affect the value of its assets.

Risks arising from the credit quality of borrowers and counterparties and the recoverability of loans and amounts due from counterparties in derivative transactions are inherent in SEK’s businesses. Consequently, SEK may incur credit losses or delinquency in debt repayments even in normal economic circumstances. Financial market disruptions or economic recessions (including as a result of the recent global outbreak of COVID-19) may further affect SEK’s customers and counterparties, negatively affecting their ability to fulfill their obligations. Market and economic disruptions may affect, among other things, business and consumer spending, bankruptcy rates and asset prices, creating a greater likelihood of impact on an increased number of SEK’s customers’ or counterparties’ credit demand or that they may become delinquent in their loans or other obligations to SEK. For example, following the financial crisis, SEK was forced to write down the value of some of its assets as a result of disruptions in the financial markets. Such disruptions may affect the recoverability and value of SEK’s assets and may necessitate an increase in SEK’s provisions for delinquent and defaulted debt and other provisions, which could in turn have a material adverse effect on SEK’s business and/or its ability to repay its debts.

Reduced access to international capital markets for the financing of SEK’s operations, or less favorable financing terms, may negatively impact SEK’s profitability and its ability to fulfill its obligations.

In order to finance its operations, SEK is dependent on the international capital markets, where it competes with other issuers to obtain financing. Although SEK has been able to successfully finance its operations to date, factors outside SEK’s control may have material adverse effects on the Group’s continued ability to obtain such financing or could cause the cost of such financing to increase. As a result of the recent global outbreak of COVID-19, global markets are extremely turbulent and volatile. For example, as a result of the financial crisis in 2008, SEK experienced higher costs of funding through the international capital markets, as did other issuers during this time. In 2008, SEK was able to offset the increased cost of funding by increasing the margins on its lending, but currently and in the future, that might not be possible, which could result in more expensive   access to the capital markets, which could have a material adverse effect on SEK’s results of operations.

A key factor affecting the cost and availability of financing is SEK’s credit rating. Although the Group currently has favorable credit ratings from various credit rating agencies, those credit ratings depend on many factors, some of which are outside of SEK’s control. Significant factors in determining SEK’s credit ratings or that otherwise could affect its ability to raise financing include its ownership structure, asset quality, liquidity profile, short- and long-term financial prospects, risk exposures, capital ratios, and prudential measures, as well as government support and SEK’s public policy role. Notwithstanding regular confirmation from SEK’s owner (the Swedish State) of its continued support for SEK’s current public policy role, there is a risk that this view could change in the future. Deterioration in any one of these factors or in any combination of these factors may lead rating agencies to downgrade SEK’s credit ratings. If the Group were to experience a downgrade in its credit ratings, it would likely become necessary to offer increased interest margins in the capital markets in order to obtain financing, which would likely substantially lower the Group’s profit margins and earnings, harm its overall liquidity and negatively affect its business and its ability to fulfill its obligations.

SEK may experience negative changes in the value of its assets or liabilities and may incur other losses related to volatile and illiquid market conditions.

Market volatility, illiquid market conditions and disruptions in the credit markets, including the current conditions as a result of the global outbreak of COVID-19, make it difficult to value certain of SEK’s assets and liabilities during certain periods. For example, SEK is exposed to changes in fair value due to changes in credit spreads on its own debt and due to changes in currency basis spread, which it has not hedged, and such changes in fair value can have a negative impact on SEK’s results as reported under IFRS. Subsequent valuations, in light of factors then prevailing, may result in significant changes in the value of such assets or liabilities in future periods. In addition, at the time of any sale of any such assets, the prices SEK ultimately realizes will depend on the demand and liquidity in the market at that time and may be materially lower than such assets’ current fair value. Any of these factors could require SEK to negatively change the carrying amount of such assets or liabilities, which may have an adverse effect on the Group’s financial condition in future periods.

Losses could result from SEK’s derivatives used for hedging, and SEK’s hedging strategies may not be effective.

SEK uses hedging instruments in an attempt to manage interest rate, currency, credit, basis and other market-related risks.

If any of the variety of instruments and strategies the Group uses to hedge its exposure to these various types of risk is not effective, the Group may incur losses, which may have an adverse effect on the Group’s financial condition and could impair its ability to timely repay or refinance its debts. The majority of SEK’s derivative contracts are OTC derivatives, i.e., derivative contracts that are not transacted on an exchange. These derivatives are entered into under ISDA Master Agreements. If counterparty defaults on these contracts, the underlying exposure would no longer be effectively hedged, which could result in losses.

In addition, there can be no assurance that the Group will continue to be able to hedge risks related to current or future assets or liabilities in accordance with its current policies in an efficient manner or at all. Disruptions such as market crises and economic recessions, including the current conditions as a result of the global outbreak of COVID-19, may put a strain on the availability and effectiveness of hedging instruments or strategies. For example, the expected transition away from LIBOR and similar benchmark rates may have a different impact on the hedged item and the hedging instrument, which could cause some of SEK’s hedge to become ineffective, resulting in potential losses. An inability to hedge its risks could increase SEK’s losses due to those risks, which could have an adverse effect on SEK’s financial condition and its ability to fulfill its obligations.

SEK is exposed to significant operational risk, which could harm SEK’s business, financial performance or the ability to repay its debt.

SEK’s businesses are dependent on the ability to process complex transactions efficiently and accurately. Operational risk for a financial institution such as SEK can arise from fraud, errors by employees, failure to document transactions properly or to obtain proper internal authorizations, equipment failures, natural disasters, information security failures, data loss, cyber-attacks and breaches from known malware or malware that may be developed in the future or the failure of external systems such as, for example, those of SEK’s suppliers or counterparties. These risks could be exacerbated under the current conditions as a result of the global outbreak of COVID-19. Despite having taken preventative actions to protect the security of its information relative to its perceived risks, SEK may nevertheless experience major security failures, data losses, cyber-attacks or breaches in the future, which could have a material adverse effect on SEK’s business. Failure to address operational risk and increased regulatory requirements relating to operational risk may lead to additional costs, losses or damages to SEK’s reputation which may negatively affect customers’ and investors’ confidence, and thus SEK’s business, financial performance or ability to repay its debt. For example, SEK has in the past incurred additional costs related to the enhancement of IT-system due to increased regulatory burdens. If, for example, SEK failed to properly comply with its obligations under financial guarantee contracts or other credit risk reducing arrangements or if the contracts were not properly drafted, this could result in SEK not being able to effectively seek recourse to such guarantees or other arrangements in the event the relevant borrower was unable to repay its debt to SEK.

SEK’s reputation could also be damaged if SEK fails to comply with current legislation and best practices or in any other way fails to meet its commitments and expectations. A significant failure in managing SEK’s operational risk could materially and adversely affect the Company’s business, financial condition, results of operation or ability to repay its debt.

Note 1. Accounting policies

This condensed interim report is presented in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting. The Consolidated 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 2019 annual financial statements. This condensed 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, 2019.

SEK elected early adoption in 2019 of the amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform issued by IASB in September 2019 (IBOR reform), see Note 1(c)(ii) to the annual financial statements included in SEK's 2019 Annual Report on Form 20-F.

Other changes from IASB have not had any material impact on SEK’s financial reporting for 2020 and there are no other IFRS or IFRS Interpretations Committee 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.

SEK’s general business model is to hold financial instruments measured at fair value to maturity. The net market value changes are mainly attributable to changes in credit spread on own debt, which are reported in other comprehensive income, and basis spreads, which are reported in net results of financial transactions. The changes could be significant in a single reporting period, but 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 cases where SEK

 repurchases its own debt, or where lending is repaid early and the related hedging instruments are terminated prematurely. These effects are presented in the following line items of net results of financial transactions in the table above: “Derecognition 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”. “Financial assets or liabilities at fair value through profit or loss” and “Financial instruments under fair-value hedge accounting” include realized as well as unrealized changes in fair value.

The table below shows the book value of loans and nominal amounts for off-balance sheet exposures before expected credit losses for each stage as well as related loss allowance amounts, in order to place expected credit losses in relation to credit exposures. Overall, the credit portfolio has an extremely

high credit quality and SEK often uses risk mitigation measures, primarily through guarantees from the Swedish Export Credit Agency (EKN) and other government export credit agencies in the Organisation for Economic Co-operation and Development (OECD), which explains the low provision ratio.