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EEH Swedish Export Credit Corp /Swed

 

 

FORM 6-K

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Report of Foreign Private Issuer

Dated April 29, 2020

 

Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

 

Aktiebolaget Svensk Exportkredit

Swedish Export Credit Corporation

(Translation of Registrant’s Name into English)

 

Klarabergsviadukten

61-63

SE-101 23 Stockholm

Sweden

(Address of Principal Executive Offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 

 

Form 20-F   x

Form 40-F   o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):   N/A

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):   N/A

 

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

 

Yes   o

No   x

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):  N/A

 

 

 


 

Incorporation by Reference

 

This Report on Form 6-K, including the exhibits hereto, is hereby incorporated by reference, in its entirety, into the registration statement on Form F-3 (File No. 333-221336) of Aktiebolaget Svensk Exportkredit (publ) (“SEK”).

 

This Report comprises the following:

 

1.  Registrant’s report for the first quarter of 2020.

 

2.  Table of unaudited consolidated capitalization of the Registrant (attached as Exhibit 99.2 hereto).

 

1


 

AB Svensk Exportkredit

 

Swedish Export Credit Corporation

 

Interim Report January-March 2020

 

2


 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Dated: April 29, 2020

 

 

AB Svensk Exportkredit

 

 

 

(Swedish Export Credit Corporation)

 

 

 

By:

/s/ Catrin Fransson

 

 

 

 

 

Catrin Fransson, Chief Executive Officer

 

3


 

AB Svensk Exportkredit

Swedish Export Credit Corporation

 

 


 

Summary


 

 

 

 

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)


 

2


 

Statement by the CEO

 

Substantial increase in demand for financing

 

The spread of COVID-19, the novel strain of coronavirus, has had devastating effects, not just on the Swedish export industry and public health, but on the entire global economy. To reduce the spread of COVID-19 and to ensure resilience in terms of staffing, the majority of SEK’s employees are working fully or partly remotely, which is functioning well.

 

In the first phase of the crisis, borrowing needs were greatest among medium-sized companies and their suppliers, who were hard hit by considerable disruptions in supply chains. Initial demand was for short-term credits to strengthen clients’ liquidity before gradually changing to increasing demand for somewhat longer credit terms. At the end of the first quarter, SEK noted a substantial increase in demand for financing from large companies. In the current environment, SEK is well-positioned with the high credit quality of its credit portfolio and a work approach based on close relationships and long-term partnerships with its clients.

 

Overall, SEK’s capitalization and liquidity position is strong. In order to further increase new lending capacity, it was resolved at SEK’s annual general meeting that the sole owner, the Swedish state, would not receive a dividend for 2019. As a further measure to strengthen SEK’s capacity to grant loans with longer tenors, the Swedish government has proposed to the Swedish parliament that SEK’s credit facility with the Swedish National Debt Office be increased from Skr 125 billion to Skr 200 billion and include commercial lending to Swedish exporters in addition to officially supported export credit (“CIRR”) loans.

 

In terms of funding, severe disruption and volatility in the financial markets resulted in increased price levels. Despite fewer institutions than usual having been able to issue debt, SEK launched a successful issuance of a USD 1.75 billion three-year fixed rate benchmark bond in March, which was completed in April. This is SEK’s largest ever debt issuance, and it demonstrates a high level of market confidence in SEK from our international investors.

 

SEK’s mission, to ensure access to financial solutions for the Swedish export industry, has perhaps never been as important as it is now. With global economic growth declining, access to competitive financing will become even more crucial for the Swedish export industry. SEK remains well-equipped to support the Swedish export industry during these more difficult market conditions.

 

In the first quarter of the year, new lending was Skr 33.3 billion, which was significantly higher year-on-year (3M19: Skr 13.3 billion) and was primarily due to increased demand as a result of COVID-19.

 

Year-on-year, net interest income was slightly higher and totaled Skr 405 million (3M19: Skr 395 million). In addition to the increase in lending, net interest income was positively impacted by a lower resolution fee to the Swedish National Debt Office. Operating profit for the period was down significantly year-on-year at Skr 157 million (3M19: Skr 352 million). The year-on-year decline in operating profit was mainly 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.

 

 

 

 

 

 

 

 

 

 

 

 

Catrin Fransson
Chief Executive Officer

 

 

 

 

 

3


 

Operations


 

 

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

 

Skr bn

 

Jan-Mar 2020

 

Jan-Mar 2019

 

Jan-Dec 2019

 

Lending to Swedish exporters1

 

19.9

 

4.8

 

24.9

 

Lending to exporters’ customers2

 

13.4

 

8.5

 

49.6

 

Total

 

33.3

 

13.3

 

74.5

 

CIRR loan as percentage of new lending

 

0

%

7

%

21

%

 


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.


 

4


 

 

 

 

 

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

 

Skr bn

 

Jan-Mar 2020

 

Jan-Mar 2019

 

Jan-Dec 2019

 

New long-term borrowings

 

36.3

 

11.8

 

81.1

 

Outstanding senior debt

 

312.8

 

268.9

 

273.0

 

Repurchase and redemption of own debt

 

2.2

 

1.2

 

21.3

 

 

 

 

 

 

 


5


 

Comments on the consolidated financial accounts

 


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.

 

Skr bn, average

 

Jan-Mar
2020

 

Jan-Mar
2019

 

Change

 

Total loans

 

229.8

 

213.2

 

8

%

Liquidity investments

 

60.7

 

62.4

 

-3

%

Interest-bearing assets

 

308.3

 

291.1

 

6

%

Interest-bearing liabilities

 

292.9

 

263.4

 

11

%

 

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

 

Skr mn

 

Jan-Mar
2020

 

Jan-Mar
2019

 

Change

 

Personnel expenses

 

-85

 

-84

 

1

%

Other administrative expenses

 

-52

 

-48

 

8

%

Depreciation and impairment of non-financial assets

 

-13

 

-14

 

-7

%

Total operating expenses

 

-150

 

-146

 

3

%

 

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.


 

6


 


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.

 

Skr bn

 

March 31,
2020

 

December 31,
2019

 

Change

 

Total assets

 

365.9

 

317.3

 

15

%

Liquidity investments

 

57.7

 

63.6

 

-9

%

Total loans

 

242.1

 

217.6

 

11

%

of which loans in the CIRR-system

 

85.9

 

76.1

 

13

%

 

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.

 

Percent

 

March 31,
2020

 

December 31,
2019

 

Common Equity Tier 1 capital ratio

 

19.9

 

20.6

 

Tier 1 capital ratio

 

19.9

 

20.6

 

Total capital ratio

 

19.9

 

20.6

 

Leverage ratio

 

5.4

 

5.7

 

Liquidity coverage ratio (LCR)1

 

681

 

620

 

Net stable funding ratio (NSFR)1

 

131

 

120

 

 


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

 

 

 

Skr

 

Foreign currency

Moody’s

 

Aa1/Stable

 

Aa1/Stable

Standard & Poor’s

 

AA+/Stable

 

AA+/Stable

 

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.


 

7


 

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.


 

8


 


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.


 

9


 

Financial targets

 

Profitability target

A return on equity of at least 6 percent over time.

Dividend policy

Payment of an ordinary dividend of 30 percent of the profit for the year.

Capital target

SEK’s total capital ratio is to exceed the Swedish FSA’s requirement by 2 to 4 percentage points and SEK’s Common Equity Tier 1 capital ratio is to exceed the Swedish FSA’s require­ment by at least 4 percentage points. Currently, the capital targets mean that the total capital ratio should amount to 17.0-19.0 percent and the Common Equity Tier 1 capital ratio should amount to 14.1 percent.

 

Key performance indicators

(Unaudited except for Jan-Dec 2019)

 

Skr mn (if not otherwise indicated)

 

Jan-Mar 2020

 

Oct-Dec 2019

 

Jan-Mar,2019

 

Jan-Dec 2019

 

New lending

 

33,290

 

12,879

 

13,303

 

74,515

 

of which to Swedish exporters

 

19,888

 

4,753

 

4,845

 

24,901

 

of which to exporters’ customers

 

13,402

 

8,126

 

8,458

 

49,614

 

CIRR-loans as a percentage of new lending

 

0

%

0

%

7

%

21

%

Loans, outstanding and undisbursed

 

290,235

 

269,744

 

264,353

 

269,744

 

 

 

 

 

 

 

 

 

 

 

New long-term borrowings

 

36,292

 

24,594

 

11,831

 

81,053

 

Outstanding senior debt

 

312,839

 

273,017

 

268,870

 

273,017

 

 

 

 

 

 

 

 

 

 

 

After-tax return on equity

 

2.6

%

6.2

%

5.9

%

5.5

%

 

 

 

 

 

 

 

 

 

 

Common Equity Tier 1 capital ratio

 

19.9

%

20.6

%

19.8

%

20.6

%

Tier 1 capital ratio

 

19.9

%

20.6

%

19.8

%

20.6

%

Total capital ratio

 

19.9

%

20.6

%

19.8

%

20.6

%

Leverage ratio

 

5.4

%

5.7

%

5.5

%

5.7

%

Liquidity coverage ratio (LCR)1

 

681

%

620

%

162

%

620

%

Net stable funding ratio (NSFR)1

 

131

%

120

%

148

%

120

%

 


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

 

See definitions on page 31.

 

10


 

Condensed Consolidated Statement of Comprehensive Income

(Unaudited except for Jan-Dec 2019)

 

Skr mn

 

Note

 

Jan-Mar 2020

 

Oct-Dec 2019

 

Jan-Mar 2019

 

Jan-Dec 2019

 

Interest income

 

 

 

1,250

 

1,360

 

1,579

 

6,083

 

Interest expenses

 

 

 

-845

 

-929

 

-1,184

 

-4,366

 

Net interest income

 

2

 

405

 

431

 

395

 

1,717

 

 

 

 

 

 

 

 

 

 

 

 

 

Net fee and commission expense

 

 

 

-7

 

-10

 

-11

 

-33

 

Net results of financial transactions

 

3

 

-67

 

113

 

105

 

226

 

Total operating income

 

 

 

331

 

534

 

489

 

1,910

 

 

 

 

 

 

 

 

 

 

 

 

 

Personnel expenses

 

 

 

-85

 

-90

 

-84

 

-333

 

Other administrative expenses

 

 

 

-52

 

-57

 

-48

 

-206

 

Depreciation and impairment of non-financial assets

 

 

 

-13

 

-14

 

-14

 

-57

 

Total operating expenses

 

 

 

-150

 

-161

 

-146

 

-596

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit before credit losses

 

 

 

181

 

373

 

343

 

1,314

 

 

 

 

 

 

 

 

 

 

 

 

 

Net credit losses

 

4

 

-24

 

-2

 

9

 

-10

 

Operating profit

 

 

 

157

 

371

 

352

 

1,304

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax expenses

 

 

 

-34

 

-77

 

-78

 

-277

 

Net profit1

 

 

 

123

 

294

 

274

 

1,027

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income related to:

 

 

 

 

 

 

 

 

 

 

 

Items to be reclassified to profit or loss

 

 

 

 

 

 

 

 

 

 

 

Derivatives in cash flow hedges

 

 

 

 

 

-8

 

-8

 

Tax on items to be reclassified to profit or loss

 

 

 

 

 

2

 

2

 

Net items to be reclassified to profit or loss

 

 

 

 

 

-6

 

-6

 

 

 

 

 

 

 

 

 

 

 

 

 

Items not to be reclassified to profit or loss

 

 

 

 

 

 

 

 

 

 

 

Own credit risk

 

 

 

111

 

-15

 

12

 

24

 

Revaluation of defined benefit plans

 

 

 

-9

 

34

 

-11

 

-4

 

Tax on items not to be reclassified to profit or loss

 

 

 

-23

 

-4

 

2

 

-4

 

Net items not to be reclassified to profit or loss

 

 

 

79

 

15

 

3

 

16

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income

 

 

 

79

 

15

 

-3

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income1

 

 

 

202

 

309

 

271

 

1,037

 

 

Skr

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share2

 

 

 

31

 

74

 

69

 

257

 

 


1      The entire profit is attributable to the shareholder of the Parent Company.

2      Net profit divided by average number of shares, which amounts to 3,990,000 for each period.

 

11


 

Consolidated Statement of Financial Position

(Unaudited except for December 31, 2019)

 

Skr mn

 

Note

 

March 31, 2020

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

5

 

7,683

 

1,362

 

Treasuries/government bonds

 

5

 

7,361

 

8,344

 

Other interest-bearing securities except loans

 

5

 

42,649

 

53,906

 

Loans in the form of interest-bearing securities

 

4, 5

 

52,812

 

43,627

 

Loans to credit institutions

 

4, 5

 

29,293

 

27,010

 

Loans to the public

 

4, 5

 

178,682

 

163,848

 

Derivatives

 

5, 6

 

12,126

 

6,968

 

Tangible and intangible assets

 

 

 

133

 

134

 

Other assets

 

 

 

31,850

 

9,334

 

Prepaid expenses and accrued revenues

 

 

 

3,341

 

2,747

 

Deferred tax asset

 

 

 

17

 

16

 

Total assets

 

 

 

365,947

 

317,296

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

Borrowing from credit institutions

 

5

 

7,534

 

3,678

 

Borrowing from the public

 

5

 

10,000

 

 

Debt securities issued

 

5

 

295,305

 

269,339

 

Derivatives

 

5, 6

 

27,356

 

20,056

 

Other liabilities

 

 

 

3,482

 

2,466

 

Accrued expenses and prepaid revenues

 

 

 

2,884

 

2,582

 

Provisions

 

 

 

102

 

93

 

Total liabilities

 

 

 

346,663

 

298,214

 

 

 

 

 

 

 

 

 

Share capital

 

 

 

3,990

 

3,990

 

Reserves

 

 

 

-64

 

-143

 

Retained earnings

 

 

 

15,358

 

15,235

 

Total equity

 

 

 

19,284

 

19,082

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

 

 

365,947

 

317,296

 

 

12


 

Condensed Consolidated Statement of Changes in Equity

(Unaudited except for Jan-Dec 2019)

 

 

 

 

 

 

 

 

Reserves

 

 

 

Skr mn

 

Equity

 

 

Share capital

 

Hedge
reserve

 

Own credit
risk

 

Defined
benefit plans

 

Retained
earnings

 

Opening balance of equity January 1, 2019

 

18,239

 

 

3,990

 

6

 

-117

 

-42

 

14,402

 

Net profit Jan-Mar 2019

 

274

 

 

 

 

 

 

 

 

 

 

274

 

Other comprehensive income Jan-Mar 2019

 

-3

 

 

 

 

-6

 

12

 

-9

 

 

 

Total comprehensive income Jan-Mar 2019

 

271

 

 

 

 

-6

 

12

 

-9

 

274

 

Closing balance of equity March 31, 20191

 

18,510

 

 

3,990

 

 

-105

 

-51

 

14,676

 

Opening balance of equity January 1, 2019

 

18,239

 

 

3,990

 

6

 

-117

 

-42

 

14,402

 

Net profit Jan-Dec 2019

 

1,027

 

 

 

 

 

 

 

 

 

 

1,027

 

Other comprehensive income Jan-Dec 2019

 

10

 

 

 

 

-6

 

19

 

-3

 

 

 

Total comprehensive income Jan-Dec 2019

 

1,037

 

 

 

 

-6

 

19

 

-3

 

1,027

 

Dividend

 

-194

 

 

 

 

 

 

 

 

 

 

-194

 

Closing balance of equity December 31, 20191

 

19,082

 

 

3,990

 

 

-98

 

-45

 

15,235

 

Opening balance of equity January 1, 2020

 

19,082

 

 

3,990

 

 

-98

 

-45

 

15,235

 

Net profit Jan-Mar 2020

 

123

 

 

 

 

 

 

 

 

 

 

123

 

Other comprehensive income Jan-Mar 2020

 

79

 

 

 

 

 

 

87

 

-8

 

 

 

Total comprehensive income Jan-Mar 2020

 

202

 

 

 

 

 

 

87

 

-8

 

123

 

Closing balance of equity March 31, 20201

 

19,284

 

 

3,990

 

 

-11

 

-53

 

15,358

 

 


1      The entire equity is attributable to the shareholder of the Parent Company.

 

13


 

Condensed Statement of Cash Flows in the Consolidated Group

(Unaudited except for Jan-Dec 2019)

 

Skr mn

 

Jan-Mar 2020

 

Jan-Mar 2019

 

Jan-Dec 2019

 

Operating activities

 

 

 

 

 

 

 

Operating profit

 

157

 

352

 

1,304

 

 

 

 

 

 

 

 

 

Adjustments for non-cash items in operating profit

 

-119

 

176

 

-279

 

Income tax paid

 

-126

 

-61

 

-366

 

Changes in assets and liabilities from operating activities

 

-1,733

 

-357

 

-1,433

 

Cash flow from operating activities

 

-1,821

 

110

 

-774

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

Capital expenditures

 

-5

 

-7

 

-40

 

Cash flow from investing activities

 

-5

 

-7

 

-40

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

Change in senior debt

 

6,563

 

-1,448

 

-4,420

 

Derivatives, net

 

1,341

 

776

 

4,049

 

Dividend paid

 

 

 

-194

 

Amortization of lease liabilities

 

-7

 

 

-39

 

Cash flow from financing activities

 

7,897

 

-672

 

-604

 

 

 

 

 

 

 

 

 

Cash flow for the period

 

6,071

 

-569

 

-1,418

 

Cash and cash equivalents at beginning of the period

 

1,362

 

2,416

 

2,416

 

Cash flow for the period

 

6,071

 

-569

 

-1,418

 

Exchange-rate differences on cash and cash equivalents

 

250

 

122

 

364

 

Cash and cash equivalents at end of the period1

 

7,683

 

1,969

 

1,362

 

 


1      Cash and cash equivalents include, in this context, cash at banks that can be immediately converted into cash and short-term deposits for which the time to maturity does not exceed three months from trade date.

 

14


 

Notes

 

Note 1. Accounting policies

Note 2. Net interest income

Note 3. Net results of financial transactions

Note 4. Impairments

Note 5. Financial assets and liabilities at fair value

Note 6. Derivatives

Note 7. CIRR-system

Note 8. Pledged assets and contingent liabilities

Note 9. Capital adequacy

Note 10. Exposures

Note 11. Transactions with related parties

Note 12. Events after the reporting period

 

References to “SEK” or the “Parent Company” are to AB Svensk Exportkredit. References to “Consolidated Group” are to SEK and its consolidated subsidiary. All amounts are in Skr million, unless otherwise indicated. All figures concern the Consolidated Group, unless otherwise ­indicated.

 


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.


 

15


 

Note 2. Net interest income

 

Skr mn

 

Jan-Mar 2020

 

Oct-Dec 2019

 

Jan-Mar 2019

 

Jan-Dec 2019

 

Interest income

 

 

 

 

 

 

 

 

 

Loans to credit institutions

 

385

 

415

 

538

 

2,005

 

Loans to the public

 

575

 

616

 

690

 

2,656

 

Loans in the form of interest-bearing securities

 

213

 

212

 

190

 

829

 

Interest-bearing securities excluding loans in the form of interest-bearing securities

 

120

 

152

 

183

 

686

 

Derivatives

 

-94

 

-86

 

-68

 

-291

 

Administrative remuneration CIRR-system

 

50

 

49

 

46

 

194

 

Other assets

 

1

 

2

 

0

 

4

 

Total interest income1

 

1,250

 

1,360

 

1,579

 

6,083

 

 

 

 

 

 

 

 

 

 

 

Interest expenses

 

 

 

 

 

 

 

 

 

Interest expenses

 

-819

 

-887

 

-1,143

 

-4,197

 

Resolution fee

 

-26

 

-42

 

-41

 

-169

 

Total interest expenses

 

-845

 

-929

 

1,184

 

-4,366

 

Net interest income

 

405

 

431

 

395

 

1,717

 

 


1                   Interest income calculated using the effective interest method amounted to Skr 1,087 million during January- March 2020 (3M19: Skr 1,347 million).

 

Note 3. Net results of financial transactions

 

Skr mn

 

Jan-Mar 2020

 

Oct-Dec 2019

 

Jan-Mar 2019

 

Jan-Dec 2019

 

Derecognition of financial instruments not measured at fair value through profit or loss

 

2

 

2

 

0

 

19

 

Financial assets or liabilities at fair value through profit or loss

 

-110

 

69

 

55

 

120

 

Financial instruments under fair-value hedge accounting

 

45

 

39

 

50

 

85

 

Currency exchange-rate effects on all assets and liabilities excl. currency exchange-rate effects related to revaluation at fair value

 

-4

 

3

 

0

 

2

 

Total net results of financial transactions

 

-67

 

113

 

105

 

226

 

 


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.


 

Note 4. Impairments

 

Skr mn

 

Jan-Mar 2020

 

Oct-Dec 2019

 

Jan-Mar 2019

 

Jan-Dec 2019

 

Expected credit losses, stage 1

 

-17

 

-11

 

7

 

-19

 

Expected credit losses, stage 2

 

-7

 

5

 

4

 

11

 

Expected credit losses, stage 3

 

0

 

4

 

-2

 

-17

 

Established losses

 

 

0

 

 

-25

 

Reserves applied to cover established credit losses

 

 

 

 

40

 

Recovered credit losses

 

 

 

 

 

Net credit losses

 

-24

 

-2

 

9

 

-10

 

 

16


 


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.


 

 

 

March 31, 2020

 

December 31, 2019

 

Skr mn

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Total

 

Loans, before expected credit losses

 

207,357

 

33,558

 

1,292

 

242,208

 

217,594

 

Off balance sheet exposures, before expected credit losses

 

32,818

 

28,172

 

12

 

61,002

 

59,343

 

Total, before expected credit losses

 

240,175

 

61,730

 

1,304

 

303,210

 

276,937

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss allowance, loans

 

-70

 

-17

 

-68

 

-155

 

-124

 

Loss allowance, off balance sheet exposures1

 

-2

 

-1

 

0

 

-3

 

-4

 

Total loss allowance

 

-72

 

-18

 

-68

 

-158

 

-128

 

Provision ratio

 

0.03

%

0.03

%

5.21

%

0.05

%

0.05

%

 


1                   Recognized under provision in Consolidated Statement of Financial Position. Off balance sheet exposures consist of guarantee commitments, committed undisbursed loans and binding offers, see Note 8.

 

Loss Allowance

 

 

 

March 31, 2020

 

December 31, 2019

 

 Skr mn

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Total

 

Opening balance

 

-54

 

-10

 

-64

 

-128

 

-139

 

Increases due to origination and acquisition

 

-13

 

-1

 

0

 

-14

 

-23

 

Net remeasurement of loss allowance

 

-7

 

-7

 

0

 

-14

 

10

 

Transfer to stage 1

 

0

 

0

 

 

0

 

0

 

Transfer to stage 2

 

0

 

0

 

 

0

 

0

 

Transfer to stage 3

 

 

 

 

 

-22

 

Decreases due to derecognition

 

4

 

0

 

 

4

 

10

 

Decrease in allowance account due to write-offs

 

 

 

 

 

40

 

Exchange-rate differences1

 

-2

 

0

 

-4

 

-6

 

-4

 

Closing balance

 

-72

 

-18

 

-68

 

-158

 

-128

 

 


1      Recognized under net results of financial transactions in Statement of Comprehensive Income.

 


Provisions for expected credit losses (ECLs) are calculated using quantitative models based on inputs, assumptions and methods that are highly reliant on assessments. In particular, the following could heavily impact the level of provisions: the establishment of a material increase in credit risk, allowing for forward-looking macroeconomic scenarios, and the measurement of both ECLs over the next 12 months and lifetime ECLs. ECLs are based on objective assessments of what SEK expects to lose on the exposures given what was known on the reporting date and taking into account possible future events. The ECL is a probability-weighted amount that is determined by evaluating the outcome of several possible scenarios and where the data taken into consideration comprises information from previous conditions, current conditions and projections of future economic conditions. SEK’s method entails three scenarios being prepared for each probability of default curve: (i) a base scenario, (ii) a downturn scenario and (iii) an upturn scenario. The base scenario consists of GDP forecasts from the World Bank,

which at their most recent predate the COVID-19, the novel strain of coronavirus (“COVID-19”), pandemic. In addition to a 100 percent probability-weighted downturn scenario, a collective risk adjustment has been made for companies in sectors deemed vulnerable and which lack a high credit rating. The risk adjustment entails an average increase in ECLs for the affected companies of almost 80 percent.

 

SEK has conducted more extensive assessment of material increases in credit risk due to the COVID-19 pandemic. SEK’s assessment is that our method is still applicable for assessing whether a material increase in credit risk has occurred. During the quarter, we noted no material movements between stage 1 and stage 2.

 


17


 

Note 5. Financial assets and liabilities at fair value

 

 

 

March 31, 2020

 

Skr mn

 

Book value

 

Fair value

 

Surplus value (+)/
Deficit value (-)

 

Cash and cash equivalents

 

7,683

 

7,683

 

 

Treasuries/governments bonds

 

7,361

 

7,361

 

 

Other interest-bearing securities except loans

 

42,649

 

42,649

 

 

Loans in the form of interest-bearing securities

 

52,812

 

52,988

 

176

 

Loans to credit institutions

 

29,293

 

29,313

 

20

 

Loans to the public

 

178,682

 

182,558

 

3,876

 

Derivatives

 

12,126

 

12,126

 

 

Total financial assets

 

330,606

 

334,678

 

4,072

 

 

 

 

 

 

 

 

 

Borrowing from credit institutions

 

7,534

 

7,534

 

 

Borrowing from the public

 

10,000

 

10,000

 

 

Debt securities issued

 

295,305

 

294,643

 

-662

 

Derivatives

 

27,356

 

27,356

 

 

Total financial liabilities

 

340,195

 

339,533

 

-662

 

 

 

 

December 31, 2019

 

Skr mn

 

Book value

 

Fair value

 

Surplus value (+)/
Deficit value (-)

 

Cash and cash equivalents

 

1,362

 

1,362

 

 

Treasuries/governments bonds

 

8,344

 

8,344

 

 

Other interest-bearing securities except loans

 

53,906

 

53,906

 

 

Loans in the form of interest-bearing securities

 

43,627

 

45,054

 

1,427

 

Loans to credit institutions

 

27,010

 

27,133

 

123

 

Loans to the public

 

163,848

 

169,612

 

5,764

 

Derivatives

 

6,968

 

6,968

 

 

Total financial assets

 

305,065

 

312,379

 

7,314

 

 

 

 

 

 

 

 

 

Borrowing from credit institutions

 

3,678

 

3,678

 

 

Debt securities issued

 

269,339

 

271,549

 

2,210

 

Derivatives

 

20,056

 

20,056

 

 

Total financial liabilities

 

293 073

 

295,283

 

2,210

 

 

Determination of fair value

 


The determination of fair value is described in the annual financial statements included in SEK’s 2019 Annual Report on Form 20-F, see Note 1(h)(viii) Principles for determination of fair value of financial instruments and (ix) Determination of fair value of certain

types of ­financial instruments. The current market situation in the light of the COVID-19 outbreak has not resulted in any changes in methodology for determination of fair value.


 

Financial assets in fair value hierarchy

 

 

 

Financial assets at fair value through profit or loss

 

Skr mn

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Treasuries/governments bonds

 

 

7,361

 

 

7,361

 

Other interest-bearing securities except loans

 

 

42,649

 

 

42,649

 

Derivatives

 

 

9,514

 

2,612

 

12,126

 

Total, March 31, 2020

 

 

59,524

 

2,612

 

62,136

 

 

 

 

 

 

 

 

 

 

 

Total, December 31, 2019

 

34,450

 

32,283

 

2,485

 

69,218

 

 

18


 

Financial liabilities in fair value hierarchy

 

 

 

Financial liabilities at fair value through profit or loss

 

Skr mn

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Debt securities issued

 

 

5,564

 

47,729

 

53,293

 

Derivatives

 

 

20,587

 

6,769

 

27,356

 

Total, March 31, 2020

 

 

26,151

 

54,498

 

80,649

 

 

 

 

 

 

 

 

 

 

 

Total, December 31, 2019

 

 

30,546

 

46,215

 

76,761

 

 


Because the market for interest bearing bonds is considered currently inactive, a transfer of Skr 25,031 million was made from level 1 to level 2 during the period January-March 2020 (year-end 2019: transfer from level 2 to level 1 of Skr 21,461 million). Due to an increased element of subjective assessment

in the valuation, a transfer of Skr 6,391 million for debt securities issued was made from level 2 to level 3 (year-end 2019: transfer from level 3 to level 2 of Skr 1,040 million for debt securities issued and transfer from level 3 to level 2 of net Skr -30 million for derivatives).


 

Financial assets and liabilities at fair value in Level 3, March 31, 2020

 

Skr mn

 

January 1,
2020

 

Purchases

 

Settlements
& sales

 

Transfers
to Level 3

 

Transfers
from
Level 3

 

Gains (+)
and losses
(–) through
profit
or loss1

 

Gains (+)
and losses
(–) in Other
comprehensive
income

 

Exchange-
rate
differences

 

March 31,
2020

 

Debt securities issued

 

-43,752

 

-2,587

 

6,756

 

-6,391

 

 

2,466

 

42

 

-4,263

 

-47,729

 

Derivatives, net

 

22

 

-1

 

-194

 

 

 

-5,384

 

 

1,400

 

-4,157

 

Net assets and liabilities

 

-43,730

 

-2,588

 

6,562

 

-6,391

 

 

-2,918

 

42

 

-2,863

 

-51,886

 

 

Financial assets and liabilities at fair value in Level 3, December 31, 2019

 

Skr mn

 

January 1,
2019

 

Purchases

 

Settlements
& sales

 

Transfers
to Level 3

 

Transfers
from
Level 3

 

Gains (+)
and losses
(–) through
profit
or loss1

 

Gains (+)
and losses
(–) in Other
comprehensive
income

 

Exchange-
rate
differences

 

December  31,
2019

 

Debt securities issued

 

-47,898

 

-10,702

 

21,314

 

 

1,040

 

-3,408

 

-43

 

-4,055

 

-43,752

 

Derivatives, net

 

-4,587

 

-5

 

-299

 

1

 

-31

 

3,181

 

 

1,762

 

22

 

Net assets and liabilities

 

-52,485

 

-10,707

 

21,015

 

1

 

1,009

 

-227

 

-43

 

-2,293

 

-43,730

 

 


1    Gains and losses through profit or loss, including the impact of exchange-rates, is reported as net interest income and net results of financial transactions. The unrealized fair value changes for assets and liabilities, including the impact of exchange-rates, held as of March 31, 2020 amounted to a Skr 18 million gain (year-end 2019: Skr 69 million loss) and are reported as net results of financial transactions.

 

Uncertainty of valuation of Level 3 instruments

 


As the estimation of the parameters included in the models to calculate the market value of Level 3 instruments is associated with subjectivity and uncertainty, SEK has conducted an analysis of the difference in fair value of Level 3 instruments using other established parameter values. Option models and discounted cash flows are used to value the Level 3 instruments. For the Level 3 instruments that are significantly affected by different types of correlations, which are not based on observable market data, a revaluation has been made by shifting the correlations. The correlations have been adjusted by +/— 10 percentage points, which represents the range of correlations that SEK has determined market participants would use when pricing the instruments. For Level 3 instruments that are significantly affected by non-observable market data, such as

SEK’s own creditworthiness, a revaluation has been made by shifting the credit curve. The revaluation is made by shifting the credit spreads by +/- 10 ­basis points, which has been assessed as a reasonable change in SEK’s credit spread. The analysis shows the impact of the non-observable market data on the market value. In addition, the market value will be affected by observable market data.

 

The result of the analysis corresponds with SEK’s business model where issued securities are linked with a matched hedging derivative. The underlying market data is used to evaluate the issued security as well as to evaluate the fair value in the derivative. This means that a change in fair value of the issued security, excluding SEK’s own credit spread, is offset by an equally large change in fair value in the derivative.


 

19


 

Sensitivity analysis – level 3 assets and liabilities

 

 

 

March 31, 2020

 

Assets and liabilities

 

 

 

Unobservable

 

Range of estimates
for unobservable

 

 

 

Sensitivity

 

Sensitivity

 

Skr mn

 

Fair Value

 

input

 

input1

 

Valuation method

 

max

 

min

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

-4,054

 

Correlation

 

0.73-0.11

 

Option Model

 

3

 

-4

 

Interest rate

 

1,515

 

Correlation

 

0.51-(0.17)

 

Option Model

 

-104

 

104

 

FX

 

-1,427

 

Correlation

 

0.77-0.13

 

Option Model

 

12

 

-12

 

Other

 

-191

 

Correlation

 

0.62-0.05

 

Option Model

 

0

 

0

 

Sum derivatives, net

 

-4,157

 

 

 

 

 

 

 

-89

 

88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

-663

 

Correlation

 

0.73-0.11

 

Option Model

 

-3

 

4

 

 

 

 

 

Credit spreads

 

10BP - (10BP)

 

Discounted cash flow

 

24

 

-24

 

Interest rate

 

-46,917

 

Correlation

 

0.51-(0.17)

 

Option Model

 

54

 

-53

 

 

 

 

 

Credit spreads

 

10BP - (10BP)

 

Discounted cash flow

 

65

 

-64

 

FX

 

-38

 

Correlation

 

0.77-0.13

 

Option Model

 

-13

 

13

 

 

 

 

 

Credit spreads

 

10BP - (10BP)

 

Discounted cash flow

 

101

 

-101

 

Other

 

-111

 

Correlation

 

0.62-0.05

 

Option Model

 

0

 

0

 

 

 

 

 

Credit spreads

 

10BP - (10BP)

 

Discounted cash flow

 

10

 

-10

 

Sum debt securities issued

 

-47,729

 

 

 

 

 

 

 

238

 

-235

 

Total effect on total comprehensive income2

 

 

 

 

 

 

 

 

 

149

 

-147

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives, net, December 31, 2019

 

22

 

 

 

 

 

 

 

-44

 

46

 

Debt securities issued, December 31, 2019

 

-43,752

 

 

 

 

 

 

 

219

 

-218

 

Total effect on total comprehensive income, December 31, 20192

 

 

 

 

 

 

 

 

 

175

 

-172

 

 


1      Represents the range of correlations that SEK has determined market participants would use when pricing the instruments. The structures are represented both in the security and the derivative hedging the bond. The sensitivity analysis is based on a shift in the interval for correlation between 0.1 and –0.1. The correlation is expressed as a value between 1 and –1, where 0 indicates no relationship, 1 indicates maximum positive relationship and -1 indicates maximum negative relationship. The maximum correlation in the range of unobservable inputs can thus be from 1 to –1. The table presents the scenario analysis of the effect on Level 3 instruments, with maximum positive and ­negative changes.

2      Of the total impact on total comprehensive income, the sensitivity effect of SEK’s own credit spread was Skr 200 million (year-end 2019: Skr 174 million) under a ­maximum scenario and Skr -199 million (year-end 2019: Skr -173 million) under a minimum scenario.

 

Fair value related to credit risk

 

 

 

Fair value originating from credit risk
(- liabilities increase/ + liabilities decrease)

 

The period’s change in fair value
originating from credit risk
(+ income/ - loss)

 

Skr mn

 

March 31, 2020

 

December 31, 2019

 

Jan–Mar 2020

 

Jan–Mar 2019

 

CVA/DVA, net1

 

-30

 

-12

 

-18

 

7

 

OCA2

 

-15

 

-126

 

111

 

12

 

 


1      Credit value adjustment (CVA) and Debt value adjustment (DVA) reflects how the counterparties’ credit risk as well as SEK’s own credit rating affects the fair value of ­derivatives.

2      Own credit adjustment (OCA) reflects how the changes in SEK’s credit rating affects the fair value of financial liabilities measured at fair value through profit and loss.

 

20


 

Note 6. Derivatives

 

Derivatives by categories

 

 

 

March 31, 2020

 

December 31, 2019

 

Skr mn

 

Assets
Fair value

 

Liabilities
Fair value

 

Nominal
amounts

 

Assets
Fair value

 

Liabilities
Fair value

 

Nominal
amounts

 

Interest rate-related contracts

 

5,453

 

15,648

 

336,486

 

3,998

 

12,367

 

304,242

 

Currency-related contracts

 

6,574

 

7,380

 

164,160

 

2,734

 

6,933

 

182,668

 

Equity-related contracts

 

99

 

4,137

 

13,520

 

236

 

584

 

16,387

 

Contracts related to commodities, credit risk, etc.

 

0

 

191

 

2,086

 

0

 

172

 

1,997

 

Total derivatives

 

12,126

 

27,356

 

516,252

 

6,968

 

20,056

 

505,294

 

 


In accordance with SEK’s policies with regard to counterparty, interest rate, currency exchange, and other exposures, SEK uses, and is a party to, different kinds of derivative instruments, mostly various interest rate-related and currency exchange-related

contracts, primarily to hedge risk exposure inherent in financial assets and liabilities. These contracts are carried at fair value in the statements of financial position on a contract-by-contract basis.


 

Note 7. CIRR-system

 


Pursuant to the company’s assignment as stated in its owner instruction issued by the Swedish government, SEK administers credit granting in the Swedish system for officially supported export credits (CIRR-system). SEK receives compensation from the Swedish government in the form of an administrative fee, which is calculated based on the principal amount outstanding.

 

All assets and liabilities related to the CIRR-system are included in the consolidated statement of financial position since SEK bears the credit risk for the lending and acts as the counterparty for lending and borrowing. Unrealized revaluation effects on derivatives related to the CIRR-system are recognized on a net basis under Other assets.

 

The CIRR-system is an assignment whereby SEK acts as an agent on behalf of the Swedish government, rather than being the principal in individual transactions. Accordingly, interest income, interest expense and other costs pertaining to CIRR-system assets and liabilities are not recognized in SEK’s statement of comprehensive income.

 

The administrative compensation received by SEK from the Swedish government is recognized as part of interest income in SEK’s statement of comprehensive income since the

 

commission received in compensation is equivalent to interest. Any income for SEK that arises from its credit arranger role is recognized in SEK’s statement of comprehensive income under net interest income. Net credit losses are shown in the statement of comprehensive income for SEK as SEK bears the credit risk for the lending. Refer also to Note 1 (f) to the annual financial statements included in SEK’s 2019 Annual Report on Form 20-F.

 

The administrative fee paid by the state to SEK as compensation is recognized in the CIRR-system as administrative compensation to SEK. Arrangement fees to SEK are recognized ­together with other arrangement fees as interest expenses. ­Refer to the following tables.

 

In addition to the CIRR-system, SEK administers the Swedish government’s previous concessionary credit program according to the same principles as the CIRR-system. No new lending is being offered under the concessionary credit program. As of March 31, 2020, concessionary loans outstanding amounted to Skr 589 million (year-end 2019: Skr 547 million) and operating profit for the program amounted to Skr -8 million for the period January-March 2020 (3M19: Skr -9 million). The administrative compensation to SEK amounted to Skr -372 thousand (3M19: Skr -400 thousand).


 

Statement of Comprehensive Income for the CIRR-system

 

Skr mn

 

Jan-Mar 2020

 

Oct-Dec 2019

 

Jan-Mar 2019

 

Jan-Dec 2019

 

Interest income

 

539

 

528

 

498

 

2,074

 

Interest expenses

 

-512

 

-483

 

-457

 

-1,912

 

Net interest income

 

27

 

45

 

41

 

162

 

 

 

 

 

 

 

 

 

 

 

Interest compensation

 

3

 

0

 

 

1

 

Exchange-rate differences

 

3

 

-9

 

4

 

5

 

Profit before compensation to SEK

 

33

 

36

 

45

 

168

 

Administrative remuneration to SEK

 

-50

 

-48

 

-46

 

-192

 

Operating profit CIRR-system

 

-17

 

-12

 

-1

 

-24

 

Reimbursement to (–) / from (+) the State

 

17

 

12

 

1

 

24

 

 

21


 

Statement of Financial Position for the CIRR-system (included in SEK’s statement of financial position)

 

Skr mn

 

March 31, 2020

 

December 31, 2019

 

Cash and cash equivalents

 

 

0

 

Loans

 

85,941

 

76,120

 

Derivatives

 

 

26

 

Other assets

 

14,165

 

9,307

 

Prepaid expenses and accrued revenues

 

791

 

569

 

Total assets

 

100,897

 

86,022

 

 

 

 

 

 

 

Liabilities

 

86,346

 

76,257

 

Derivatives

 

13,939

 

9,117

 

Accrued expenses and prepaid revenues

 

612

 

648

 

Total liabilities

 

100,897

 

86,022

 

 

 

 

 

 

 

Commitments

 

 

 

 

 

Committed undisbursed loans

 

41,137

 

47,868

 

Binding offers

 

6,156

 

37

 

 

Note 8. Pledged assets and contingent liabilities

 

Skr mn

 

March 31, 2020

 

December 31, 2019

 

Collateral provided

 

 

 

 

 

Cash collateral under the security agreements for derivative contracts

 

18,736

 

16,891

 

Contingent liabilities1

 

 

 

 

 

Guarantee commitments

 

4,509

 

4,393

 

Commitments1

 

 

 

 

 

Committed undisbursed loans

 

48,184

 

52,150

 

Binding offers

 

8,309

 

2,800

 

 


1 For expected credit losses in guarantee commitments, committed undisbursed loans and binding offers, see Note 4.

 

22


 

Note 9. Capital adequacy

 

The capital adequacy analysis relates to the parent company AB Svensk Exportkredit. The information is disclosed according to FFFS 2014:12. For further information on capital adequacy and risks, see Note 30 to the annual financial statements included in SEK’s 2019 Annual Report on Form 20-F and see SEK’s 2019 Capital Adequacy and Risk Management (Pillar 3) Report.

 

Capital Adequacy Analysis

 

 

 

March 31, 2020

 

December 31, 2019

 

Capital ratios

 

percent1

 

percent1

 

Common Equity Tier 1 capital ratio

 

19.9

 

20.6

 

Tier 1 capital ratio

 

19.9

 

20.6

 

Total capital ratio

 

19.9

 

20.6

 

 


1      Capital ratios excl. of buffer requirements are the quotients of the relevant capital measure and the total risk exposure amount. See tables Own funds - adjusting items and Minimum capital requirements exclusive of buffer.

 

 

 

March 31, 2020

 

December 31, 2019

 

Buffers requirement

 

Skr mn

 

percent1

 

Skr mn

 

percent1

 

Institution specific Common Equity Tier 1 capital requirement incl. of buffers

 

6,602

 

7.0

 

7,890

 

8.9

 

of which minimum Common Equity Tier 1 requirements2

 

4,220

 

4.5

 

3,990

 

4.5

 

of which Capital conservation buffer

 

2,344

 

2.5

 

2,216

 

2.5

 

of which Countercyclical buffer

 

38

 

0.0

 

1,684

 

1.9

 

of which Systemic risk buffer

 

 

 

 

 

Common Equity Tier 1 capital available as a buffer3

 

11,160

 

11.9

 

11,171

 

12.6

 

 


1      Expressed as a percentage of total risk exposure amount.

2      The minimum requirements according to CRR (Regulation (EU) No 575/2013 of the European Parliament and of the Council of June 26, 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012) have fully come into force in Sweden without regard to the transitional period. The minimum requirements are 4.5 percent, 6.0 percent and 8.0 percent related to Common Equity Tier 1 capital, Tier 1 capital and total Own Funds respectively.

3      Common Equity Tier 1 capital ratio as reported less the minimum requirement of 4.5 percent and less 3.5 percent, consisting of Common Equity Tier 1 capital used to meet the Tier 1 and Tier 2 requirements, since SEK do not have any Additional Tier 1 or Tier 2 capital.

 

 

 

March 31, 2020

 

December 31, 2019

 

Total capital requirement including buffers

 

Skr mn

 

percent1

 

Skr mn

 

percent1

 

Total CRR capital requirement2

 

9,884

 

10.5

 

10,993

 

12.4

 

Total FSA capital requirement (calculated as of December 31, 2019)3

 

14,905

 

16.8

 

15,606

 

16.4

 

 


1      Expressed as a percentage of total risk exposure amount.

2      The requirement includes the minimum requirement of 8 percent, the capital conservation buffer and the countercyclical buffer. Expressed as a percentage of total risk exposure amount.

3      The requirement includes the minimum requirement of 8 percent, the capital conservation buffer and the countercyclical buffer and an additional capital requirement according to the Swedish FSA. See the additional capital requirement in the table below. Current figures are calculated with one quarter lag. The reduction of the countercyclical buffer rate in Sweden to 0 percent is not included since the figures are calculated with one quarter lag.

 

 

 

Capital situation per March 31, 2020,
calculation based on reported values
as of December 31, 2019

 

Capital situation per December 31,
2019, calculation based on reported
values as of September 30, 2019

 

Additional Capital requirement according to Swedish FSA

 

Skr mn

 

percent1

 

Skr mn

 

percent1

 

Credit-related concentration risk

 

2,089

 

2.4

 

2,089

 

2.2

 

Interest rate risk in the banking book

 

844

 

1.0

 

844

 

0.9

 

Pension risk

 

11

 

0.0

 

11

 

0.0

 

Other Pillar 2 capital requirements

 

936

 

1.1

 

936

 

1.0

 

Capital planning buffer

 

55

 

0.0

 

 

 

Total Additional Capital requirement according to Swedish FSA

 

3,935

 

4.4

 

3,880

 

4.1

 

 


1      Expressed as a percentage of total risk exposure amount.

 

23


 

Own funds — Adjusting items

 

Skr mn

 

March 31, 2020

 

December 31, 2019

 

Share capital

 

3,990

 

3,990

 

Retained earnings

 

14,894

 

12,829

 

Accumulated other comprehensive income and other reserves1

 

253

 

245

 

Independently reviewed profit net of any foreseeable charge or dividend

 

175

 

1,766

 

Common Equity Tier 1 (CET1) capital before regulatory adjustments

 

19,312

 

18,830

 

Additional value adjustments due to prudent valuation

 

-450

 

-445

 

Intangible assets

 

-64

 

-56

 

Fair value reserves related to gains or losses on cash flow hedges

 

0

 

0

 

Gains or losses on liabilities valued at fair value resulting from changes in own credit standing

 

2

 

93

 

Negative amounts resulting from the calculation of expected loss amounts

 

-103

 

-115

 

Total regulatory adjustments to Common Equity Tier 1 capital

 

-615

 

-523

 

Total Common Equity Tier 1 capital

 

18,697

 

18,307

 

Additional Tier 1 capital

 

 

 

Total Tier 1 capital

 

18,697

 

18,307

 

Tier 2-eligible subordinated debt

 

 

 

Credit risk adjustments2

 

 

 

Total Tier 2 capital

 

 

 

Total Own funds

 

18,697

 

18,307

 

 


1                   The equity-portions of untaxed reserves is included in the line “Accumulated other comprehensive income and other reserves”.

2                   Expected loss amount calculated according to the IRB approach is a gross deduction from Own funds. The gross deduction is decreased by impairment related to exposure ratios for which expected loss is calculated. Excess amounts of such impairment will increase Own funds. This increase is limited to 0.6 percent of SEK’s risk exposure amount according to the IRB approach related to exposures to central governments, corporates and financial institutions. As of March 31, 2020, the limitation rule has had no effect (year-end 2019: no effect).

 

Minimum capital requirements exclusive of buffer

 

 

 

March 31, 2020

 

December 31, 2019

 

Skr mn

 

EAD1

 

Risk exposure
amount

 

Minimum
capital
requirement

 

EAD1

 

Risk exposure
amount

 

Minimum
capital
requirement

 

Credit risk standardized method

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporates2

 

2,424

 

2,424

 

194

 

2,367

 

2,367

 

189

 

Total credit risk standardized method

 

2,424

 

2,424

 

194

 

2,367

 

2,367

 

189

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit risk IRB method

 

 

 

 

 

 

 

 

 

 

 

 

 

Central Governments

 

183,338

 

9,218

 

737

 

172,148

 

8,816

 

705

 

Financial institutions3

 

42,214

 

9,488

 

759

 

45,437

 

10,802

 

864

 

Corporates 4

 

124,989

 

66,244

 

5,300

 

110,592

 

60,068

 

4,806

 

Assets without counterparty

 

133

 

133

 

11

 

152

 

152

 

12

 

Total credit risk IRB method

 

350,674

 

85,083

 

6,807

 

328,329

 

79,838

 

6,387

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit valuation adjustment risk

 

n.a.

 

2,308

 

184

 

n.a.

 

2,534

 

203

 

Foreign exchange risk

 

n.a.

 

741

 

59

 

n.a.

 

695

 

56

 

Commodities risk

 

n.a.

 

10

 

1

 

n.a.

 

9

 

1

 

Operational risk

 

n.a.

 

3,214

 

257

 

n.a.

 

3,214

 

257

 

Total

 

353,098

 

93,780

 

7,502

 

330,696

 

88,657

 

7,093

 

 


1                   Exposure at default (EAD) shows the size of the outstanding exposure at default.

2                   For the small and medium-sized enterprises category, with an annual turnover not exceeding EUR 50 million, the standardized method for calculating the capital ­requirement is applied from Q1 2019.

3                   Of which counterparty risk in derivatives: EAD Skr 5,106 million (year-end 2019: Skr 5,613 million), Risk exposure amount of Skr 1,739 million (year-end 2019: Skr 1,980 million) and Capital requirement of Skr 139 million (year-end 2019: Skr 158 million).

4                   Of which related to specialized lending: EAD Skr 4,072 million (year-end 2019: 3,646 million), Risk exposure amount of Skr 2,693 million (year -end 2019: Skr 2,352 million and capitalrequirement of Skr 215 million (year-end 2019: Skr 188 million).

 

24


 


Credit risk

 

For risk classification and quantification of credit risk, SEK uses the IRB approach. Specifically, SEK applies the Foundation Approach. Under the Foundation Approach, the company determines the probability of default within one year (PD) for each of its counterparties, while the remaining parameters are established in accordance with CRR. The Swedish FSA has approved SEK’s IRB approach. Certain exposures are, by permission from the Swedish FSA, exempted from application of the IRB approach, and, instead, the standardized approach is applied. Counterparty risk exposure amounts in derivatives are calculated in accordance with the mark-to-market method.

 

Credit valuation adjustment risk

 

Credit valuation adjustment risk is calculated for all over-the-counter derivative contracts, except for credit derivatives used as credit protection and transactions with a qualifying central counterparty. SEK calculates this capital requirement according to the standardized method.

 

Foreign exchange risk

 

Foreign exchange risk is calculated according to the standardized approach, whereas the scenario approach is used for calculating the gamma and volatility risks.

 

Commodities risk

 

Capital requirements for commodity risk are calculated in accordance with the simplified approach under the standardized approach. The scenario approach is used for calculating the gamma and volatility risks.

 

Operational risk

 

Capital requirement for operational risk is calculated according to the standardized approach. The company’s operations are divided into business areas as defined in the CRR. The capital requirement for each area is calculated by multiplying a factor depending on the business area by an income indicator. The factors applicable for SEK are 15 percent and 18 percent. The income indicators consist of the average operating income for the past three financial years for each business area.

 

Transitional rules

 

The capital adequacy ratios reflect the full impact of IFRS 9 as no transitional rules for IFRS 9 were utilized.

 

Capital buffer requirements

 

SEK expects to meet capital buffer requirements with Common Equity Tier 1 capital. The mandatory capital conservation buffer is 2.5 percent. The countercyclical buffer rate that is applied to exposures located in Sweden was lowered from 2.5 percent to 0 percent as of March 16, 2020. The reduction is made for preventive purposes, in order to counteract credit tightening due to the recent development and spread of COVID-19 and its effects

on the economy. As of March 31, 2020, the capital requirement related to relevant exposures in Sweden was 71 percent (year-end 2019: 70 percent) of the total relevant capital requirement regardless of location; this fraction is also the weight applied on the Swedish buffer rate when calculating SEK’s countercyclical capital buffer. The countercyclical capital buffer as of March 31, 2020 for Sweden has been dissolved due to the reduction of the countercyclical buffer value to 0 percent. Buffer rates applicable in other countries may have effects on SEK, but as most capital requirements for SEK’s relevant credit exposures are related to Sweden, the potential effect is limited. As of March 31, 2020, the contribution to SEK’s countercyclical buffer from buffer rates in other countries was 0.04 percentage points (year-end 2019: 0.1 percentage points). SEK has not been classified as a systemically important institution by any financial regulatory authority. The capital buffer requirements for systemically important institutions that came into force January 1, 2016 therefore do not apply to SEK.

 

Leverage Ratio

 

Skr mn

 

March 31, 2020

 

December 31, 2019

 

Exposure measure for the leverage ratio

 

 

 

 

 

On-balance sheet exposures

 

309,377

 

288,146

 

Off-balance sheet exposures

 

36,191

 

35,856

 

Total exposure measure

 

345,568

 

324,002

 

Leverage ratio

 

5.4

%

5.7

%

 

The leverage ratio is defined by CRR as the quotient of the Tier 1 capital and an exposure measure. Currently there is no minimum requirement for the leverage ratio. The leverage ratio reflects the full impact of IFRS 9 as no transitional rules were utilized.

 

Internally assessed economic capital

 

Skr mn

 

March 31, 2020

 

December 31, 2019

 

Credit risk

 

9,024

 

7,337

 

Operational risk

 

183

 

183

 

Market risk

 

1,063

 

1,109

 

Other risks

 

185

 

203

 

Capital planning buffer

 

2,831

 

992

 

Total

 

13,286

 

9,824

 

 

SEK regularly conducts an internal capital adequacy assessment process, during which the company determines how much capital is needed in order to cover its risks. The result of SEK’s assessment of capital adequacy is presented above. For more information regarding the internal capital adequacy assessment process and its methods, please see Note 30 to the annual financial statements included in SEK’s 2019 Annual Report on Form 20-F.


 

25


 

 

Note 10. Exposures

 

Net exposures are reported after taking into consideration effects of guarantees and credit default swaps. Amounts are calculated in accordance with capital adequacy calculations, but before the application of credit conversion factors.

 

Total net exposures

 

 

 

Credits & interest-bearing securities

 

Committed undisbursed loans,
derivatives, etc.

 

Total

 

Skr bn

 

March 31, 2020

 

December 31, 2019

 

March 31, 2020

 

December 31, 2019

 

March 31, 2020

 

December 31, 2019

 

Classified by type of counterparty

 

Amount

 

%

 

Amount

 

%

 

Amount

 

%

 

Amount

 

%

 

Amount

 

%

 

Amount

 

%

 

Central governments

 

128.6

 

42.2

 

110.4

 

39.1

 

50.3

 

76.1

 

50.9

 

78.3

 

178.9

 

48.3

 

161.3

 

46.4

 

Regional governments

 

10.6

 

3.5

 

16.5

 

5.8

 

 

 

 

 

10.6

 

2.9

 

16.5

 

4.7

 

Multilateral development banks

 

3.3

 

1.1

 

3.1

 

1.1

 

 

 

 

 

3.3

 

0.9

 

3.1

 

0.9

 

Public Sector Entity

 

3.1

 

1.0

 

4.0

 

1.4

 

 

 

 

 

3.1

 

0.8

 

4.0

 

1.2

 

Financial institutions

 

36.5

 

12.0

 

38.9

 

13.8

 

5.9

 

8.9

 

6.8

 

10.5

 

42.4

 

11.4

 

45.7

 

13.2

 

Corporates

 

122.2

 

40.2

 

109.6

 

38.8

 

9.9

 

15.0

 

7.3

 

11.2

 

132.1

 

35.7

 

116.9

 

33.6

 

Total

 

304.3

 

100.0

 

282.5

 

100.0

 

66.1

 

100.0

 

65.0

 

100.0

 

370.4

 

100.0

 

347.5

 

100.0

 

 

Net exposure by region and exposure class, as of March 31, 2020

 

Skr bn

 

Middle
East/
Africa

 

Asia excl.
Japan

 

Japan

 

North
America

 

Oceania

 

Latin
America

 

Sweden

 

West
European
countries
excl.
Sweden

 

Central-
and East
European
countries

 

Total

 

Central governments

 

0.0

 

0.7

 

1.4

 

0.9

 

 

 

157.5

 

15.0

 

3.4

 

178.9

 

Regional governments

 

 

 

 

 

 

 

10.4

 

0.2

 

 

10.6

 

Multilateral development banks

 

 

 

 

 

 

 

 

3.3

 

 

3.3

 

Public Sector Entity

 

 

 

 

 

 

 

 

3.1

 

 

3.1

 

Financial institutions

 

 

2.5

 

0.8

 

2.7

 

1.0

 

 

15.7

 

19.5

 

0.2

 

42.4

 

Corporates

 

4.3

 

1.9

 

3.9

 

5.3

 

 

3.5

 

92.5

 

20.5

 

0.2

 

132.1

 

Total

 

4.3

 

5.1

 

6.1

 

8.9

 

1.0

 

3.5

 

276.1

 

61.6

 

3.8

 

370.4

 

 

Net exposure by region and exposure class, as of December 31, 2019

 

Skr bn

 

Middle
East/
Africa

 

Asia excl.
Japan

 

Japan

 

North
America

 

Oceania

 

Latin
America

 

Sweden

 

West
European
countries
excl.
Sweden

 

Central-
and East
European
countries

 

Total

 

Central governments

 

 

0.6

 

2.8

 

2.8

 

 

 

138.1

 

13.9

 

3.1

 

161.3

 

Regional governments

 

 

 

 

 

 

 

16.3

 

0.2

 

 

16.5

 

Multilateral development banks

 

 

 

 

 

 

 

 

3.1

 

 

3.1

 

Public Sector Entity

 

 

 

 

 

 

 

 

4.0

 

 

4.0

 

Financial institutions

 

 

2.7

 

0.9

 

6.6

 

0.9

 

 

16.7

 

17.7

 

0.2

 

45.7

 

Corporates

 

4.5

 

1.7

 

3.8

 

4.0

 

 

2.8

 

80.1

 

19.9

 

0.1

 

116.9

 

Total

 

4.5

 

5.0

 

7.5

 

13.4

 

0.9

 

2.8

 

251.2

 

58.8

 

3.4

 

347.5

 

 

26


 

 

Net exposure to European countries, excluding Sweden

 


Skr bn

 

March 31, 2020

 

December 31, 2019

 

France

 

9.4

 

8.0

 

United Kingdom

 

9.3

 

8.0

 

Germany

 

8.1

 

9.1

 

Finland

 

7.4

 

6.8

 

Norway

 

6.7

 

7.3

 

Luxembourg

 

5.6

 

4.4

 

The Netherlands

 

4.5

 

3.9

 

Poland

 

3.4

 

3.1

 

Denmark

 

3.1

 

3.3

 

Belgium

 

2.6

 

2.4

 

Spain

 

2.0

 

2.1

 

Austria

 

1.0

 

1.7

 

Switzerland

 

0.6

 

0.7

 

Portugal

 

0.5

 

0.6

 

Ireland

 

0.4

 

0.3

 

Latvia

 

0.2

 

0.2

 

Iceland

 

0.2

 

0.1

 

Serbia

 

0.2

 

 

Italy

 

0.1

 

0.1

 

Estonia

 

0.1

 

0.1

 

Russia

 

0.0

 

 

Total

 

65.4

 

62.2

 

Note 11. Transactions with related parties

 

Transactions with related parties are described in Note 27 to the annual financial statements in SEK’s 2019 Annual Report on Form 20-F. During the first quarter of 2020, SEK utilized the credit facility it has with the Swedish National Debt Office and borrowed Skr 10 billion. No other material changes have taken place in relation to transactions with related parties compared to that description.

 

Note 12. Events after the reporting period

 

On April 6, 2020, SEK completed the issuance of its USD 1.75 billion three-year fixed rate benchmark bond, which launched at the end of March.


 

27


 

The Board of Directors and the Chief Executive Officer confirm that this Interim report provides a fair overview of the Consolidated Group’s operations, financial position and results, and describes material risks and uncertainties facing the Consolidated Group.

 

Stockholm, April 29, 2020

 

AB SVENSK EXPORTKREDIT

 

SWEDISH EXPORT CREDIT CORPORATION

 

Lars Linder-Aronson

 

Cecilia Ardström

 

Anna Brandt

Chairman of the Board

 

Director of the Board

 

Director of the Board

 

 

 

 

 

Reinhold Geijer

 

Hanna Lagercrantz

 

Hans Larsson

Director of the Board

 

Director of the Board

 

Director of the Board

 

Eva Nilsagård

 

Ulla Nilsson

Director of the Board

 

Director of the Board

 

Catrin Fransson

Chief Executive Officer

 

SEK has established the following expected dates for the publication of financial information and
other related matters:

 

July 16, 2020

 

Interim Report for the period January 1, 2020 - June 30, 2020

October 22, 2020

 

Interim Report for the period January 1, 2020 - September 30, 2020

February 2, 2021

 

Year-end report for the period January 1, 2020 - December 31, 2020

 

The report contains information that SEK will disclose pursuant to the Securities Markets Act and/or the Financial Instruments Trading Act. The information was submitted for publication on April 29, 2020, 15:00 (CEST).

 

Additional information about SEK, including investor presentations and SEK’s 2019 Annual Report on Form 20-F, is available at www.sek.se. Information available on or accessible through SEK’s website is not incorporated herein by reference.

 

28


 

Definitions

 


Alternative performance measures (see *)

Alternative performance measures (APMs) are key performance indicators that are not defined under IFRS or in the Capital Requirements Directive IV (CRD IV) or in regulation (EU) No. 575/2013 on prudential requirements for credit institutions and investment firms (CRR). SEK has presented these, either because they are in common use within the industry or because they comply with SEK’s assignment from the Swedish government. The APMs are used internally to monitor and manage operations, and are not considered to be directly comparable with similar key performance indicators presented by other companies. For additional information regarding the APMs, refer to www.sek.se.

 

*After-tax return on equity

Net profit, expressed as a percentage per annum of the current year’s average equity (calculated using the opening and closing balances for the report period).

 

*Average interest-bearing assets

The total of cash and cash equivalents, treasuries/government bonds, other interest-bearing securities except loans, loans in the form of interest-bearing securities, loans to credit institutions and loans to the public. Calculated using the opening and closing balances for the report period.

 

*Average interest-bearing liabilities

The total of outstanding senior debt and subordinated liabilities. Calculated using the opening and closing balances for the report period.

 

Basic and diluted earnings per share (Skr)

Net profit divided by the average number of shares, which amounted to 3,990,000 for each period.

 

*CIRR loans as percentage of new lending

The proportion of officially supported export credits (CIRR) of new lending.

 

CIRR-system

The CIRR-system comprises of the system of officially supported export credits (CIRR).

 

Common Equity Tier 1 capital ratio

The capital ratio is the quotient of total common equity tier 1 capital and the total risk exposure amount.

 

Large companies

Companies with an annual turnover of more than Skr 5 billion.

 

Leverage ratio

Tier 1 capital expressed as a percentage of the exposure measured under CRR (refer to Note 9).

 

Liquidity coverage ratio (LCR)

The liquidity coverage ratio is a liquidity metric that shows SEK’s highly liquid assets in relation to the company’s net cash outflows for the next 30 calendar days. An LCR of 100 percent means that the company’s liquidity reserve is of sufficient size to enable the company to manage stressed liquidity outflows over a period of 30 days. Unlike the Swedish FSA’s rules, the EU rules take into account the outflows that correspond to the need to pledge collateral for derivatives that would arise as a result of the effects of a negative market scenario.

Loans

Lending pertains to all credit facilities provided in the form of interest-bearing securities, and credit facilities granted by traditional documentation. SEK considers these amounts to be useful measurements of SEK’s lending volumes. Accordingly, comments on lending volumes in this report pertain to amounts based on this definition.

 

*Loans, outstanding and undisbursed

The total of loans in the form of interest-bearing securities, loans to credit institutions, loans to the public and loans, outstanding and undisbursed. Deduction is made for cash collateral under the security agreements for derivative contracts and deposits with time to maturity exceeding three months (see the Statement of Financial Position and Note 8).

 

Medium-sized companies

Companies with an annual turnover between Skr 500 million and Skr 5 billion, inclusive.

 

Net stable funding ratio (NSFR)

This ratio measures stable funding in relation to the company’s illiquid assets over a one-year, stressed scenario in accordance with Basel III.

 

*New lending

New lending includes all new committed loans, irrespective of tenor. Not all new lending is reported in the Consolidated Statement of Financial Position and the Consolidated Statement of Cash Flows since certain portions comprise committed undisbursed loans (see Note 8). The amounts reported for committed undisbursed loans may change when presented in the Consolidated Statement of Financial Position due to changes in exchange rates, for example.

 

*New long-term borrowings

New borrowings with maturities exceeding one year, for which the amounts are based on the trade date.

 

*Outstanding senior debt

The total of borrowing from credit institutions, borrowing from the public and debt securities issued.

 

Own credit risk

Net fair value change due to credit risk on financial liabilities designated as at fair value through profit or loss.

 

Repurchase and redemption of own debt

The amounts are based on the trade date.

 

Swedish exporters

SEK’s clients that directly or indirectly promote Swedish export.

 

Tier 1 capital ratio

The capital ratio is the quotient of total tier 1 capital and the total risk exposure amount.

 

Total capital ratio

The capital ratio is the quotient of total Own funds and the total risk exposure amount.

 


 

Unless otherwise stated, amounts in this report are in millions (mn) of Swedish kronor (Skr), abbreviated “Skr mn” and relate to the group consisting of the Parent Company and its consolidated subsidiary (together, the “Group” or the “Consolidated Group”). AB Svensk Exportkredit (SEK), is a Swedish corporation with the identity number 556084-0315, and with its registered office in Stockholm, Sweden. SEK is a public limited liability company as defined in the Swedish Companies Act. In some instances, under Swedish law, a public company is obliged to add “(publ.)” to its company name.

 

29


 

About SEK

 

About AB Svensk Exportkredit (SEK)

 

SEK is owned by the Swedish state, and since 1962 they have enabled growth for thousands of Swedish companies. To expand its production, make acquisitions, employ more people and selling goods and services to customers worldwide.

 

SEK’s mission

 

Our mission is to ensure access to financial solutions for the Swedish export industry on commercial and sustainable terms. The mission includes making available fixed-interest export credits within the officially supported CIRR system.

 

 

 

SEK’s vision

 

Our vision is to strengthen the competitiveness of the Swedish export industry to create employment and sustainable growth in Sweden.

 

 

 

SEK’s core values

 

We are governed by our core values: Solution orientation, Collaboration and Professionalism.

 

 

 

SEK’s clients

 

We finances exporters, their subcontractors and foreign clients. The target group is companies with an annual sales exceeding Skr 200 million and that are linked to Swedish interests and exports.

 

 

 

SEK’s partnerships

 

Through Team Sweden, we have close partnerships with other export promotion agencies in Sweden such as Business Sweden and The Swedish Export Credit Agency (EKN). Our international network is substantial and we also work together with numerous Swedish and international banks.

 

30