Capital Adequacy & Risk Management - SBAB.2018

Pillar 3 of the Basel regulations
Capital adequacy and

risk management
CONTENTS
List of tables 3 9. Credit risk in lending operations 36

9.1 Credit risk management 36
List of figures 4
9.2 Credit risk in the lending portfolio 36
Glossary 5 9.3 Risk classification system 38
1. Introduction 7 9.4 Risk classification method 39
9.5 The link between external and internal ratings 39
2. The Board’s statement on risk management
9.6 Exposure amounts and capital requirements 40
and risk summary 10
9.7 Exposure amounts by geographical region 43
3. The consolidated situation 11 9.8 Net exposure amounts by next stipulated
date of expiry 46
4. Risk management and risk organisation 13
9.9 Net exposure amounts by sector and
4.1 General rules for risk management 13 type of property 47
4.2 Risk strategy 13 9.10 Past due exposures and exposures subject to
4.3 Risk appetite 14 impairment requirements 48
4.4 Limits for capital ratios and targets for capital 14 9.11 Reconciliation of change in specific credit risk
4.5 The three lines of defence 15 adjustments for loans with provisions 52
4.6 Risk organisation 15 9.12 Exposures per risk class in the PD dimension 53
9.13 Realised outcome in the PD and LGD dimensions 54
5. Capital adequacy 17
9.14 Comparison of expected loss and outcome 54
5.1 Capital requirements 17
5.2 Capital requirements and buffers 17 10. Funding 55
5.2.1 Buffers 17 10.1 Medium and long-term funding 55
5.2.2 Risk-weight floor for Swedish mortgages 17 10.1.1 Senior unsecured funding 55
5.2.2.1 Impact on SBAB 17 10.1.2 Secured funding 55
5.2.3 Regulatory changes 18 10.2 Short-term funding 55
5.3 Own funds 19 10.3 Encumbered and unencumbered assets 55
5.3.1 Subordinated loans 21 10.4 Funding strategy 58
5.4 Regulatory capital requirements 22 10.5 Deposit strategy 58
5.5 Credit risk mitigation techniques 25 11. Credit risk in treasury operations 59
5.6 Securitised assets 25 11.1 Counterparty credit risk 59
5.7 Rating 25 11.2 Credit quality in the liquidity portfolio 60
6. Internally assessed capital requirement 26 12. Market risk 62
6.1 Internal capital adequacy assessment in line with 12.1 Value at Risk 62
Pillar 2 of the Basel regulations 26 12.2 Supplementary risk measurements 62
6.2 Process for internal calculation of capital requirements 26 12.3 Interest-rate risk in other operations 63
6.3 Internal capital adequacy assessment components 26 12.4 Regulatory capital requirement for market risk 63
6.3.1 Credit risk 27
13. Liquidity risk 64
6.3.1.1 Credit risk in lending operations 27
13.1 Liquidity strategy and liquidity risk management 64
6.3.1.2 Risk-weight floor for Swedish mortgages 27
13.1.1 Broad and diversified funding 64
6.3.1.3 Credit risk in treasury operations 27
13.1.2 Liquidity reserve 64
6.3.1.4 Sovereign risk 27
13.1.3 Continuous monitoring of liquidity risk 64
6.3.1.5 Credit-related concentration risk 28
13.1.4 Contingency plan 65
6.3.2 Credit valuation adjustment risk (CVA) 28
13.2 Liquidity risk — Short-term liquidity risk 67
6.3.3 Operational risk 28
13.2.1 Liquidity coverage ratio pursuant to the European
6.3.4 Market risk 28 Commission delegated regulation 67
6.3.4.1 Interest-rate risk 28 13.2.2 Survival horizon 67
6.3.4.2 Credit-spread risk 28 13.3 Liquidity risk — Structural liquidity risk 67
6.3.4.3 Currency risk 28 13.4 Stress tests for liquidity risk 67
6.3.4.4 Basis risk 28 13.5 Developments in liquidity risk regulation 68
6.3.5 Pension risk 28 13.5.1 Amended Regulation on Prudential Requirements
6.3.6 Capital planning buffer 28 for Credit Institutions and Investment Firms (CRR) 68
6.3.6.1 Quantification and assessment of 13.5.2 Other regulatory changes 68
the capital planning buffer 28
14. Operational risk 69
6.3.6.2 Income volatility 29
14.1 Risk management 69
6.3.6.3 Business risk 29
14.1.1 Self-evaluation 69
6.4 Compilation of internal
capital adequacy assessment 29 14.1.2 Incident management 69
6.5 Stress tests 30 14.1.3 Management of material changes 69
6.5.1 Stress test methods 30 14.1.4 Continuity management 69
6.5.2 Macroeconomic scenario 31 14.2 Significant operational risks 69
14.2.1 Cyber risk 69
7. Leverage ratio 32
14.2.2 Technical liability 69
8. Risk in remuneration systems 35 14.2.3 Competence 70
14.2.4 Regulatory risk 70
14.3 Capital requirements for operational risk 70
15. Business risk 71
2 SBAB Capital adequacy and risk management 2018

LIST OF TABLES
Table Table heading Table according to EBA Page

guidelines
Table 1 Significant risks page 8
Table 2 Risk appetite and risk profile page 10
Table 3 Outline of the differences in the scopes of consolidation EBA LI3 table page 11
Table 4 Decided targets for returns and capital ratios page 15
Table 5 Geographic distribution of exposures relevant for the calculation of the countercyclical buffer page 19
Table 6 Amount of institution-specific countercyclical capital buffer page 19
Table 7 Own funds page 20
Table 8 Capital adequacy page 21
Table 9 Results before shift of risk-weight floor for Swedish mortgage loans page 21
Table 10 Subordinated loans page 21
Table 11 Overview of RWAs EBA OV1 table page 22
Table 12 Risk exposure amounts and capital requirements page 22
Table 13 Standardised approach EBA CR5 table page 23
Table 14 Differences between accounting and regulatory scopes of consolidation and mapping of EBA LI1 table page 24
financial statement categories with regulatory risk categories
Table 15 Main sources of differences between regulatory exposure amounts and carrying values in EBA LI2 table page 24
financial statements
Table 16 Standardised approach – credit risk exposure and Credit Risk Mitigation (CRM) effects EBA CR4 table page 25
Table 17 Exposure amounts before and after credit risk mitigation by credit quality step page 25
Table 18 Credit risk mitigation techniques – overview EBA CR3 table page 25
Table 19 Internally assessed capital requirement page 30
Table 20 Parameters subjected to stress in the current and next three years page 31
Table 21 Leverage ratio page 32
Table 22 Summary reconciliation of accounting assets and leverage ratio exposures LRSUM page 33
Table 23 Split-up of on-balance sheet exposures (excluding derivatives and SFTs) LRSPL page 33
Table 24 Leverage ratio common disclosure LRCOM page 34
Table 25 Loan portfolios and exposure classes for which the IRB approach is applied page 39
Table 26 Relationship between internal and external rating page 39
Table 27 Exposure amounts by exposure class for credit risk exposures page 40
Table 28 IRB approach— Credit risk exposures by exposure class and PD range EBA CR6 table page 42
Table 29 RWA flow statements of credit risk exposures under IRB EBA CR8 table page 43
Table 30 Total and average net amount of exposures EBA CRB-B table page 43
Table 31 Geographical breakdown of exposures EBA CRB-C Table page 44
Table 32 Net exposure amount by geographical area for credit risk exposures in lending operations page 45
Table 33 Maturity of exposures EBA CRB-E Table page 46
Table 34 Concentration of exposures by industry or counterparty types EBA CRB-D Table page 47
Table 35 Net exposure amounts by type of property for credit risk exposures in lending operations page 48
Table 36 Credit quality of exposures by exposure classes and instruments EBA CR1-A Table page 49
Table 37 Credit quality of exposures by industry or counterparty types EBA CR1-B Table page 50
Table 38 Credit quality of exposures by geography EBA CR1-C Table page 50
Table 39 Ageing of past-due exposures EBA CR1-D Table page 51
Table 40 Non-performing and forborne exposures EBA CR1-E Table page 51
Table 41 Net exposure amounts for defaulted and non-defaulted exposures by property type page 52
Table 42 Net exposure amounts for defaulted and non-defaulted exposures by region page 52
Table 43 Changes in the stock of general and specific credit risk adjustments EBA CR2-A Table page 52
Table 44 Changes in stock of defaulted and impaired loans and debt securities EBA CR2-B Table page 53
Table 45 IRB approach– Backtesting of PD per exposure class EBA CR9 Table page 54
Table 46 Realised outcome in the PD and LGD dimensions page 54
Table 47 Comparison of expected loss between outcome and model, and provision for loans reported
according to IRB approach page 54
Table 48 Assets encumbered disclosures page 57
SBAB Capital adequacy and risk management 2018 3

LIST OF TABLES
Table Table heading Page

Table 49 Collateral received page 57
Table 50 Encumbered assets/collateral received and resulting liabilities page 57
Table 51 Standardised approach – CCR exposures by regulatory portfolio and risk EBA CCR3 table page 59
Table 52 Analysis of the counterparty credit risk (CCR) exposure by approach EBA CCR1 table page 59
Table 53 Impact of netting and collateral held on exposure values EBA CCR5-A table page 59
Table 54 Composition of collateral for exposures to counterparty credit risk EBA CCR5-B table page 60
Table 55 Approved rating per asset class page 60
Table 56 Holdings in liquidity portfolio page 60
Table 57 Derivatives specified by rating page 61
Table 58 Derivatives page 61
Table 59 Net credit exposure for derivatives page 61
Table 60 Market risk under standardised approach EBA MR1 table page 63
Table 61 Liquidity reserve page 65
Table 62 Liquidity coverage ratio under the CRR EBA LIQ1table page 66
LIST OF FIGURES
Figure Figure heading Page

Figure 1 Condensed balance sheet page 11
Figure 2 Organisation page 12
Figure 3 The three lines of defence page 15
Figure 4 Risk reporting page 16
Figure 5 Risk-weight floor page 18
Figure 6 Internal capital adequacy assessment process page 27
Figure 7 CET1 capital in a stressed scenario page 29
Figure 8 Schematic process for calculating economic capital page 30
Figures 9–10 “Loan To Value” (LTV) for corporate and retail exposures page 37
Figure 11 Internal rating process for corporates page 38
Figure 12 IRB Corporates — Exposure by risk class page 53
Figure 13 IRB Retail — Exposure by risk class page 53
Figure 14 IRB Retail — Tenant-owners’ right — Exposure by risk class page 53
Figure 15 IRB Retail — House/holiday home — Exposure by risk class page 53
Figure 16 IRB Retail — Tenant-owners’ association — Exposure by risk class page 53
Figure 17 Assets encumbered page 56
Figure 18 Unutilised scope page 56
Figure 19 Funding sources and distribution by currency for deposits and funding page 58
Figure 20 Deposits and lending trends page 58
Figure 21 Interest-rate risk broken down by currency in the event of a parallel shift in the yield curve of +1 percentage point page 62
Figure 22 Interest-rate risk in other operations in the event of a parallel shift in the yield curve of +/- 2 percentage points page 63

Glossary
CHAPTER 4 RISK MANAGEMENT AND RISK ORGANISATION Capital requirements under Pillar 1
Refers to the minimum amount of capital that the company is to have
in accordance with the CRR and CRD IV, the Special Supervision of
Asset and Liability Committee (ALCO)
Credit Institutions and Investment Firms Act (2014:968), the Capital
The committee that handles matters relating to risk and capital plan-
Buffers Act (2014:966) and the Swedish FSA’s regulations regarding
ning, which are then addressed by Executive Management and the
prudential requirements and capital buffers (FFFS 2014:12).
Board.
These provisions also include transitional rules deriving from Basel 1,
Directive 2013/36/EU — CRD IV of the European Parliament and of which applied until 31 December 2017.
the Council on authority to conduct operations in credit institutions
Risk-weight floor, Residential mortgages, Pillar 1
and on the supervision of credit institutions and securities companies
The addition of a risk exposure amount (REA) calculated based on
Common European regulations on risk management and capital ade-
Swedish residential mortgage exposures, which entail a risk weight for
quacy.
these exposures of at least 25%. The supplement only applies for credit
Regulation (EU) No. 575/2013 of the European Parliament and of institutions that apply the IRB approach. The requirement of a risk-
the Council on prudential requirements for credit institutions and weight floor for Swedish residential mortgages has been moved from
investment firms (CRR) Pillar 2 to Pillar 1 and entered force on 31 December 2018.
Common European regulations on risk management and capital ade-
Credit valuation adjustment risk (CVA risk)
quacy.
CVA risk is the risk that the counterparty in a financial transaction
Minimum requirement for own funds and eligible liabilities – (MREL) defaults and is unable to meet future payments under contracted OTC
The Swedish National Debt Office (SNDO) has finalized the model for derivative agreements. Transactions with a central counterparty (CCP)
calculation of the Minimum Requirement for Own Funds and Eligible should be excluded from the capital requirement for CVA risk.
Liabilities (MREL), which determines how much own funds and eligible
Common Equity Tier 1 (CET1) capital
liabilities each bank must have, what proportion should be debt and
Tier 1 capital less additional Tier 1 capital. Consists primarily of equity.
what type of liabilities may be used to meet the requirement. Banks
that are not systemically important will always meet the SNDO’s Minimum capital requirement
minimum requirement provided that they comply with existing capital The lowest amount that the company is permitted to have as own funds.
requirements. In a crisis, these banks will be declared bankrupt or Tier 1 capital
placed in liquidation rather than resolution. Tier 1 capital mainly comprises equity and additional Tier 1 capital.
MREL — coefficient Additional Tier 1 capital
Own funds and eligible liabilities as a percentage of total liabilities and Additional Tier 1 capital generally comprises perpetual subordinated
own funds. loans that meet the requirements in Article 52 of the CRR. According
Internal capital adequacy assessment process (ICAAP) to the transitional regulations, older additional Tier 1 capital may also
Process according to Article 73 of CRD IV for continuously calculating be included in Tier 1 capital.
and maintaining capital in an amount, type and distribution that is suf- Risk exposure amount (REA) under Basel 3
ficient to cover the risks to which the bank is or will become exposed. The Basel 3 regulations permit the use of the IRB approach, within the
Pillar 1 framework, to establish REAs for balance-sheet and off-balance
sheet exposures based on SBAB’s own models for credit risk, market
risk and operational risk. The risk weightings of other exposures are
CHAPTER 5 CAPITAL ADEQUACY determined on a standardised basis, in appropriate cases based on the
counterparty’s rating.
Perpetual subordinated loans Tier 2 instruments
Perpetual subordinated loans have a maturity that is essentially Subordinated loans that meet the requirements in Article 63 of the
unlimited, but they can be repurchased with the permission of Finansin- CRR may be included in own funds. According to the transitional reg-
spektionen (the Swedish FSA). ulations, older Tier 2 instruments may also be included in own funds. If
Internal ratings-based approach (IRB approach) the remaining maturity is less than five years, a deduction will be made
The IRB approach is used to calculate the regulatory capital require- based on the remaining number of days.
ment for credit risk. The foundation IRB (FIRB) approach entails that Total capital ratio
the institution is only to estimate the PD parameter. In the advanced Own funds divided by the risk exposure amount.
IRB (AIRB) approach, the institution is to estimate, in addition to PD,
one or several of the parameters CCF, LGD and M (maturity).
Own funds
Own funds consist primarily of equity and subordinated loans and act
as a buffer against unexpected losses.

CHAPTER 6 INTERNALLY ASSESSED CAPITAL REQUIREMENT CHAPTER 10 FUNDING
Economic capital Credit Support Annexe (CSA)

Economic capital is based on models in which SBAB assesses quantifiable Supplement to the ISDA Master Agreement that regulates the provision
risks. This constitutes an important component in, for example, pricing, of collateral in connection with a derivative transaction.
financial control and in assessment of the requisite scope of risk capital. Euro Medium Term Covered Note Programme (EMTCN)
Exposure at default (EAD) International funding programme for issuing covered bonds.
Exposure at the time of default. Calculating the EAD for off-balance- Euro Medium Term Note Programme (EMTN)
sheet items entails multiplying the unutilised amount by a credit con- International funding programme for medium and long-term unse-
version factor (CCF). cured funding.
Capital requirements under Pillar 2 Global Master Repurchase Agreement (GMRA)
The assessment is based on economic capital which, in combination International standardised agreement for repurchases.
with capital based on stress tests and capital for further risk, comprises
the company’s own assessment of the appropriate scope of risk capital.
Under Pillar 2, the capital requirement may not be less than the capital
metric under Pillar 1 for each risk type. CHAPTER 11 CREDIT RISK IN TREASURY OPERATIONS
Value at Risk (VaR)

A statistical metric of the maximum expected loss at a given level of International Swap and Derivatives Association (ISDA)
security and over a defined time period. Master Agreement
Framework agreement that regulates the rights and obligations
between the parties to a derivative transaction, primarily the netting of
debt in the event of insolvency.
CHAPTER 7 CREDIT RISK IN LENDING OPERATIONS
Repo transaction
A repo transaction comprises a reverse purchase agreement whereby
Expected loss (EL) one party undertakes to sell a security to a counterparty in exchange
The calculated EL must be covered by earnings from operating activi- for cash. In parallel, a futures contract is entered into to repurchase the
ties, while unexpected losses must be covered by the company’s equity. security at a specific price at a specified future date.
EL is arrived at by calculating the risk associated with each individual CHAPTER 13 LIQUIDITY RISK
loan using a statistical model based on a longer time horizon. EL is
measured through the formula EL = PD*LGD*EAD.
Liquidity coverage ratio (LCR)
Off-balance-sheet items The LCR is a liquidity risk metric that measures the relationship between
A commitment, pledged collateral or similar item that is not recognised liquid assets and a 30-day net cash outflow in a stressed scenario.
in the balance sheet because it is unlikely that it will be necessary to
Net stable funding ratio (NSFR)
realise or utilise it, or because, due to its extent, it cannot be calculated
A liquidity risk metric of a structural nature that demonstrates the sta-
with sufficient reliability. Contingent liabilities may also comprise pos-
bility of the Group’s funding in relation to its assets
sible commitments, meaning it is uncertain whether or not the commit-
ment exists. Survival horizon
Measurement of the number of days over which liquidity needs can be
Credit conversion factor (CCF)
met in a stressed scenario without access to new liquidity.
The percentage of an off-balance sheet item that is expected to be
utilised at the time of a possible future default.
Loan-to-value (LTV)
The loan-to-value ratio expresses the extent of a loan in relation to the
value of pledged collateral.
Loss given default (LGD)
Loss amount in the event of default.
Probability of default (PD)
Probability of default of a customer or counterparty within one year.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Introduction
1 Introduction
In this annual report, SBAB discloses information on capital adequacy, risk management and liquidity
based on Regulation (EU) No. 575/2013 of the European Parliament and of the Council on prudential
requirements for credit institutions and investment firms (CRR) and the Swedish FSA’s regulations
regarding prudential requirements and capital buffers (FFFS 2014:12). This report pertains to the
consolidated situation and the conditions prevailing on 31 December 2018. For periodic information,
please refer to the quarterly reports “Capital, liquidity and leverage disclosures” at www.sbab.se.
SBAB Bank AB (publ) is owned by the Swedish state. Its opera- New common regulations on supervisory requirements for credit
tions, which consist principally of deposit operations and residen- institutions have been adopted by the EU. The regulations aim
tial mortgage lending to consumers, tenant-owners’ associations to increase the stability of the international banking sector and
and property companies in Sweden, are characterised by a low encompass, inter alia, capital adequacy and large exposures,
level of risk. SBAB is well capitalised. requirements regarding liquidity coverage and leverage, as well
The CET1 capital ratio declined to 12.5% as a result of the as an opportunity for the authorities to introduce capital buffers
Swedish FSA’s decision to amend the method for applying the risk- that can be used to mitigate systemic risk and economic fluc-
weight floor for Swedish residential mortgages from 31 December tuations. The regulations encompass capital requirements and
2018. The credit loss ratio remained low. The continued strength requirements regarding quality of capital. The rate of change
of its capital position and good risk management means that in the regulatory frameworks has remained high. In December
SBAB meets the supervisory rules adopted by the EU. 2018, the EBA published new guidelines pertaining to disclosure
Total credit risk at SBAB rose slightly over the year and per- requirements for non-performing and forborne exposures that
tained mainly to derivative transactions. Liquidity risk was relatively apply from December 2019. At the end of 2018, the Basel Com-
unchanged and remained low. Market risk declined in 2018 due to mittee also presented proposals for expanded Pillar 3 disclosure
the entire liquidity portfolio being transferred from the trading book requirements adapted to the completion of the Basel 3 package.
to the banking book in accordance with IFRS 9. Accordingly, the This report shows the significant operational risks for SBAB
market risk in Pillar 1 only comprises currency risk. broken down by risk type as per the table on the next page.
Cr e
ri s k d it SBAB’s risk appetite
it y ri
id
u
Read more on page 08

sk
Li q
For information about sustainability risks,

refer to SBAB’s 2018 Annual Report
SBAB’s
target
B u s i n es
t ri s k
rke
s ri
Ma
sk
O pe
r a t i o n a l ri s k
S ust
a i n a b i l it y ri s k s

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Introduction
TABLE 1. SIGNIFICANT RISKS
Risk type Risk appetite
Classification Level
Credit risk in lending operations

The risk that the counterparty does not fulfil its payment obligations towards SBAB. Credit risk arises in Wanted risk Medium
conjunction with loans and loan commitments, as well as in connection with value changes in pledged col-
lateral entailing that these no longer cover the Group’s receivables. The credit risk also includes concen-
tration risk, which refers to the increase in credit risk that arises in large exposures to individual counter-
parties, regions or industries.
Read more in chapter 9
Credit risk in treasury operations

Defined as the total of investment risk and counterparty risk. Counterparty risk is defined as credit risk in Necessary risk Low
financial derivatives that arises when the value of the instrument changes resulting from variations, for
example, in interest rates or currency exchange rates, which means SBAB recognises a receivable against
the counterparty. In addition, counterparty risk entails that SBAB’s financial counterparties cannot meet
their commitments under the contracted repos. Investment risk is defined as credit risk in financial invest-
ments and entails the risk that a debtor does not fulfil its payment obligations, meaning either completes
payments late or not at all. Investment risk arises through investments in the liquidity portfolio and the
investment of surplus liquidity.
Market risk
The risk of loss or reduced future income due to market fluctuations. Market risk includes interest-rate risk, Necessary risk Low
currency risk, basis risk and spread risk. Currency risk refers to the risk that changes in the exchange rate
for SEK against other currencies result in losses or lower future income. Interest-rate risk is defined as the
risk that variations in interest rates result in losses or lower future income as assets and liabilities have dif-
ferent fixed-interest periods and interest terms. Spread risk refers to an exposure to changing conditions
between interest costs for different issuers. Basis risk refers to the risk associated with deposits and lending
that are locked to different interest bases.
Operational risk
The risk of losses due to inappropriate or unsuccessful processes, human error, faulty systems or external Necessary risk Low
events, including legal risks. The forms of operational risk applicable to SBAB are shown in the categorisa-
tion of types of events. Examples of types of events that could be applicable are internal and external
fraud, work conditions and environment, damage to tangible assets, disruptions to the business operations
and systems, transaction management and process control. Legal risk includes the risk that agreements or
other legal transactions cannot be completed in accordance with specific terms and conditions or that
judicial proceedings are started that could have a negative impact on SBAB’s operations. Operational risk
includes compliance risk. Regulatory compliance is essential in maintaining confidence in SBAB’s opera-
tions. Even rules that are not legally binding, but that reflect a market practice or ethical guidelines, affect
SBAB’s approach to employees and customers.
Business risk
The risk of declining earnings due to harsher competition, inappropriate strategies or erroneous decisions. Necessary risk Low
SBAB differentiates its business risk between strategic risk and the risk of weaker earnings. Strategic risk is
defined as the risk of a loss arising due to unfavourable business decisions, erroneous implementation of
strategic decisions or a lack of sensitivity to changes in the industry, the political environment or legal cir-
cumstances. The risk of weaker earnings encompasses the risk of, for example, reduced margins, which in
turn may arise due to more expensive financing or more intense competition.
Liquidity risk
The risk that the company will not be able to meet its payment obligations on the date of maturity with- Necessary risk Low
out the related cost increasing significantly. Short-term liquidity risk measures the risk of being
impacted in the short term by a lack of liquidity, while structural liquidity risk is a measure of the mis-
match between assets and liabilities in terms of maturities, which risks leading to a lack of liquidity in the
longer term.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Introduction
Risk profile Risk management
SBAB’s customer base is primarily consumers, Credit risk is central to SBAB’s business model and it is considered to be the dominant risk in opera-
tenant-owners’ associations and landlords who finance tions. Credit granting in SBAB is characterised by responsible credit granting taking into account the
residences secured through SBAB, the majority of which customer’s long-term repayment capacity and resilience as well as collateral. Credit rules and credit
are concentrated to major metropolitan areas. management is continuously analysed, processed and improved. Corporate clients are processed
individually while retail customers are analysed using a structured process in conjunction with the
credit approval process. Concentration risk and large exposures are carefully monitored.
SBAB’s counterparty risks and investment risks are low Counterparty-risk exposure is primarily covered through collateral agreements in which the counter-
and are not considered dominant risks. party provides collateral in an effort to reduce exposure. Investment risk is mitigated as SBAB only
invests in interest-bearing bonds with high credit ratings.
SBAB’s market risk is low and is not considered a domi- Interest-rate risk is to be mitigated through direct funding or the use of derivatives. Currency risks are
nant risk. mitigated as funding in international currency is hedged through currency swaps or invested in match-
ing currencies.
Operational risk is a natural part of all business. SBAB Within SBAB, risk management consists of uniform valuation and reporting of operational risk.The
aims to optimise the relationship between costs for oper- analysis of risk levels in all operations is conducted on a regular basis and reported to the Board, the
ational risk and operating activities. SBAB considers CEO and the Executive Management. Self-evaluation of processes that are considered significant is
operational risk to be a prerequisite for implementing the performed at least once per year. Within the framework of changes with potential effects on the
business concept efficiently and competitively, taking bank’s risk level, risks are identified in an early stage of the change process. Prior to implementation,
into account operations, strategy, risk appetite and the the change process is quality assured by representatives from the second line of defence. Unexpected
macro environment. events that can negatively affect the bank are to be reported as incidents and managed according to
pre-determined instructions.
SBAB’s business risk is low and is not considered a domi- Risks related to strategy and earnings are evaluated on an ongoing basis over the year within the first
nant risk. line’s strategy work. Strategically important decisions are managed within the framework for manag-
ing material changes. Furthermore, the Board receives an annual evaluation of the material risks that
clearly addresses strategic business risk and the bank’s overall earnings. Business risk is also included
in the calculation of the Pillar 2 capital requirement as part of SBAB’s stress tests, and where the
effects of a scenario corresponding to a normal economic downturn are evaluated.
SBAB has a low liquidity risk and diversified funding. SBAB’s liquidity strategy includes proactive and continuous liquidity planning, active debt manage-
Securities that are part of the liquidity reserve have high ment and an adequate liquidity reserve. The funding strategy takes into consideration the expected
credit ratings and are eligible as collateral with either maturity on the asset side. On this basis, SBAB limits its structural liquidity risk by maintaining diversi-
the Riksbank or the European Central Bank, to guaran- fied funding with sufficiently long maturities. SBAB has several liquidity metrics, for which limits apply,
tee liquidity. most of which are monitored and reported on a daily basis.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
The Board’s statement on risk management and a brief risk declaration
The Board’s statement on risk

2
management and a brief risk

declaration
The Board of Directors of SBAB Bank AB (publ) supports the risk management described in this
document and considers that it meets the requirements that may be placed on it in relation to
SBAB’s risk profile and adopted short and long-term strategic, capital and financial plans.
TABLE 2. RISK APPETITE AND RISK PROFILE

RISK APPETITE RISK PROFILE
Proportion of
Risk type Classification Level Limit utilisation economic capital, %
Credit risk in lending operations Wanted risk Medium Medium 77

Credit risk in treasury operations Necessary risk Low Low 4
Market risk Necessary risk Low Medium 13
Operational risk Necessary risk Low Low 6
Business risk Necessary risk Low Low –
Liquidity risk Necessary risk Low Low –
SBAB classifies risks as wanted and necessary: Operational risk is defined as a necessary risk, which means that
• Wanted risks comprise those directly related to the business both expected and unexpected losses must be optimised based
concept. on the expected positive effects to be achieved in the form of
• Necessary risks are those arising from activities that are anticipated revenues, cost savings or reductions in other risk.
regarded as a direct prerequisite for being able to implement Business risk is defined as a necessary risk. Changes in the
the business concept efficiently and competitively, whereby a form of new products or new markets may only constitute a small
certain level of risk is accepted. part of SBAB’s activities and must be implemented at such a pace
that SBAB does not substantially jeopardise its earnings level and
Credit risk is central to SBAB’s business model and is considered with great probability avoids pressure on its own funds. The quan-
to be the dominant risk in SBAB’s operations. Credit risk directly tifiable portion of business risk is included in the evaluation of the
related to SBAB’s business operations qualifies as a wanted risk, capital situation in a normal economic downturn.
while credit risk related to liquidity investments or in the form of Liquidity risk is defined as a necessary risk and must be main-
counterparty risk is classified as necessary risk that is acceptable, tained at such a level that SBAB can manage a period of acute
but where the level of risk should be limited. liquidity crisis without depending on the capital market. Liquidity
Market risk and its components are primarily considered a risk is not managed by capital provisions but by maintaining a
necessary risk. Market risk should be kept at a low level and not be liquidity reserve.
a predominant risk.

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The consolidated situation
3 The consolidated situation

The consolidated situation includes SBAB Bank AB (publ), AB Sveriges Säkerställda
Obligationer (publ) (Swedish Covered Bond Corporation — SCBC). SCBC issues covered
bonds in the Swedish and international capital markets.
TABLE 3. OUTLINE OF THE DIFFERENCES IN THE SOPE OF CONSOLIDATION(EBA LI3 TABLE)
ENTITIES INCLUDED IN THE CONSOLIDATED SITUATION

Method of accounting Method of regulatory
Name of entity Organisation Number Share consolidation consolidation Description
Parent
SBAB Bank AB (publ) 556253-7513 Company – – Institution
AB Sveriges Säkerställda Obligationer (publ)
(Swedish Covered Bond Corporation — SCBC) 556645-9755 100% Full consolidation Full consolidation Institution
ENTITIES NOT INCLUDED IN THE CONSOLIDATED SITUATION
Method of accounting Method of regulatory

Name of entity Organisation Number Share consolidation consolidation Description
Booli Search Technologies AB 556733-0567 100% Full consolidation Not consolidated IT company
SBAB’s principal activity is to provide mortgage loans for resi- On 30 November 2018, SBAB acquired the remaining shares out-
dential properties and tenant-owners’ rights located in Sweden standing in Booli Search Technologies AB (Booli), and now owns
against collateral in the form of mortgage deeds and shares in 100% (68). Booli develops products and services focusing on the
tenant-owners’ associations and, to a limited extent, to finance housing market and is not included in the consolidated situation.
commercial properties and provide unsecured loans. The Parent The consolidated situation encompasses SBAB Bank AB (publ)
Company also offers savings accounts. and its wholly owned subsidiary SCBC.
Information about the Board of Directors, the recruitment
policy, the diversity policy and the risk committee is included in
the Corporate Governance Report in SBAB’s Annual Report. For FIGURE 1. CONDENSED BALANCE SHEET
information about related parties, please refer to Note G:2 of SEK m
SBAB’s Annual Report. 500
The Swedish Covered Bond Corporation (hereinafter referred
to as SCBC) does not conduct any proprietary new lending oper- 400
ations. Instead, it acquires loans from the Parent Company on a
300
regular basis. The purpose of securing credits is for them to be
able to be included, in full or in part, in the cover pool that com- 200
prises collateral for holders of covered bonds issued by SCBC in
Swedish and international capital markets. 100
SBAB’s sales activities are conducted through two channels:
0
Retail and Corporate Clients & Tenant-Owners’ Associations. Assets Liabilities and equity
Retail focuses on lending to consumers and deposits from con- Other assets Other liabilities
sumers and companies. Corporate Clients & Tenant-Owners’ Lending for multi-family Unsecured bonds
dwellings Covered bonds
Associations is active in the property market through lending Lending for houses and Retail deposits
tenant-owners’ rights Equity and subordinated loans
to property companies, property funds and tenant-owners’
associations. SBAB’s funding is managed by Treasury, within the
Accounting & Treasury department.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
The consolidated situation
FIGURE 2. ORGANISATION
A GENERAL MEETING
The general meeting is SBAB’s highest governing

K EXTERNAL AUDITOR body where the shareholder exercises its decision-
making authority.
The auditor examines the
Annual Report, the consoli-
dated financial statements
and the accounting records,
as well as the Board’s and
the CEO’s administration of B BOARD OF DIRECTORS
the company.
The Board of Directors is ultimately responsible
for SBAB’s organisation and management.
C AUDIT AND D E RISK AND F REMUNERATION

CREDIT COMMITTEE
COMPLIANCE COMMITTEE CAPITAL COMMITTEE COMMITTEE
The Audit and Compliance The Credit Committee’s The Risk and Capital Com- The Remuneration Commit-
Committee’s principal task is principal task is to decide on mittee’s principal task is to tee’s main task is to prepare
to examine SBAB’s gover- loans and credit limits. prepare issues within the risk matters regarding the prin-
nance, the internal controls and capital area. ciples for remuneration and
and the financial information. other employment terms and
conditions for senior execu-
tives.
G CEO 1)
J INTERNAL AUDIT
The CEO is responsible for the
ongoing management of the opera- The internal audit is the
tions of SBAB. Board’s audit function.
H COMPLIANCE I RISK 1)
Compliance ensures that opera- Risk analyses and controls SBAB’s

tions are conducted in accordance overall risks.
with laws and regulations.
Corporate & Tech 1) Data Customer Business Customer Sustainability, Accounting HR 1)
tenant-owners’ science 1) experience 1) specialists1) service 1) and & treasury 1)
associations 1) communication 1)
1)
Included in Executive Management.
Organisational changes in 2018 ence and Customer Service. Following certain changes in responsibility,
In 2018, SBAB decided to implement a number of organisational changes Operations was renamed Business Specialists. Credit & Risk was renamed
to be able to more rapidly meet new customer requirements, and to be Risk after certain reallocations of responsibility. Sustainability and Strate-
able to adapt operations to the accelerating pace of market change. The gic Communication was renamed Sustainability and Communication after
changes included the closure of two units in the Executive Management the reallocation of full responsibility for communication and the brand to
(Retail Market and Partnerships & Business Development) as well as the this unit. The organisational changes entered force on 1 May 2018.
creation of three new units in the form of Data Science, Customer Experi-

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Risk management and risk organisation
Risk management
4
and risk organisation

SBAB’s risk taking is low and is kept at a level commensurate with financial
targets for return, scope of own funds and target rating. The lending operations
mainly generate credit risk, while the most significant risks in the funding
operations consist of interest-rate risk and liquidity risk.
4.1 General rules for risk management against the desired level of risk and the change in the level of risk
Risk management involves ensuring that SBAB is resilient in all achieved through a particular measure.
types of situations and that the company has capital that guaran- SBAB should only deliberately expose itself to risks directly
tees that even unexpected risks can be managed. attributable or necessary to SBAB’s business operations. Such
• Risk management must support operations, maintain a high risks primarily encompass credit risk, liquidity risk, market risk,
level of quality to ensure control of all risks, safeguard SBAB’s business risk and operational risk.
survival, keep in line with rating targets and limit volatility in In addition to limiting the exposure to different types of risk, the
SBAB’s financial position. risks to SBAB from using different types of financial instruments
• The ability to assess, manage and price risks while simulta- must also be limited. In its treasury operations, SBAB should
neously maintaining sufficient liquidity and capital to meet mainly use derivatives for hedging purposes. Since the risk profile
unforeseen events is of fundamental significance for long-term of a derivative transaction may differ from that of the hedged
profitability and stability. The aim of the strategy adopted for exposure, an analysis must always be performed to ensure that
the operations is to consider the risks that arise in the opera- the total risk is understood. This is especially important in the use
tions and the capital needed to cover these risks. This entails of new financial instruments that must be approved in SBAB’s pro-
that an ongoing discussion should be maintained regarding cess for new financial instruments prior to the transaction.
the risks that arise in the operations and the capital required to SBAB applies a documented process for the approval of new
counter those risks. or significantly altered products, services, markets, processes
• SBAB is to have an independent risk control function to iden- and IT systems as well as major operational and organisational
tify, measure, govern, report and maintain control of the risks changes.
that SBAB is or may become exposed to. The independent SBAB’s risk strategy involves managing and evaluating risks
risk control function must have the requisite competence and that the operations are or may be exposed to, through:
mandate. There must be an effective risk management system • Clear and documented internal procedures and control sys-
and satisfactory internal control. tems.
• SBAB must have knowledge and awareness of any risks to which • An appropriate and transparent organisational structure with
the bank may be exposed. SBAB is to be able to estimate the clearly defined and documented powers.
size of the risks to which the bank is and may become exposed. • Current and documented decision-making procedures that
• All SBAB employees are responsible for managing the compa- clearly state the reporting structure.
ny’s risks as part of their regular work. SBAB is to continuously • Risk evaluation methods and system support that are adapted
inform and train its employees on the company’s risk manage- to the operations’ requirements, complexity and size.
ment framework. A sound risk culture is to be realised through • Sufficient resources and skills to achieve the desirable quality
a value-based work approach. in both business and control activities.
4.2 Risk strategy

• Regular incident reporting by the operations according to a
documented process.
SBAB’s operations are to be conducted such that risks are
adapted to SBAB’s risk-bearing capacity. Risk-bearing capac-
• Documented and communicated contingency and continuity
plans.
ity primarily refers to the capacity to manage expected and
unexpected losses by means of own funds or ongoing earnings
• Clear instructions on internal capital adequacy assessments,
credit risk, operational risk, liquidity risk and market risk, which
capacity and, secondly, the capacity to minimise unwanted risks are updated annually and adopted by the CEO or, if required,
by means of appropriate functions, strategies, processes, proce- by the Board of Directors.
dures, internal rules, limits and controls. Certain risks cannot be
quantified and compared with the risk-bearing capacity. In such
• All significant risks for SBAB are limited by the Board and are
commensurate with the pre-determined risk appetite.
cases, the cost of mitigating the risk should be weighed up

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
4.3 Risk appetite SBAB is tasked with continuously, and at least annually, reas-
The level of risk taking within SBAB is low. This is achieved by sessing the balance between risks and risk-bearing capacity or
ensuring that the total risk level is kept compatible with short the costs to minimise risk. The reassessment includes limits and
and long-term strategic plans, capital plans, financial plans and calibration levels, and should be performed prior to the start of
recovery plans. business planning, the internal capital and liquidity adequacy
An important part of SBAB’s business model entails risks being assessment processes (ICLAAP) and capital planning. The pro-
relatively low and predictable, making it possible to maintain cesses for business planning, ICLAAP and capital planning should
a large volume of business in relation to own funds. This does then include a clear and documented link to risk appetite.
not mean that each individual credit exposure has low risk, but
rather that the total lending portfolio consists largely of low-risk 4.4 Limits for capital ratios and targets for capital
exposures and that their internal risk effect is such that SBAB’s Each year, the Board considers capital requirements in relation
total risk is limited. The basis for SBAB’s appetite for various types to the risks to which SBAB is exposed. This is performed through a
of risk is that each risk should fit within a well-defined segment decision on limits for capital ratios.
of SBAB’s risk-bearing capacity. The total risk exposure may not
exceed the total risk-bearing capacity. The scope of the risk that Based on the chosen business strategy, rating targets and capital
is accepted must be clearly linked to how important the relevant planning, the Board decided to adopt the following capital tar-
risk is to SBAB’s business model and the positive effects expected gets effective from 31 December 2018:
to be achieved in the form of anticipated income, cost savings or • The CET1 capital ratio should under normal conditions be
reduction of other risks. at least 0.6 percentage points higher than the CET1 capital
As a rule, each business decision changes SBAB’s exposure requirement communicated by the Swedish FSA.
to various risk types. Accordingly, SBAB’s risk control models are • The total capital ratio should under normal conditions be at
designed to reflect the determined risk appetite and such that least 0.6 percentage points higher than the capital require-
each business decision is based on a healthy balance between ment communicated by the Swedish FSA.
the estimated impact on earnings and changes in risk exposure. • Under normal conditions, the leverage ratio should be at least
Based on the chosen strategy, ongoing earnings and the size 0.2 percentage points above the capital requirement commu-
of own funds, the Board of the Parent Company establishes the nicated by the Swedish FSA, or 3%, whichever is higher.
risk that SBAB is prepared to take and makes decisions regard- • The MREL coefficient must be at least 5.1% and the debt share
ing risk appetite targets. These targets are based on three main amount to at least 29.9% of REA in accordance with the deci-
categories: solvency, liquidity risk and compliance. The solvency sion of the Swedish National Debt Office (SNDO) for 2019.
category encompasses the risks for which SBAB must retain cap-
ital, while liquidity risk encompasses the risks impacting SBAB’s At any given time, the capital requirement as communicated by
prerequisites for successful financing and liquidity management. the Swedish Financial Supervisory authority and which applies to
Compliance, the third main category, encompasses the regula- CET1 capital, own funds requirements, the leverage ratio and the
tions and ethical standards SBAB must comply with to pursue its MREL must be met. Outcomes for the capital ratios are reported
operations. Each category is broken down into subgroups with to the CEO and Board on a monthly basis. More detailed report-
established limits for which outcomes are followed up on and ing of the current capital position in relation to established targets
reported monthly to the CEO and Board. is performed quarterly. The CRO is responsible for this reporting.
SBAB’s targets for the three risk appetite categories:

• In the first category, solvency, work is conducted to ensure that
SBAB maintains sufficient capital to conduct an operation in
accordance with the adopted strategy, and that credit risk, mar-
ket risk, operational risk, concentration risk and income-volatility
risk are kept within the levels approved by the Board, and that
minimum levels are maintained with regard to capital ratios.
• In the second category, liquidity risk, work is conducted to
monitor that liquidity meets the determined minimum levels
so that SBAB is able to cope with periods of strained market
liquidity. It also includes ensuring that the SCBC’s cover pool
has a sufficient level of collateral to maintain a AAA rating in a
stressed scenario.
• Regulatory compliance is essential in maintaining confidence
in SBAB’s operations. Even rules that are not legally binding,
but that reflect a market practice or ethical guidelines, affect
SBAB’s approach to employees and customers. The risk appetite
metric for the third category, compliance, is not quantifiable in
the same way as the other categories — solvency and liquidity —
but is summarised in a more preventive qualitative target.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
TABLE 4. DECIDED TARGETS FOR RETURNS AND CAPITAL RATIOS
TARGETS OUTCOME DIFFERENCE
2018 2017 2018 2017 2018 2017
Return on equity (owner’s return requirement) 1),

% 10.0 10.0 12.1 12.5 2.1 2.5
CET1 capital ratio, % 10.6 27.3 12.5 32.2 1.9 4.9
Total capital ratio, % 14.7 37.7 18.1 47.6 3.4 9.9
1)
Net profit for the year divided by average equity.
4.5 The three lines of defence FIGURE 3. THE THREE LINES OF DEFENCE
To define the division of responsibilities between the business Operations Risk Control &
operations, risk control and compliance, as well as internal audit, Compliance Internal audit
SBAB applies the division of roles and responsibilities resulting
from the three lines of defence principle: Owns and manages risks Controls Assesses on assignment
in day-to-day operations. and follows up. from the Board of Directors.
• The first line of defence refers to the day-to-day management

of risks performed by the business operations that incur and
own the risks.
• The second line of defence refers to the risk control (compris- RISK RISK RISK
LINE
LINE
LINE
ing the units for financial risk, capital, operational risk, and
2nd
3rd
credit risk analysis and policies) and compliance functions. The 1st
risk control units are to ensure that risk awareness and accep-
tance are sufficient to be able to manage risks on a daily basis.
They also have a supportive role and work to ensure that the
training in risk-related issues and for ensuring that new members
business operations have the procedures, systems and tools
are trained within two months of commencing their appointments.
required to maintain the daily management of risks, thereby
The CEO is responsible for ongoing administration in accor-
ensuring that the business operations comply with applicable
dance with the strategies, guidelines and governance documents
laws and regulations in risk control’s sphere of responsibility.
adopted by the Board. The CEO is to ensure that the methods,
Compliance is to verify that the business operations adhere
models and processes forming part of the internal measure-
to laws and regulations and support the business operations
ment and control of identified risks function as intended and are
within its area of responsibility.
approved by the Board. In ALCO (Asset & Liability Committee),
• The third line of defence refers to the internal audit, which
issues concerning capital management, liquidity preperedness,,
reviews and regularly assesses whether the company’s organ-
overall strategy regarding market risk and limit issues are dis-
isation, governance processes, IT systems, models and proce-
cussed. Above that issues related to finance strategy, balance
dures are appropriate and effective, and whether the compa-
sheet plan and internal price are discussed in front of CEO. The
ny’s internal controls are appropriate and effective. The inter-
CEO also ensures, on an ongoing basis, that reporting to the
nal audit is also tasked with reviewing and regularly assessing
Board by each unit, including the Risk Control function, is con-
the company’s risk management based on its adopted risk
ducted in accordance with the relevant instructions. The CRO
strategy and risk appetite.
is responsible for the independent Risk Control function, which
comprises identification, quantification, analysis, follow-up and
4.6 Risk organisation
reporting of all risks. The CRO is directly subordinate to the CEO
SBAB’s Board bears the overarching responsibility for the compa-
and reports directly to the CEO and Board of Directors of SBAB.
ny’s total risk exposure and determines the risk policy, capital pol-
icy and risk appetite. It is the Board’s responsibility to ensure that
Among other matters, the CRO is responsible for:
operations can be conducted with sound internal control so that
SBAB’s ability to meet its obligations is not compromised. When • At an overarching level, developing risk-taking strategies and
ensuring that SBAB’s risk-taking strategies are implemented
the Board determines the business strategy, it takes into account
in accordance with the Board’s intentions, and that policies,
the risks that SBAB is and may be exposed to as well as the capital
instructions and processes facilitate relevant follow-up;
required to cover SBAB’s risks.
The Board or its committees are to approve all significant meth- • Identifying, measuring, analysing and reporting risk exposure
to the Board of Directors and CEO;
ods, models and processes used in risk management. (For more
information regarding the Board’s committees, see the Corporate • Providing the Board of Directors and the CEO with a tangible
and comprehensive overview of all risks in the institution;
Governance Report in SBAB’s Annual Report.) The Board and CEO
should have a sound overall comprehension of these and a detailed • Designing proposals for the risk strategy and participating in
all material risk management decisions;
understanding of the content of the risk reports submitted to them.
The CRO is responsible for the Board and CEO receiving ongoing

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
• Having sufficient authority to influence strategic risk manage- Executive Management are thereby provided with a relevant over-
ment decisions and being able to contact the Board of Direc- view of the Group’s risk exposure on a continuous basis.
tors directly; and Those who own the risks, i.e. the business operations, must,
• Designing, implementing, ensuring reliability and following without delay, inform risk control of occurrences of significant
up SBAB’s risk classification system and its economic capital events that could entail a heightened risk.
model. Clear ownership of risk and compliance applies in the first
line of defence at SBAB. This is secured through an organisation
A monthly report on the overall risk situation and capital ade- comprised of risk and compliance coordinators in the first line of
quacy ratios is presented by risk control to the Board, the CEO and defence, who support the respective business managers with a
Executive Management. The Board and the CEO are also provided focus on risk management, process mapping, internal controls,
with a more in-depth description of risks on a quarterly basis. In incident management and regulatory compliance.
addition, a daily report on current risk levels in relation to granted
limits is presented to the CEO, CFO and CRO. SBAB’s Board and
FIGURE 4. RISK REPORTING
REPORTING
BOARD OF DIRECTORS
AUDIT AND
RISK AND REMUNERATION COM-
CREDIT COMMITTEE COMPLIANCE
CAPITAL COMMITTEE MITTEE
COMMITTEE
CEO ALCO
CHIEF RISK OFFICER (CRO)
CREDIT RISK ANALYSIS

FINANCIAL RISKS CAPITAL OPERATIONAL RISK
AND POLICIES

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Capital adequacy
5 Capital adequacy
The rules for capital adequacy are stated in the CRR and CRD IV. In part, the rules serve
to make institutions more resilient to new crises and, in part, to raise confidence in the
institutions’ ability to manage new crises. The institutions must prove to rating agencies
and the investors who purchase the institutions’ securities, as well as new and existing
customers, that they have an adequate capital situation.
5.1 Capital requirements 5.2.1 Buffers

The size of SBAB’s capital requirement depends on laws and reg- In addition to a total capital ratio of 8%, the bank must maintain
ulations, the company’s internal assessment based on approved CET1 capital to meet the combined buffer requirement, which in
strategies, the assessments of investors and rating agencies, and Sweden is the sum of a capital conservation buffer of 2.5% of the
the evaluations made by the owner, the Board and Executive risk exposure amount, a countercyclical buffer of up to 2.5% and
Management. buffers for systemic risk of up to 5%.
Capital in accordance with Pillar 1, refers to the minimum The Swedish FSA has decided that, in addition to a capital
amount of capital that the company is to have in accordance with conservation buffer of 2.5%, a countercyclical buffer of 2.0% will
the CRR and CRD IV, the EU’s technical standards and delegated apply for Swedish exposures. In 2018, the Swedish FSA took a
acts, the Special Supervision of Credit Institutions and Investment decision to raise the countercyclical buffer for Swedish exposures
Firms Act (2014:968), the Capital Buffers Act (2014:966) and to 2.5% effective from 19 September 2019. The Swedish FSA has
the Swedish FSA’s regulations regarding prudential requirements also decided to recognise countercyclical buffer values of up to
and capital buffers (FFFS 2014:12). The total capital ratio includ- 2.5% set by a competent authority in another EEA country, which
ing the additional amount under Pillar 2 amounted to 14.1% at 31 means that Norwegian exposures are subject to a countercyclical
December 2018, and the CET1 capital requirement was 10.0%. buffer of 2.0%. From 31 December 2019, the countercyclical
The total capital ratio amounted to SEK 18.1% at 31 December buffer value for Norwegian exposures is being raised to 2.5% fol-
2018, and the CET1 capital ratio was 12.5%. lowing a decision by the Norwegian Ministry of Finance. United
Kingdom exposures are subject to a countercyclical buffer of 1%.
5.2 Capital requirements and buffers Furthermore, banks considered systemically important are sub-
The rules in the CRR and CRD IV entail, among other things, ject to an additional capital requirement of 5% to be covered by
requirements in the Pillar 1 for a minimum level of own funds and CET1 capital. The banks in Sweden that are currently considered
controls on capital requirements. According to the requirements, systemically important are: Handelsbanken, SEB, Swedbank and
the bank must have a CET1 capital ratio of at least 4.5%, a Tier 1 Nordea Hypotek. The buffer values are presented in Table 12,
capital ratio of at least 6% and a total capital ratio at least equal Risk exposure amounts and capital requirements.
to 8% of the total risk exposure amount for credit risk, market risk
and operational risk.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Capital adequacy
5.2.2 Risk-weight floor for Swedish mortgages 5.2.3 Regulatory changes

On 22 August 2018, the Board of Directors of the Swedish FSA The rate of change in the regulatory frameworks has remained
decided to change the method for applying risk-weight floors for high. Known, forthcoming regulatory changes are presented below:
Swedish residential mortgages. The requirement that previously • The EBA published new guidelines pertaining to disclosure
applied in Pillar 2 has, from 31 December 2018, been replaced requirements for non-performing and forborne exposures that
with a corresponding requirement in Pillar 1 through activation apply from 31 December 2019.
of Article 458 of the CRR. The change applies for a period of two • Over the year, the Basel Committee presented additional
years, or alternatively, until the macroprudential risk ceases to proposals for changes aimed at increasing transparency and
exist. Under Article 458, the measure can be extended for one making institutions more resilient to disruptions in the market,
year at a time. The measure applies to credit institutions with for example, new guidelines for the application of the disclo-
Swedish mortgage exposures and to institutions with permission sure requirements under Chapter 8 of the CRR.
to apply an IRB approach for these exposures. SBAB and SCBC • The Swedish FSA has introduced new regulations and general
are subject to this measure. guidelines for managing credit risks, which enter into force on
1 March 2019. The regulations include rules regarding how
5.2.2.1 Impact on SBAB companies should identify, measure, govern, report internally
In nominal terms, SBAB’s total capital requirement is not signifi- and exercise control over credit risks. They also include rules
cantly affected by the amendment. The minimum requirement for how the companies should conduct credit assessments.
rises, as does the buffer requirement. At the same time, the Pillar The aim of the regulations is to improve credit risk manage-
2 capital requirement decreases by a corresponding amount ment at credit institutions and securities companies. The
since the existing Pillar 2 requirement of 25% for residential mort- impact on SBAB’s operations is assessed as manageable and,
gages is removed. However, this does entail an increase in the in autumn 2018, work was carried to secure compliance with
risk exposure amount of around SEK 71 billion. The consequence the regulations.
is that the capital ratios and the capital requirement expressed
as a percentage of the risk exposure amount decreases, while
• The new lease standard (IFRS 16) was implemented on 1 Jan-
uary 2019, and entails the recognition of a lease as an asset
the difference in absolute terms is negligible. SBAB’s capacity to (right-of-use) and a liability in the lessee’s balance sheet. In
meet the total capital requirement is unaffected. 2018, SBAB completed analysis of all contracts, which has
Figure 5 illustrates the CET1 capital ratio in the case of a resulted in rental contracts for premises becoming subject to
downgrade in the PD risk class for the entire mortgage portfolio SBAB’s application of IFRS 16. These contracts were classified
given a risk-weight floor in Pillar 2 and Pillar 1, respectively. The as operating leases under IAS 17. On transition on 1 January
risk sensitivity of the capital ratio is maintained with the floor in 2019, SBAB will recognise, in its consolidated situation, a
Pillar 2. Accordingly, deterioration of PD risk class contributes tangible asset with respect to lease contracts identified pur-
naturally to declines in capital ratios. With a risk-weight floor suant to IFRS 16 of SEK 88 million according to the simplified
in Pillar 1, an insensitive and essentially static capital ratio is approach. A risk weight of 100% is applied for the tangible
obtained, which requires the entire mortgage portfolio to decline asset pursuant to Article 134, item 7 of the CRR. The effect on
by at least four migration stages to obtain a response from the profit or loss is deemed limited and will therefore not materi-
capital ratio. The effect will be standardized, this means that ally affect SBAB’s own funds.
SBAB’s capital ratios will at an early stage be phased in to the
effects from the completion of Basel III (also known as “Basel
• The EBA has initiated an extensive effort aimed at harmon-
ising the banks’ internal ratings-based (IRB) systems used
IV”). Therefore, it is very important to emphasize that SBAB’s to cover capital requirements for credit risk. Harmonisation
actual risk or requirements in real terms are not affected by the comprises two parts. The first part is the new regulatory
change. Capital ratios are affected by a fall in levels but, after requirements that clarify the definition of default and the
the change, will no longer represent the actual risks in the portfo- thresholds for materiality pursuant to Article 178(1) of the
lio and would mostly stay at more static levels. CRR. The second part concerns the parameter estimates of
PD and LGD, and their respective calibration against long-
term default frequencies and credit losses after taking into
FIGURE 5. RISK-WEIGHT FLOOR
account economic downturn periods. Through clarification
%
of the regulatory requirements in these areas, the EBA hopes
35 to achieve a consensus among the banks, whereby the same
underlying credit risks are covered to an equal extent. The
30 new regulatory requirements apply from 1 January 2021 and
will affect all of SBAB’s IRB models. At the start of 2020, SBAB
25 is expected to apply for a new permission from the Swedish
FSA for the adapted IRB system.
20 • The European Commission has submitted proposals for
amendment of the CRR, which aim to reduce the share of
15 non-performing loans. The proposal entails a minimum level
for how much an institution should set aside to cover any
10 future losses on non-performing loans. This is conducted by
No 1 2 3 4 5
migration step step step step step making a deduction from the institution’s CET1 capital. The
impact on SBAB’s own funds is expected to be marginal.
Risk-weight floor in Pillar 2 Risk-weight floor in Pillar 1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Capital adequacy
TABLE 5. GEOGRAPHIC DISTRIBUTION OF EXPOSURES RELEVANT FOR THE CALCULATION OF THE COUNTERCYCLICAL BUFFER
GENERAL CREDIT TRADING BOOK SECURITISATION CAPITAL REQUIREMENTS

EXPOSURES EXPOSURES EXPOSURES
Sum of
long and
short posi- Value of
tions of trading
trading book expo- Of which: Of which: Of which: Own funds Counter-
Countercyclical Exposure Exposure book sures for Exposure Exposure General Trading Securiti require- cyclical
buffer by country, value for value for exposures internal value for value for credit book sation ments capital
SEK million SA IRB for SA models SA IRB exposures exposures exposures Total weights buffer rate
Sweden 35,123 373,687 – – – – 2,479 – – 2,479 80.24 2.00

Norway 2,089 – – – – – 17 – – 17 0.54 2.00
Other 41,728 – – – – – 594 – – 594 19.22 –
Total 78,940 373,687 – – – – 3,090 – – 3,090 100.00 –
TABLE 6. AMOUNT OF INSTITUTION-SPECIFIC COUNTERCYCLICAL

CAPITAL BUFFER
SEK million
Total risk exposure amount 114,141

Institution-specific countercyclical capital buffer rate, % 1.99
Institution-specific countercyclical buffer requirement 2,266
5.3 Own funds projected cash flows, is not to be included in own funds. The CET1
SBAB’s own funds comprise equity as well as additional Tier 1 capital has been adjusted for cash-flow hedges amounting to SEK
capital and Tier 2 capital consisting of subordinated loans. SBAB’s 488 million.
own funds amounted to SEK 20,713 million at 31 December 2018. Changes in fair value that depend on the institution’s own
Over the year, CET1 capital was affected by the fact that net credit standing and that are related to derivatives had a negative
profit/loss for the period was added and the estimated dividend impact of SEK 65 million on CET1 capital, in accordance with
deducted, in accordance with SBAB’s dividend policy. The surplus Article 33, item 1b.
has been verified by the company’s auditors, in accordance with With reference to Articles 34 and 105 of the CRR, SEK 59
Article 26, item 2, of the CRR. million has been deducted from CET1 capital due to the require-
According to Article 35 of the CRR, the institution shall, except ments for prudent valuation.
in the case of the items referred to in Article 33, not make adjust- A deduction of SEK 126 million for intangible assets and a
ments to remove from own funds unrealised gains or losses on deduction of SEK 50 million for net provisions were made in
assets or liabilities recognised at fair value. According to this Arti- accordance with Article 36 of the CRR. An addition for an IRB
cle, SEK 609 million have been added to CET1 capital. surplus, under Article 62, item d of the CRR, had an impact of SEK
According to Article 33, item 1, of the CRR, the part of the 3 million on own funds in December 2018.
fair-value reserves related to gains or losses on cash-flow hedges No risk exposures have been deducted from own funds.
of financial instruments that are not valued at fair value, including

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Capital adequacy
Disclosure of own funds

Disclosures in accordance with Article 4 of Commission
Implementing Regulation (EU) No 1423/2013, Annex V.
TABLE 7. OWN FUNDS
Consolidated situation, SEK million 31 Dec 2018  31 Dec 2017
CET1 capital instruments: Instruments and reserves

Capital instruments and the related share premium accounts 1,958 1,958
Retained earnings 11,443 10,452
Accumulated other comprehensive income (and other reserves, to include unrealised gains and losses under the applicable
accounting standards) 609 189
Additional Tier 1 instruments 1,500 1,500
Independently verified net profit for the year net of any foreseeable charge or dividend 1,041 1,026
CET1 capital before regulatory adjustments 16,551 15,125
CET1 capital: Regulatory adjustments
Additional value adjustments (negative amount) –59 –62
Intangible assets (net of related tax liability) (negative amount) –126 –83
Fair value reserves related to gains or losses on cash-flow hedges –488 9
Negative amounts resulting from the calculation of expected loss amounts –50 –29
Gains or losses on liabilities valued at fair value resulting from changes in own credit standing –65 –17
Additional Tier 1 instruments in equity –1,500 –1,500
Total regulatory adjustments to CET1 capital –2,288 –1,682
CET1 capital 14,263 13,443
Additional Tier 1 capital: Instruments
of which: classified as equity under applicable accounting standards 1,500 1,500
of which, classified as liabilities under applicable accounting standards 1,500 1,500
Amount of qualifying items referred to in Article 484(4) and the related share premium accounts subject to phase out from
Additional Tier 1 capital – –
Additional Tier 1 capital before regulatory adjustments 3,000 3,000
Additional Tier 1 capital: Regulatory adjustments
Total regulatory adjustments to Additional Tier 1 capital – –
Additional Tier 1 capital 3,000 3,000
Tier 1 capital (Tier 1 capital=CET1 + Additional Tier 1 capital) 17,263 16,443
Tier 2 capital: Instruments and provisions
Credit risk adjustments 3 –
Tier 2 capital before regulatory adjustments 3,450 3,447
Tier 2 capital: Regulatory adjustments
Total regulatory adjustments to Tier 2 capital – –
Tier 2 capital 3,450 3,447
Total capital (Total capital=Tier 1 capital + Tier 2 capital) 20,713 19,890
Total risk exposure amount 114,141 41,797
Capital ratio and buffers
CET1 capital (as a percentage of total risk-weighted exposure amount), % 12.5 32.2
Tier 1 capital (as a percentage of total risk-weighted exposure amount), % 15.1 39.3
Total capital (as a percentage of total risk-weighted exposure amount), % 18.1 47.6
Institution-specific buffer requirements (CET1 capital requirement in accordance with Article 92(1)(a) plus the capital conservation
buffer and countercyclical capital buffer requirements, plus the systemic risk buffer, plus the systemically important institution buffers
(G-SII buffer and O-SII buffer) expressed as a percentage of the risk-weighted exposure amount, % 9.0 9.0
of which, CET1 capital, minimum requirement, % 4.5 4.5
of which, capital conservation buffer requirement, % 2.5 2.5
of which, countercyclical buffer requirement, % 2.0 2.0
of which, systemic risk buffer requirement, % – –
of which, G-SII buffer and O-SII buffer, % – –
CET1 capital available to meet buffers (as a share of risk-weighted exposure amounts, %) 8.0 27.7
Capital instruments subject to phase-out arrangements (only applicable
between 1 January 2014 and 1 January 2022)
Current cap on AT1 instruments subject to phase-out arrangements – –
Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities) – –
Current cap on T2 instruments subject to phase-out arrangements – –

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Capital adequacy
There are no ongoing or foreseen material obstacles or other The starting capital required for the Parent Company in
legal barriers to a rapid transfer of funds from own funds other accordance with the Act on Banking and Financing Activities
than what is stipulated in the terms and conditions governing sub- (2004:297) totalled SEK 45.9 million. The corresponding capital
ordinated loans (see Note L:7 in SBAB’s Annual Report for 2018) requirement for SCBC amounted to SEK 47.0 million.
or what generally applies under the Companies Act (2005:551).
TABLE 8. CAPITAL ADEQUACY1)

CONSOLIDATED SITUATION PARENT COMPANY SCBC
SEK million 2018 2017 2018 2017 2018 2017
CET1 capital 14,263 13,443 6,398 7,127 15,250 16,710

Tier 1 capital 17,263 16,443 9,398 10,127 15,250 16,710
Total capital 20,713 19,890 12,845 13,574 15,253 16,710
Risk exposure amount 114,141 41,797 36,404 31,776 89,188 21,422
CET1 capital ratio, % 12.5 32.2 17.6 22.4 17.1 78.0
Excess 2) of CET1 capital 9,127 11,563 4,760 5,697 11,237 15,746
Tier 1 capital ratio, % 15.1 39.3 25.8 31.9 17.1 78.0
Excess 2) of Tier 1 capital 10,415 13,936 7,214 8,221 9,899 15,424
Total capital ratio, % 18.2 47.6 35.3 42.7 17.1 78.0
Excess 2) of total capital 11,582 16,547 9,933 11,032 8,118 14,996
1)
The risk exposure amount, the excess and capital ratios have been impacted by the risk-weight floor for residential mortgages.
2)
Excess capital has been calculated based on minimum capital requirements (without buffer requirements).
TABLE 9. RESULTS BEFORE SHIFT OF RISK-WEIGHT FLOOR FOR SWEDISH 5.3.1 Subordinated loans
MORTGAGE LOANS1) The subordinated loans are subordinate to the Parent Compa-
2018 ny's other liabilities, and the subordinated loans included in Tier
Risk exposure amount, SEK million 43,422 1 capital are subordinate to other subordinated loans. For a
CET1 capital ratio, % 32.8
specification of own funds and the terms and conditions for sub-
ordinated loans in accordance with Commission Implementing
Tier 1 capital ratio, % 39.8
Regulation (EU) No 1423/2013, please refer to the information
Total capital ratio, % 47.7 under “Capital adequacy & risk management” at www.sbab.se.
he table illustrates what the capital situation would have been if the risk-weight floor had not
T
1) The complete terms and conditions of the subordinated loans are
been moved. This information is solely for comparative purposes. also specified at www.sbab.se.
TABLE 10. SUBORDINATED LOANS, SEK million

Included in
Nominal First possible Interest rate after own funds as Included in
Cur- Nominal amount out- redemption first possible Additional own funds as
ISIN rency amount standing date Interest rate, % redemption date, % Maturity date Tier 1 capital Tier 2 capital
XS1202975386 SEK 400 400 16 Mar 2020 3.8245% 3m STIBOR +3.25% Perpetual 400 –
XS1202987985 SEK 1,100 1,100 16 Mar 2020 3m STIBOR +3.25% 3m STIBOR +3.25% Perpetual 1,100 –
XS1245415812 SEK 1,000 1,000 11 Jun 2020 3m STIBOR +1.30% 3m STIBOR +1.30% 11 Jun 2025 – 1,000
XS1317715842 SEK 600 600 10 Nov 2020 2.25% 3m STIBOR +1.90% 10 Nov 2025 – 597
XS1317716147 SEK 1,850 1,850 10 Nov 2020 3m STIBOR +1.90% 3m STIBOR +1.90% 10 Nov 2025 – 1,850
XS1412406503 SEK 775 775 21 Jun 2021 5.052% 3m STIBOR +4.75% Perpetual 775 –
XS1412408897 SEK 725 725 21 Jun 2021 3m STIBOR +4.75% 3m STIBOR +4.75% Perpetual 725 –
Total 6,450 6,450 3,000 3,447

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Capital adequacy
5.4 Regulatory capital requirement TABLE 11. OVERVIEW OF RWAS (EBA OV1 TABLE)

When calculating capital requirements, each expo- Minimum capital
RWAs requirement
sure is allocated to an exposure class, either using the
standardised or the IRB approach. Table 12 shows the SEK million 2018 2017 2018 2017
individual risk exposure amounts distributed by expo- Credit risk (excluding CCR) 31,423 31,644 2,513 2,532
sure class.
of which the standardised approach 7,199 6,917 575 554
The capital requirement for credit risk rose slightly
of which the foundation IRB (FIRB) approach 12,128 12,258 970 981
over the year due to derivative transactions. The capital
of which, the advanced IRB (AIRB) approach 12,096 12,469 968 997
requirement for credit risk, excluding counterparty risk,
CCR 6,661 4,850 533 388
declined over the year due to positive migrations of PDs
of which the standardised approach 3,776 2,592 302 207
measuring the probability of default. This is also in line
of which credit valuation adjustment (CVA) risk 2,885 2,258 231 181
with the historically low default frequencies that were
observed over the year. The capital requirement for Market risk 999 1,159 80 93
market risk declined due to the entire liquidity portfolio of which the standardised approach 999 1,159 80 93
being transferred from the trading book to the banking Operational risk 4,339 4,144 347 331
book. This has resulted in SBAB no longer having inter- of which the standardised approach 4,339 4,144 347 331
est-rate risk in Pillar 1 and only having currency risk. Adjustment for the Basel 1 floor – – – 12,096
Additional stricter prudential requirements
under Article 458 of the CRR 70,719 – 5,658 –
Total 114,141 41,797 9,131 15,439
TABLE 12. RISK EXPOSURE AMOUNTS AND CAPITAL REQUIREMENTS

Capital Capital
Risk exposure amount requirement Risk exposure amount requirement
SEK million 31 Dec 2018 31 Dec 2018 31 Dec 2017 31 Dec 2017
Credit risk recognised in accordance with IRB approach

Exposures to corporates 12,128 970 12,258 981
Retail exposures 12,096 968 12,469 997
- of which, exposures to SMEs 829 67 1,160 93
- of which, retail exposures secured by immovable property 11,267 901 11,309 904
Total exposures recognised with the IRB approach 24,224 1,938 24,727 1,978
Credit risk recognised with the standardised approach

Exposures to governments and central banks 0 0 0 0
Exposures to regional governments or local authorities or agencies 0 0 0 0
Exposures to multilateral development banks 0 0 0 0
Exposures to institutions1) 3,777 2,593 207
- of which, derivatives according to CRR, Appendix 2 3,776 302 2,583 206
- of which, repos – – 9 1
- of which, other 1 0 1 0
Retail exposures 2,236 179 2,193 175

Exposures in default 10 1 11 1
Exposures in the form of covered bonds 3,593 287 3,282 263

Exposures to institutions and corporates with a short-term credit rating 16 1 21 2
Equity exposures 1,116 89 1,078 86
Other items 227 18 331 27
Total exposures recognised with standardised approach 10,975 877 9,509 761
Market risk 999 80 1,159 93

- of which, position risk – – 413 33
- of which, currency risk 999 80 746 60
Operational risk 4,339 347 4,144 331

Credit valuation adjustment risk 2,885 231 2,258 181
Additional stricter prudential requirements under Article 458 of the CRR 70,719 5,658 – –
Total risk exposure amount and minimum capital requirements 114,141 9,131 41,797 3,344
Capital requirements for capital conservation buffer 2,854 1,045
Capital requirements for countercyclical buffer 2,266 829
Total capital requirements 14,251 5,218
1)
The risk-weighted amount for counterparty risk according to the CRR, Article 92(3)(f), amounts to SEK 3,776 million (2,592).

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Capital adequacy
TABLE 13. STANDARDISED APPROACH (EBA CR5 TABLE)

Of which,
unrated
Exposure class, SEK million 0% 10% 20% 50% 75% 100% 150% 1,250% Deducted2) Total
Central governments or
central banks 25,266 – – – – – – – – 25,266 –
Regional governments or
local authorities 12,081 – – – – – – – – 12,081 –
Multilateral development banks 2,443 – – – – – – – – 2,443 –
Institutions1) – – 2,747 6,455 – – – – – 9,202 –
Retail – – – – 2,982 – – – – 2,982 2,982
Exposures in default – – – – – 7 2 – – 9 9
Covered bonds – 35,929 – – – – – – – 35,929 –
Institutions and corporates with
a short-term credit rating – – 80 – – – – – – 80 –
Equity – – – – – – – 89 – 89 –
Other items 154 – – – – 227 – – – 381 381
Total 39,944 35,929 2,827 6,455 2,982 234 2 89 – 88,462 3,371
1)
The calculation includes counterparty risk.
2)
The exposure class, “other items” includes those items deducted from own funds. Capital adequacy for these is calculated with a risk weight of 0%.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Capital adequacy
TABLE 14. DIFFERENCES BETWEEN ACCOUNTING AND REGULATORY SCOPES OF CONSOLIDATION AND MAPPING OF FINANCIAL STATEMENT CATEGORIES
WITH REGULATORY RISK CATEGORIES(EBA TABLE LI1) 1)
Carrying values
Not subject to
capital require-
Carrying values Carrying values ments or subject
as reported in under scope of Subject to the Subject Subject to the to deduction
published finan- regulatory con- credit risk to CCR market risk from capital
Balance sheet, SEK million cial statements solidation framework framework framework2) base3)
Assets
Cash and balances at central banks 0 0 0 – – –
Treasury bills, etc. 4) 20,904 20,904 23,419 – – –
Lending to credit institutions 4) 2,847 2,847 80 252 – –
Lending to the public 364,215 364,215 364,215 – – –
Value changes of interest-rate-risk hedged items in macro hedges 99 99 99 – – –
Bonds and other interest-bearing securities 50,945 50,945 50,945 – – –
Derivatives 8,313 8,313 – 8,313 – –
Share in subsidiaries 0 89 89 – – –
Intangible assets 234 154 154 – – –
Property, plant and equipment 16 14 14 – – –
Other assets 73 68 68 – – –
Prepaid expenses and accrued income 709 707 707 – – –
Total assets 448,355 448,355 439,790 8,565 – –
Liabilities
Liabilities to credit institutions 6,606 6,606 – 6,606 – –
Deposits from the public 124,926 124,926 – – – –
Debt securities issued 290,795 290,795 – – – –
Derivatives 1,339 1,339 – 1,339 – –
Other liabilities 384 384 – – – –
Accrued expenses and deferred income 1,790 1,786 – – – –
Deferred tax liabilities 194 195 – – – –
Provisions 138 138 – – – –
Subordinated debt 4,946 4,946 – – – –
Total liabilities 431,118 431,115 – 7,945 – –
1)
The table does not include operational risk or CVA risk.
2)
Following the implementation of IFRS 9, SBAB no longer has any interest-rate risk and only has currency risk. The table does not specify carrying values for currency risk.
3)
The exposure class, “other items” includes those items deducted from own funds. Capital adequacy for these is calculated with a risk weight of 0%.
4)
Deposits amounting to SEK 2.5 billion are recognised in the balance sheet under the item Lending to credit institutions and are classified for capital adequacy purposes under Chargeable
treasury bills, etc.
TABLE 15. MAIN SOURCES OF DIFFERENCES BETWEEN REGULATORY EXPOSURE AMOUNTS AND CARRYING VALUES IN FINANCIAL STATEMENTS (EBA TABLE LI2)
Items subject to
Credit risk Securitisation Market risk
SEK million Total framework1) CCR framework1) framework framework1)
Assets carrying value amount under the scope of regulatory consolidation 448,355 439,790 8,565 – –
Liabilities carrying value amount under the regulatory scope of consolidation 7,945 – 7,945 – –
Total net amount under the regulatory scope of consolidation 440,410 439,790 620 – –
Off-balance-sheet amounts 37,535 37,535 – – –

Differences due to different netting rules, other than those already included in
Liabilities carrying value amount under the regulatory scope of consolidation 8,580 – 8,580 – –
Differences due to prudential filters 131 131 – – –
Differences in valuations – – – – –
Exposure amounts considered for regulatory purposes 486,656 477,456 9,200 – –
1)
he framework for counterparty risk and market risk encompasses REAs from derivatives and repos under Pillar 1. Since the implementation of IFRS 9, REAs for bonds are only encompassed by the
T
framework for credit risk under Pillar 1, due to the transfer of all of the bond holdings in the trading book to the banking book.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Capital adequacy
5.5 Credit risk mitigation techniques

Credit risk mitigation used for IRB exposures consists of govern-
ment and municipal guarantees. These are recognised using the
standardised approach for credit risk.
TABLE 16. STANDARDISED APPROACH – CREDIT RISK EXPOSURE AND CREDIT RISK MITIGATION (CRM) EFFECTS (EBA CR4 TABLE)
Exposures before CCF and CRM Exposures post CCF and CRM RWAs and RWA density
On-balance- Off-balance On-balance- Off-balance RWA Density
aryvExposure classes, SEK million sheet amount sheet amount sheet amount sheet amount RWAs (%)
Central governments or central banks 25,221 – 25,266 – – –
Regional governments or local authorities 11,295 – 12,081 – – –
Multilateral development banks 2,443 – 2,443 – – –
Institutions1) 2 – 2 – 0 0
Retail 2,784 990 2,784 198 2,236 75
Exposures in default 9 – 9 – 10 110
Covered bonds 35,929 – 35,930 – 3,593 10
Institutions and corporates with a short-term credit rating 80 – 80 – 16 20
Equity 89 – 89 – 1,116 1,250
Other items 381 – 381 – 227 60
Total 78,233 990 79,065 198 7,198 9
1)
The institution exposure class excludes counterparty risk.
TABLE 17. EXPOSURE AMOUNTS BEFORE AND AFTER TABLE 18. CREDIT RISK MITIGATION TECHNIQUES - OVERVIEW (EBA CR3 TABLE)
CREDIT RISK MITIGATION BY CREDIT
QUALITY STEP Exposures Exposures
Exposures Exposures Exposures secured by secured
Exposure Exposure unsecured – secured – secured by financial by credit
amount before amount after SEK million carrying amount carrying amount collateral guarantees derivatives
credit risk credit risk
Credit quality step, mitigation mitigation Total – loans 12,353 352,012 351,257 755 –
SEK million measures measures Total – debt
1 78,545 78,545 securities 74,887 – – – –
2 6,438 6,438 Total exposures 87,240 352,012 351,257 755 –
3 17 17 Of which
defaulted 10 229 229 – –
4 – –
5 – –
6 – –
Total 85,000 85,000
5.6 Securitised assets When external ratings are used, the two lowest ratings from
The SBAB Group has no securitised loans of its own and has not Moody’s, Fitch or Standard & Poor’s are selected in accordance
contributed to any other institution’s securitisation. with Article 138 of the CRR. External ratings are used for expo-
sures to governments and central banks, regional governments or
SBAB has no overdue exposures in respect of securitisations and local authorities and agencies, multilateral development banks,
no re-securitisations, and no securitised rolling exposures. institutions or corporates with a short-term credit rating, and
exposures in the form of covered bonds. The association of the
5.7 Rating external rating provided by credit rating agencies with the credit
SBAB uses ratings from all three approved rating agencies: quality steps prescribed in the CRR complies with the standard
Moody’s, Standard & Poor, and Fitch. association published by the EBA (refer to Table 26, Relationship
between internal and external rating).

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Internally assessed capital requirement
Internally assessed
6
capital requirement
The internal capital adequacy assessment aims to ensure that SBAB has adequate capital
under normal circumstances and in the event of financial problems. The Board of Directors and
Executive Management are responsible for the internal capital adequacy assessment. Within
the framework of the internal capital and liquidity adequacy assessment processes (ICLAAP),
SBAB applies an economic capital model for its internally assessed capital requirement. At
present, liquidity risk does not give rise to any actual capital requirement for SBAB. The
ICLAAP is designed to ensure an equal balance between risks, capital and liquidity. Refer
to Chapter 13 for more information on liquidity risk.
6.1 Internal capital adequacy assessment cies are reflected in SBAB’s rating, which directly impacts the
in line with Pillar 2 of the Basel regulations company’s funding cost.
Pillar 2 of the Basel 3 regulations imposes the requirement that The quality and utilisation of risk information are essential to
the banks’ management and assessment of risks must be satisfac- SBAB’s long-term competitiveness in the market. The purpose of
tory to ensure that the banks can fulfil their obligations. To meet the internal capital adequacy assessment process (ICAAP) is to
this requirement, the banks must have methods that enable them ensure that the company identifies, measures, secures and man-
to continuously evaluate and uphold capital in an amount, type ages the risks to which SBAB is exposed and that SBAB has own
and distribution sufficient to cover the risks to which they are or funds that are compatible with the selected risk appetite. The pro-
could become exposed. This is called the internal capital and cess is revised annually to capture changes in the operating envi-
liquidity adequacy assessment process (ICLAAP). ronment that continuously affect the company’s performance.
The operations conducted by SBAB affect the size of the risk
taken by the company, which in turn impacts the size and nature 6.2 Process for internal calculation of capital requirements
of the capital required to manage unforeseen losses. The size of As part of SBAB’s process for establishing internally calculated
the capital in turn affects the price of individual transactions for capital requirements, the risks generated in the operations are
customers. The better SBAB can manage and assess the risk, the identified initially. Risk Control is responsible for the quantification
more accurately the scope of the capital utilised in the individual of all risks. Various models are used depending on the risk to be
transaction can be assessed, thereby enabling the risk-adjusted measured. The economic capital model is used to calculate capi-
return for the transaction to be calculated. tal requirements for quantifiable risks.
SBAB’s internally assessed capital requirement comprises the SBAB uses stress tests to assess the impact on the capital
minimum capital requirement under Pillar 1, the capital require- requirement during a normal economic downturn and during
ment under Pillar 2 and buffer requirements. The Pillar 2 capital severe but plausible financial stress.
requirement assesses the additional capital required, over and In addition to economic capital, capital buffers are reserved
above Pillar 1, for the risks where a capital requirement has been for capital requirements caused by stress tests and for pension
identified in Pillar 2. This assessment is based on SBAB’s eco- risk, which are all included in the internal capital requirement.
nomic capital model. If the economic capital for each risk class The combined results are followed up and analysed, for both short
exceeds the capital requirement in Pillar 1, an additional amount and long-term effects, in terms of capital planning and forecasts.
applies under Pillar 2. The capital requirement under Pillar 2 also The compiled results of the internal capital adequacy assessment
assesses risk classes not covered by Pillar 1. Moreover, a num- are reported to the Board and CEO. Finally, the Board and CEO
ber of buffer requirements also apply. In addition to the buffer adopt the process and the results of the company’s internal capi-
requirement under Pillar 1, SBAB calculates a capital planning tal adequacy assessment.
buffer to cover any downgrade of the capital adequacy in the
event of severe but plausible financial stress. 6.3 Internal capital adequacy assessment components
When determining the size of the capital requirement, assess- SBAB’s internal assessment of the capital requirement takes into
ments of investors and rating agencies regarding the company’s consideration the minimum requirements under Pillar 1, the Pillar
capital requirements compared with the capital held by the 2 core requirement, the risk-weight floor for Swedish residential
company are also taken into account. The views of rating agen- mortgages, buffer requirements, stress tests and the capital plan-

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
FIGURE 6. INTERNAL CAPITAL ADEQUACY ASSESSMENT PROCESS
1 2 3 4 5 6
QUANTIFICATION QUANTIFICATION ASSESSMENT OF OWN FUNDS OPERATIONAL GOV- REPORTING
OF RISKS AND ASSESSMENT COMBINED INTER- (COMPARED WITH ERNANCE AND
OF OTHER RISKS NAL CAPITAL CAPITAL POLICY ALLOCATION OF
(CAPITAL BUFFERS) REQUIREMENTS AND PLAN) CAPITAL
• Credit risk • Stress test • Comparison of • CET1 capital • Risk-adjusted • Fulfilment of

• Concentration risk (business risk and economic capital profitability capital targets
• Market risk capital planning and minimum • Additional Tier 1 • Segment analysis and combined
• Sovereign risk buffer) capital require- capital and cost of capital internal capital
• Operational risk • Other risks ments under • Tier 2 capital requirements
• CVA risk Pillar 1 • Return on • Internal reporting
• Pension risk • Aggregation of allocated capital • External reporting
capital require-
ments for the
various risks
ning buffer. It is used to control and monitor profitability in the base for SBAB’s risk-adjusted follow-up, the prescribed LGD floors
company’s operations and for strategic considerations. of 10% and 15%, respectively, are not applied. This is because
The capital requirements for credit risk, including concentra- economic capital, in contrast to the IRB approach applied in the
tion risk and sovereign risk, market risk, operational risk and CVA regulatory framework, should be sensitive to the LTV ratio for all
risk are quantified in SBAB’s economic capital model. Economic exposures.
capital for credit risk and market risk is defined as the amount of The formula applied by the Basel framework for calculating
capital needed to ensure solvency over a one-year period, given capital requirements under Pillar 1 does not take into account
a predetermined confidence interval. The confidence interval is any concentration effects in the loan portfolio. In this model, the
chosen to reflect the company’s target rating. In SBAB’s case, the capital requirement for a single exposure is independent of the
confidence level is 99.97%, which corresponds to the long-term loan‘s portfolio and is based solely on PD, LGD and EAD for the
AA- target rating (according to Standard & Poor’s ratings scale). specific exposure. Therefore a supplement for concentration risk
In addition to the capital requirement that is quantified with must be made to quantify SBAB’s compiled credit risk, including
SBAB’s economic capital model, an additional capital require- concentration risk.
ment arises from the risk-weight floor for Swedish residential
mortgages, pension risk, and any additions in the form of business 6.3.1.2 Risk-weight floor for Swedish mortgages
risk and the capital planning buffer. Refer to Table 19 for the In August 2018, the Swedish FSA decided to apply the existing
internally calculated capital requirements per risk type. risk-weight floor for mortgages applied in Pillar 2 as a require-
ment within the framework of Article 458 of the CRR. The amend-
6.3.1 Credit risk ment entered force from 31 December 2018 and applies for two
Credit risk in lending operations is the dominant risk in SBAB’s years. The change means the capital requirement is set as a
operations. Credit risk in lending operations is defined as the requirement in Pillar 1. The credit institutions encompassed by the
risk of loss due to the customer’s or the counterparty’s inability measure are those authorised to use the IRB approach and which
to make interest and loan repayments or otherwise fulfil the loan have exposures to Swedish residential mortgages. The branches
agreement. Lending is conducted to consumers, tenant-owners’ of foreign credit institutions in Sweden that are exposed to Swed-
associations and companies. Aside from through lending and ish residential mortgages and which apply the IRB approach for
loan commitments, credit risk also arises in treasury operations these may also be affected.
through derivative counterparties and through investment risk for
investments in the liquidity portfolio. 6.3.1.3 Credit risk in treasury operations
Credit risk arises in treasury operations, in part, in the form of
6.3.1.1 Credit risk in lending operations counterparty risks for the derivative contracts entered into by
In the economic capital model, credit risk is calculated using the SBAB to manage its financial risks and, in part, in the form of
Basel framework’s formulas for capital requirements for credit investment risk as a result of investments in the liquidity portfolio
risk. However, these have been modified by adding further safety and the investment of surplus liquidity. Calculation of the expo-
margins to the required correlation assumptions applied. More- sure value for counterparty risk is based on the mark-to-market
over, the capital requirement is calculated to a confidence level approach and the majority of the exposure is covered through
of 99.97%, rather than to 99.9% as applied in the original for- collateral agreements.
mula. However, in the economic capital calculation, which is the

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
The assessment of credit risk in treasury operations is based on 6.3.4 Market risk
the same principles as for lending operations. The material differ- Market risk means the risk of a negative earnings impact due to
ence to lending operations is that the PD is set based on the coun- market fluctuations and, in SBAB’s operations, mainly comprises
terparty’s external rating and the LGD is set based on the type of interest-rate risk, credit-spread risk, currency risk and basis risk.
instrument (derivative, covered bond, etc.). Market risk is quantified using SBAB’s Value at Risk models (VaR)
and is managed by limiting exposure within limits set by the Board
6.3.1.4 Sovereign risk and by centralising the management of these risks to the Treasury
SBAB has central government exposures in its treasury operations department.
and lending operations, which are allocated a risk weight of 0%
under Pillar 1. SBAB uses sovereign risk as a risk class in its eco- 6.3.4.1 Interest-rate risk
nomic capital model and quantifies the internally assessed capital Interest-rate risk pertains to the risk of variations in general inter-
requirement from sovereign risk. Sovereign risk is calculated on est rate levels leading to a negative earnings impact due to future
foreign exposures with the risk-weight formula for institutions using income and expenses having different fixed-interest periods or
an LGD of 45%, and where the PD is set based on the counter- interest terms. The general principle governing SBAB’s exposure
party’s external rating. to interest-rate risk is to limit it through direct borrowing and the
use of derivatives. As far as possible, fixed-interest liabilities are
6.3.1.5 Credit-related concentration risk matched with fixed-interest assets, but since SBAB’s residential
Concentration risk arises when exposures are concentrated to cer- mortgage customers generally choose floating interest (three-
tain counterparties, regions or industries. SBAB is considered to be month fixed-interest period) while a large portion of the liability
exposed to credit risk related concentration risk in its lending and is fixed to longer maturities, a large portion of the debt must
treasury operations. The entire capital requirement for concentra- be swapped down to a three-month fixed-interest period. As a
tion risk is included in the economic capital for credit risk. general principle, the interest-rate risk associated with mortgage
SBAB calculates the concentration risk divided into sin- lending and the liquidity portfolio, including the debt allocated
gle-name concentration, industry concentration and sector to the respective portfolios, should be matched. SBAB’s equity
concentration (geographic concentration). SBAB’s method for is invested using a guide value determined by SBAB’s Board and
single-name concentration is based on a method developed by therefore includes a strategic long-term interest-rate risk.
Gordy & Lutkebohmert (2007) while industry and sector concen-
tration is based on a method based on the Herfindahl index. 6.3.4.2 Credit-spread risk
Upon calculation at 31 December 2018, the internally cal- Credit-spread risk is defined as the value changes in SBAB’s bond
culated capital requirement for concentration risk was SEK 968 holdings, since the credit rating of the issuers can change.
million (898), of which SEK 898 million (842) pertained to credit
risk in lending operations and SEK 70 million (57) to credit risk in 6.3.4.3 Currency risk
funding operations. Currency risk refers to the risk that changes in the exchange rate
for SEK against other currencies result in losses or negatively
6.3.2 Credit valuation adjustment risk (CVA) impact earnings. As a general rule, SBAB swaps its borrowing
CVA is defined as the risk of a downgrade in the credit quality of in foreign currencies into SEK or matches it against assets in the
SBAB’s OTC derivative counterparties. Calculation of the expo- liquidity portfolio in the same currency.
sure amount for counterparty risk is based on the mark-to-market
approach. SBAB quantifies CVA each month in accordance with 6.3.4.4 Basis risk
the standardised approach in the CRR. Basis risk mainly arises when borrowing in foreign currency is
SBAB does not identify any additional amount under Pillar 2 swapped to SEK using mismatched maturities.
for CVA.
6.3.5 Pension risk
6.3.3 Operational risk Pension risk arises from the obligation under SBAB’s defined-ben-
Operational risk means the risk of losses due to inappropriate or efit pension plans to provide agreed compensation to existing
unsuccessful internal processes, human error, faulty systems or and former employees of the company. Even though SBAB makes
external events. The definition also includes legal risk. ongoing payments to secure this obligation, a risk exists in the
SBAB applies the standardised approach for capital adequacy form of a negative outcome in terms of the return on the capital
for operational risk under Pillar 1. This approach calculates the cap- provision. The present value of the pension obligation could also
ital requirement based on 12, 15 and 18%, respectively of the busi- increase depending on actuarial assumptions in terms of mortality
ness area’s average operating income over the past three years. and as a result of a lower discount rate. From 1 February 2013, no
SBAB does not identify any additional amount under Pillar 2 new employees have joined the defined-benefit pension plans.
for operational risk. SBAB quantifies pension risks in accordance with the Swedish
FSA’s methods for assessing individual types of risk within Pillar 2.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
6.3.6 Capital planning buffer This has the effect that operating profit, and thereby own funds,
varies in a manner that does not match the actual risk to which
6.3.6.1 Q uantification and assessment of the capital planning buf- the portfolio is exposed. To simulate how much this can conceiv-
fer ably affect own funds, a VaR model has been used. The model
To evaluate the effect of SBAB’s stress test, a calculation is made is based on a holding period of one year and a confidence level
of the change in SBAB’s capital adequacy ratios resulting from of 99.97%. A substantial gradual decrease from current levels
increased capital requirements and reduced own funds resulting is expected in SBAB’s income volatility, when outstanding basis
from greater loan losses. In the stress scenario characterised by swaps not included in the hedge accounting approach maturity.
a severe recession, both the capital requirement and expected Moreover, income volatility is limited for risk mitigation and cap-
losses would increase significantly, albeit from very low levels. At ital adequacy provided by the capital planning buffer, which is
the same time, net interest income would deteriorate relative to why it is not reported separately in the internally assessed capital
the basic scenario as a result of increased funding expenses. As requirement.
a result of the simulation of a difficult but not unlikely scenario,
SBAB’s CET1 capital ratio would weaken according to the below. 6.3.6.3 Business risk
Business risk means the risk of declining earnings due to harsher
competition, inappropriate strategies or erroneous decisions.
FIGURE 7. CET1 CAPITAL RATIO IN A STRESSED SCENARIO Weaker earnings arising, for example, from reduced margins as
% a result of increased funding costs or tougher competition, can
14 to some extent be met by reducing the SBAB’s costs. However,
12 since the cost base largely comprises fixed expenses that can-
not be reduced over a one-year horizon. Business risk can be
10
described as the loss arising when earnings decline to such an
8 extent that they no longer cover the fixed expenses in a stressed
6 economic scenario. Similar to the definition in the Swedish FSA’s
4 consultation memorandum “Capital requirements for Swedish
2
banks” from September 2014, SBAB defines a normal economic
recession as a scenario that occurs around every seven years. The
0
2018 2019 2020 2021 capital requirement for business risk is quantified by evaluating
CET1 capital ratio — Basic scenario the effects of a stressed scenario that corresponds to a normal
CET1 capital ratio — Stress
economic recession. SBAB’s stress tests are described in more
detail in section 6.5.
To counteract the weakening of SBAB’s CET1 capital ratio, a
provision of SEK 2,780 million would be required as a buffer 6.4 C
ompilation of internal
without taking into account the risk-weight floor, which is the capital adequacy assessment
additional CET1 capital required to maintain an unchanged According to the Swedish FSA’s supervisory practices, it is
CET1 capital ratio relative to the basic scenario. However, most expected that SBAB will cover a certain part of its capital require-
of SBAB’s credit exposures are covered by the risk-weight floor ment for risks in Pillar 2 with CET1 capital. These are as a general
for Swedish residential mortgages and, consequently, the capital rule to be covered according to the same capital distribution as
requirements will not increase due to a reasonable increase in the Pillar 1 capital requirement, including static buffer require-
risk in the lending portfolio. Taking into account the risk-weight ments (capital conservation buffer, systemic risk buffer and O-SII
floor for Swedish residential mortgages and thereby excluding buffers). For SBAB, this means that 67% of the capital require-
the increase in the capital requirements for Swedish mortgages, ment for risks in Pillar 2 should be covered with CET1 capital.
a provision of SEK 800 million was made as a buffer. This was SBAB’s internally calculated capital requirements without and
then compared with the capital conservation buffer and any with consideration for the risk-weight floor for Swedish residential
surplus added to the capital requirement. SBAB’s stress tests are mortgages are stated in Table 19. The internally assessed cap-
described in more detail in section 6.5. ital requirement corresponds to a CET1 capital ratio of 10.0%
and a total capital ratio of 14.1%. According to the targets set
6.3.6.2 Income volatility out in SBAB’s capital policy, these levels should, under normal
Due to the structure of the accounting regulations, whereby conditions, be exceeded by at least 0.6% of the risk exposure
different parts of the balance sheet are measured differently, val- amount. Accordingly, the CET1 capital ratio should amount to at
uation effects arise that affect operating profit and thereby own least 10.6% and the total capital ratio to at least 14.7% as per 31
funds without constituting a real market risk. December 2018.
Basis swaps not included in a hedging relation are measured
at fair value while the loans to which the basis swaps are linked
are not fully measured at market value should no hedge account-
ing relationship exist. This means that the basis risk on basis swaps
that are not subject to hedge accounting lack counter-items in
profit and loss.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
TABLE 19. INTERNALLY ASSESSED CAPITAL REQUIREMENT

EXCL. RISK-WEIGHT FLOOR INCL. RISK-WEIGHT FLOOR
SEK million Pillar 1 Internally assessed capital requirement Internally assessed capital requirement
Credit & CVA risk 3,046 3,046 3,046

Market risk 80 80 80
Pillar 1
Operational risk 347 347 347
Risk-weight floor1) 5,658 – 5,658
Credit risk 2) – 1,164 0
Market risk – 781 781
Operational risk – 0 0
Pillar 2 Risk-weight floor – – –
Concentration risk – 968 968
Sovereign risk – 52 52
Pension risk – 0 0
Capital conservation buffer 2,854 2,854 2,854
Buffers Capital planning buffer 3) – – –
Countercyclical buffer 2,266 2,266 2,266
Total 14,251 11,558 16,052
1)
Pillar 1 risk-weight floor under Article 458 of the CRR
2)
In the internal capital requirement without taking the risk-weight floor into account, additional credit risks in Pillar 2 consist of SBAB’s estimated capital requirement in economic capital. Since the
additional capital requirement for the risk-weight floor exceeds the additional capital requirement according to economic capital, only the risk-weight floor is included in the internal capital
requirement with consideration for the risk-weight floor.
3)
The higher of the stress test buffer and the capital planning buffer is included in the internally assessed capital requirement. After taking into account the risk-weight floor, the stress test buffer is
calculated without consideration for risk migration in the residential mortgage portfolios and, accordingly, the required buffer is smaller.
According to its supervision and evaluation process based on CET1 capital requirement at SEK 9,174 million and the total capi-
data from 31 December 2016, the Swedish FSA assessed SBAB’s tal requirement at SEK 13,338 million.
FIGURE 8. SCHEMATIC PROCESS FOR CALCULATING ECONOMIC CAPITAL
EXPECTED LOSS
MACROECONOMIC RISK FORECAST
EXPLANATORY VARIABLE RISK CLASS AMOUNT RISK-
SCENARIO (PD AND LGD)
WEIGHTED ASSETS
6.5 Stress tests 6.5.1 Stress test methods

Capital planning is founded on a basic scenario that reflects the SBAB uses a number of statistical models to forecast credit risk.
most probable operational development based on internal fore- The common factor for the models is that they are built around
casts. Complementing this, stress tests and scenario analyses are one or more explanatory variables that are specifically adapted
performed, whereby the development of the loan portfolio and to the kind of exposure and risk dimension (PD or LGD) for which
capital requirements during severe but plausible financial stress the model is intended to be used. A change in one or more of
is evaluated. When performing the tests, events and economic these explanatory variables results in a change in the forecast
conditions that could give rise to an unfavourable impact on the credit risk. This in turn affects the risk class to which an exposure
institution’s loan-portfolio exposures and that are not reflected in is allocated. In the stress tests, this relationship is utilised by sim-
the anticipated scenario are also taken into account. ulating changes in the underlying model variables. The starting
point for this simulation is an assumed macroeconomic scenario.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
In the stress test, a scenario that expresses an unfavourable eco- 6.5.2 Macroeconomic scenario
nomic trend will result in a migration towards inferior risk classes, The stress tests can be used in a number of conceivable
which in turn entails higher economic capital, higher risk exposure approaches and methods. In general, these involve an assump-
amounts and larger anticipated losses. A scenario that reflects an tion regarding a future scenario, either hypothetical or based on
economic recovery will consequently result in the opposite effect. a historical outcome. The stress tests presented in SBAB’s cur-
A simplified illustration of the process is provided in Figure 8. The rent ICLAAP are based on a hypothetical scenario whereby the
stress test is conducted for the portfolio at that particular date. development of the parameters is based on a subjective interpre-
This portfolio is then subjected to stress over a three-year time tation of economic theory and empirical analysis. The scenario
horizon, taking the planned volume development within different describes a sharp economic decline.
portfolio segments into account. The macroeconomic scenario For a number of variables in the models, there is a natural
that forms the basis of the stress test is also assumed to have a connection between the value the variable is expected to take
direct effect in SBAB’s risk models. This means that the model on and the development of one or more of the macroeconomic
variables are expected to change without any time shift. parameters. In these cases, the variable value could consequently
be recalculated directly based on the change in the underlying
TABLE 20. PARAMETERS SUBJECTED TO STRESS IN THE CURRENT AND NEXT macro-parameters.
THREE YEARS In general, all model variables are expected to be affected to
some extent, except the variables that are not deemed to be cor-
Demand Prices Interest rates related to economic conditions.
Residential mortgages, 3 Since a macroeconomic scenario cannot be directly trans-
GDP growth (real) Consumer prices month lated to the effect that it has on certain PD variables, historical
Disposable household income correlations are used instead. Examples of such model variables
(nominal) House prices STIBOR, 3 month
are the number of reminders and claims. For these variables, the
Prices of tenant- Government bond rate, effect has instead been estimated based on the historical correla-
Employment owners’ rights 10-year
tion to the residential mortgage rate.
Residential property
Unemployment prices STIBOR Treasury bill
LGD is subjected to stress according to the same methodology
as PD. Since SBAB’s LGD models are built around the loan-to-
Housing bonds —
Government bonds, value ratio, changes in the market values of properties have a
5-year direct impact on LGD.
Government bonds Swe- Finally, the macro scenario is combined with a simulated dete-
den — Germany, 10-year rioration in SBAB’s credit rating by two rating levels.
The components included in SBAB’s model for stress tests comprise:

• Determination of a macroeconomic scenario for the stress test Scenario
• Translation of the macroeconomic scenario to model variables In this scenario, a range of external shocks, in combination with
• Assumptions regarding new sales and loan redemption

internal imbalances and political problems lead to a recession
• Calculation of expected losses and capital requirements

and problems in the Swedish banking system. Typically, this
•
kind of scenario occurs approximately every 25 years.
Calculation of profit and own funds.
• Major stock exchange crashes and declining growth in the
USA and China, combined with an escalating trade war and
In addition to credit losses and capital requirements related to renewed uncertainty surrounding cooperation on the euro,
credit risk, the stress tests also simulate the effect of a deteriora- lead to the prices of oil and other commodities falling sharply
tion in SBAB’s credit rating and the effect of a decline in property and the international financial markets steering investments
prices on SBAB’s scope for funding by means of covered bonds. toward safe assets.
These are expected to lead to increased funding costs, resulting • Global demand declines and Swedish households rapidly
in weaker net interest income and lower earnings, and conse- tighten their belts while foreign confidence in the central
government’s financing and the banks’ financial strength is
quently also to reduced own funds. Finally, realised losses related
eroded due to a weak government, an uncertain parliamen-
to operational risks are also brought out by applying a fraud sce-
tary situation and imbalances in the housing and residential
nario independent of the macro scenarios, thus leading to further mortgage market. The Swedish krona weakens, helping
deterioration in earnings and decreased own funds. maintain inflation close to 0%.
• The GDP decline will be about the same as during the 2008
financial crisis, although the process is less volatile and more
protracted. Employment and household income levels also
fall. The economy does not stabilise until 2021.
• The central government’s finances deteriorate rapidly and
the parliamentary situation helps erode the credibility of
economic policy, causing a sharp rise in interest rates and
risk premiums. The banking system is under pressure. The
Riksbank tries unsuccessfully to stimulate the economy due to
risk premiums. Altogether, housing prices will fall by around
30% before stabilising at the start of 2022, which is after the
forecast period.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Leverage ratio
7 Leverage ratio
The CRR introduced a non-risk-sensitive metric to avoid excessive indebtedness.
This metric is calculated as Tier 1 capital in relation to total assets and off-balance
sheet exposures restated with the application of credit conversion factors (CCF).
The leverage ratio is a measure of solvency. Compared with the TABLE 21. LEVERAGE RATIO
capital adequacy requirement, assets are not risk-weighted but SEK million 2018 2017
rather the same amount of capital is required, regardless of what
Tier 1 capital 17,263 16,443
risk is associated with the assets. According to the European
Commission’s delegated regulation ((EU) 2015/62), the leverage Exposure metric 457,697 425,674
ratio is calculated as Tier 1 capital divided by the total exposure Leverage ratio, % 3.77 3.86
amount, where off-balance sheet exposures are assigned CCFs.
The leverage ratio amounted to 3.77% as of December 2018.
Description of measures taken to

manage the risk of inadequate leverage
The leverage ratio id included in SBAB’s forward-looking capi-
tal planning to enable proactive management of the risk of the
leverage ratio becoming too low. The target for the metric is set in
SBAB’s capital policy, and therefore its outcome and development
is followed up and reported monthly to the CEO and Board. In a
situation with excessive debt and an inadequate leverage ratio that
needs to be addressed, the requisite measures can include a lower
dividend, additional capital from the owner or alternatively an issue
of additional Tier 1 capital. Moreover, balance-sheet measures
may need to be applied to reduce SBAB’s exposure.
Description of factors influencing leverage in the period to which

the published leverage pertains
The year-on-year change in the leverage metric was due to:
• Tier 1 capital increased due to accrued earnings, which had a
positive impact on the metric of 0.19%
• The effect of the exposure metric attributable to derivatives
increased slightly, which had a negative impact on leverage
of 0.03%
• The effect of the exposure metric attributable to off-balance-
sheet items decreased slightly, which had a positive impact on
leverage of 0.01%
• An increase mainly in mortgage exposures entailed a negative
impact of 0.26%.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Leverage ratio
TABLE 22. SUMMARY RECONCILIATION OF ACCOUNTING ASSETS AND LEVERAGE RATIO EXPOSURES (LR SUM)
APPLICABLE AMOUNT
SEK million 2018
Total assets as per published financial statements 448,355

Adjustment for entities which are consolidated for accounting purposes but are outside the scope of regulatory consolidation 1
Adjustment for fiduciary assets recognised on the balance sheet pursuant to the applicable accounting framework but excluded from the
leverage ratio total exposure measure in accordance with Article 429(13) of Regulation (EU) No 575/2013)
–
Adjustments for derivative financial instruments 886
Adjustment for securities financing transactions (SFTs) –
Adjustment for off-balance sheet items (i.e. conversion to credit equivalent amounts of off-balance sheet exposures) 8,819
(Adjustment for intragroup exposures excluded from the leverage ratio total exposure measure in accordance with Article 429(7) of Regulation
(EU) No 575/2013)
–
(Adjustment for exposures excluded from the leverage ratio total exposure measure in accordance with Article 429(14) of Regulation (EU)
No 575/2013)
–
Other adjustments –364
Leverage ratio total exposure measure 457,697
TABLE 23. SPLIT-UP OF ON-BALANCE SHEET EXPOSURES (EXCLUDING DERIVATIVES AND SFTS) (LRSPL)
CRR LEVERAGE RATIO

EXPOSURES
SEK million 2018
Total on-balance sheet exposures (excluding derivatives, SFTs, and exempted exposures), of which:
439,803
Trading book exposures –
Banking book exposures, of which: 439,803
Covered bonds 35,929
Exposures treated as sovereigns 39,790
Exposures to regional governments, MDB, international organisations and PSE not treated as sovereigns
–
Institutions 2
Secured by mortgages of immovable properties 360,509
Retail exposures 2,784
Corporates –
Exposures in default 238
Other exposures (e.g. equity, securitisations, and other non-credit obligation assets) 550

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Leverage ratio
TABLE 24. LEVERAGE RATIO COMMON DISCLOSURE (LRCOM)

CRR LEVERAGE RATIO
EXPOSURES
SEK million 2018
On-balance sheet exposures (excluding derivatives and SFTs)
On-balance sheet items (excluding derivatives, SFTs and fiduciary assets, but including collateral) 439,803
(Asset amounts deducted in determining Tier 1 capital) –125
Total on-balance sheet exposures (excluding derivatives, SFTs and fiduciary assets)(sum of rows 1 and 2) 439,678
Derivative Exposures
Replacement cost associated with all derivatives transactions (i.e. net of eligible cash variation margin) 2,688
Add-on amounts for PFE associated with all derivatives transactions (mark- to-market method) 6,819
Exposure determined under Original Exposure Method –
Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the applicable accounting framework –
(Deductions of receivables assets for cash variation margin provided in derivatives transactions) –307
(Exempted CCP leg of client-cleared trade exposures) –
Adjusted effective notional amount of written credit derivatives –
(Adjusted effective notional offsets and add-on deductions for written credit derivatives) –
Total derivative exposures (sum of lines 4 to 10) 9,200
SFT Exposures –
Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions –
(Netted amounts of cash payables and cash receivables of gross SFT assets) –
Counterparty credit risk exposure for SFT assets –
Derogation for SFTs: Counterparty credit risk exposure in accordance with Article 429b (4) and 222 of Regulation (EU) No 575/2013 –
Agent transaction exposures

(Exempted CCP leg of client-cleared SFT exposure) –
Total securities financing transaction exposures (sum of lines 12 to 15a) –
Other off-balance sheet exposures –
Off-balance sheet exposures at gross notional amount 37,535
(Adjustments for conversion to credit equivalent amounts) –28,715
Other off-balance sheet exposures (sum of lines 17 to 18) 8,820
Exempted exposures in accordance with CRR Article 429 (7) and (14) (on and off balance sheet)
(Exemption of intragroup exposures (solo basis) in accordance with Article 429(7) of Regulation (EU) No 575/2013 (on and off balance sheet)) –
(Exposures exempted in accordance with Article 429(14) of Regulation (EU) No 575/2013 (on and off balance sheet)) –
Capital and total exposures

Tier 1 capital 17,263
Total leverage ratio exposures (sum of lines 3, 11, 16, 19, EU-19a and EU-19b) 457,697
Leverage ratio
Leverage ratio 3.77%
Choice on transitional arrangements and amount of derecognised fiduciary items
Choice on transitional arrangements for the definition of the capital measure Fully Phased in
Amount of derecognised fiduciary items in accordance with Article 429(11) of Regulation (EU) No. 575/2013

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Risk in remuneration systems
8 Risk in remuneration systems

SBAB is to have a remuneration system that is both compatible with and promotes effective
risk management and does not encourage undue risk-taking. Remuneration should promote
SBAB’s long-term interests. Further information on remuneration systems is available in
Note IC:5 of SBAB’s annual report and on the website www.sbab.se.
The General Meeting decides on the overall guidelines for remu- The Remuneration Committee is tasked with preparing remu-
neration and other employment terms for senior executives (mem- neration issues for decision by the Board and for conducting
bers of SBAB’s Executive Management). The Board of Directors an independent assessment of policy documents pertaining to
decides on: remuneration issues and remuneration systems. The Board is to
• Remuneration policy, risk analysis regarding remuneration sys- ensure that the appropriate control functions participate in the
tems and other policy documents for remuneration issues independent assessments.
• Remuneration and other employment benefits for Executive The Board decides the mission description for the Remunera-
Management and the heads of the control functions (the CRO tion Committee. The meetings of the Remuneration Committee
and the heads of Internal Audit and Compliance) are reported back to the Board through the minutes prepared of
• Follow-up on the application of SBAB’s control documents the Remuneration Committee’s meetings. The Board annually
regarding remuneration issues. evaluates and follows up how SBAB has complied with the prin-
ciples for the remuneration of senior executives that have been
The Board has appointed a Remuneration Committee. Informa- adopted by the Annual General Meeting and the remuneration
tion on the members of the Remuneration Committee and the structures and remuneration levels, including bonuses.
number of meetings can be found in the Corporate Governance At present, SBAB has no variable remuneration to senior man-
Report in SBAB’s Annual Report at www.sbab.se. agement or members of staff whose actions have a material
impact on the institution’s risk profile.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
9 Credit risk in lending operations

SBAB conducts customer-centric credit operations based on professionalism, simplicity and qual-
ity, which create the conditions for favourable profitability and long-term customer relations. This
means that the credit operations are denoted by high credit quality, efficient decision-making pro-
cesses, and respect for and understanding of the customer's situation. This also entails straightfor-
ward conduct, language and procedures, balanced risk-taking in the portfolio and each loans’
internal risk effect is such that the total risk is limited.
9.1 Credit risk management are granted only to borrowers who are expected to be able to
SBAB is to have documented risk management of credit risk with pay interest and make capital repayments when interest rates
a clear division of responsibilities. Credit risk management must comfortably exceed the rate prevailing today. Furthermore, risk
support the business operations, ensure SBAB’s survival and be in classification is used in the analysis of the credit risk for new and
line with SBAB’s rating targets. SBAB’s credit operations are char- existing customers in the loan portfolios.
acterised by low risk taking. Business-related risks are viewed in Large exposures, meaning those amounting to 10% or more
relation to arisen earnings. Credit risk is considered in all business of own funds, are managed based on the credit instructions and
decisions and constitutes a component in the pricing of products external regulations. All exposures exceeding 2% of own funds
and services. are identified and analysed for the purpose of deciding whether
SBAB’s Board and Executive Management are to be actively they fall within the framework of large exposures in relation to a
involved in the design of the institution’s risk management system group of customers with internal ties.
and the follow-up of credit risks. The Board of Directors or its The granting of credit requires the provision of adequate
committees approve all significant methods, models and pro- collateral, which can be provided in the form of real property
cesses related to credit risk. or a share in a tenant-owners’ association. Adequate collateral
The reporting structure is designed so that the Board of the usually means mortgage deeds in a property or a tenant-owners’
Parent Company and the Executive Management receive reports association of not more than 75–85% of the market value. The
on all material risks. Procedures must be in place for managing 85% ratio applies provided that collateral can be obtained with
and acting, based on the information provided in the reports. first lien and that the customer has a risk class of R1–R4 for retail
customers and C1–C3, and manually adjusted from C3 to C4,
9.2 Credit risk in the lending portfolio for corporate customers (for the relation between risk class and
Credit risk is the single largest risk in SBAB and accounts for 81% rating, refer to Table 26). In other cases, an LTV ratio of 75%
of the risk exposure amount according to Pillar 1, excluding the generally applies for corporate exposures. SBAB also grants small
risk-weight floor for Swedish household exposures with collateral unsecured loans to borrowers in the retail segment, which com-
in immovable property. Credit risk is defined as the risk of loss due prise 5% of the REA under Pillar 1, excluding the risk-weight floor.
to the customer’s inability to make interest and loan repayments Furthermore, SBAB applies a debt ratio ceiling of 550% (gross
or otherwise fulfil the loan agreement. Aside from through lend- income in relation to the loan) for new retail loans.
ing and loan commitments, credit risk also arises in connection When lending to consumers, market values for collateral in the
with changes in the value of pledged collateral, resulting in this no form of properties or rights of use are generally determined by
longer covering the Group’s receivables. the administrator, based on approved calculation models. If the
In the credit-granting process, the credit risk of a new credit market value cannot be determined using approved calculation
is first checked by the business area and then, in some cases, by models, it is determined by the person in charge of valuations or
the credit department. Credit risk is then checked by risk control, an approved external appraiser.
which is also responsible for analysing credit risk. Each business When lending to tenant-owners’ associations and companies,
operation deals with the practical management of credit risk. the market values for collateral in the form of properties or rights
Credit risk in lending operations is restricted by limits deter- of use are generally determined by internal property valuers.
mined for the customer or customer group. The credit risk is External valuations can form the basis of decisions upon approval
also managed through a credit-granting process, whereby the by the person in charge of valuations. If an external valuation is
ability of potential borrowers to make their interest payments and carried out by an approved external appraiser, the valuation does
capital repayments is analysed. For example, new retail loans not require approval by internal property valuers.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
SBAB verifies the property value on a regular basis. For residen- Lending to the public accounts for 81% of SBAB’s total assets.
tial properties and tenant-owners’ rights, the property value is Figures 9 and 10 describe loan-to-value (LTV) for loans for which
verified at least every third year. For other properties, the value is collateral consists of collateral in real property or tenant-own-
verified at least annually. If there are major changes in economic ers’ rights. Figure 9 shows corporate exposures and Figure 10
factors that affect the property market, the value is verified more shows retail exposures1). The areas in the figures correspond to
often. An extra property valuation was conducted in spring 2018 the lending volume and cover 96% of total retail lending. Since
to take into consideration the falling prices noted on the property 83% of lending is secured with collateral in real property or
market at the end of 2017. tenant-owners’ rights to within 50% LTV and 98% within 75% LTV,
In addition to collateral in real property or tenant-owners’ the credit quality is assessed as very favourable (see the table
rights, it is possible to grant credit against, inter alia, collateral in under figures 9 and 10).
the form of a government guarantee, municipal guarantee, secu-
rities, bank guarantees and deposits in a Swedish bank.
To a limited extent, equities corresponding to up to 85% of
the market value of the underlying properties can be approved
as collateral in conjunction with a property purchase through a
company transaction. SBAB does not hold any collateral that has
been taken over in foreclosure to protect claims.
FIGURES 9 AND 10. “LOAN TO VALUE” (LTV) FOR CORPORATE AND RETAIL EXPOSURES
CORPORATE EXPOSURES RETAIL EXPOSURES
Lending volume Lending volume
0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 >150 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 >150
LTV, % LTV, %
Exposure-weighted
Segment, % Below 50% Below 75% Below 85% Below 100% average LTV
Corporate exposures 82.5 99.9 100.0 100.0 60.0

Retail exposures 82.5 97.7 99.5 99.9 58.0
Total 82.5 97.9 99.5 99.9 58.5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
9.3 Risk classification system exposure, the expected and unexpected loss can be estimated. The
SBAB applies the IRB approach for retail loans and lending to exposure is ranked by PD to one of eight risk classes for corporate
tenant-owners’ associations and the foundation IRB approach and retail exposures, of which the eighth class comprises customers
(FIRB approach) for corporate loans. These commitments com- in default. Trends for customers in high-risk classes are monitored
prise 99% of total lending to the public. For other types of expo- diligently and, when necessary, exposure is managed actively by
sures, including unsecured loans, the standardised approach is credit monitoring personnel as part of the insolvency process.
used for quantifying credit risk. The IRB models are used in SBAB’s lending operations for tasks
The IRB approach has been used since 2007 for assessing such as credit granting, pricing, portfolio analysis and perfor-
credit risk where a mortgage deed for real immovable property mance monitoring per business area. The models produced are
or a tenant-owners’ right is used as collateral. In 2013, permis- validated annually by risk control and, whenever required, they
sion was received to include tenant-owners’ associations with a are recalibrated. The validations carried out for 2018 did not
turnover of less than EUR 50 million in the retail exposure class, result in any changes to models. A major challenge in the valida-
for which SBAB holds an IRB permit. In 2015, SBAB also received tion process has been that the number of defaults and confirmed
permission to use the IRB approach for excess exposures that are credit losses has been very low.
not fully covered by mortgage deeds, property financing using For those customer segments within corporate exposures for
collateral other than directly pledged mortgage deeds and build- which current financial statements are available, the quantita-
ing credits. Previously, the standardised approach was used for tive assessment is supplemented with a systematic qualitative
these exposures. assessment in accordance with SBAB’s loan regulations, based on
In credit risk models, an assessment is made of the probability a number of predetermined questions (see Figure 11). For other
of default 1) (PD), the loss given default (LGD) and the proportion customer segments involving corporate lending, credit analysts
of loan commitments expected to be converted to the balance add their assessment of risk class and an explanatory statement to
sheet (CF). On the basis of these parameters and the size of the the supporting material for risk class assessment.
1)
n exposure is regarded as in default if the receivable is more than 60 days past due (for
A
receivables exceeding SEK 1,000) or if an assessment has been made that the customer will
probably not be able to pay agreed interest amounts or cover repayments of the principal.
FIGURE 11. INTERNAL RATING PROCESS FOR CORPORATES
QUANTITATIVE QUANTITATIVE QUALITATIVE GROUP WARNING POTENTIAL COUNTERPARTY PROBABILITY

RATING SCORE ASSESSMENT LOGIC SIGNALS OVERRIDES RATING OF DEFAULT
Several statistical The counterparty is The counterparty's Takes into con- Provides an oppor-
methods are used to assessed based on rating is adjusted sideration special tunity to change
produce a quantita- qualitative variables based on possible events that risk class due to
tive score for different subject to the loan support from its par- warrant a down- specific risk factors
types of counter- regulations. ent company. grade. not captured in the
parties. model.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
9.4 Risk classification method tion, loan information, default outcomes and internal payment
In conjunction with capital adequacy and risk classification, expo- records. Data obtained externally includes income data, financial
sures are categorised in exposure classes. Retail loans and loans accounts, external payment records, property data and macro-
to tenant-owners’ associations with a turnover of less than EUR 50 economic data. SBAB’s PD models are based on decision data
million and 100% collateral in residential property are reported from the end of the 1990s and to the present day. In preparing
in the retail exposure class. The IRB approach is applied for retail long-term PD estimates, data from the housing crisis of the 1990s
exposures with some form of collateral. Other exposures secured and onwards is also used. For retail exposures comprising both
by collateral are reported under corporate exposures. The foun- retail loans and credits to tenant-owners’ associations, SBAB uses
dation IRB approach is used for corporate exposures. Table 25 an LGD estimation model that is largely based on the LTV ratio.
shows the distinction between retail exposures and corporate A rise in the LTV entails an increase in the likelihood of a loss and
exposures. The standardised approach is applied for unsecured in the scope of the financial loss. SBAB primarily uses internal loss
retail exposures. Guarantees from the National Board of Housing, data for LGDs, but has used external loss data from the 1990s
Building and Planning (BKN) or municipalities in the form of KFAs housing crisis to calibrate models for downturn periods with the
are allocated to central government and municipal exposures and aim of ensuring sufficiently conservative estimates.
are recognised using the standardised approach Table 12 shows SBAB uses its own CCF estimates for loan commitments to
the distribution of risk exposure amounts and capital requirements consumers in the retail exposure class. The CCF measures the
by exposure class. probability of the loan commitment resulting in a disbursement
For risk classification according to IRB, SBAB uses several rank- and an actual loan. The model is mainly based on how far the
ing models for PD depending on the type of counterparty. Both loan commitment has progressed in the credit granting process
internal and external data sources are used to provide decision and how much time has passed since the case was created.
data for the models. Internal data consists of customer informa-
TABELL 25. LOAN PORTFOLIOS AND EXPOSURE CLASSES FOR WHICH THE IRB APPROACH IS APPLIED
Portfolio Property Exposure class Method PD model
Private properties
Tenant-owner associations (turnover greater than or equal to EUR 50 Foundation IRB
Corporates
million) Corporate exposures approach “Corporate”
Commercial properties
Houses and holiday homes
Advanced IRB
Retail
Tenant-owners’ rights Retail exposures approach “Retail”
Tenant-owner associations (turnover less than EUR 50 million)
9.5 The link between external and internal ratings rating is based is not always the same for credit rating agencies
SBAB’s risk classes are not directly comparable to the ratings used as for SBAB. Accordingly, it is difficult to translate internal risk
by external credit rating agencies. classes to external ratings unequivocally and consistently. How-
The credit rating agencies’ ratings do not correspond to a ever, by analysing the historic proportion of default in SBAB’s risk
direct classification of the counterparties’ probability of default classes compared with the proportion of default in Standard &
in the same way that the bank’s risk classification does. The credit Poor’s rating classes, it is possible to obtain a reasonably correct
rating agencies also consider, to a varying degree, the severity comparative table. Table 26 presents the external rating classes
of the losses that may be caused by default, while SBAB captures that best correspond to the historic proportion of default in each
this in the LGD dimension. The time horizon on which the credit of SBAB’s risk classes.
TABLE 26. RELATIONSHIP BETWEEN INTERNAL AND EXTERNAL RATING

Risk class Standard & Poor’s rating Risk class Standard & Poor’s rating
C1 AAA–A R1 AAA–AA
C2 A R2 AA–A
C3 A–BBB R3 A
C4 BBB-BB R4 A–BBB
C5 BB R5 BBB–BB
C6 BB–B R6 BB
C7 B–C R7 BB–C

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
9.6 Exposure amounts and capital requirements 85% of the value of collateral pledged. The insured amount
Table 27 shows all credit risk exposures both in and outside totalled SEK 45 million at 31 December 2018. The insurance
the lending portfolio. Without taking credit risk protection into policy was cancelled effective 1 January 2009 and cannot be uti-
account, the total amount for all credit risk exposures was SEK lised for new loans arising after that date. Neither the guarantees
487 billion. from business partners nor the credit insurance from Genworth
Credit risk protection used for IRB exposures consists of gov- were taken into account when calculating capital adequacy.
ernment and municipal guarantees. Credit risk protection is only Corporate exposures comprised only 11% of total exposures in
used to an extremely limited extent for exposures reported in the lending portfolio for which the IRB approach is used, but due
accordance with the standardised approach. to the higher average risk weighting for credit risk, the exposures
SBAB has also obtained guarantees of SEK 116 million from account for 50% of the total capital requirement according to
business partners to cover any possible credit losses. In addition, Pillar 1.
the Parent Company SBAB and SCBC have jointly taken up credit The average risk weighting for exposures recognised in accor-
insurance with Genworth Financial Mortgage Insurance Limited dance with the IRB approach was 6.5%, while the weighting
(Genworth) (sold to AmTrust Financial Services, Inc in 2016). The for exposures recognised with the standardised approach was
credit insurance covers the part of the exposure that exceeds 12.4%. Exposure-weighted average PD estimates per coun-
TABLE 27. EXPOSURE AMOUNTS BY EXPOSURE CLASS FOR CREDIT RISK EXPOSURES
Original
exposure Net exposure Collateral that reduces
before after value capital requirements in Off-balance-sheet Off-balance-
credit risk Value adjustments the form of guarantees exposures before Exposure after sheet exposures
SEK million protection adjustments and reserves and financial securities Inflows CCF CCF 1) after CCF
Credit risk in lending portfolio recognised under

the IRB approach
Corporate exposures 44,096 – 44,096 –100 – 5,024 42,430 3,457
Retail exposures 354,124 – 354,124 –731 – 31,521 331,258 9,387
of which, houses and holiday homes 153,020 – 153,020 –39 – 13,088 143,573 3,679
of which, tenant-owners’ rights 154,523 – 154,523 – – 18,214 141,829 5,521
of which, tenant-owners’ associations 46,580 – 46,580 –692 – 219 45,856 187
Total credit risk under the IRB approach 398,220 – 398,220 –831 – 36,545 373,688 12,844
Credit risk in the lending portfolio recognised

under the standardised approach
Exposures to governments and central banks 25,221 0 25,221 – 45 – 25,266 –
Exposures to regional governments or local

authorities or agencies 11,295 0 11,295 – 786 – 12,081 –
Exposures to multilateral development banks 2,443 0 2,443 – – – 2,443 –
Exposures to institutions 9,202 – 9,202 – – – 9,202 –
Exposures to corporates – – – – – – – –
Retail exposures 3,782 –8 3,774 – – 990 2,982 198
Exposures in default 13 –4 9 – – – 9 –
Exposures in the form of covered bonds 35,930 –1 35,929 – – – 35,929 –
Exposures to institutions and corporates with a

short-term credit rating 80 – 80 – – – 80 –
Equity exposures 89 – 89 – – – 89 –
Other items 381 – 381 – – – 381 –
Total credit risk under the standardised approach 88,436 –13 88,423 – 831 990 88,462 198
Total 486,656 –13 88,423 –831 831 37,535 462,150 13,042
1)
In exposures after inflows and outflows, adjustments have been made of amounts to be recognised and covered by capital in an exposure class other than the original one.
2)
Off-balance sheet exposures have been excluded.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
terparty for IRB exposures amounted to 0.17% for corporate to business partners are excluded. Moreover, Booli Search Tech-
exposures and 0.37% for retail exposures. Exposure-weighted nologies AB has been excluded since this company is not included
average LGD estimates for corporate exposures was 38.0% and in the consolidated situation.
exposure-weighted LGD for retail exposures was 10.0%. For clar-
ification, the exposure-weighted amount for LGD is controlled by
the limitation rule, which entails a lowest average LGD of 10% for
retail exposures covered by collateral in residential properties in
accordance with Article 164 item 4 of the CRR.
The following tables in this section correspond with COREP
reporting with regard to exposure amounts. This meets the Euro-
pean Banking Authority’s (EBA’s) disclosure requirements.
The tables illustrating lending operations differ from the infor-
mation presented in SBAB’s 2018 Annual Report as total exposure
amounts, including accrued interest, are reported instead of the
principal. Furthermore, transaction costs relating to commissions
Exposure amounts
covered by credit risk Average exposure Risk exposure Risk exposure Specific Exposure-
protection in the form amounts for lending amounts before amounts after Capital Average risk credit risk Expected loss weighted Exposure-weighted
of properties portfolio exposures 2) SME discount SME discount requirement weight, % adjustment average PD, % average LGD, %
42,430 39,648 12,880 12,128 970 28.6 7 28 0.17 38.04
331,258 309,204 12,348 12,096 968 3.7 104 131 0.37 10.00
143,573 133,632 4,978 4,978 398 3.5 42 55 0.38 10.0
141,829 129,689 6,289 6,289 503 4.4 52 67 0.42 10.9
45,856 45,882 1,081 829 66 1.8 10 9 0.18 7.3
373,688 348,852 25,228 24,224 1,938 6.5 111 159
– 49 0 0 0 0.0 0 – – –
– 870 0 0 0 0.0 0 – – –
– – 0 0 0 0.0 0 – – –
– – 3,777 3,777 302 41.0 – – – –
– – – – – – – – – –
– 2,735 2,236 2,236 179 75.0 8 – – –
– 14 10 10 1 117.1 4 – – –
– – 3,593 3,593 287 10.0 1 – – –
– – 16 16 1 20.0 – – – –
– – 1,116 1,116 89 1,250 – – – –
– – 227 227 18 76.9 – – – –
– 3,668 10,975 10,975 877 12.4 13 – – –
373,688 352,520 36,203 35,199 2,815 7.6 124 – – –

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
TABLE 28. CREDIT RISK EXPOSURES BY EXPOSURE CLASS AND PD RANGE

(EBA CR6 TABLE)
Original
on-bal- Off-bal- Value
ance-sheet ance-sheet EAD post RWA adjust-
gross expo- exposures Average CRM and Average Number of Average Average density, Expected ments and
SEK million PD scale sures pre-CCF CCF, % post CCF PD, % obligors LGD, % maturity RWAs % loss provisions
Exposure class
0.00 to <0.15 7,354 – – 7,340 0.09 72 35.8 2.5 1,196 16 2 –
0.15 to <0.25 6,746 – – 6,745 0.21 109 35.9 2.5 1,681 25 5 –
0.25 to <0.50 1,710 – – 1,710 0.45 69 35.3 2.5 624 37 3 –

Of 0.50 to <0.75 – – – – – – – – – – – –
which,
Corpo- 0.75 to <2.50 252 – – 251 1.16 14 35.1 2.5 146 58 1 –
rate
SME 2.50 to <10.00 20 – – 16 3.23 12 36.8 2.5 10 66 0 –
10.00 to <100.00 11 – – 11 27.04 3 35.2 2.5 14 127 1 –
100.00 (Default) – – – – – – – – – – – –
Corporates
(foundation Portfolio subtotal 16,093 – – 16,073 0.22 279 35.8 2.5 3,671 23 12 1
approach) 0.00 to <0.15 18,549 2,599 63.0 20,143 0.09 126 38.0 2.5 5,074 25 7 –
0.15 to <0.25 3,315 1,125 75.0 4,122 0.21 27 44.1 2.5 1,928 47 4 –
0.25 to <0.50 1,066 1,300 75.0 2,041 0.45 8 44.5 2.5 1,415 69 4 –
Of 0.50 to <0.75 – – – – – – – – – – – –
which,
Corpo- 0.75 to <2.50 50 – – 50 1.16 1 35.0 2.5 40 80 0 –
rate
Other 2.50 to <10.00 – – – – – – – – – – – –
10.00 to <100.00 – – – – – – – – – – – –
100.00 (Default) – – – – – – – – – – – –
Portfolio subtotal 22,980 5,024 69.0 26,356 0.14 162 39.4 2.5 8,457 32 15 6
0.00 to <0.15 33,131 141 88.0 32,906 0.09 1,135 7.1 – 420 1 2 –
0.15 to <0.25 11,253 75 82.0 11,122 0.21 519 7.4 – 277 2 2 –
0.25 to <0.50 1,635 3 – 1,524 0.45 110 9.1 – 81 5 1 –
Of 0.50 till <0.75 – – – – – – – – – – – –

which,
0.75 to <2.50 255 – – 255 1.16 17 9.0 – 25 10 0 –
Retail
SME 2.50 to <10.00 68 – – 30 3.20 11 8.3 – 5 17 0 –
10.00 to <100.00 – – – – – – – – – – – –
100.00 (Default) 19 – – 19 100.00 3 21.9 – 21 109 4 –

Retail Portfolio subtotal 46,361 219 86.0 45,856 0.18 1,795 7.3 – 829 2 9 11
(advanced
approach) 0.00 to <0.15 187,472 15,641 27.0 191,593 0.04 124,258 10.1 – 2,440 1 8 –
0.15 to <0.25 44,613 10,805 32.0 48,040 0.16 31,102 10.9 – 1,892 4 9 –
0.25 to <0.50 28,357 4,413 29.0 29,640 0.42 18,106 11.2 – 2,425 8 14 –
Of 0.50 till <0.75 – – – – – – – – – – – –

which,
0.75 to <2.50 11,868 367 75.0 12,142 1.55 7,095 11.6 – 2,480 20 22 –
Retail
Other 2.50 to <10.00 2,307 51 79.0 2,346 4.17 1,456 11.4 – 850 36 11 –
10.00 to <100.00 1,387 25 67.0 1,404 24.67 973 11.1 – 958 68 38 –
100.00 (Default) 237 – – 237 100.00 186 11.7 – 221 93 20 –
Portfolio subtotal 276,241 31,302 29.0 285,402 0.40 183,176 10.4 – 11,267 4 123 93
Total (all portfolios) 361,675 36,545 35.0 373,687 0.35 185,412 13.2 – 24,224 6 159 111

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
TABLE 29. RWA FLOW STATEMENTS OF CREDIT RISK EXPOSURES UNDER IRB TABLE 30. TOTAL AND AVERAGE NET AMOUNT OF EXPOSURES
(EBA CR8 TABLE) (EBA CRB-B TABLE)
RWA Capital Net value of
SEK million amounts requirements exposures at Average net
the end of exposures over
RWA at the end of the previous reporting period 24,727 1,978 SEK million the period2) the period 3)
Asset size 1,814 145
Exposures to corporates 44,089 44,925
Asset quality –2,296 –184
of which, Specialised lending – –
Model updates – –
of which, SMEs 16,092 16,527
Methodology and policy – –
Retail exposures 354,019 352,987
Acquisitions and disposals – –
Exposures to households secured against
Foreign exchange movements – – immovable property 354,019 352,987
Other –21 –1 of which, SMEs 46,570 46,794
RWA at the end of the reporting period 24,224 1,938 of which, non-SMEs 307,449 306,193
of which, non-SMEs – –
Total exposure with IRB approach 398,108 397,912

9.7 Exposure amounts by geographical region Exposures to governments and central banks 25,221 31,744
SBAB’s credit exposure is concentrated in Sweden. There is some
exposure to other countries in Western Europe, Canada and the authorities or agencies 11,295 10,734
US due to the funding of the Swedish lending operations. Exposures to public sector entities – –
SBAB’s lending portfolio is mainly secured by housing in the
Exposures to multilateral development banks 2,443 2,491
Stockholm area (58%). Only 1% of the underlying collateral derives
from economically weak regions. Sweden is divided as follows: Exposures to international organisations – –
• Greater Stockholm: Stockholm’s labour market region according Exposures to institutions 1)

9,202 8,982
to Statistics Sweden (SCB) (2004); Exposures to corporates – –
• Greater Gothenburg: Gothenburg’s labour market region of which, SMEs – –
according to SCB (2004);
• The Öresund region: Labour market regions in Malmö and
Retail exposures
of which, SMEs
3,774
–
3,828
–
Helsingborg according to SCB (2004);
• University and growth regions: Municipalities with universities Exposures to households secured against
immovable property – –
and municipalities with especially buoyant growth according
to analyses by SBAB; of which, SMEs – –
• Weak regions 1): Municipalities with very weak or negative Exposures in default 9 9

growth according to analyses by SBAB; and Exposures associated with particularly high risk – –
• Other regions 1): Municipalities that are not allocated to any Exposures in the form of covered bonds 35,929 37,115
other category.
Exposures to institutions and corporates with
1)
he analysis is based in part on statistics from SCB, such as short and long-term population
T a short-term credit rating 80 432
growth, the proportion of the population older than 64 years, average income and the
Exposures in the form of collective investment
vacancy rate in public utility housing, and in part on the local knowledge of SBAB’s analysts.
undertakings – –
Equity exposures 89 87
Other items 381 471
Total exposure with standardised approach 88,423 95,893

Total 486,531 493,805
1)
The institution exposure class includes counterparty risk.
2)
Average net exposures after provisions pertain to both the IRB and the standardised approach.
3)
Average net exposures over the period are based on observed amounts over four quarters.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
TABLE 31. GEOGRAPHICAL BREAKDOWN OF EXPOSURES1 (EBA CRB-C TABLE)

United Switzer- Other
SEK million Sweden Denmark Finland France Germany Norway Kingdom USA Canada land countries Total
Exposures to corporates 44,089 – – – – – – – – – – 44,089

Retail exposures 354,019 – – – – – – – – – – 354,019
Total exposure with IRB
approach 398,108 – – – – – – – – – – 398,108
Exposures to governments
and central banks 22,107 – 946 – 1,836 – – – 110 222 – 25,221
Exposures to regional
governments or local
authorities or agencies 9,798 1,497 – – – – – – – – – 11,295
Exposures to multilateral
development banks – – – – – – – – – – 2,443 2,443
Exposures to institutions 2,659 2,320 1,862 39 11 9 2,137 165 0 – – 9,202
Exposures to corporates – – – – – – – – – – – –
Retail exposures 3,774 – – – – – – – – – – 3,774

Exposures to households
secured against immovable
property – – – – – – – – – – – –
Exposures in default 9 – – – – – – – – – – 9
Exposures associated with
particularly high risk – – – – – – – – – – – –
Exposures in the form of

covered bonds 31,582 995 625 – – 2,089 – – 638 – – 35,929
Exposures to institutions and
corporates with a short-term
credit rating 80 – – – – – – – – – – 80
Exposures in the form of
collective investment
undertakings – – – – – – – – – – – –
Equity exposures 89 – – – – – – – – – – 89
Other items 381 – – – – – – – – – – 381
Total exposure with
standardised approach 70,479 4,812 3,433 39 1,847 2,098 2,137 165 748 222 2,443 88,423
Total 468,587 4,812 3,433 39 1,847 2,098 2,137 165 748 222 2,443 486,531
1)
The table does not include off-balance-sheet exposures.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
TABLE 32. NET EXPOSURE AMOUNT BY GEOGRAPHICAL AREA FOR CREDIT RISK EXPOSURES IN LENDING OPERATIONS1
Greater Greater Öresund University and
SEK million Stockholm Gothenburg region growth regions Other regions Weak regions Total
Exposures to corporates 20,373 4,142 8,325 8,025 2,414 810 44,089

Retail exposures 211,186 31,947 36,677 30,549 40,873 2,787 354,019
Total exposure with IRB approach 231,559 36,089 45,002 38,574 43,287 3,597 398,108
Exposures to governments and central banks – – – – – – –
Exposures to regional governments or local authorities or

agencies – – – 1 1 – 2
Exposures to multilateral development banks – – – – – – –
Exposures to institutions – – – – – – –
Exposures to corporates – – – – – – –
Retail exposures 842 112 53 66 2,698 3 3,774

Exposures to households secured against immovable property – – – – – – –
Exposures in default 2 – – – 7 – 9
Exposures associated with particularly high risk – – – – – – –
Exposures in the form of covered bonds – – – – – – –
Exposures to institutions and corporates with a short-term

credit rating – – – – – – –
Exposures in the form of collective investment undertakings – – – – – – –
Equity exposures – – – – – – –
Other exposures – – – – – – –
Total exposure with standardised approach 844 112 53 67 2,706 3 3,785

Total 232,403 36,201 45,055 38,641 45,993 3,600 401,893
1)
The table does not include off-balance-sheet exposures.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
9.8 N
et exposure amounts by next stipulated and five years accounts for 98% of the outstanding exposures.
date of expiry Exposures under other items where the duration cannot be cal-
Table 33 presents net exposures in the balance sheet, that is, culated have been placed in the “no stated maturity” column to
off-balance-sheet items are excluded. A large proportion (69%) provide a better overview.
of credit risk exposures have less than one year remaining until
maturity1). The proportion with a remaining term of between one
TABLE 33. MATURITY OF EXPOSURES (EBA CRB-E TABLE)
>1 year <=5 No stated

SEK million On demand <=1 year years > 5 years maturity Total
Exposures to corporates – 7,543 30,752 776 0 39,071

Retail exposures – 273,223 46,411 2,832 33 322,499
Total exposure with IRB approach – 280,766 77,163 3,608 33 361,570
Exposures to governments and central banks – 19,343 5,418 460 – 25,221
Exposures to regional governments or local authorities or agencies – 621 9,461 1,213 – 11,295
Exposures to public sector entities – – – – – –
Exposures to multilateral development banks – 534 1,517 392 – 2,443

Exposures to international organisations – – – – – –
Exposures to institutions – 7 6,921 2,274 – 9,202

Exposures to corporates – – – – – –
Retail exposures 2,192 591 – – – 2,783

Exposures to households secured against immovable property – – – – – –
Exposures in default – – – – 9 9
Exposures associated with particularly high risk – – – – – –
Exposures in the form of covered bonds – 6,724 28,528 677 – 35,929

Exposures to institutions and corporates with a short-term credit rating – 80 – – – 80
Exposures in the form of collective investment undertakings – – – – – –
Equity exposures – – – – 89 89
Other items – – – – 381 381
Total exposure with standardised approach 2,192 27,900 51,845 5,016 479 87,432
Total 2,192 308,666 129,008 8,624 512 449,002
1)
F or credit risk exposures in the lending portfolio, the next stipulated date of expiry has been used. The stipulated date of expiry is defined as the day for establishing the conditions that are to apply
for loans during the forthcoming contractual period. The terms must be supported by the stipulations of the original loan agreement.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
9.9 N
et exposure amounts by sector and type of property In the distribution of the lending portfolio by type of property,
Tables 34 and 35 contain net amounts for on- and off-balance- lending for houses, holiday homes, tenant-owners’ rights and
sheet items. Table 34 provides information about credit risk expo- tenant-owners’ associations accounts for 82% of the total lending
sures as a whole, unlike Table 35 which shows credit risk exposures portfolio.
in lending operations.
TABLE 34. CONCENTRATION OF EXPOSURES BY INDUSTRY OR COUNTERPARTY TYPES (EBA CRB-D TABLE)
Real estate Other Financial

SEK million Construction activities services services* Total
Exposures to corporates 12,121 31,968 – – 44,089

of which, Specialised lending – – – – –
of which, SMEs – 16,092 – – 16,092

Retail exposures – 354,019 – – 354,019
Exposures to households secured against immovable property – 354,019 – – 354,019
of which, SMEs – 46,580 – – 46,580
of which, non-SMEs – 307,449 – – 307,449
Total exposure with IRB approach 12,121 385,987 – – 398,108
Exposures to governments and central banks – – – 25,221 25,221
Exposures to regional governments or local authorities or agencies – 11,295 – – 11,295
Exposures to public sector entities – – – – –
Exposures to multilateral development banks – – – 2,443 2,443
Exposures to international organisations – – – – –
Exposures to institutions – – – 9,202 9,202

Exposures to corporates – – – – –
of which, SMEs – – – – –
Retail exposures – – 3,774 – 3,774

Exposures to households secured against immovable property – – – – –
Exposures in default – – 9 – 9
Exposures associated with particularly high risk – – – – –
Exposures in the form of covered bonds – – – 35,929 35,929

Exposures to institutions and corporates with a short-term credit rating – – – 80 80
Exposures in the form of collective investment undertakings – – – – –
Equity exposures – – 89 – 89
Other items – – 381 – 381
Total exposure with standardised approach – 11,295 4,253 72,875 88,423
Total 12,121 397,282 4,253 72,875 486,531

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
TABLE 35. NET EXPOSURE AMOUNTS BY TYPE OF PROPERTY FOR CREDIT RISK EXPOSURES IN LENDING OPERATIONS
Houses and Tenant- Tenant- Private Municipal Off-
holiday owners’ owners’ multi-family multi-family Commercial Unse- balance-
SEK million homes rights associations dwellings dwellings properties cured sheet items Total
Exposures to corporates 16 – 5,565 30,171 148 3,171 – 5,018 44,089

Retail exposures 139,890 136,258 46,351 – – – – 31,520 354,019
Total exposure with IRB approach 139,906 136,258 51,916 30,171 148 3,171 0 36,538 398,108
Exposures to governments and central banks – – – – – – – – –

authorities or agencies – – – – 2 – – – 2
Exposures to public sector entities – – – – – – – – –
Exposures to multilateral development banks – – – – – – – – –
Exposures to international organisations – – – – – – – – –
Exposures to institutions – – – – – – – – –
Exposures to corporates – – – – – – – – –
Retail exposures 256 339 – – – – 2,189 990 3,774

Exposures to households secured against
immovable property – – – – – – – – –
Exposures in default 1 1 – – – – 7 – 9
Exposures associated with particularly high risk – – – – – – – – –
Exposures in the form of covered bonds – – – – – – – – –
Exposures to institutions and corporates with a

short-term credit rating – – – – – – – – –
Exposures in the form of collective investment

undertakings – – – – – – – – –
Equity exposures – – – – – – – – –
Other exposures – – – – – – – – –
Total exposure with standardised approach 257 340 – – 2 – 2,196 990 3,785
Total 140,163 136,598 51,916 30,171 150 3,171 2,196 37,528 401,893
9.10 P
ast due exposures and exposures subject have not yet had effect on the individual level. The models rank
to impairment requirements the loan receivables and divide them according to their relative
An exposure is regarded as in default if the receivable is more credit risk following initial recognition into three stages: Credit
than 60 days past due (for receivables exceeding SEK 1,000) or if impaired loan receivables are allocated to stage 3. SBAB applies
an assessment has been made that the customer will probably not the internal default definition to determine whether a receiv-
be able to pay agreed interest amounts or cover repayments of able has suffered credit deterioration. Loan receivables with a
the principal. Exposures subject to impairment requirements refer significant increase in credit risk but which have yet to be credit
to doubtful exposures whereby individual provisions have been impaired are allocated stage 2. Other loan receivables are allo-
posted for commitments, meaning that in SBAB’s assessment, cated to stage 1.
future payments are exposed to risk and the collateral does not Individual and collective provisions are carried out pursuant to
cover the amount of the claim. The size of the individual provi- the current accounting standard IFRS 9. At 31 December 2018,
sions is assessed by comparing the agreed payment flow with the the total provisions, with deductions for guarantees, amounted to
expected future payment capacity in combination with a valua- 46% of the exposure amount for past due exposures. All provisions
tion of the underlying collateral. have been assessed to constitute specific credit risk adjustments
For all other commitments a collective provision is made based on Article 1, item 5, of the EBA’s regulatory technical stan-
based on the ECL model that estimates the ECL and is therefore dards on specific and general risk regarding Article 110, item 4 of
intended to cover losses for events that have occurred but that the CRR.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
TABLE 36. CREDIT QUALITY OF EXPOSURES BY EXPOSURE CLASS AND INSTRUMENTS (EBA CR1-A TABLE)
Gross carrying amount of

Credit risk
Specific General adjustment Net values
Exposures in Non-defaulted credit risk credit risk adjust- Accumulated charges for (or net expo-
SEK million default exposures adjustment ment write-offs the period sures)
Exposures to corporates – 44,096 7 – – –11 44,089

– of which, Specialised lending – – – – –
of which, SMEs – 16,093 1 – – –18 16,092

Retail exposures 257 353,866 104 – 26 –53 354,019
Exposures to households secured against immovable
property 257 353,866 104 – 26 –53 354,019
of which, SMEs 19 46,560 10 – 23 0 46,569
of which, non-SMEs 237 307,306 94 – 3 –53 307,449
Total exposure with IRB approach 257 397,962 111 – 26 –64 398,108
Exposures to governments and central banks – 25,221 – – – 0 25,221
authorities or agencies – 11,295 – – – 0 11,295
Exposures to public sector entities – – – – – 0
Exposures to multilateral development banks – 2,443 – – – 0 2,443

Exposures to international organisations – – – – – 0
Exposures to institutions – 9,202 – – – – 9,202

Exposures to corporates – – – – – 0
of which, SMEs – – – – – 0
Retail exposures 13 3,782 8 – – –1 3,787

of which, SMEs – – – – – – 0
Exposures in default 13 – 4 – – 0 9
Exposures in the form of covered bonds – 35,930 1 – – 0 35,929
Exposures to institutions and corporates with
a short-term credit rating – 80 – – – – 80
Equity exposures – 89 – – – – 89
Other items – 381 – – – – 381
Deduction for retail exposures in default, recognised
on rows 24 and 28* –13 – – – – – –13
Total exposure with standardised approach 13 88,423 13 – – –1 88,423
Total 270 486,385 124 – 26 –65 486,531
– Of which, loans 270 364,212 117 – – –72 364,365
– Of which, debt securities – 60,398 – – – – 60,398
– Of which, off-balance-sheet exposures – 37,535 7 – – 7 37,528

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
TABLE 37. CREDIT QUALITY OF EXPOSURES BY INDUSTRY OR COUNTERPARTY TYPES (EBA CR1-B TABLE)
Gross carrying values of

Non- Specific General Credit risk
Defaulted defaulted credit risk credit risk Accumulated adjustment
SEK million exposures exposures adjustment adjustment write-offs charges Net values
Construction – 12,127 6 – – 0 12,121

Real estate activities 257 397,219 105 – 26 -64 397,371
Other services 13 4,163 12 – – -2 4,164
Financial services* – 72,876 1 – – 1 72,875
Total 270 486,385 124 – 26 -65 486,531
*
Credit institutions
TABLE 38. CREDIT QUALITY OF EXPOSURES BY GEOGRAPHY (EBA CR1-C TABLE)
Gross carrying values of

Non- Specific General Credit risk
Defaulted defaulted credit risk credit risk Accumulated adjustment
SEK million exposures exposures adjustment adjustment write-offs charges Net values
Sweden 270 468,441 124 – 26 –65 468,587

Denmark – 4,811 – – – 0 4,811
Finland – 3,434 – – – – 3,434
Norway – 2,098 0 – – 0 2,098
Canada – 748 0 – – 0 748
USA – 165 – – – – 165
France – 39 – – – – 39
Germany – 1,847 0 – – 0 1,847
United Kingdom – 2,137 – – – – 2,137
Switzerland – 0 – – – – 0
Austria – 222 – – – – 222
Netherlands – – – – – – –
Spain – – – – – – –
Other countries* – 2,443 – – – 0 2,443

Total 270 486,385 124 – 26 –65 486,531
* Pertains to investments in securities issued by the European Investment Bank (EIB) and the Nordic Investment Bank (NIB)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
TABLE 39. AGEING OF PAST-DUE EXPOSURES (EBA CR1-D TABLE)
Gross carrying values

>30 days >60 days > 90 days > 180 days
SEK million ≤30 days ≤60 days ≤90 days ≤180 days ≤1 year 1 year
Loans 18,819 62 20 25 39 21
Debt securities – – – – – –
Total 18,819 62 20 25 39 21
TABLE 40. NON-PERFORMING AND FORBORNE EXPOSURES (EBA CR1-E TABLE)
Accumulated impairment and provisions Collaterals and

and negative fair value adjustments financial
Gross carrying values of performing and non-performing exposures due to credit risk guarantees received
Of which, On performing On non-performing
performing Of which, non-performing* exposures* exposures*
but past
due >30 Of which, On non-
days and Of which, loans with perform- Of which,
<=60 performing Of which, individual Of which, Of which, Of which, ing expo- forborne
SEK million days* forborne* defaulted provisions forborne forborne forborne sures exposures
Debt securities 23,175 – – – – – – – – – – – –
Loans and advances 367,193 28 43 269 267 267 12 –99 0 –32 –1 229 54
Off-balance-sheet
exposures 37,535 – – – – – – –7 – – – – –
* Pertains to definitions pursuant to Appendix V to the Commission Implementing Regulation (EU) No 680/2014

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
TABLE 41. NET EXPOSURE AMOUNTS FOR DEFAULTED AND NON-DEFAULTED EXPOSURES BY PROPERTY TYPE
Of which non- Total exposure amount
Total exposure amount in Of which, defaulted Specific credit risk in the lending portfolio after
SEK million the lending portfolio exposures in default exposures adjustment deduction for provisions
Houses and holiday homes 140,205 133 140,072 41 140,164

Tenant-owners’ rights 136,649 106 136,543 51 136,598
Tenant-owners’ associations 51,926 19 51,907 11 51,915
Private multi-family dwellings 30,173 – 30,173 2 30,171

Municipal multi-family dwellings 150 – 150 0 150
Commercial properties 3,171 – 3,171 1 3,170
Unsecured 2,208 12 2,196 12 2,196
Other 37,535 – 37,535 6 37,529
Total 402,017 270 401,747 124 401,893
TABLE 42 NET EXPOSURE AMOUNTS FOR DEFAULTED AND NON-DEFAULTED EXPOSURES BY REGION
Of which non- Total exposure amount
Total exposure amount in Of which, defaulted Specific credit risk in the lending portfolio after
SEK million the lending portfolio exposures in default exposures adjustment1) deduction for provisions
Greater Stockholm 232,465 124 232,341 62 232,403

Greater Gothenburg 36,210 12 36,198 9 36,201
Öresund region 45,071 40 45,031 17 45,054
University and growth regions 38,648 25 38,623 7 38,641
Weak regions 3,612 25 3,587 11 3,601
Other regions 46,011 44 45,967 18 45,993
Total 402,017 270 401,747 124 401,893
9.11 Reconciliation of change in specific credit risk adjustments for loans with provisions
SBAB only has specific credit risk adjustments and no general credit risk adjustments.
TABLE 43. CHANGES IN THE STOCK OF GENERAL AND SPECIFIC CREDIT RISK ADJUSTMENTS (EBA CR2-A TABLE)
Accumulated specific Accumulated general

SEK million credit risk adjustment credit risk adjustment
Opening balance (Closing 31 Dec 2017) 190 –

Increases due to amounts set aside for estimated loan losses during the period 77 –
Decreases due to amounts reversed for estimated loan losses during the period –132 –
Decreases due to amounts taken against accumulated credit risk adjustments –11 –
Transfers between credit risk adjustments – –
Impact of exchange rate differences – –
Business combinations, including acquisitions and disposals of subsidiaries – –
Other adjustments – –
Closing balance 124 –

Recoveries on credit risk adjustments recorded directly to the statement of profit or loss 3 –
Specific credit risk adjustments directly recorded to the statement of profit or loss –11 –

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
TABLE 44. CHANGES IN STOCK OF DEFAULTED AND IMPAIRED LOANS AND DEBT SECURITIES (EBA CR2-B TABLE)
Gross carrying value
SEK million for defaulted exposures
Opening balance 451

Loans and debt securities that have defaulted or impaired since the last reporting period 145
Returned to non-defaulted status –240
Amounts written off –7
Other changes –79
Closing balance 270
9.12 Exposures per risk class in the PD dimension FIGURE 14. IRB RETAIL — TENANT-OWNERS’ RIGHTS
— EXPOSURE BY RISK CLASS
The credit quality of the lending portfolio is favourable. A total
SEK m
of 99.9% of corporate exposures and 94.7% of retail exposures
60,000
in the balance sheet derive from the best risk classes: up to C4
(corporate exposures) and up to R4 (retail exposures). 50,000
40,000
30,000
20,000
10,000
0
R1 R2 R3 R4 R5 R6 R7 R8
Exposure Of which, off-balance-sheet items (before CCF)
FIGURE 12. IRB CORPORATES — EXPOSURE BY RISK CLASS FIGURE 15. IRB RETAIL — HOUSE/HOLIDAY HOME
SEK m SEK m
35,000 70,000
30,000 60,000
25,000 50,000
20,000 40,000
15,000 30,000
10,000 20,000
5,000 10,000
0 0
C1 C2 C3 C4 C5 C6 C7 C8 R1 R2 R3 R4 R5 R6 R7 R8
Exposure Of which, off-balance-sheet items (before CCF) Exposure Of which, off-balance-sheet items (before CCF)
FIGURE 13. IRB RETAIL — EXPOSURE BY RISK CLASS FIGURE 16. IRB RETAIL — TENANT-OWNERS’ ASSOCIATION
SEK m SEK m
120,000 35,000
100,000 30,000
25,000
80,000
20,000
60,000
15,000
40,000
10,000
20,000 5,000
0 0
R1 R2 R3 R4 R5 R6 R7 R8 C1 C2 C3 C4 C5 C6 C7 C8
Exposure Of which, off-balance-sheet items (before CCF) Exposure Of which, off-balance-sheet items (before CCF)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
9.13 R
ealised outcome in the PD and LGD dimensions TABLE 46. REALISED OUTCOME IN THE PD AND LGD DIMENSIONS
Table 45 shows the exposure-weighted PD and LGD estimates as PD Realised LGD Realised
Exposure class estimates, % outcome1), % estimate, % outcome2), %
of 31 December 2017 and the actual outcome for 2018. The esti-
mated PD for the retail exposures is somewhat above the actual Exposures to
corporates 0.3 0.0 – 0.0
outcome, which indicates that the models overestimate the risk of
default. No default events occurred in 2018 and, accordingly it Retail exposures 0.5 0.2 10 ,03) 0.5 3)
is difficult to draw any conclusions from the results in terms of the 1)

n exposure is regarded as in default if the receivable is more than 60 days past due or if an
A
estimated PD for corporate exposures. assessment has been made that the customer will probably not be able to pay agreed interest
amounts or cover repayments of the principal.
The estimated LGD for retail exposures is somewhat above the
2)
ealised outcome has been calculated on loans in default where the default was concluded
R
actual outcome. This was due to the estimated LGD being con- during the year.
trolled by the above limitation rule, which entails a lowest average 3)
The results are exposure-weighted.
LGD of 10%.
Table 46 shows a further allocation of the PD estimates and
outcomes.
TABLE 45. IRB APPROACH – BACKTESTING OF PD PER EXPOSURE CLASS (EBA CR9 TABLE)
External Arithmetic No. of obli- No. of obli- Defaulted Average his-

rating Weighted average PD gors end of gors end of obligors in Of which torical annual
Exposure class PD range equivalent average PD by obligors previous year this year the year new obligors default rate
Corporates –
Other 0–100% – 0.24% 0.17% 181 159 – – 0.00%
Corporates
Corporates –
SMEs 0–100% – 0.20% 0.74% 278 275 – – 0.23%
Retail – SMEs 0–100% – 0.16% 0.28% 1,942 1,768 1 – 0.03%
Retail
Retail – Other 0–100% – 0.39% 0.42% 172,115 179,781 334 – 0.27%
9.14 Comparison of expected loss and outcome The good credit quality is also visible in the relatively small
During the comparison period, it can be seen that the expected confirmed credit losses that arose during the year. In 2018,
loss (EL) decreased for both corporate and retail exposures. In confirmed credit losses for exposures recognised under IRB
both cases, the decrease was attributable to improved credit amounted to 4% of EL.
quality in the portfolio in terms of PD.
TABLE 47. COMPARISON OF EXPECTED LOSS BETWEEN OUTCOME AND MODEL, AND PROVISION FOR LOANS REPORTED ACCORDING TO IRB APPROACH 1)
Total provisions, Total provisions,
Realised Realised including including
EL, IRB/F-IRB EL, IRB/F-IRB EL, IRB/A-IRB EL, IRB/A-IRB outcome outcome guarantees guarantees
Exposure class, SEK million 31 Dec 2017 31 Dec 2016 31 Dec 2017 31 Dec 2016 2018 2017 31 Dec 2018 31 Dec 2017
Exposures to corporates 42 44 – – – – 2 19
Retail exposures – – 156 157 3 8 103 157
of which, houses and holiday homes – – 60 65 2 5 42 54
of which, tenant-owners’ rights – – 72 68 1 3 51 93
of which, tenant-owners’ associations – – 24 24 – – 9 10
Total 42 44 156 157 3 8 105 176
1)
xpected loss (EL) has been calculated for the loan receivables that existed at the end of 2016 and 2017, respectively.
E
In table 18, the expected loss is compared with the actual outcome for confirmed loan losses during the outcome years of 2017 and 2018, respectively.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Funding
10 Funding
SBAB’s operations are primarily funded through the capital and money markets. Since 2007, fund-
ing is also increasingly raised through retail deposits. Funding is conducted, in part, through the
Parent Company SBAB Bank AB (publ) and, in part, through SCBC where funding is carried out
through the issuing of covered bonds. Swedish and international programmes are utilised for fund-
ing and are predominantly conducted through public issues which are complemented by private
placements. Funding is mainly targeted at major institutional investors. International funding is
primarily aimed at European investors, but SBAB also attracts investors in the US, Japan and other
parts of Asia.
10.1 Medium and long-term funding 10.2 Short-term funding

SBAB manages its short-term funding primarily through two com-
10.1.1 Senior unsecured funding mercial paper programmes:
SBAB has a programme for medium and long-term funding, the
Euro Medium Term Note Programme (EMTN programme), which
• A Swedish commercial paper programme with a limit of SEK
25 billion; and
is used both for Swedish and international funding. The EMTN
programme has a limit of EUR 13 billion. The terms of the EMTN
• A European commercial paper programme with a limit of EUR
3 billion.
programme follow market practice for similar programmes and
entitle investors to early redemption of the bonds if, for example, The terms of these programmes follow market practice for similar
SBAB fails to pay the interest or capital on time, breaks other programmes and include limited opportunities for an investor to
terms of the programme (with consideration given to certain heal- demand early redemption.
ing periods) or if SBAB is placed into receivership or liquidation. SBAB can issue commercial paper in the international market in
Under the EMTN programme, SBAB can choose between various a variety of currencies through the European programmes, while
types of interest-rate structures, including floating and fixed rates, the Swedish programme is mainly used for SEK. Commercial
and issue bonds in several currencies and denominations. More- papers are mainly “discount paper,” meaning that it does not
over, the EMTN programme allows SBAB to issue both unsubordi- have floating or fixed coupon rates, but is issued in an amount
nated debt (senior preferred and senior non preferred) as well as that is more/less than the nominal amount that will be repaid
dated subordinated notes, which may qualify as Tier 2 capital on when it falls due.
approval by the Swedish FSA.
Based on the EMTN programme, SBAB has also established a 10.3 Encumbered and unencumbered assets
standalone prospectus under which perpetual subordinated debt As a part of SBAB’s operations, residential mortgages are trans-
intended to qualify as Additional Tier 1 capital has been issued. ferred to the subsidiary SCBC. These residential mortgages can
include credits pledged against mortgages in real estate intended
10.1.2 Secured funding for residential purposes, against tenant-owners’ rights or credits
The subsidiary SCBC has three funding programmes for issuing that otherwise qualify for inclusion in the cover pool for covered
covered bonds: a Swedish covered bond programme with no bonds. SBAB’s receivables relating to the residential mortgages
fixed limit, an international Euro Medium Term Covered Note Pro- transferred to SCBC are repaid (wholly or in part) to SBAB at the
gramme (EMTCN programme) with a limit of EUR 16 billion and same time as covered bonds are issued by SCBC. SBAB’s receiv-
a dormant Australian Covered Bond Issuance Programme with a ables relating to these transfers and other receivables (unless they
limit of AUD 4 billion. The terms of these programmes for issuing have arisen as a result of a derivative contract connected to the
covered bonds follow market practice for similar programmes cover pool) are subordinated receivables without priority, in the
and entail, for example, that investors have limited right to early event SCBC were to enter receivership or be liquidated.
redemption of the bonds. The terms also stipulate that SCBC Derivative contracts may be used to ensure a good balance
can choose between various types of interest-rate structures, regarding currencies, interest rates and fixed-interest periods in
including floating and fixed rates, and issue bonds through these the cover pool. By entering into interest-rate swap contracts with
three programmes in several currencies and denominations. SBAB or external counterparties regarding the assets registered
The EMTCN programme also allows SCBC to issue bonds with a in the cover pool, SCBC is able to convert interest payments
soft-bullet structure, which entitles the issuer, in certain cases, to received by SCBC in SEK for certain assets that are registered in
extend the maturity of the bond according to the issuer’s terms. the cover pool into variable payments linked to 3-month STIBOR.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Funding
In the same manner, SCBC may enter into currency swaps to for residential use or against pledged tenant-owners’ rights. The
hedge currency risks arising from funding in foreign currencies cover pool may also include substitute collateral, and it is conse-
or potential assets in foreign currencies that are registered in the quently possible to include derivatives or securities in the cover
cover pool. pool. The volume pertaining to encumbered assets in the last five-
The companies in the SBAB Group are also able to enter into year period is described in Figure 17, Encumbered assets.
derivative transactions that do not need to be recorded in the According to the Covered Bonds (Issuance) Act (2003:1223),
cover pool. Derivative contracts may be entered into between the the value of the assets in the cover pool must always exceed the
companies in the SBAB Group or with external counterparties. value of the bonds issued with the encumbered assets as collat-
For all counterparties documentation exists in the form of ISDA eral (referred to as overcollateralisation, “OC”). The unutilised
Master Agreements. In most cases, an agreement is supple- scope in the last four-year period is described in Figure 18,
mented by a credit support annex (CSA). The Parent Company Unutilised scope. At 31 December 2018, SCBC had set 2.0% as a
and SCBC may also enter into repo transactions with certain minimum requirement for the OC level, which is the level required
counterparties. These transactions are governed through Global by the matching rules set out in Chapter 3, sections 8 and 9 of
Master Repurchase Agreements (GMRA). In all instances, the the Covered Bonds (Issuance) Act (2003:1223). At 31 December
collateral transferred between counterparties under CSAs and 2018, this level was equal to a volume of SEK 4.6 billion.
GMRAs is in the form of cash. At 31 December 2018, SCBC had assets (reserves) corre-
The cover pool assets consist mainly of loans to the public in the sponding to SEK 21.7 billion that can constitute covered assets.
form of loans against mortgages of immovable property intended
FIGURE 17. ASSETS ENCUMBERED
SEK bn
250
230
210
190
170
150
2
2
-1
-0
-0
-0
-1
-0
-0
-0
-1
-0
-0
-0
-1
-0
-0
-0
-1
-0
-0
-0
-1
13
14
14
14
14
15
15
15
15
16
16
16
16
17
17
17
17
18
18
18
18
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
FIGURE 18. UNUTILISED SCOPE
SEK bn
80
60
40
20
0
2
2
-1
-0
-0
-0
-1
-0
-0
-0
-1
-0
-0
-0
-1
-0
-0
-0
-1
-0
-0
-0
-1
13
14
14
14
14
15
15
15
15
16
16
16
16
17
17
17
17
18
18
18
18
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Funding
Of the assets included in Table 48, Assets encumbered disclo- Such assets include deferred tax assets, property, plant and
sures below, under the heading Unencumbered assets, carrying equipment, intangible assets and certain other assets that are
amount with the amount recognised in the item Other assets, not mortgaged, pledged as collateral or used as security in the
SBAB has reported any items that are not available for mortgag- regular operations.
ing or other collateral arrangements in the regular operations.
TABLE 48. ASSETS ENCUMBERED DISCLOSURES

Carrying amount of encum- Fair value of Carrying amount of Fair value of
Assets, SEK million bered assets encumbered assets unencumbered assets unencumbered assets
of which of which
notionally eli- notionally eli- of which of which
gible EHQLA gible EHQLA EHQLA and EHQLA and
and HQLA and HQLA HQLA HQLA
Assets of the reporting institution 233,824 – 214,531 71,238
Equity instruments – – – –
Debt securities – – – – 71,849 71,238 72,392 71,780
of which: covered bonds – – – – 35,660 35,048 35,953 35,340
of which: asset-backed securities – – – – – – – –
of which: issued by general governments – – – – 22,505 22,505 22,701 22,701
of which: issued by financial corporations – – – – 13,684 13,684 13,739 13,739
of which: issued by non-financial corporations – – – – – – – –
Other assets 233,824 – 142,682 –
TABLE 49. COLLATERAL RECEIVED

Unencumbered
Fair value of encumbered collateral received Fair value of collateral received or own debt
SEK million or own debt securities issued securities issued available for encumbrance
of which notionally of which notionally
eligible EHQLA and eligible EHQLA and
HQLA HQLA
Collateral received by the reporting institution 1,352 – 0 –
Equity instruments – – – –
Debt securities 0 – 0 –
Other collateral received 1,352 – – –
Own debt securities issued other than own covered bonds or ABSs – – – –
TABLE 50. ENCUMBERED ASSETS/COLLATERAL RECEIVED AND RESULTING LIABILITIES

Assets, collateral received and own debt
Matching liabilities, contingent securities issued other than covered bonds
SEK million liabilities or securities lent and ABSs encumbered
Carrying amount of selected financial liabilities 233,824 233,824

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Funding
10.4 Funding strategy FIGURE 19. FUNDING SOURCES AND DISTRIBUTION BY CURRENCY FOR

DEPOSITS AND FUNDING
The size of the funding portfolio is a function of the volume of the
loans outstanding, and on the composition of the assets after
taking into consideration such factors as liquidity risk and the com- Swedish benchmark covered bonds
SCBC 34.5% (30.4)
pany’s risk appetite. Funding is also continuously adjusted to meet Deposits 34.2% (28.5)
new liquidity rules and the requirements imposed by rating agen- EMTN programme SBAB 14.6% (16.6)
cies and investors. The funding should be diversified. EMTCN programme SCBC 14.6% (21.8)
Subordinated loans 1.4% (1.3)
The portfolio must have an effective distribution between ECP 0.6% (1.2)
secured and unsecured funding and strive for an even distribution SVCP 0.1% (0.2)
of debt maturity dates, i.e. avoiding periods with large concen-
trations of maturities. The funding portfolio should also include
funding in several currencies with a balanced and diversified
investor base. As a consequence of the company’s lending being
conducted exclusively in SEK, the majority of the funding is allo-
cated to SEK. The second largest currency for funding is EUR and
the Group has been a regular issuer in the EUR market for many
years. Funding should be conducted using several lead banks
and through public offers and private placements. Interest-rate
risk and currency risk associated with funding are managed using SEK 73% (75)
derivatives, primarily interest-rate and currency swaps. EUR 26% (23)
SBAB’s lending is funded mainly by retail deposits and through Other currencies 1% (2)
the financial capital markets in the form of commercial paper and
bonds. Long-term funding is mainly conducted via covered bonds.
Short-term funding under SBAB’s commercial paper pro-
gramme must be adjusted to market conditions and needs, but
always constitute a limited share of the total funding portfolio.
SBAB’s loan assets should be used effectively by acting as collat-
eral for secured funding. The funding mix between SCBC and the FIGURE 20. DEPOSITS AND LENDING TRENDS
Parent Company must be well balanced, taking into account the
SEK bn %
companies’ risk appetite, rating and total long-term funding cost. 400 40
SBAB and SCBC must maintain an active market presence, 350 35
with favourable and frequent relations with investors in each 300 30
investor segment.
250 25
200 20
10.5 Deposit strategy
150 15
SBAB has an expressed ambition of gradually increasing the
amount of deposits and their share of balance sheet liabilities. 100 10
Retail deposits are to amount to a significant proportion of total lia- 50 5

bilities. To ensure that funding is diversified and to limit depen- 0 0
8 9 10 11 12 13 14 15 16 17 18
dence on capital markets, deposits are to constitute at least 28% of
Lending, SEK bn Deposits, SEK bn DTLR, %
lending (deposit-to-loan ratio). At 31 December 2018, this ratio
was 34%. SBAB aims to raise the deposit-to-loan ratio (DTLR) fur-
ther moving forward. Figure 20 illustrates the trends for deposits,
lending and the deposit-to-loan ratio since 2008.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
11 Credit risk in treasury operations

Credit risk arises in treasury operations, in part, in the form of counterparty risks for the derivative and
repo contracts entered into by SBAB to manage its financial risks and, in part, in the form of invest-
ment risk as a result of investments in the liquidity portfolio and the investment of surplus liquidity.
In accordance with the credit instruction adopted by the Board, 58 provide an overview of the distribution of the market value of
credit risk limits are established by SBAB’s Credit Committee for individual derivative transactions by rating and maturity.
all counterparties in the treasury operations. The utilised limit is GMRAs are used to limit the counterparty risk associated with
calculated as the market value of financial derivatives, repos and repo transactions. These agreements control aspects such as the
investments. For derivative and repo contracts, the effect of col- transfer of collateral to or from the counterparty.
lateral pledged or received under CSAs and GMRAs is included When entered into, CSAs are reconciled on a daily basis or
in the total net exposure. Moreover, for derivatives, an add-on on a weekly basis. When CSAs are in place, collateral is pledged
amount is also calculated for future risk-related changes. The to reduce net exposures. Wherever applicable, the posted and
credit risk limit may be established for a period of no longer than received collateral takes the form of cash with a transfer of title,
one year, following which a new assessment must be conducted. which entitles the party that receives the collateral to use the collat-
The decisions of the Credit Committee are reported to the Board eral in its operations. In certain cases, under the agreements con-
at the following Board meeting. cluded by the Parent Company and SCBC, threshold and minimum
transfer amounts are regulated by the parties’ rating, the poorer the
11.1 Counterparty risk party’s rating, the lower these amounts are. At 31 December 2018,
Counterparty risk is the risk that SBAB’s financial counterpar- a decline in SBAB’s rating would not result in the need for SBAB to
ties cannot meet their commitments pursuant to the completed provide extra collateral to any external counterparty.
derivatives and repo contracts, and such risk consists primarily of
exposures to well-reputed and established banks. Table 51 pro- TABLE 52. ANALYSIS OF THE COUNTERPARTY CREDIT RISK (CCR)
vides a breakdown of CCR exposures by risk weight at 31 Decem- EXPOSURE BY APPROACH (EBA CCR1 TABLE)
ber 2018. This exposure is predominantly covered by collateral Replacement Potential
agreements, where the counterparty posts collateral to reduce SEK million cost/current future credit EAD post
net exposure. Exposure class market value exposure CRM RWA
Mark to market 7,299 6,819 9,200 3,776
TABLE 51. STANDARDISED APPROACH – CCR EXPOSURES BY Financial collateral

REGULATORY PORTFOLIO AND RISK (EBA TABLE CCR3) comprehensive method
(for SFTs) – – – –
SEK million
Exposure class 0%  10%  20%  50%  Total Total 7,299 6,819 9,200 3,776
Institution – – 2,745 6,455 9,200

Total – – 2,745 6,455 9,200 TABLE 53. IMPACT OF NETTING AND COLLATERAL HELD ON
EXPOSURE VALUES (EBA CCR5-A TABLE)
To limit the potential counterparty credit risk associated with Gross posi-
derivative transactions involving non-standardised derivatives tive fair value
that are not cleared through a central counterparty (CCP) or net carry- Netting Netted cur- Collateral Net credit
SEK million ing benefits rent credit held exposure
approved by the competent authority (in accordance with Reg-
Derivatives 8,313 1,014 7,299 4,919 2,380
ulation (EU) No 648/2012), a framework agreement must have
been concluded with the counterparty. In most cases, the frame- SFTs – – – – –
work agreement, an ISDA Master Agreement or similar agree- Total 8,313 1,014 7,299 4,919 2,380
ments with terms for final settlement, have been supplemented
with a credit support annex (CSA).
The ISDA Master Agreement entails, inter alia, that netting is
regulated in the event of bankruptcy. A CSA means that the par-
ties have agreed in advance to transfer collateral if the exposure
exceeds a specified threshold amount. The threshold amount and
the minimum amount to be transferred to or from the counter-
party can vary depending on the parties’ ratings. Tables 57 and

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
TABLE 54. COMPOSITION OF COLLATERAL FOR EXPOSURES TO COUNTERPARTY CREDIT RISK (EBA TABLE CCR5-B)
Collateral used in derivative transaction
Fair value of collateral received Fair value of posted collateral Collateral used in SFTs
Fair value of Fair value of
SEK million Segregated Unsegregated Segregated Unsegregated collateral received posted collateral
Total – –7,210 1,153 841 – –
11.2 Credit quality in the liquidity portfolio holdings in the liquidity portfolio are limited by asset class and by
The primary purpose of SBAB’s liquidity portfolio is to act as a country, and new investments must have a rating of at least Aa
provision for situations when the ability to obtain liquidity from from Moody’s or AA from Standard & Poor’s upon acquisition.
other sources is limited or rendered materially more difficult. The The exemption to the above is for covered bonds, where a rating
portfolio comprises liquid, interest-bearing securities with high of Aaa from Moody’s or AAA from Standard & Poor’s is required
ratings. Moreover, securities holdings constitute an integrated to permit acquisition, refer to Table 55.
part of the total credit risk utilisation for each issuer. Securities
TABLE 55. APPROVED RATING PER ASSET CLASS

Maximal remaining Share of
Asset class Moody’s / Standard & Poor’s time to maturity liquidity portfolio
Securities issued or guaranteed by central governments, sovereigns, Aaa/AAA 10 years 49%
supranationals and agencies and non-governmental public sector
entities Aa/AA 6 years 3%
Aaa/AAA 10 years 47%
Covered bonds
Aa/AA 1%
Holdings of covered bonds are risk weighted in relation to their TABLE 56. HOLDINGS IN LIQUIDITY PORTFOLIO
credit quality step in the CRR. At 31 December 2018, all of HTC
SBAB’s holdings of covered bonds were assigned credit quality SEK million HTC FVO and Sell HTC
step one, which means a risk weight of 10%. The holdings in the Securities issued by central
governments 5,886 6,180 11,353
portfolio are long-term and at 31 December 2018, the market
value was SEK 74.9 billion. At the same date, 96% of the portfo- Securities guaranteed by central
governments 715 101 785
lio’s value had a rating of Aaa from Moody’s or AAA from Stan-
dard & Poor’s. The various asset classes in the portfolio are secu- Securities issued by sovereigns,
supranationals and agencies 663 1,522 246
rities issued by or guaranteed by central governments, securities
Securities issued by non-
issued by sovereigns, supranationals and agencies, securities governmental public sector entities 366 7,062 3,825
issued by non-governmental public sector entities and European
European covered bonds 2,122 26,573 6,965
covered bonds. The holdings in the liquidity portfolio are classi-
fied as “Hold to Collect Fair Value Option (HTC FVO)”, “Hold to Total 9,752 41,438 23,174
Collect and Sell (HTC and Sell)”, or “Hold to Collect (HTC)”.

All securities are recognised above at their market value, regard-
less of how they have been classified in the accounts.
Credit risk assessment is conducted on the basis of assessed
future cash flows and the market value of the collateral.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
TABLE 57. DERIVATIVES SPECIFIED BY RATING

SEK million Net market value Positive market values Negative market values
AA –6 53 –59
AA- 1,649 2,160 –511
A+ 1,416 1,669 –253
A 4,018 4,356 –338
BBB+ –13 67 –80
BBB –15 3 –18
BBB- –75 5 –80
Total 6,974 8,313 –1,339
Collateral 5,217
Netting benefits 844
TABLE 58. DERIVATIVES
SEK million Total nominal values Positive market values Negative market values
<1 year, Interest-rate-related 57,497 142 –81

>1 year, Interest-rate-related 279,516 2,748 –777
<1 year, Currency-related 8,316 148 –136
>1 year, Currency-related 96,069 5,275 –345
Total 441,398 8,313 –1,339
TABLE 59. NET CREDIT EXPOSURE FOR DERIVATIVES

SEK million
Gross positive fair value of contracts 8,313

– Netting benefits –1,014
= netted current credit exposure 7,299
– Collateral held –6,045
= net credit exposure for derivatives 1,254

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Market risk
12 Market risk
Market risk is the risk of loss or reduced future income due to market fluctuations.
SBAB is characterised by low risk taking, with the Board deter- 12.2 Supplementary risk metrics
mining the overall risk appetite and setting the limits for the risk In addition to the overall VaR limits determined by the Board, the
metric Value at Risk (VaR). In addition to VaR, a number of sup- CEO has set a number of supplementary risk metrics for different
plementary risk-based metrics set by the CEO of SBAB are also kinds of market risks to which SBAB is exposed. For interest-rate
subject to limitation. Risk Control checks compliance with current risk, limits exist for parallel shifts and curve risk. For parallel risk,
risk levels and limits on a daily basis. Market risk is followed up at the effect on the present value of a one percentage-point shift in
Group level as well as individual levels. the yield curve is measured. Curve risk is measured as the effect
The general principle governing SBAB’s exposure to market on the present value in different scenarios, where the short end of
risk is that the level of risk taking should be low. As a general prin- the yield curve is adjusted down (up) and the long end is adjusted
ciple, interest-rate risk is to be mitigated through direct funding up (down). Currency risk is controlled by measuring the effect on
or the use of derivatives. Currency risks are mitigated as funding present value when currency exchange rates change, and in the
in international currency is hedged through currency swaps or liquidity portfolio by controlling the matching of the principal in
invested in matching currencies. each currency. Limits are also in place for income volatility from
basis spreads.
12.1 Value at Risk Income volatility from basis spreads arises because the deriva-
VaR is a comprehensive portfolio metric expressing the poten- tives used to hedge funding are recognised at fair value while the
tial loss that could occur given a certain level of probability and underlying funding is recognised at book value, in accordance with
holding period. SBAB’s model is a historical model and applies the accounting standards applied by SBAB. This causes effects to
percentiles in historical market data from the past two years. arise in operating profit that do not correspond to the actual risk to
Limits for the day-to-day follow up of VaR are set at two lev- which SBAB’s portfolio is exposed. The income volatility from basis
els: SBAB’s total market risk, and all market risks that Treasury is spreads is expected to decrease in the future, as SBAB has applied
responsible for managing. The limit for SBAB’s total market risk is hedge accounting through cash-flow hedges since 2014, which
based on the VaR metric included in the model for economic cap- means that income volatility will only be calculated for existing
ital and applies a probability level of 99.97% and a holding period swap contracts that are not subject to cash flow hedges.
of one year, while the other metric applies a probability level of
99% and a holding period of one day.
FIGURE 21. INTEREST-RATE RISK BROKEN DOWN BY CURRENCY IN THE
As per 31 December 2018, SBAB’s total market risk exposure EVENT OF A PARALLEL SHIFT IN THE YIELD CURVE OF
was SEK 774 million (1,029), compared with the limit of SEK 1,950 +1 PERCENTAGE POINT
million (1,950). Exposure to market risks managed by Treasury SEK m
was SEK 27 million (38) and the limit was SEK 70 million (70). 10
0
–10
–20
–30
–40
–50
–60
–70
–80
AUD CAD CHF DKK EUR GBP JPY NOK SEK USD ZAR
The interest-rate risk totalled negative SEK 41.0 million at 31 December 2018.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Market risk
12.3 Interest-rate risk in other operations 12.4. Regulatory capital requirement for market risk
Interest-rate risk in other operations is measured and reported SBAB uses the standardised approach to quantify capital require-
quarterly to the Swedish FSA in accordance with FFFS 2007:4. ments for market risk in Pillar 1. The regulatory capital require-
For the calculation of interest-rate risk in other operations, a ment for market risk is shown in Table 60.
maturity of one day is assumed for deposits that are not time-lim-
ited. As per 31 December 2018, the effect on the present value TABLE 60. MARKET RISK UNDER STANDARDISED APPROACH
was negative SEK 992.6 million (negative: 885.4) for a 2 percent- (EBA TABLE MR1)
age-point parallel upward shift and a positive SEK 1,017.6 million Capital
(909.3) for a 2 percentage-point parallel downward shift. The Outright products RWAs requirements
exposure distributed by currency is presented in Figure 22.
Interest-rate risk (general and specific) – –
The net interest income effect is measured to capture the impact
Foreign exchange risk 999 80
of changes in interest rates on profit or loss. The metric reflects the
differences in volume and fixed-interest periods between assets, lia- Total 999 80
bilities and derivatives in other operations. The net interest income

effect is based on an instantaneous parallel shift of one percentage
point up and down over a 12-month time horizon with no changes
to the balance sheet. At the end of the year, the net interest income
effect was negative SEK 67 million (negative: 53).
FIGURE 22. INTEREST-RATE RISK IN OTHER OPERATIONS IN THE EVENT OF A

PARALLEL SHIFT IN THE YIELD CURVE OF
+/- 2 PERCENTAGE POINTS
SEK m
1,000
800
600
400
200
0
–200
–400
–600
–800
–1,000
AUD CAD CHF DKK EUR GBP JPY NOK SEK USD ZAR
Change +200 basis points
Change -200 basis points

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Liquidity risk
13 Liquidity risk
Liquidity risk is defined as the risk that SBAB will not be able to meet its payment obligations
at due date without the related cost of obtaining funds increasing significantly.
13.1 Liquidity strategy and liquidity risk management refinancing risks are mitigated by historically good possibilities for
Liquidity risk is defined by SBAB as a necessary risk and must be repurchasing and extension prior to loans maturing.
maintained at such a level that SBAB can manage a period of
acute liquidity crisis without dependency on the capital market. 13.1.2 Liquidity reserve
SBAB and SCBC are managed collectively as one sub-consoli- SBAB has a liquidity portfolio in place to ensure liquidity in times
dated liquidity group with regard to liquidity management and when normal market funding does not function adequately or in
control in accordance with Regulation (EU) No. 575/2013 of the case of outflows of deposits. The portfolio acts as a buffer, as
the European Parliament and of the Council, which allows free the securities in the portfolio can be used to generate liquidity,
disposition of liquid funds in the liquidity group. The Group has a either through repos or through the sales of parts of the portfolio.
central liquidity management function through which all of the The liquidity portfolio also comprises a business advantage in nor-
Group’s liquidity in all currencies is forecast and managed in a mal market conditions in the form of bridge financing for maturing
shared Group account structure. The overall aim of SBAB’s liquid- debt and with ensuring intraday liquidity.
ity strategy is to ensure SBAB’s survival in terms of liquidity and The portfolio holdings are long-term and mainly comprise
that the company can effectively meet its payment obligations. liquid, interest-bearing securities with high ratings, where 100%
Key features of the strategy are proactive and continuous liquidity of the portfolio’s holdings can be used as collateral for repos with
planning, active debt management and the scope, content and the Riksbank or the European Central Bank (ECB). The size of
management of SBAB’s liquidity reserve. SBAB’s holdings of individual securities as a percentage of the
Derivative transactions are used to manage financial risks that total volume outstanding is also limited with the aim of reducing
arise in conjunction with borrowing and lending. The majority of concentration risk.
SBAB’s interest-rate-related derivative transactions with external The liquidity reserve is defined as the reserve value of the
financial counterparties are cleared through clearing houses. securities in the liquidity portfolio and other liquid short-term
SBAB comprises the primary swap counterparty for derivative investments. When calculating the reserve value of the securities
transactions that SCBC needs to enter to hedge risks related to included in the liquidity reserve, the SBAB Group applies the
borrowing and lending. haircuts issued in accordance with the Riksbank’s Guidelines for
Collateral Management in the regulatory framework for RIX and
13.1.1 Broad and diversified funding monetary policy instruments.
SBAB has maintained an active international capital market pres- Excluding pledged collateral, SBAB’s liquidity reserve
ence since 1989. Short-term, mid-term and long-term funding takes amounted to SEK 70.7 billion at 31 December 2018 (the reserve
place on a global basis. Moreover, the SBAB Group has access value at the Riksbank or the ECB). The market value amounted to
to the covered bond market, both in Sweden and internationally, SEK 73.6 billion (see Table 61) with an average maturity of 2.07
through SCBC. In addition to issuing bonds, SBAB is funded by years. Moreover, unutilised issuance capacity for covered bonds
retail deposits. In the last few years, this source of funding has come comprises an additional reserve that is not included in the calcu-
to comprise an increasingly large share of liabilities, which has lation of the above liquidity metrics.
made the SBAB Group less dependent on unsecured funding. This
trend is deemed to reduce the Group’s refinancing risk since the 13.1.3 Continuous monitoring of liquidity risk
market for unsecured funding is significantly more volatile than the Proactive and continuous liquidity planning in the relevant curren-
markets for secured funding and deposits from the public. cies, active debt management and the scope, content and man-
Another key element of the SBAB Group’s financing strategy agement of the liquidity reserve are key factors in SBAB’s liquidity
is to achieve an even maturity profile over time. This is achieved risk management. By viewing funding activities as a natural part of
by actively choosing maturities during the issue process to avoid both operational work and the strategic planning of liquidity risk,
excessive concentrations of future maturities and by continu- concentrations of excessively large funding maturities are avoided.
ously repurchasing and exchanging debt outstanding (active Another important part of the ongoing liquidity risk management
debt management). Compared with the European covered is the continuous monitoring and testing of the practical liquidity
bonds market, the Swedish market has relatively large volumes value of the liquidity reserve in the secondary market.
outstanding of individual loans, but concentration, liquidity and

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Liquidity risk
13.1.4 Contingency plan ous types of crisis scenarios and contains definitions of events that
SBAB has a contingency plan for the management of liquidity cause and escalate the contingency plan. The contingency plan
crises. The contingency plan contains a clear delegation of is regularly tested and updated based on, for example, the results
responsibility for the personnel concerned, as well as instructions of stress tests.
on how the company can rectify potential liquidity deficits. The
plan stipulates suitable actions to handle the implications of vari-
TABLE 61. LIQUIDITY RESERVE

DISTRIBUTION BY CURRENCY
Liquidity reserve, SEK million Dec 2018 SEK EUR USD Other
Cash and holdings in central banks 2,515 2,515 – – –

Deposits in other banks available o/n – – – – –
Securities issued or guaranteed by sovereigns, central banks or multinational development banks 25,144 15,577 7,187 2,380 –
Securities issued or guaranteed by municipalities or public sector entities 10,681 8,391 1,145 1,145 –
Covered bonds issued by other institutions 35,339 30,840 3,905 594 –
Covered bonds issued by SBAB – – – – –
Securities issued by non-financial corporates – – – – –
Securities issued by financial corporates (excl. covered bonds) – – – – –
Other securities – – – – –
Bank and loan facilities – – – – –
Total 73,679 57,323 12,237 4,119 –
Currency distribution, % 78 16 6 –

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Liquidity risk
TABLE 62. LIQUIDITY COVERAGE RATIO UNDER THE CRR ( EBA LIQ1 TABLE)
TOTAL UNWEIGHTED VALUE (AVERAGE) TOTAL WEIGHTED VALUE (AVERAGE)
31 Dec 30 Sep 30 Jun 31 Mar 31 Dec 30 Sep 30 Jun 31 Mar

2018 2018 2018 2018 2018 2018 2018 2018
Number of data points used in the calculation of averages 12 12 12 12 12 12 12 12

High-quality liquid assets (HQLA)
1 Total HQLA – – – – 80,239 78,335 75,103 72,357
Cash flows
2 Retail deposits and deposits from small business customers, of which: 96,793 93,606 90,337 86,919 7,941 7,629 7,326 6,999
3 Stable deposits 63,349 61,668 60,039 58,338 3,167 3,083 3,002 2,917
4 Less stable deposits 33,445 31,938 30,298 28,581 4,773 4,546 4,324 4,082
5 Unsecured wholesale funding 25,705 25,870 25,783 24,446 12,967 13,124 13,100 11,901
Operational deposits (all counterparties) and deposits in networks of
6 cooperative banks – – – – – – – –
7 Non-operational deposits (all counterparties) 21,831 21,759 21,579 21,353 9,094 9,013 8,896 8,808
8 Unsecured debt 3,874 4,111 4,204 3,093 3,874 4,111 4,204 3,093
9 Secured wholesale funding 57 60 55 51
10 Additional requirements 52,221 51,737 49,895 47,346 17,996 16,601 13,999 10,666
Outflows related to derivative exposures and other collateral
11 requirements 11,326 10,899 9,295 6,101 11,326 10,899 9,295 6,101
12 Outflows related to loss of funding on debt products 4,869 3,852 2,815 2,634 4,869 3,852 2,815 2,634
13 Credit and liquidity facilities 36,027 36,986 37,785 38,611 1,801 1,849 1,889 1,931
14 Other contractual funding obligations 149 141 125 124 9 9 0 0
15 Other contingent funding obligations 10,964 11,311 11,534 11,583 3,770 4,193 4,759 5,308
16 TOTAL CASH OUTFLOWS – – – – 38,955 37,414 34,479 29,612
Cash inflows
17 Secured lending (e.g. reverse repos) 3,100 3,965 4,634 4,381 189 214 206 147
18 Inflows from fully performing exposures 1,654 1,679 1,697 1,669 1,055 1,066 1,073 1,055
19 Other cash inflows 12,381 11,671 9,817 6,617 12,381 11,671 9,817 6,617
(Difference between total weighted inflows and total weighted outflows
arising from transactions in third countries where there are transfer
EU-19a restrictions or which are denominated in non-convertible currencies) – – – – – – – –
EU-19b (Excess inflows from a related specialised credit institution) – – – – – – – –
20 Total cash inflows 34,269 34,630 32,294 25,333 27,250 25,900 22,192 15,639
EU-20a Fully exempt inflows – – – – – – – –
EU-20b Inflows subject to 90% cap – – – – – – – –
EU-20c Inflows subject to 75% cap 17,135 17,315 16,147 12,666 13,625 12,950 11,096 7,820
TOTAL ADJUSTED VALUE
21 Liquidity buffer 80,239 78,335 75,103 72,357
22 Total net cash outflows 29,109 28,667 28,144 27,100
23 Liquidity coverage ratio (%) 276 273 267 267

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Liquidity risk
13.2 Liquidity risk — Short-term liquidity risk 13.3 Liquidity risk – Structural liquidity risk
At SBAB, the risk of being exposed to insufficient liquidity in the Structural liquidity risk is a measure of the differences in maturity
short term is known as short-term liquidity risk. SBAB regularly structures between assets and liabilities, which risks leading to a
monitors a number of metrics for short-term liquidity risk. A few of lack of liquidity in the longer term. SBAB aims to have a diversified
which are described below. funding. The SBAB Group has adopted a conservative approach
to the management of funding. A larger share of future maturities
13.2.1 Liquidity coverage ratio pursuant to the is being pre-financed and the share of total funding attributable
European Commission delegated regulation to short-term funding is being maintained at a low level. SBAB
The liquidity coverage ratio is defined by SBAB in accordance with works actively to ensure an even distribution of maturities, while at
the European Commission delegated regulation (EU) 2015/61. the same time extending the maturity of the liabilities. Monitoring
This is a metric of the degree to which the liquidity reserve cov- of upcoming maturities, repurchases, replacements and pre-fi-
ers a 30-day net cash outflow in a stressed scenario. Under the nancing constitute key elements of the practical management
regulation, the metric must amount to not less than 100% for all aimed at reducing the risk.
currencies on a consolidated basis. At 31 December 2018, the SBAB limits its dependence on market funding by applying a
metric was 283% at the consolidated level, and 6,795% and 319%, limit on the ratio between deposits and lending to the public. At
respectively, in EUR and USD. In 2018, the LCR consolidated for all 31 December 2018, the ratio was 34% compared with a limit of
currencies never fell below 220%. 28%.
In accordance with the EBA’s guidelines (EBA/GL/2017/01), Moreover, access to funding from covered bonds is secured
detailed information is reported about the liquidity coverage by monitoring that the overcollateralisation in the cover pool at
ratio in Table 62 above. The values presented are simple average each point in time, including in stressed circumstances, exceeds
values for observations at the end of the month over the 12-month Moody’s requirements for Aaa ratings.
period preceding the end of each quarter. The net stable funding ratio (NSFR) according to SBAB’s inter-
In 2018, the item “Outflows related to derivative exposures pretation of the Basel Committee NSFR standard was 122% (117).
and other collateral requirements” averaged SEK 11,326 billion in SBAB also measures its structural liquidity risk through a metric
accordance with Table 62. The majority of the amount pertains to for maturity matching that measures the relationship between the
derivative liabilities for which SBAB has posted collateral. Slightly maturities of assets and liabilities from a liquidity perspective at
more than SEK 1 billion corresponds to a simulated outflow as a various points in the future. This can be viewed as SBAB’s internal
result of additional collateral being required in extremely stressed version of the NSFR, in which the maturity, in terms of liquidity, on
market scenarios pursuant to Article 30 (3) of the European deposits and lending is estimated by means of SBAB’s own statis-
Commission delegated regulation (EU) 2015/61. The amount tical models, which are based on historical data of the behaviour
also includes excess collateral posted by counterparties and con- of SBAB’s customers. The metric is subject to a one-year floor limit
tracted collateral that has yet to be posted by the bank. of not less than 90% at a consolidated level, 60% for USD and
currencies for which the liability exceeds 5% of total liabilities. At
13.2.2 Survival horizon 31 December 2018, maturity matching was 143% at the consoli-
In addition to regulatory liquidity risk metrics, SBAB has a number dated level, 143% in SEK, 139% in EUR and 89% in USD.
of internal metrics. These include the measurement and stress In addition to the above metrics, limits are applied to struc-
testing of the liquidity risk by totalling the maximum conceivable tural liquidity risk through further internal metrics, for which limits
need for liquidity for each coming day. This liquidity risk metric is apply.
referred to as the survival horizon. The calculations are based on
a crisis scenario in which all loans are assumed to be extended 13.4 Stress tests for liquidity risk
on maturity, meaning that no liquidity is added through loan SBAB performs regular stress tests of liquidity risk aimed at inter-
redemption, and where no funding is available. Retail deposits nal requirements for analytical and contingency management
are treated with a conservative assumption, whereby withdrawals of liquidity risk. The stress tests have been designed in line with
from the portfolio are distributed over time on the basis of histori- the Swedish FSA’s regulations on liquidity management, which
cal changes. Accordingly, the maximum need for liquidity can be impose general requirements on stress tests (FFFS 2010:7). The
identified for every given future period, and the necessary liquid- models analyse SBAB’s capacity to meet the need for cash and
ity reserve can be established. The survival horizon corresponds cash equivalents in various market scenarios and to assess the
to the number of days for which the liquidity reserve covers the effect of protracted stress on SBAB’s ability to finance its opera-
maximum outflow and it has been limited to a minimum of 180 tions. The scenarios are designed on the basis of SBAB’s specific
days at the consolidated currency level at any given time. risk profile and cover both company-specific and market-related
At 31 December 2018, the survival horizon was 400 days at scenarios that may render the financing of the operations diffi-
the consolidated level, and 272 days for SEK, 615 days for EUR cult. The scenarios are divided into different stages that illustrate
and 138 days for USD respectively. In 2018, the survival horizon increasing levels of stress intensity to reflect how a crisis can con-
was never less than 272 days at the consolidated level. tinuously deteriorate.
In addition to the above metrics, the short-term liquidity risk is
also mitigated through other internal metrics, for which limits apply.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Liquidity risk
The scenarios simulated by the stress tests include: applies for EUR at present, since USD is not a significant currency.
• The 2008/2009 financial crisis — stress in the funding opera- However, the introduction has no practical significance since the
tions, with funding programmes closing at various stages bank’s LCR in EUR is already at a level with a very healthy margin
• Rating-related stress, with gradually lower ratings for SBAB to the new requirement.
and SCBC
• Falling property market prices — various levels of falling prices, Harmonised rules for covered bonds
In March 2018, the European Commission presented a proposal
which increase LTV ratios, thus lowering the share of funding
that can be conducted via covered bonds for a new directive on covered bonds. The aim is to introduce
• Stress of liquidity in the liquidity reserve harmonised rules for covered bonds within the EU. The proposal is
• Sizeable fluctuations in interest and currency exchange rates, being discussed within the EU and at a national level, including in
the Association of Swedish Covered Bond issuers (ASCB) where
leading to larger amounts having to be secured through CSAs,
which could thus impair liquidity. SBAB is represented. Uncertainty still prevails regarding the final
outcome in terms of the design of the regulatory framework. The
The stress tests are under continuous development and the Commission’s proposal includes a few items related to liquidity
assumptions on which the various scenarios are based are risk. The most tangible being the requirement for issuers to hold a
assessed regularly. The stress tests are conducted and reported separate liquidity reserve to cover net liquidity outflows from cov-
quarterly, with results assessed against SBAB’s established risk ered bond programmes for a period of 180 days. No such liquidity
appetite and used to adapt strategies and guidelines. reserve requirement exists under the currently applicable frame-
work. SBAB continues to monitor the development of this area in
13.5 Developments in liquidity risk regulation area order to ensure a sound preparedness.
The area of liquidity risk is subject to constant regulatory develop-
ment. The following regulatory changes are on the agenda for the Changed LCR regulatory framework
immediate future: In October 2018, Commission Delegated Regulation (EU)
2018/1620 was published, amending Delegated Regulation (EU)
13.5.1 Amended Regulation on Prudential Requirements 2015/61 with regard to the liquidity coverage ratio. The changes
for Credit Institutions and Investment Firms (CRR) impact the calculation of inflows and outflows linked to repos and
In November 2016, the European Commission published a pro- collateral swaps. In addition, deposits reporting will become more
posal for an amended Capital Requirements Regulation (“CRR granular, while other reporting items will disappear and some
II”), which is intended to replace the current regulation that other clarifications will be introduced, for example regarding out-
entered force in 2014. The most substantial amendment with low weights of corporate deposits. The change has limited impact
regards to liquidity risk is the introduction of a mandatory require- on SBAB’s LCR but will entail some development and work with
ment of 100% net stable funding ratio (NSFR). Since 2014, SBAB adjusting models and reporting routines.
has regularly calculated NSFR based on the Basel Committee’s
standard, despite the lack of any statutory quantitative require-
ment. A difference between the Basel standard and CRR II is that
the latter contains some new risk weights on both assets and liabil-
ities. According SBAB’s assessment, the bank’s level of NSFR will
be satisfying with regards to the 100% requirement when it comes
into force. According to the proposal of CRR II, the regulation will
enter into force two years after adoption of the regulation, which
is anticipated to be done in the near future.
13.5.2 Other regulatory changes

Pillar 2 liquidity risk requirements
In April 2018, the Swedish FSA published a memorandum requir-
ing the introduction, within the Pillar 2 framework, of a liquidity
requirement for supervision category 1 and 2 banks (which
includes SBAB). The requirement means that the bank must
maintain liquidity coverage ratios in EUR and USD of not less than
100%, assuming that liabilities in these currencies correspond to
not less than 5% of total liabilities (“significant currencies”). The
reason being the EU regulation, which sets minimum LCR require-
ments at consolidated currency level rather than for individual
significant currencies. However, the Swedish FSA is of the opinion
that the assessments on which the previous national LCR require-
ments for EUR and USD were based remain valid, which it deems
motivates the new requirement. The procedure for establishing
the requirement follows the process for capital requirements in
Pillar 2 and applies from 2018. For SBAB, the requirement only

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Operational risk
14 Operational risk
Operational risk means the risk of losses due to inappropriate or unsuccessful processes,
human error, faulty systems or external events. The definition includes legal risk.
14.1 Risk management 14.1.4 Continuity management

The process for managing operational risk is based on the con- SBAB works in a pre-emptive manner to prevent events that may
tinuous identification, analysis and assessment of risks as well affect the company’s ability to operate. A contingency organ-
as their management and follow-up. An analysis of risk levels is isation has been established that is responsible for crisis and
reported to the Board, the CEO and the Executive Management. catastrophe management, and communication in case of serious
The Operational Risk function within the Risk department has incidents, crises or disasters. This organisation is tested regularly
overall responsibility for the methods and procedures used in the in collaboration with external crisis management experts.
management of operational risk. The work with managing oper-
ational risk is conducted based on SBAB’s risk appetite and the 14.2 Significant operational risks
significant processes for the business. This entails constant efforts SBAB has identified a number of risks that, were they to occur, are
to develop employees’ risk awareness and the bank’s risk culture, assessed as potentially having a larger impact on SBAB’s opera-
to improve processes and procedures as well as to provide tools to tions than other risks. The development of these risk is monitored
efficiently and proactively manage day-to-day operational risk. on an ongoing basis by the Executive Management and the Board,
As part of strengthening SBAB’s risk culture, in 2016 the bank and is taken into consideration within the framework of SBAB’s busi-
implemented risk and compliance coordinators (RCC) in the first ness planning. The significant operational risks are detailed below.
line. The RCCs support the business managers with a focus on risk
management, process mapping, internal controls, incident man- 14.2.1 Cyber risk
agement and regulatory compliance. The cyber threat to the Swedish financial sector is extensive and
persistent. Breaches that can crash important systems together
14.1.1 Self-evaluation with any accompanying blackmail attempts or leaks of sensitive
The self-evaluation process encompasses the identification data can lead to SBAB’s undertakings as a bank not being possi-
and evaluation of operational risks in all significant processes. ble to fulfil.
Self-evaluation is carried out using a shared method and docu- SBAB has a dedicated security team comprised of special-
mented in the shared system support. The result of the self-evalu- ists tasked with attaining and maintaining a high level of cyber
ation is reported annually to the Board, the CEO and the Execu- security for the bank. This is achieved through proactive efforts
tive Management. to ensure strong, digital perimeter protection and a high level
of security within this protective shield. The team endeavours to
14.1.2 Incident management increase risk and security awareness throughout SBAB with the
SBAB has procedures and system support intended to facilitate aim of achieving the right level of security for our customers, sys-
the reporting and follow-up of incidents. The Operational Risk tems and personnel.
function supports the operations with the analysis of reported
incidents to ensure that root causes are identified and suitable 14.2.2 Technical liability
measures are implemented. Even incidents that have not caused Market advances in technology have been rapid in recent years,
direct damage or financial loss are reported, to promote proac- which has led to parts of SBAB’s infrastructure becoming obso-
tive risk management. lete and outdated. An extensive project to replace the system
platform began in 2017 and has continued at full intensity and
14.1.3 Management of material changes with high priority during 2018. This will continue in 2019. SBAB
SBAB’s process for the management of material changes is applied has identified risks indicating that despite the above, the change
for new or significantly altered products, services, markets, pro- is not proceeding fast enough, that there are too many develop-
cesses and IT systems as well as in the event of major operational ment-related disturbances in daily operations and that the lifecy-
and organisational changes at SBAB. The aim of the process is cle management of other system support is lagging behind.
to evaluate any potential risks related to the change and to draw Clearly defined objectives and priorities are in place for
attention to any impact the change may have on capital. SBAB’s IT strategy to ensure that the identified risks are managed
effectively. The Executive Management and the Board closely
monitor the development and outcome related to time plans and
expenses. The shorter target and lead times entailed by the agile
working method as well as shorter intervals between production
increase flexibility and enable a more efficient working practices

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Operational risk
14.2.3 Competence Operations continue to focus highly on compliance with anti-

SBAB aims to be an attractive workplace with dedicated and money laundering and terrorist financing regulations. SBAB has
motivated employees who, on their own initiative, generate ideas, an Anti Financial Crime unit which, inter alia, monitors regulatory
collaborate and identify solutions. Like many other companies, developments in the area and supports operations in this regard.
SBAB faces the risk of not succeeding in attracting and retaining
the right skills. 14.3 Capital requirements for operational risks
SBAB uses a clearly defined and transparent HR strategy SBAB uses the standardised approach to calculate capital
together with ambitious goals in this area to actively develop the requirements for operational risk within the Pillar 1 framework.
value-driven work approach and to ensure inclusive leadership The capital requirement for operational risk is shown in Table 12,
that can generate driven employees. Risk exposure amounts and capital requirements.
14.2.4 Regulatory risk

Regulatory risk is increasingly becoming a significant risk. New
external regulations impacting SBAB will be implemented and
training will be conducted to secure a high level of competence
and thus high regulatory compliance in all parts of SBAB.
In spring 2018, the main focus was on the implementation of
the General Data Protection Regulation (GDPR), which entailed
changes in procedures, processes and system support, as well as
the implementation of the Privacy Office to lead and coordinate
activities related to personal data management and various
training activities in different parts of the SBAB.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Business risk
15 Business risk
By business risk, SBAB means the risk of declining earnings due to harsher
competition, inappropriate strategies or erroneous decisions.
Business risk also includes strategic risk, reputational risk and As the accounting standards used by SBAB require that certain
margin risk, which arise when the interest margins on lending and components of the portfolio are measured at market value while
borrowing have different maturities. SBAB defines business risk as other components are recognised at their carrying amount, this
a necessary risk. New business is usually relatively similar to the has effects on the operating profit, and consequently also on own
business SBAB already has. Changes in the form of new products funds, that do not correspond to the actual risk to which the port-
or new markets may only constitute a small part of SBAB’s activi- folio is exposed. To limit such effects, income volatility must be
ties and must be implemented at such a pace that SBAB does not measured and limited. Business risk is included in the calculation
substantially jeopardise its earnings level and with great probabil- of the Pillar 2 capital requirement as part of SBAB’s stress tests.
ity avoids pressure on its own funds. See also the section 6.3.6.3 Business risk.
Production: SBAB in collaboration with Sjö&Berg, SBAB Capital adequacy and risk management 2018 71
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
SBAB BANK AB (PUBL)
Corp. Reg. No. 556253-7513

Visiting address: Svetsarvägen 24
Address: Box 4209, SE-171 04 Solna, Sweden
Tel: 0771-45 30 00
Fax: 08-611 46 00
72www.sbab.se
SBAB Capital adequacy and risk management 2018

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Pillar 3 of the Basel regulations

Capital adequacy and

List of tables 3 9. Credit risk in lending operations  36

2 SBAB Capital adequacy and risk management 2018

Table Table heading Table according to EBA Page

SBAB Capital adequacy and risk management 2018 3

Table Table heading Page

Figure Figure heading Page

4 SBAB Capital adequacy and risk management 2018

SBAB Capital adequacy and risk management 2018 5

Economic capital Credit Support Annexe (CSA)

Value at Risk (VaR)

6 SBAB Capital adequacy and risk management 2018

Read more on page 08

For information about sustainability risks,

SBAB Capital adequacy and risk management 2018 7

TABLE 1. SIGNIFICANT RISKS

Risk type Risk appetite

Credit risk in lending operations

Credit risk in treasury operations

8 SBAB Capital adequacy and risk management 2018

Risk profile Risk management

SBAB Capital adequacy and risk management 2018 9

The Board’s statement on risk management and a brief risk declaration

The Board’s statement on risk

management and a brief risk

TABLE 2. RISK APPETITE AND RISK PROFILE

Credit risk in lending operations Wanted risk Medium Medium 77

10 SBAB Capital adequacy and risk management 2018

The consolidated situation

3 The consolidated situation

TABLE 3. OUTLINE OF THE DIFFERENCES IN THE SOPE OF CONSOLIDATION(EBA LI3 TABLE)

ENTITIES INCLUDED IN THE CONSOLIDATED SITUATION

ENTITIES NOT INCLUDED IN THE CONSOLIDATED SITUATION

Method of accounting Method of regulatory

SBAB Capital adequacy and risk management 2018 11

The consolidated situation

The general meeting is SBAB’s highest governing

C AUDIT AND D E RISK AND F REMUNERATION

Compliance ensures that opera- Risk analyses and controls SBAB’s

12 SBAB Capital adequacy and risk management 2018

Risk management and risk organisation

and risk organisation

4.2 Risk strategy

SBAB Capital adequacy and risk management 2018 13

Risk management and risk organisation

SBAB’s targets for the three risk appetite categories:

14 SBAB Capital adequacy and risk management 2018

Risk management and risk organisation

TABLE 4. DECIDED TARGETS FOR RETURNS AND CAPITAL RATIOS

TARGETS OUTCOME DIFFERENCE

2018 2017 2018 2017 2018 2017

Return on equity (owner’s return requirement) 1),

• The first line of defence refers to the day-to-day management

SBAB Capital adequacy and risk management 2018 15

Risk management and risk organisation

FIGURE 4. RISK REPORTING

CHIEF RISK OFFICER (CRO)

CREDIT RISK ANALYSIS

16 SBAB Capital adequacy and risk management 2018

List of tables 3 9. Credit risk in lending operations 36

TABLE 6. AMOUNT OF INSTITUTION-SPECIFIC COUNTERCYCLICAL

Consolidated situation, SEK million 31 Dec 2018  31 Dec 2017

5.4 Regulatory capital requirement TABLE 11. OVERVIEW OF RWAS (EBA OV1 TABLE)

TABLE 13. STANDARDISED APPROACH (EBA CR5 TABLE)

TABLE 24. LEVERAGE RATIO COMMON DISCLOSURE (LRCOM)