Interim Report January - June 1997


Stadshypotek has been part of the Handelsbanken Group since 26 February 1997 and is thus not included in the comparative figures for 1996.

Substantial rise in profits
The Handelsbanken Group's profits for the period January-June 1997 increased by 26% to SEK 3 776M.

Compared to the second quarter of 1996, the rise in profits for the second quarter is 38%.

Return on shareholders' equity went up to 20.5% (18.4).

Earnings per share rose to SEK 12.38 (9.70) and as a 12-month moving total to SEK 23.99 (17.56).

Income and expenses
Total income increased by 9%.

Net interest income rose by 18%. It includes the fee of SEK 151M (70) to the Swedish government for the deposit protection guarantee.

Most of the increase in net interest income is the result of higher lending volumes following the acquisition of Stadshypotek. The new Group also continued to increase total lending during the second quarter. The increase was SEK 9 bn. Excluding Stadshypotek, the spread between deposit and lending rates was mainly unchanged.

Net commission income went up by 11%, principally due to higher volumes for fund management and securities trading.

The net result on financial operations has dropped substantially, as a result of lower earnings on the Bank's interest rate related trading operations.

Expenses were 19% up, of which 13 percentage points are attributable to the acquisition of Stadshypotek. The remaining part of the increase is due to higher systems development costs, setting up new branches in the Nordic countries and also to exchange rate changes. Swedish branch office operations had unchanged expenses.

The number of employees in the Group, excluding Stadshypotek, has fallen by 159.

Loan losses continue to fall
Loan losses, including changes in value for property taken over to protect claims, fell by 75% to SEK 234M or 0.1% (0.6) of lending.

The proportion of bad debts has fallen to 0.9% (1.0) of lending. The volume of collateral taken over was SEK 7 084M (758). This increase is related to the acquisition of Stadshypotek and consists entirely of property taken over in Stadshypotek Fastigheter AB.

Capital ratio
The Handelsbanken Group's capital ratio is 9.5% (12.2 at the year-end). The decrease is explained by the acquisition of Stadshypotek and a continued increase in the volume of operations. The Tier 1 capital ratio was 5.5% (10.0 at the year-end).

Extra business with Stadshypotek's customers exceeds expectations The work of integrating Stadshypotek's operations with those of Handelsbanken has continued at a fast pace. Part of this process involves moving loans between Stadshypotek, Handelsbanken Hypotek and the Bank with the purpose of achieving the best individual solution for the customer.

In many cases, other banking business has also been moved to Handelsbanken. This extra business with new customers has been much greater than expected and during the second quarter the increase in the volume of bank loans has therefore compensated an anticipated fall in mortgage loans. This implies that the Group's share of the total Swedish lending market was more or less unchanged during the second quarter at 30.4%. Since bank loans have a higher average margin than mortgage loans, the changed proportion has had a positive impact on the Group's net interest income.

Expanding branch office network
Handelsbanken is a Nordic universal bank. Its operations are based not only on a broad range of products but also on an extensive branch office network. This local presence and proximity to the customer offers an enhanced level of service and better knowledge of the customer's requirements. For this reason, Handelsbanken is expanding its branch office network, both in Sweden and the other Nordic countries.

So far this year, it has been decided to open six new branches in Sweden: Bålsta, Hjo, Lerum, Trosa, Söderköping and Åtvidaberg. Moreover, it has been decided to open another two branches in Denmark: Århus and Copenhagen West, two branches in Finland: Lahtis and Vanda, and two branches in Norway: Kristiansand and Tönsberg. During the same period, three Swedish branches have been closed.

Following this, the number of branches is as follows: 483 in Sweden, 3 in Denmark, 15 in Norway and 12 in Finland.

Stockholm, 19 August 1997

Arne Mårtensson President and Group Chief Executive

Auditor's report
I have carried out a summary examination of this interim report, and in so doing have followed the recommendation of the Swedish Institute of Authorised Public Accountants. A summary examination is considerably limited in comparison with a full audit. There is nothing to indicate that the interim report does not fulfil the regulations of the Act governing Securities Exchanges and Clearing Operations and the Annual Accounts Act for Credit Institutions and Securities Companies.

Stockholm, 19 August 1997

Sigvard Heurlin Authorised Public Accountant


Profit and loss account

Svenska Handelsbanken Group
January - June
1997
SEK M
1996
SEK M
Change
%
Interest income
27 611
19 940
+ 38
Interest expense
- 22 224
- 15 385
+ 44
Net interest income
5 387
4 555
+ 18
Dividends received
146
104
+ 40
Commission income
1 896
1 642
+ 15
Commission expense
- 314
- 223
+ 41
Net commission income
1 582
1 419
+ 11
Net result on financial operations Note 1
233
795
- 71
Other operating income
311
146
+ 113
Total income
7 659
7 019
+ 9
General administrative expenses
- Staff costs
2 015
1 759
+ 15
- Other administrative expenses
1 373
1 140
+ 20
Depreciation and write-down in value of tangible and intangible fixed assets
261
164
+ 59
Total expenses
3 649
3 063
+ 19
Profit before loan losses
4 010
3 956
+ 1
Net loan losses Note 2
229
892
- 74
Change in value of property taken over
5
60
- 92
Operating profit
3 776
3 004
+ 26
Minority interests
- 8
-
-
Appropriations
- Pension provisions
278
85
+ 227
Tax on profit for the period
- 1 089
- 774
+ 41
Net profit for the period
2 957
2 315
+ 28
Note 1 Net result on financial operations
Shares and participations
61
295
Interest-bearing securities
- 44
556
Realised profit
17
851
Shares and participations
- 22
- 234
Interest-bearing securities
- 184
10
Unrealised changes in value
- 206
- 224
Foreign exchange earnings
422
168
Net result on financial operations
233
795
Note 2 Loan losses
1997
30 june
SEK M
1996
30 june
SEK M
A. Individually valued claims:
The period's write-down for actual loan losses
764
1 044
Write-back of previous provisions for possible loan losses which are reported as actual loan losses in the period's accounts
- 572
- 611
The period's write-down relating to possible loan losses
459
753
Recovered from actual losses in previous years
- 111
- 69
Write-back of provisions for possible losses which are no longer necessary
- 257
- 194
Net expense for the period for individually valued loan losses
283
923
B. Claims valued as a group:
The period's write down for actual loan losses
20
39
Recovered from actual losses in previous years
- 7
- 5
Allocation to/dissolution of reserve for loan losses
- 5
- 58
Net expense for the period for loan losses valued as a group
8
- 24
C. Provisions to general reserve for country risks:
- 62
- 7
Total loan losses (A+B+C)
229
892

Balance sheet

Svenska Handelsbanken Group
1997
30 June
SEK M
1996
31 Dec
SEK M
1996
30 June
SEK M
Lending to the general public
579 523
277 810
282 264
Lending to credit institutions
150 885
119 166
160 852
Interest-bearing securities
- Financial fixed assets
13 354
21 191
27 294
- Financial current assets
74 834
86 774
62 461
Other assets
94 207
66 182
59 956
Total assets
912 803
571 123
592 827
Deposits and funding from the general public
198 603
167 507
169 530
Liabilities to credit institutions
305 351
170 974
194 818
Issued securities etc
265 178
129 284
123 802
Subordinated liabilities
23 647
12 302
12 589
Other liabilities
90 696
63 499
67 340
Shareholders' equity
29 328
27 557
24 748
Total liabilities and shareholders' equity
912 803
571 123
592 827
Bad debts etc

Svenska Handelsbanken Group

1997
30 June
SEK M
1996
30 June
SEK M
Bad debts
12 365
7 438
Reserve for possible loan losses
- 7 232
- 4 556
Bad debts, net
5 133
2 882
Reduced rate loans without a provision for possible loan losses
325
1 196
Total problem loans
5 458
4 078
Bad debt reserve ratio
58.5%
61.3%
Proportion of bad debts
0.9%
1.0%
Problem loans before write-down for possible loan losses
12 690
8 634
Loan loss ratio
0.1%
0.6%
Non-performing loans for which interest is accrued
2 948
494
Collateral taken over:
- Property
6 676
222
- Shares
380
517
- Other
28
19
Total collateral taken over
7 084
758

Derivatives

30 June 1997, SEK M
Interest-rate related
Currency-relatedEquity-related
Market
value
Book
value
Market
value
Book
value
Market
value
Book
value
Positive values
19 771
17 636
38 888
36 491
33
33
Negative values
26 913
23 826
37 443
35 493
307
307

The above table is compiled in accordance with the Swedish Financial Supervisory Authority's regulations and includes all derivative instruments in the Group. For derivative instruments which are part of trading operations, the book value is the same as the market value. The differences between market value and book value reported in the table correspond to the reversed differences between market value and book value in that part of the Group's operations which is subject to hedge accounting.

Quarterly performance of Svenska Handelsbanken Group

SEK M
1996:2
1996:3
1996:4
1997:1
1997:2
Net interest income
2 325
2 341
2 484
2 593
2 794
Commission, net
746
554
655
797
785
Net result on financial operations
303
369
980
20
213
Other
128
41
106
165
292
Total income
3 502
3 305
4 225
3 575
4 084
Staff costs
866
849
869
978
1 037
Other administrative expenses
565
515
582
629
744
Depreciation and write-downs
81
70
76
105
156
Total expenses
1 512
1 434
1 527
1 712
1 937
Profit before loan losses
1 990
1 871
2 698
1 863
2 147
Loan losses
503
355
499
136
98
Operating profit
1 487
1 516
2 199
1 727
2 049

Financial ratios for the Group
January - June
1997
1996
Return on shareholders' equity
20.5%
18.4%
Capital ratio
9.5%
11.7%
Tier 1 capital ratio
5.5%
8.5%
Income/expenses (I/E ratio)
- before loan losses
2.10
2.29
- after loan losses
1.97
1.75
Earnings per ordinary share, SEK
12.38
9.70
- July 1996-June 1997
23.99
- July 1995-june 1996
17.56

Return on shareholders' equity is calculated on the net result for the period in relation to average shareholders' equity.

Capital cover computed as the capital base, including the net profit for the period with deduction of a notional amount for recommended dividend, as a percentage of risk-weighted capital.

Earnings per ordinary share are determined by dividing the net profit for the year after appropriations and tax by the number of ordinary shares. An adjustment has been made to take into account preference shares, index shares and full conversion of convertible subordinated notes.

Profit and loss account
Parent Company
January - June
1997
SEK M
1996
SEK M
Change
%
Interest income
13 931
14 143
- 1
Interest expense
- 10 857
- 10 834
.
Net interest income
3 074
3 309
- 7
Dividends received
163
499
- 67
Commission income
1 858
1 720
+ 8
Commission expense
- 295
- 213
+ 38
Net commission income
1 563
1 507
+ 4
Net result on financial operations
Note 1
217
776
- 72
Other operating income
Note 2
1 945
152
Total income
6 962
6 243
+ 12
General administrative expenses
- Staff costs
1 701
1 606
+ 6
- Other administrative expenses
1 120
1 036
+ 8
Depreciation and write-down in value of tangible and intangible fixed assets
131
425
- 69
Total expenses
2 952
3 067
- 4
Profit before loan losses
4 010
3 176
+ 26
Net loan losses Note 3
64
667
- 90
Change in value of property taken over
-
66
.
Operating profit
3 946
2 443
+ 62
Appropriations
- Pension provisions
278
85
+ 227
- Other
- 321
- 458
- 30
Tax on profit for the period
- 527
- 470
+ 12
Net profit for the period
3 376
1 600
+ 111
Note 1 Net result on financial operations
Shares and participations
59
292
Interest-bearing securities
- 41
553
Realised profit
18
845
Shares and participations
- 35
- 235
Interest-bearing securities
- 184
4
Unrealised changes in value
- 219
- 231
Foreign exchange earnings
418
162
Net result on financial operations
217
776
Note 2 Other operating income
This includes capital gains of SEK 1 796 M in connection with the sale of Handelsbanken Hypotek to Stadshypotek. This amount is eliminated in the consolidated accounts.
Note 3 Loan losses
1997
30 June
SEK M
1996
30 June
SEK M
A. Individually valued claims:
The period's write-down for actual loan losses
351
750
Write-back of previous provisions for possible loan losses which are reported as actual loan losses in the period's accounts
- 308
- 411
The period's write-down relating to possible loan losses
269
538
Recovered from actual losses in previous years
- 63
- 48
Write-back of provisions for possible losses which are no longer necessary
- 124
- 156
Net expense for the period for individually valued loan losses
125
673
B. Claims valued as a group:
The period's write down for actual loan losses
2
3
Recovered from actual losses in previous years
0
0
Allocation to/dissolution of reserve for loan losses
- 1
- 2
Net expense for the period for loan losses valued as a group
1
1
C. Provisions to general reserve for country risks:
- 62
- 7
Total loan losses (A+B+C)
64
667

Balance sheet

1997
30 June
SEK M
1996
31 Dec
SEK M
1996
30 June
SEK M
Lending to the general public
193 922
160 451
164 130
Lending to credit institutions
180 536
133 517
175 186
Interest-bearing securities
- Financial fixed assets
27 678
35 636
46 096
- Financial current assets
75 075
86 626
62 318
Other assets
94 499
66 908
59 327
Total assets
571 710
483 138
507 057
Deposits and funding from the general public
211 685
175 827
180 378
Liabilities to credit institutions
185 146
177 362
203 967
Issued securities etc
56 506
38 264
29 548
Subordinated liabilities
15 518
8 934
9 073
Other liabilities
74 647
57 033
61 597
Untaxed reserves
5 619
5 298
4 671
Shareholders' equity
22 589
20 420
17 823
Total liabilities and shareholders' equity
571 710
483 138
507 057

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