Sharp rise in earnings
The Handelsbanken Group's
profit for the period January - September 1994 was SEK 3
183M, compared to SEK 1 286M for the corresponding period
in 1993.
The improved earnings are the result of a continued sharp fall in loan losses. The result before loan losses decreased due to a drop in net interest income. However, both Swedish kronor lending volume and net interest income started to rise again during the third quarter.
Return on equity after tax went up to 14.3% (7.0).
Earnings per share increased to SEK 9.65 (4.33), and for the period October 1993 to September 1994 to SEK 11.25 (4.52).
Increased market shares in spite
of stronger competition
Net interest income was down by
14%, mainly because of smaller lending volumes and
shrinking margins between lending and deposit rates.
However, both Swedish kronor lending volume and net
interest income started to rise again during the third
quarter, after falling for a long time. In spite of
stronger competition, the Handelsbanken Group's market
shares have continued to increase in 1994 both for
deposits and lending. Where the important household
deposits sector is concerned, our market share has risen
from 12% at the beginning of the financial crisis in
1991, to 15%. This increased market share corresponds to
additional household deposits of nearly SEK 10 billion.
Commission grew by 7% as investment banking and corporate finance operations continued their strong performance.
Other income included net operating income of SEK 341M (215) from the Näckebro Group. Näckebro's direct yield rose slightly to 6.8%.
Total expenses rose by 3%. The increase was mainly due to higher personnel expenses, principally because of contractual salary increments.
Loan losses down by 59%
Loan losses fell by 59% to SEK
2 143M or 1.0% of lending (2.6%).
Problem loans fell by 41%
Problem loans (the sum of net
bad debts and reduced rate loans) were SEK 7 362M, down
by 41%. The volume of collateral taken over was slightly
less, totalling SEK 8 261M (8 587).
Continued large surplus
liquidity
In spite of the increased
lending volume in Swedish kronor during the third
quarter, the Handelsbanken Group still had large surplus
liquidity and is thus well-equipped to meet even more
demand for credits.
Surplus liquidity is placed in the investment portfolio. The duration of the Swedish kronor portfolio is short - 1.8 years - so that the Group can quickly meet increased demand for credits. External investments totalled SEK 45 billion. Apart from this, the portfolio included investments of SEK 26 billion in the Group's own mortgage company, Handelsbanken Hypotek. Because of rising bond yields, the market value of the investment portfolio was less than the purchase price. The deficit in the external portfolio was SEK 1.8 billion.1) Unrealised deficits of this kind do not affect the Bank's earnings but do affect equity and capital cover.
Strong capital cover
The Handelsbanken Group's
capital cover was 12.8%. The primary capital ratio was
8.7%.
New flexible occupational
pension scheme
Handelsbanken - via Handelsbanken
Liv - is the first Swedish bank to have developed a
flexible system for insurance of the occupational pension
schemes which companies have for their employees. The
insurance terms can easily be adapted to changes in the
employee's personal situation. This product was
introduced in September and has been given an
enthusiastic reception by our corporate customers.
Stockholm, 15 November 1994
Arne Mårtensson
President and Group Chief Executive
1) The deficit for the holding in Handelsbanken Hypotek was SEK 1.7 billion. It should be noted that the Swedish banks' accounting principles vary. Not all of them report the deficit in internal bonds, which makes comparison difficult.
| Profit and loss account | ||||
| Svenska Handelsbanken Group | January-September | |||
| 1994 | 1993 | Change | ||
| SEK M | SEK M | % | ||
 |
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|
|
|
|
|
| Net interest income 1) | 6 456 | 7 542 | - 14 | |
| Commission | 2 181 | 2 032 | + 7 | |
| Other income | 914 | 1 079 | -15 | |
| Total operating income | 9 551 | 10 653 | - 10 | |
Personnel expenses |
2 248 | 2 100 | + 7 | |
| Other expenses | 1 977 | 1 986 | - 0 | |
| Total expenses | 4 225 | 4 086 | + 3 | |
Profit before loan losses |
5 326 | 6 567 | - 19 | |
| Loan losses | 2 143 | 5 281 | - 59 | |
| Net operating profit | 3 183 | 1 286 | + 148 | |
|
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1) Interest income |
25 406 | 27 298 | - 7 | |
| Interest expenses | 18 950 | 19 756 | - 4 | |
A preliminary allocation of SEK 90M to the profit-sharing foundation Oktogonen is included in personnel expenses for 1994. Personnel expenses at 30 September 1993 have been increased by SEK 85M (3/4 of the allocation which was made at the end of 1993) compared to the interim report at 30 September 1993. Apart from this, minor changes have been made in the accrual of personnel expenses. The figures for 1993 have been adjusted accordingly. |
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There were no extraordinary items in 1993 or 1994. |
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| Balance Sheet | |||
| Svenska Handelsbanken Group | 1994 | 1993 | |
| 30 Sept | 30 Sept | Change | |
| SEK M | SEK M | % | |
|
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|
|
|
|
| Government securities and bonds | 102 838 | 64 496 | + 59 |
| Lending | 255 927 | 273 300 | - 6 |
| Banks | 52 498 | 30 272 | + 73 |
| Other | 37 301 | 43 651 | - 15 |
| Total assets | 448 564 | 411 719 | + 9 |
Funding |
189 624 | 172 999 | + 10 |
| Deposits | 193 095 | 170 362 | + 13 |
| Other liabilities | 32 383 | 38 772 | - 16 |
| Subordinated loans | 12 292 | 11 213 | + 10 |
| Shareholders' equity | 21 170 | 18 373 | + 15 |
| Total liabilities and shareholders' equity | 448 564 | 411 719 | + 9 |
|
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As from 1994, holdings of mortgage bonds within the Group are not eliminated. (The comparative figure for 1993 has been adjusted). |
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Lending includes lending to the general public and financial institutions other than banks as well as leasing assets. |
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Shareholders' equity includes 72% (70) of untaxed reserves. |
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| Key figures for the Group | |||
| January - September | |||
| 1994 | 1993 | ||
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|
|
|
|
| Return on equity after standard national tax (28% 1994, 30% 1993) | 14.3% | 7.0% | |
| Income/expenses (I/E ratio) | |||
| - before loan losses | 2.26 | 2.61 | |
| - after loan losses | 1.50 | 1.14 | |
Earnings per ordinary share 1), SEK |
9.65 | 4.33 | |
| - Oct 1993 - Sept 1994, SEK | 11.25 | ||
| - Oct 1992 - Sept 1993, SEK | 4.52 | ||
|
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1) After 28% (30) standard national tax and full conversion of convertible subordinated notes. |
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| Profit and loss account | |||
| Svenska Handelsbanken | January-September | ||
| 1994 SEK |
1993 SEK |
Change % |
|
|
|||
|
|
|
|
| Net interest income 1) | 5 331 | 6 447 | - 17 |
| Commission | 2 212 | 1 952 | + 13 |
| Other income | 483 | 773 | - 38 |
| Total income | 8 026 | 9 172 | - 12 |
Personnel expenses |
1 957 | 1 833 | + 7 |
| Other expenses | 1 730 | 1 730 | - |
| Total expenses | 3 687 | 3 563 | + 3 |
Profit before loan losses |
4 339 | 5 609 | - 23 |
| Loan losses | 1 518 | 4 744 | - 68 |
| Operating profit | 2 821 | 865 | + 226 |
|
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1) Interest income |
17 442 | 19 554 | - 11 |
| Interest payable | 12 111 | 13 107 | - 8 |
A preliminary allocation of SEK 84M to the profit-sharing foundation Oktogonen is included in personnel expenses for 1994. Personnel expenses at 30 September 1993 have been increased by SEK 79M (3/4 of the allocation which was made at the end of 1993) compared to the interim report at 30 September 1993. Apart from this, minor changes have been made in the accrual of personnel expenses. The figures for 1993 have been adjusted accordingly. |
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There were no extraordinary items in 1993 or 1994. |
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| Non-performing loans, problem loans and collateral taken over | |||
| 1994 | 1994 | 1993 | |
| 30 Sept | 30 June | 30 Sept | |
| SEK M | SEK M | SEK M | |
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|
|
|
|
| Non-performing loans for which interest is reported as income | 1 004 | 1 520 | 2 165 |
Problem loans: |
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| - Bad debts, gross | 11 986 | 12 374 | 16 503 |
| - Minus: Reserve for possible loan losses | - 6 480 | - 6 307 | - 6 964 |
| - Bad debts, net | 5 506 | 6 067 | 9 539 |
| - Reduced rate loans | 1 856 | 1 888 | 2 839 |
| - Total problem loans | 7 362 | 7 955 | 12 378 |
Collateral taken over: |
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| - Shares | 1 437 | 1 643 | 1 517 |
| - Property | 6 824 | 6 891 | 7 070 |
| - Total collateral taken over | 8 261 | 8 534 | 8 587 |
|
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| Bad debt reserve ratio | 54.1% | 51.0% | 42.2% |
| Proportion of bad debts | 2.2% | 2.3% | 3.5% |
| Loan loss ratio | 1.0% | 1.0% | 2.6% |
|
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Definitions
NON PERFORMING LOANS
Loans where interest,
repayments or overdrafts have been due for payment for
more than 60 days.
BAD DEBTS
A non-performing loan, or a
loan where other circumstances lead to doubt concerning
its value and where the value of the collateral does not
cover the principal amount and the accrued interest by a
satisfactory margin.
REDUCED RATE LOANS
Loans for which the interest
rate has been reduced relative to market rates.
PROBLEM LOANS
The total of bad debts (net)
and reduced rate loans.
BAD DEBTS RESERVE RATIO
Reserve for possible loan
losses as a percentage of bad debts, gross.
PROPORTION OF BAD DEBTS
The book value of bad debts as a percentage of the book
value of lending to the general public, lending to
financial institutions other than banks, and leasing
assets.
LOAN LOSS RATIO
Loan losses (net), adjusted upwards to full-year level,
as a percentage of the balance brought forward for
lending to the general public, lending to financial
institutions other than banks, and leasing assets and
credit guarantees.
This interim report has not been examined by the Bank's auditors.
Highlights for the financial year 1994 will be published on 21 February 1995.