Interim
report January - June 1994 Earnings tripled
The Handelsbanken Group's
profit for the first half of 1994 was SEK 2 301M, three
times that for the corresponding period of 1993 when
earnings were SEK 768M.
The improved earnings are the result of
a sharp fall in loan losses. The result before loan
losses decreased due to a drop in net interest income.
Return on equity after tax went up to
15.5% (6.3).
Earnings per share increased to SEK
6.97 (2.60).
Net interest income down,
commission up
Net interest income was down by
15%, mainly because of falling lending volumes and
shrinking margins between lending and deposit rates.
Commission increased by 13% as
investment banking operations continued their strong
development.
Other income included net operating
income of SEK 220M (128) from the Näckebro Group and
capital gains of SEK 318M (218) on bond sales.
Total expenses rose by 3%. Of these,
personnel expenses increased by 6%, because of
contractual salary increments and the effects of the fall
of the krona when converting the salaries of staff outside Sweden. During the first six months of the year, the number of employees fell by 47 to
an average of 6 978.
Loan losses fell by 60 per cent
Loan losses fell by 60% to SEK
1 460M, which corresponds to 1.0% (2.4%) of lending on a
full year basis. Problem loans dropped by over 40% to SEK
7 955M or 2.9% (4.4%) of lending volume after provision
for possible loan losses. The volume of property taken
over to protect claims was largely unchanged.
Government securities and bonds
As a result of sharply rising
bond yields, this report contains a more than usually
detailed account of the Group's holdings of Government
securities and bonds.
The Group's total holdings (SEK 105
billion) consist of two parts.
One part is the trading portfolio (SEK
36 billion). Any falls in value in the trading portfolio
have full impact on reported earnings.
The other part is the investment
portfolio (SEK 69 billion). The Group's surplus liquidity
is managed through the investment portfolio. This
management is of a long-term nature and the aim is to
keep the securities until maturity. Thus, any fall in
value does not affect earnings but does affect the
Group's equity.
In order to cope with fluctuations in
the Group's Swedish kronor surplus liquidity,
Handelsbanken's philosophy is to have an investment
portfolio with relatively short maturities. Consequently,
the duration of the investment portfolio at June 30, 1994
was 1.9 years.
During 1993 and 1994, the Group's
Swedish kronor surplus liquidity - and thus the
investment portfolio - has expanded sharply as a result
of increasing market shares for deposits, low credit
demand and a sharp rise in shareholders' equity. SEK 25
billion or just over 40% of the investment portfolio in
Swedish kronor is invested in bonds issued by our own
mortgage company, Handelsbanken Hypotek.
Sharply rising bond yields mean that
the market value of the investment portfolio was SEK 2.7
billion less than the purchase price at June 30, 1994 or
2.5% less than the total bond portfolio. In itself, this
is not unusual. The Handelsbanken Group has had a deficit
in its bond portfolio every year but one since a
functioning bond market came about in Sweden in 1983. As
late as 1990, the deficit in the bond portfolio was SEK
2.4 billion or 5.5% of the purchase price. As mentioned
above, unrealised deficits do not affect the Bank's
earnings but do affect equity and consequently capital
cover.
Capital cover
The Handelsbanken Group's
capital cover at June 30, 1994 was 12.5% (12.9 at
year-end). The primary capital ratio was 8.7% (8.8 at
year-end).
Higher rating
During the summer the rating
agencies Standard & Poor's, BankWatch and IBCA raised
Handelsbanken's rating. This reflects their assessment of
the Bank's increased result, its improved asset quality
and capital cover, and their expectations of a continued
favourable development for the Bank.
Sweden's best bank
Handelsbanken has been named
Sweden's best bank by the British financial periodical
Euromoney. "The Euromoney Award for Excellence as
the best Swedish bank" was awarded for the first
time in 1993, when the winner was also Handelsbanken.
The winner is appointed by a committee
consisting of a number of senior editors from Euromoney.
Their decision is based both on the bank's result and a
large number of interviews during the year with banks and
their customers.
The new deposits system
The Bank's new deposits system became operational on June 13th, the
conversion having worked perfectly. This brought to an
end the Bank's largest system development project so far.
The deposits system has 253 links to other systems. Since
the start in 1990, development costs have amounted to SEK
500M. The new deposits system offers major advantages
both in improved service to our customers and more
efficient processing at branch offices.
Handelsbanken Markets
The work of establishing
Handelsbanken Markets, the Group's new global unit for
trading, capital markets and investment banking
activities is proceeding to plan. Certain executive posts
have been filled externally. The new organization, which
is to be operational from October 1st, will be presented
at the end of September.
Stockholm, August 23, 1994
Arne Mårtensson
President and Group Chief Executive
Profit
and loss account |
Svenska Handelsbanken Group |
January-June |
|
|
1994 |
1993 |
Change |
|
SEK m |
SEK m |
% |
|
|
|
|
|
Net interest income 1) |
4 288 |
5 031 |
- 15 |
Commission |
1 506 |
1 337 |
+ 13 |
Other income |
799 |
767 |
+ 4 |
Total income |
6 593 |
7 135 |
- 8 |
Personnel expenses |
1 485 |
1 405 |
+ 6 |
Other expenses |
1 347 |
1 335 |
+ 1 |
Total expenses |
2 832 |
2 740 |
+ 3 |
Profit before loan losses |
3 761 |
4 395 |
- 14 |
Loan losses |
1 460 |
3 627 |
- 60 |
Net operating profit |
2 301 |
768 |
+ 200 |
|
1) Interest income |
16 222 |
18 829 |
- 14 |
Interest payable |
11 934 |
13 798 |
- 14 |
A preliminary
allocation of SEK 60M to the profit-sharing
foundation Oktogonen is included in personnel
expenses for 1994. Personnel expenses for 1993
have been increased by SEK 57M (1/2 of the
allocation which was made at the end of 1993)
compared to the interim report at 30 June 1993.
Apart from this, minor changes have been made in
the accrual of personnel expenses. The figures
for 1993 have been adjusted accordingly. |
There were no extraordinary items in 1993 or
1994. |
Balance Sheet |
Svenska Handelsbanken Group |
1994 |
1993 |
|
|
30
June |
30
June |
Change |
|
SEK m |
SEK m |
% |
|
|
|
|
|
Government securities and
bonds |
105 150 |
59 751 |
+ 76 |
Lending |
259 297 |
278 843 |
- 7 |
Banks |
41 221 |
36 137 |
+ 14 |
Other |
38 275 |
37 182 |
+ 3 |
Total assets |
443 943 |
411 913 |
+ 8 |
Funding |
196 855 |
184 649 |
+ 7 |
Deposits |
183 747 |
162 270 |
+ 13 |
Other liabilities |
31 404 |
36 250 |
- 13 |
Subordinated loans |
10 959 |
10 988 |
- 0 |
Shareholders' equity |
20 978 |
17 756 |
+ 18 |
Total liabilities and
shareholders' equity |
443 943 |
411 913 |
+ 8 |
|
As from 1994,
holdings of housing bonds within the Group are
reported in the same way as other bonds and are
thus not eliminated. (The comparative figure for
1993 has been adjusted). |
Lending includes lending to the general public
and financial institutions other than banks as
well as leasing assets. |
Shareholders' equity includes operating profit
after tax and 72% (70) of untaxed reserves. |
Key
figures for the Group |
|
January - June |
|
1994 |
|
1993 |
|
|
|
|
|
Return on shareholders'
equity after standard national tax (28% 1994, 30%
1993) |
15.5% |
|
6.3% |
Income/expenses
(I/E ratio) |
- before loan losses |
2.33 |
|
2.60 |
- after loan losses |
1.54 |
|
1.12 |
Earnings per ordinary share 1), SEK |
6.97 |
|
2.60 |
- July 1993 - June 1994, SEK |
|
10.38 |
|
- July 1992 - June 1993, SEK |
|
2.09 |
|
|
1) After 28% (30)
standard national tax and full conversion of
convertible subordinated notes. |
Profit
and loss account |
Svenska Handelsbanken |
January - June |
|
|
1994 |
1993 |
Change |
|
SEK
m |
SEK
m |
% |
|
|
|
|
|
Net interest income 1) |
3 554 |
4 279 |
- 17 |
Commission |
1 508 |
1 259 |
+ 20 |
Other income |
532 |
574 |
- 7 |
Total income |
5 594 |
6 112 |
- 8 |
Personnel expenses |
1 292 |
1 211 |
+ 7 |
Other expenses |
1 171 |
1 168 |
+ 0 |
Total expenses |
2 463 |
2 379 |
+ 4 |
Profit before loan losses |
3 131 |
3 733 |
- 16 |
Loan losses |
1 021 |
3 281 |
- 69 |
Operating profit |
2 110 |
452 |
+ 367 |
|
1) Interest income |
10 777 |
13 564 |
- 21 |
Interest payable |
7 223 |
9 285 |
- 22 |
A preliminary
allocation of SEK 56M to the profit-sharing
foundation Oktogonen is included in personnel
expenses for 1994. Personnel expenses for 1993
have been increased by SEK 53M (1/2 of the
allocation which was made at the end of 1993)
compared to the interim report at 30 June 1993.
Apart from this, minor changes have been made in
the accrual of personnel expenses. The figures
for 1993 have been adjusted accordingly. |
There were no extraordinary items in 1993 or
1994. |
Non-performing
loans for which interest is reported as income,
problem loans and property taken over to protect
claims |
|
1994 |
1994 |
1993 |
|
30 June |
31 March |
30 June |
|
SEK m |
SEK m |
SEK m |
|
|
|
|
|
Non-performing loans for which
interest is reported as income |
1 520 |
1 732 |
2 533 |
|
Problem loans: |
- Non-performing loans where
interest is not reported as income until payment has
been made |
10 831 |
11 403 |
14 568 |
- Loans where the interest
rate has been lowered relative to market interest
rates |
3 431 1) |
3 614 1) |
5 406 |
- Minus: Reserve for possible
loan losses |
- 6 307 |
-6 535 |
- 6 716 |
- Total problem loans after
allocation to reserve for possible loan losses |
7 955 |
8 482 |
13 258 |
Property taken over to protect claims: |
- Shares |
1 643 |
1 646 |
1 500 |
- Property |
6 891 |
6 890 |
4 870 |
- Total property taken over |
8 534 |
8 536 |
6 370 |
|
1) This includes
loans of SEK 1 543M in June and of SEK 2 484M in
March 1994 where a provision has been made for
possible loan losses. |
Auditor's Report
I have carried out a summary
examination of this interim report. A summary examination
is not to be compared to a full audit. There is nothing
to indicate that the interim report does not fulfil the
requirements of the Swedish Banking Operations Act.
Stockholm, August 23, 1994
Sigvard Heurlin
Authorised Public Accountant
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