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

Back


Copyright 1997 © Svenska Handelsbanken