CONSUMER LENDING IN SWEDEN

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CONSUMER LENDING IN SWEDEN Analysis July 14,
2003
Analyst Commentary
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TABLE OF CONTENTS

1. EXECUTIVE SUMMARY
2. FINANCIAL INFORMATION
3. CORPORATE INFORMATION
4. PRODUCT PORTFOLIO
5. MARKET INFORMATION
6. SOURCES

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I. EXECUTIVE SUMMARY

• Swedish economy has stabilized in terms of
  growth. In fact, GDP growth is expected to leap
  to 2.7 from the current 1.4 to 1.5 levels. It
  compares favorably with rates in Germany and
  EU-15 countries though it lags behind that of the
  US. Inflation is expected to stabilize after 2003
  summer and see a temporary decline in 2004. But
  business investment is expected to go down in
  2003 for the third consecutive year.
• Households seem optimistic. Retail sales rose
  3.7 in Q1 2003 yoy. During the same period, car
  sales were 8 higher, though wage rate increase
  is expected to decelerate in 2003. In 2004, wage
  rate is expected to rise by 4. Unemployment rate
  may dip slightly to 4.4 in 2004 from 4.3 in
  2003.
• Four big banks - Svenska Handelsbanken, Nordea
  Bank Sweden, Skandinaviska Enskilda Banken (SEB)
  and FöreningsSparbanken (known internationally as
  Swedbank) - account for most of the deposits and
  loans in the banking sector. Merger moves among
  the big four in the past did not fructify. SP
  does not expect mergers in the near future.
• Household borrowing has been rising compared to
  general public borrowing. Households account for
  only about 20 of total lending by banks and 40
  of loans of mortgage institutions. Credit cards
  are less popular compared to debit cards. There
  are fewer bank branches now thanks to
  increasingly popular alternative distributions
  channels like phone banking and Internet banking.
  In 2000, Giro payments accounted for 7562 bn SEK
  or 94 of account based retail payment
  instruments. Global giants GE Capital and
  Citibank occupy 9th and 32nd position among
  lenders in the retail segment.

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II. SWEDISH ECONOMY

• The Swedish economy and political environment are
  marked by stability. Swedish Central Bank
  Riksbank forecasts a 1.4 GDP growth rate in
  2003. Investment bank Nordea Market expects a
  marginally higher GDP growth of 1.5 in 2003,
  projecting it even higher at 2.7 in 2004.
• Services accounted for 44 of employment and 70
  of the GDP.
• Sweden is getting ready for a referendum on
  joining the EMU in September 2003. Nordea Markets
  expects Sweden to join the EMU in early 2004.
• Inflation is on target. It is expected to
  stabilize after 2003 summer and see a temporary
  decline in 2004.
• Business investment is expected to decrease in
  2003 for the third consecutive year. Building
  investment in 2003 will remain at the same level
  as 2002, with the public sector offsetting the
  decrease in private sector investment.
• Households seem optimistic. Retail sales rose
  3.7 in Q1 2003 yoy. During the same period, car
  sales were 8 higher, though wage rate increase
  is expected to decelerate in 2003. In 2004, wage
  rate is expected to rise by 4 according to
  Nordea.
• Unemployment rate is likely to rise from 4 in
  2002 to 4.5 in 2003 but dip to 4.4 in 2004.

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II. SWEDISH ECONOMY HOUSEHOLD LOAN GROWTH

• Household borrowing has been rising compared to
  general public borrowing while business borrowing
  has declined markedly.

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II. SWEDISH ECONOMY GDP

• Swedens GDP growth rate has been lagging behind
  the US rate for the last two years. But it
  compares favorably with GDP growth rates of
  Germany and the EU-15 countries.

Figures for 2003 are forecast
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II. LENDING ENVIRONMENT

• According to Riksbank, fie types of lenders
  extend credit to the general public, with banks
  and mortgage institutions accounting for 87 of
  loans.

Type of lender Loans to general public (SEK bn)
Banks 1,345
Mortgage institutions 1,126
Other credit market companies 307
Securities companies 6
Insurance companies 46
Total 2,830
General public includes non-financial companies,
municipalities, non-residents and households
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II. LENDING ENVIRONMENT BANKS

• Swedish Banking System is resilient and is
  well-equipped to handle further economic
  downturn.
• There are no apparent systemic risks. Regulation
  and supervision are in line with international
  standards.
• At the end of 2001, there were 128 banks
  operating in Sweden. Of these 26 are public
  limited banking companies, 77 are savings banks,
  23 are foreign-owned banks and 2 are co-operative
  banks.
• Four universal banks hold more than 85 of loans
  and deposits, but margins remain low as there are
  new entrants. The top ten banks account for
  almost 95 of balance sheet total.
• The big four are Svenska Handelsbanken, Nordea
  Bank Sweden, Skandinaviska Enskilda Banken (SEB)
  and FöreningsSparbanken (known internationally as
  Swedbank).
• There has been consolidation in the Swedish
  banking industry via mergers and acquisitions
  since the second half of the 1990s. The merger of
  two of the top four banks was called off in 2001
  due to restrictive conditions placed by the EU.
  SP does not expect further mergers.
• Alternative distribution channels such as
  telephone banking and Internet banking have come
  up. Consequently the number of branches has come
  down from 3,700 in 1980 to 1,900 in 2001.
• New retail banks such as Ikanobanken and ICA
  Banken are wholly-owned by parent companies.

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II. LENDING ENVIRONMENT BANKS
Top Ten Lenders in 2001

• About 20 of total bank lending is to households,
  which includes unincorporated enterprises.

Bank Lending to the public (SEK mn)
Handelsbanken 414,485
SEB 223,357
Swedbank 211,473
Nordea Bank 180,451
Danske Bank 85,187
Postgirot Bank 18,792
SkandiaBanken 15,470
ABN AMRO 19,325
GE Capital Bank 18,392
Dexia Crédit 16,229
Households includes unincorporated enterprises
Notes 1) Lending to the public includes
households, companies and local governments 2)
Postgirot Bank was acquired by Nordea in December
2001
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LENDING ENVIRONMENT MORTGAGE INSTITUTIONS

• The top four banks control 87 of the
  mortgage market.
• SBAB is a state-owned company with 11 share.
• 65 of Spintabs loans are to private
  individuals.

• After banks, mortgage companies are the second
  largest lenders to general public in Sweden.
• There are 10 mortgage finance institutions, most
  of which are owned by the banks. Two companies
  are state-owned.
• About 40 of the lending is to businesses.
  Household lending accounts for 60 of lending.

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LENDING ENVIRONMENT OTHER CREDIT MARKET COMPANIES

• Other credit market companies include finance
  companies, corporate and municipality-financial
  institutions.
• There are 60 finance companies in Sweden,
  offering products like leasing and factoring to
  companies, and promissory note loans and credit
  cards to individuals. Some of these are owned by
  banks, with the big four having a presence even
  here.
• The top three companies are corporate financial
  institutions.
• The finance companies extend loans for auto/boat
  purchases and cards.

Company Balance Sheet Size (SEK bn)
Svensk Exportkredit 150
Kommuninvest i Sverige 48
Landshypotek 35
Nordea Finans Sverige 29
Handelsbanken Finans 29
Volvofinans 24
SEB Finans 22
Föreningssparbanken Jordbrukskredit 19
ABB Credit Finans 10
Telia Finans 9
Total 10 largest 375
Total other credit market companies 468
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LENDING ENVIRONMENT CREDIT CARDS

• The usage of credit cards is low in Sweden at 68
  bn SEK in 2000. There is a preference for debit
  cards, which also offer lines of credit to
  customers.
• In 2000, Giro payments accounted for 7562 bn SEK
  or 94 of account based retail payment
  instruments.
• Of the 490 bn SEK, the break-up is shown below

Source Data Monitor
Source Riksbank
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PLAYERS SVERGIA HANDELSBANKEN

• Svergia Handelsbanken
• This is the largest bank in Sweden with a balance
  sheet size of SEK 1277 bn in December 2002 and
  lending assets to general public of SEK 839 bn.
  It is a universal bank with a mortgage company,
  finance company and also has presence in asset
  management, investment banking, pension and
  insurance.
• Its has outstanding loans of SEK 284 bn to
  private individuals, bulk of it - SEK 234 bn in
  December 2002 in mortgage loans.
• Finance company Handelsbanken Finans had loans to
  individuals amounting to SEK 4.7 bn.
• It has grown through acquisitions. It acquired
  Skanska Banken in Sweden and Oslo Handelsbank in
  1990. In 1992, it acquired life insurance company
  RKA and parts of Skopbank in Finland. In 1996, it
  purchased Swedish mortgage company Stadshypotek.
  In 1999, it bought Bergensbanken in Norway and in
  2000, it acquired insurance company SPP Liv. In
  2001, it acquired Midtbank.

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PLAYERS SEB

• Skandinaviska Enskilda Banken (SEB)
• This is the second largest bank with a balance
  sheet size of SEK 1241 bn in December 2002. It
  has presence in mortgage, finance, investment
  banking, asset management, insurance and pension.
• It has outstanding loans of SEK 230 bn to
  households in December 2002.
• This bank was formed when Stockholms Enskilda
  Bank and Skandinaviska Banken merged in 1972. In
  1997, it acquired Trygg-Hansa Insurance. In 2000,
  it acquired BfG Bank in Germany. It also acquired
  a bank each in Latvia, Estonia and Lithuania in
  1999 and 2000. Other acquisitions include Diners
  Club Nordic (1994), private bank Gyllenberg,
  Finland (1997), Orkla Finans in Norway (2000) and
  the Eurocard brand company Europay in Norway
  (2002).

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PLAYERS SWEDBANK

• FöreningsSparbanken (SwedBank)
• This bank is the largest retail bank with a 30
  market share in retail. It has presence in
  mortgage, finance, investment banking, asset
  management and insurance. It has a balance sheet
  size of SEK 957 bn in December 2002.
• It has outstanding loans of SEK 306 bn to
  households in December 2002, of which mortgage
  loans through its mortgage company Spintab amount
  to SEK 248 bn.
• Its finance subsidiary had loans to households
  amounting to SEK 2.2 bn.
• SwedBank was formed when Föreningsbanken and
  Sparbanken Sverige merged in 1997. It has
  subsidiaries in mortgage, finance, investment
  banking, and asset management. It has 25 stake
  in two banks, each in Norway and Finland. It
  subsidiary Hansabank is present in the Baltic
  states and the Denmark subsidiary specializes in
  business financing.

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PLAYERS NORDEA

• Nordea Bank
• Nordea Bank is part of the pan-Nordic Nordea
  group. Nordea Bank Sweden had a balance sheet
  size of SEK 607 bn.
• It has outstanding loans of SEK 153 bn to
  households in December 2002.
• This bank was formed when Föreningsbanken and
  Sparbanken Sverige merged in 1997.
• It acquired the post office-owned bank Postgirot
  Bank, which was merged with Nordea in 2002. It
  also divested from some of its insurance
  investments in 2002. It has presence in
  investment banking, insurance, asset management
  through the group. It also has a finance company
  in Sweden.

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PLAYERS THE NEW PLAYERS

• GE Capital Bank became the 9th largest bank in
  2001 from 14th in 2000. It is a niche player
  specializing in small consumer credit. It
  provides consumer loans, affinity loans to
  members of a affinity groups such as a teachers
  association, sales finance (closed-end secured
  and unsecured personal loans) and credit
  insurance, to protect consumers if they
  experience payment hardship. In 2001, its lending
  stood at SEK 18 bn. It has three branches, 440
  employees and operates through a distribution
  channel
• Citibank is a small player, ranked 32nd in 2001
  with a loan portfolio of SEK 1 bn. It provides
  auto loans and issues credit cards. It had one
  branch and 29 employees and operates through a
  distribution channel.
• A few new players such as Ikano Bank,

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Sources

• Swedish Finance Ministry
• Link to Finance Ministry
• Swedish Central Bank
• Link to Sveriges Riksbank
• Statistics Sweden
• Link to Statistics Sweden
• Swedish Bankers Association
• Link to Swedish Bankers Association
• Dialog
• LexisNexis

• Swedish Banks
• Link to Handelsbank
• Link to SEB
• Link to ForeningsSparbanken
• Link to Nordea Bank
• Link to GE Capital Bank
• Link to Citibank