Financial Stability Report 2006:1

Financial Stability Report2006:1

May 31, 2006

CHAPTER 1Financial markets

Stock markets in selected countries

Index: september 2002 = 100

Figure 1:1 Source: Reuters EcoWin

0

50

100

150

200

250

300

350

Jun-

92

Jun-

94

Jun-

96

Jun-

98

Jun-

00

Jun-

02

Jun-

04

Jun-

06

Sweden - OMX Germany - DAX 100

UK - FTSE 100 USA - S&P 500

P/E ratios for Sweden, Europe and the United States


0

5

10

15

20

25

30

35

40

Dec

-93

Dec

-94

Dec

-95

Dec

-96

Dec

-97

Dec

-98

Dec

-99

Dec

-00

Dec

-01

Dec

-02

Dec

-03

Dec

-04

Dec

-05

Dec

-06

Sweden - OMX Europe - Stoxx USA - S&P 500

Implied stock-market volatility

Index

Figure 1:3 Source: Bloomberg

0

10

20

30

40

50

60

jun-96 jun-97 jun-98 jun-99 jun-00 jun-01 jun-02 jun-03 jun-04 jun-05 jun-060

10

20

30

40

50

60

Sweden - OMX UK - FTSE 100

Germany - DAX 30 USA - S&P 500

Historical stock-market volatility in

Sweden and the United States


0.0

0.1

0.2

0.3

0.4

Jan-

55

Jan-

60

Jan-

65

Jan-

70

Jan-

75

Jan-

80

Jan-

85

Jan-

90

Jan-

95

Jan-

00

Jan-

05

Jan-

10

Sweden - AFGX USA - S&P 500

Ten-year government bond ratesPer cent


0

2

4

6

8

10

12

14

Jun-90 Jun-92 Jun-94 Jun-96 Jun-98 Jun-00 Jun-02 Jun-04 Jun-06

Sweden Germany UK USA

Credit spreads in the United States

Percentage points

Figure 1:6 Sources: Reuters EcoWin, Federal Reserve Board and Merrill Lynch

0

2

4

6

8

10

12

Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06

High grade (Aaa) Low grade (Baa) High-yield bonds

Corporate bond spreads in Europe

Percentage points


0

3

6

9

12

15

18

1999 2000 2001 2002 2003 2004 2005 2006

Low grade (BBB) High-yield bonds

Credit default swap spreadar


20

30

40

50

60

70

80

Mar

-05

Apr

-05

May

-05

Jun-

05

Jul-0

5

Aug

-05

Sep

-05

Oct

-05

Nov

-05

Dec

-05

Jan-

06

Feb-

06

Mar

-06

Apr

-06

Europe North America

Spreads for bonds issued by emerging market economies

Percentage points


0

4

8

12

16

20

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06

Europe EMBI+ Asia

Oil price and commodity price index

USD per barrel and index: February 2002=100

Figure 1:10 Sources: The Economist and Reuters EcoWin

10

20

30

40

50

60

70

80

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-0660

80

100

120

140

160

180

200

Oil price (left scale) Commodity price index (right scale)

Nominal house pricesTwelve-month change, per cent

Figure B1 Sources: Reuters EcoWin and Australian Property Monitor

-10

0

10

20

30

40

Mar

-90

Mar

-92

Mar

-94

Mar

-96

Mar

-98

Mar

-00

Mar

-02

Mar

-04

Mar

-06

USA Australia UK Ireland Netherlands

Nominal house pricesTwelve-month change, per cent

Figure B2 Source: Reuters EcoWin

-20

-10

0

10

20

30

Mar

-90

Mar

-92

Mar

-94

Mar

-96

Mar

-98

Mar

-00

Mar

-02

Mar

-04

Mar

-06

Sweden Denmark Spain Norway

US households’ ability to service house purchases

Index

Figure B3 Source: Reuters EcoWin

100

110

120

130

140

150

Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06

CHAPTER 2The Swedish banks’

borrowers

Non-financial companies, borrowing and bank depositsPercentage twelve-month change, three-month

moving average

Figure 2:1

-10

0

10

20

30

Dec

91

Dec

92

Dec

93

Dec

94

Dec

95

Dec

96

Dec

97

Dec

98

Dec

99

Dec

00

Dec

01

Dec

02

Dec

03

Dec

04

Dec

05

Dec

06

Bank deposits Borrowing from credit market institutions

Source: The Riksbank

Non-financial companies, borrowing from securities markets and credit

market institutionsMiljarder kronor

Figure 2:2 Source: The Riksbank

0

300

600

900

1200

1500

180019

90

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Credit market institutions Bond and certificates

Corporate sector gross fixed capital formation and borrowing by non-financial

companies from credit market institutions

Percentage twelve-month change, four-month moving average

Figure 2:3 Sources: Statistics Sweden and the Riksbank

-10

-5

0

5

10

15

20

Dec

-95

Dec

-96

Dec

-97

Dec

-98

Dec

-99

Dec

-00

Dec

-01

Dec

-02

Dec

-03

Dec

-04

Dec

-05

Gross fixed capital formation Borrowing from credit market institutions

Ratio of debt to total assets in listed companiesPer cent of all listed companies

Figure 2:4 Sources: Bloomberg and the Riksbank

0

20

40

60

80

100

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

0-25 25-50 50-75 >75 Average

Returns on equity in listed companies

Per cent of all listed companies


0

20

40

60

80

100

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005sep

>10 5 - 10 0 - 5 -5 - 0 <- 5Return on

equity:

Number of corporate defaults by company size

Figure 2:6 Source: Statistics Sweden

0

100

200

300

400

500

600

Dec

-82

Dec

-84

Dec

-86

Dec

-88

Dec

-90

Dec

-92

Dec

-94

Dec

-96

Dec

-98

Dec

-00

Dec

-02

Dec

-04

Dec

-06

0

5

10

15

20

25

30

1–9 employees 10–49 employees >49 employees (right scale)

Expected default frequency (EDF) by industry

for listed non-financial companiesPer cent (logarithmic scale)

Figure 2:7 Source: Moody’s KMV

0.01

0.1

1

10

100

Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06

Manufacturing Construction IT-telecomServices Property management Transport

Expected default frequency (EDF) for listed non-financial companies in Nordic

countries and GermanyPer cent (logarithmic scale)

Figure 2:8 Source: Moody’s KMV

0.01

0.1

1

10

Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06

Sweden Norway Denmark Finland Germany

Company acquisitions

Figure B4 Sources: Swedish Venture Capital Association (SVCA) and the company Förvärv och Fusioner

0

200

400

600

800

1000

1200

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Total no. of Swedish acquisitionsLeveraged buyouts by private equity companies in Sweden

Leveraged buyout investmentsSEK billion and number

Figure B5 Sources: Swedish Venture Capital Association (SVCA)

0

10

20

30

40

2001 2002 2003 2004 20050

25

50

75

100

Amount invested (left scale) Number of investments (right scale)

EBIT multiples for leveraged buyouts

Average in SEK million

Figure B6 Source: The Centre for Management Buy Out Research

0

5

10

15

20

25

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Swedish private equity companies Average for Europe

EBIT multiples for Swedish equity companies’ acquisitions

abroadAverage in SEK million

Figure B7 Source: The Centre for Management Buy Out Research

0

10

20

30

40

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Swedish private equity companies Average for Europe

Interest-expenditure and debt ratios

for listed property companies

Figure 2:9 Sources: Financial statements and the Riksbank

0

1

2

3

4

1997 1998 1999 2000 2001 2002 2003 2004 20050

1

2

3

4

5

Debt ratio Interest ratio

Expected default frequency (EDF) for listed property companies in Nordic

countries and GermanyPer cent (logarithmic scale)

Figure 2:10 Source: Moody´s KMV

0.01

0.1

1

10

Apr

-01

Apr

-02

Apr

-03

Apr

-04

Apr

-05

Apr

-06

Sweden Norway Denmark Finland Germany

Vacancy rates for office premises

in central locationsPer cent

Figure B8

0

10

20

30

Dec

90

Dec

92

Dec

94

Dec

96

Dec

98

Dec

00

Dec

02

Dec

04

Dec

06

Stockholm Göteborg Malmö

Sources: NewSec AB and the Riksbank

Real rents for office premises in central locations

Index 1981 = 100

Figure B9 Sources: NewSec AB and the Riksbank

50

100

150

200

dec

81

dec

86

dec

91

dec

96

dec

01

dec

06


Real prices for office premises in central locations

Index 1981 = 100

Figure B10 Sources: Newsec AB, Jones Lang LaSalle and Reuters EcoWin

0

100

200

300

400

500

dec-

81

dec-

86

dec-

91

dec-

96

dec-

01

dec-

06


Average direct return required for

office premises in central locations

Per cent

Figure B11 Sources: Newsec AB and Reuters EcoWin

0

2

4

6

8

10

12

14

Dec

80

Dec

82

Dec

84

Dec

86

Dec

88

Dec

90

Dec

92

Dec

94

Dec

96

Dec

98

Dec

00

Dec

02

Dec

04

Dec

06

Stockholm Göteborg Malmö 5-year treasury bond rate

Household borrowing by type of institutionPercentage 12-month change


-10

0

10

20

Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06

Total Mortage institutions

Household debt and post-tax interest expenditure in relation to

disposable incomePer cent

Figure 2:12 Sources: Statistics Sweden and The Riksbank

0

40

80

120

160

1970 1974 1978 1982 1986 1990 1994 1998 2002 20060

4

8

12

16

Debt ratio (left scale) Post-tax interest expenditure ratio (right scale)

Duration of fixed interest periods

for house mortgage loansPer cent of total stock


0%

20%

40%

60%

80%

100%Ja

n-97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Variable rate Fixed >3 months to 5 years Fixed >5 years

Household debt and house prices

Index: 1986 = 100

Source: Statistics SwedenFigure 2:14

0

100

200

300

400

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 20050

100

200

300

400

House prices Household debt

House pricesIndex 1986 = 100


0

100

200

300

400

500

600

Mar

-86

Mar

-88

Mar

-90

Mar

-92

Mar

-94

Mar

-96

Mar

-98

Mar

-00

Mar

-02

Mar

-04

Mar

-06

Greater Stockholm Greater GothenburgGreater Malmö National average

Completed new residential construction,

by type of housingNumber of dwelling units


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

75 80 85 90 95 00 05

Apartment buildings 1- and 2-family houses

National average price of tenant owned dwellings

SEK per square metre

Figure 2:17 Source: maklarstatistik.se

0

3 000

6 000

9 000

12 000

15 000

18 000

dec-

95

dec-

96

dec-

97

dec-

98

dec-

99

dec-

00

dec-

01

dec-

02

dec-

03

dec-

04

dec-

05

dec-

06

Debt and interest expenditure ratios

for indebted householdsPer cent

Figure B12 Sources: Statistics Sweden and the Riksbank

110

120

130

140

150

160

170

180

1999 2000 2001 2002 2003 20040

2

4

6

8

10

12

14

Debt ratio (left scale) Post-tax interest expenditure ratio (right scale)

Debt and interest expenditure ratios,

by income decilesPer cent


0

50

100

150

200

250

300

3 4 5 6 7 8 9 100

1

2

3

4

5

6

Interest ratio (right scale) Debt ratio (left scale)

Share of household sector debt and proportion

of households below the margin, by income deciles

Per cent


0

10

20

30

40

3 4 5 6 7 8 9 100

2

4

6

8

Share of total debt (left scale) Proportion of households below the margin (right scale)

Shares of household sector debt and assets, by income deciles

Per cent


0

10

20

30

40

3 4 5 6 7 8 9 10

Share of household sector debt Share of household sector assets

CHAPTER 3Developments in

the banking

Geographical breakdown of operating profits for 2005

Per cent

Figure 3:1 Sources: Banks reports and the Riksbank

0

20

40

60

80

100

Handelsbanken Förenings-sparbanken

SEB Nordea

Sweden Other Nordic countries Poland and Baltic states Germany Other countries

Implied volatility of bank equity

Per cent, moving 10-day average


0

40

80

120

Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-060

40

80

120

SEB Handelsbanken Nordea Föreningssparbanken

Pre-tax return on equityPer cent


-20

0

20

40

60

80

Pre-tax profit margin Riskadjusted income Level of risk Leverage

Profit before loan losses and net

loan losses in the major banksFour-quarter figures, SEK billion, 2006 prices


0

20

40

60

80

100

Dec

-90

Dec

-92

Dec

-94

Dec

-96

Dec

-98

Dec

-00

Dec

-02

Dec

-04

Dec

-06

0

20

40

60

80

100

Profit before loan losses Profit before loan losses using IFRS Loan losses

The major Swedish banks’ profits

Four-quarter figures, SEK billion


-20

0

20

40

60

80

Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06

Capital gains/losses and pension provisionsProfit on other operationsFinancial transactions/operations at market valuesCore profits

The major banks’ securities-related commission income, Stockholm Stock

Exchange turnover and a Nordic stock-market index

SEK million and index: 1997=100

Figure 3:6 Sources: Bank reports, Reuters EcoWin and the Riksbank

0

1,000

2,000

3,000

4,000

5,000

03:1 03:2 03:3 03:4 04:1 04:2 04:3 04:4 05:1 05:2 05:3 05:4 06:10

100

200

300

400

500

Brokerage incomeCapital management incomeOther securities-related incomeStockholm Stock Exchange turnover (index, right scale)Nordic stock-market index (right scale)

Post-tax return on equityPer cent


0

10

20

30

2000 2001 2002 2003 2004 2005 2006SEB HandelsbankenNordea FöreningssparbankenDanske Bank Jyske BankOP Bank Group DNB NOR

Breakdown of the major banks income

Per cent

Figure B15 Sources: Banks reports and the Riksbank

0

20

40

60

80

100

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06Other incomeNet transactions income/operations are market valuesNet commission incomeNet interest income

Net interest margin and spreads for the major banks on deposits, bank loans and

mortgage loansPer cent, moving 4-quarter average


0.0

0.5

1.0

1.5

2.0

2.5

3.0

Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06

Net interest margin Bank loansNew mortgage loans Bank deposits

Cost efficiency of the major banksPer cent


0

1

2

3

4

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 20060

20

40

60

80

Costs/assets Income/ assets

C/I ratio (right scale) C/I ratio with IFRS (right scale)


Cost/income ratiosPer cent

20

30

40

50

60

70

80

90

2000 2001 2002 2003 2004 2005 2006

SEB Handelsbanken NordeaFöreningssparbanken Danske Bank Jyske BankOP Bank Group DNB NOR

Stock of loans to the general public,

sector breakdown and share of growth

Per cent


0

10

20

30

40H

ouse

mor

tgag

es

Oth

er lo

ans

toho

useh

olds

Rea

l-est

ate

man

agem

ent

Trad

e &

serv

ices

Tran

spor

t &sh

ippi

ng

Con

stru

ctio

n

Man

ufac

turin

g

Oth

er

Pub

licad

min

istra

tion

Share of total lending Share of total increase 2004–2005

Lending by credit institutions to companies in Sweden

Percentage 12-month change, three-month moving average

Figure 3:9

-20

-10

0

10

20

dec-97 dec-98 dec-99 dec-00 dec-01 dec-02 dec-03 dec-04 dec-05 dec-06-20

-10

0

10

20



Lending by credit institutionsto households in Sweden

Percentage 12-month change

Figure 3:10

-5

0

5

10

15

20

dec-97 dec-98 dec-99 dec-00 dec-01 dec-02 dec-03 dec-04 dec-05 dec-06-5

0

5

10

15

20



Lending to the public in Sweden and abroad

Index: 2005 Q1 = 100

Sources: Banks reports and the RiksbankFigure 3:11

80

90

100

110

120

130

140

150

05:1

05:2

05:3

05:4

06:1

05:1

05:2

05:3

05:4

06:1

05:1

05:2

05:3

05:4

06:1

05:1

05:2

05:3

05:4

06:1

Total In Sweden Abroad

Förenings-sparbanken

Handels-banken

Nordea SEB

Provisions for incurred and probable loan losses

Per cent of loan stock, accumulated over four quarters


0,0

0,4

0,8

1,2

1,6

dec-95 dec-96 dec-97 dec-98 dec-99 dec-00 dec-01 dec-02 dec-03 dec-04 dec-05 dec-060,0

0,4

0,8

1,2

1,6


Loan losses, netPer cent of loan stock


-0,1

0,0

0,1

0,2

0,3

0,4

0,5S

EB

Före

ning

s-sp

arba

nken

OP

Ban

kG

roup

DN

B N

OR

Jysk

e B

ank

Nor

dea

Han

dels

-ba

nken

Dan

ske

Ban

k

2003 2004 2005 2006

Tier 1 capital ratios of the four major Swedish banks

Per cent

Figure 3:14

4

6

8

10

12

dec-96 dec-97 dec-98 dec-99 dec-00 dec-01 dec-02 dec-03 dec-04 dec-05 dec-064

6

8

10

12


Sources: Banks reports and the Riksbank

Tier 1 capital ratios of the major Nordic banks

Per cent

Figure 3:15

4

6

8

10

12

14

16

2000 2001 2002 2003 2004 2005 mars 2006SEB Handelsbanken NordeaFöreningssparbanken Jyske Bank Danske BankDNB NOR OP Bank Group

Sources: Banks reports and the Riksbank

The major Swedish banks’ deposits,

lending and funding gapSEK billion and per cent


0

1,000

2,000

3,000

4,000

5,000

Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-060

20

40

60

80

100

Lending (left scale) Deposits (left scale) Funding gap (right scale)

The major Swedish banks’ interest-bearing assets and liabilities,

December 2005SEK billion


-600

-400

-200

0

200

400

600S

EK

EU

R

US

D

Oth

er

SE

K

EU

R

US

D

Oth

er

SE

K

EU

R

US

D

Oth

er

SE

K

EU

R

US

D

Oth

er

Lending, net Securities Interbank, net Issued securities Other, net

Handelsbanken Förenings-sparbanken

Nordea SEB

Tier 1 capital ratios in the four major Swedish

banks after one of them has defaultedPer cent. Recovery 25 per cent


0

2

4

6

8

10

12

04:3

04:4

05:1

05:2

05:3

05:4

04:3

04:4

05:1

05:2

05:3

05:4

04:3

04:4

05:1

05:2

05:3

05:4

04:3

04:4

05:1

05:2

05:3

05:4

Bank D failsBank B fails Bank C failsBank A fails

I Range in the period 1999 Q3 – 2005 Q4

ARTICLE 1Using external information

to measure credit risk

Lending, geographical breakdown

Per cent

Figure B1 Sources: The banks’ annual reports and the Riksbank

0

20

40

60

80

Sw

eden

Den

mar

k

Nor

way

Finl

and

Oth

er N

ordi

cco

untri

es

Bal

ticco

untri

es

Ger

man

y

Uni

ted

Kin

gdom

Res

t of t

hew

orld

Em

ergi

ngm

arke

ts

SEB Nordea Föreningssparbanken Handelsbanken

Lending, sector breakdownPer cent


0

10

20

30

40

50

Householdlending

Corporate lending(excl. Propertymanagement)

Propertymanagement

Public sectormanagement

Credit institutions


Corporate lending, industry breakdown

Per cent


0

10

20

30

40

50Fi

nanc

e an

din

sura

nce

Ret

ail a

ndse

rvic

es

Tran

spor

t

Oth

er s

ervi

ceop

erat

ions

Con

stru

ctio

nin

dust

ry

Man

ufac

turin

gin

dust

ry

Agr

icul

ture

and

fishi

ng

Ret

ail,

hote

lan

dre

stau

rant

Oth

er


Expected loss as a percentage of the

bank’s credit portfolioPer cent

Figure 1 Source: The Riksbank

0,0

0,1

0,2

0,3

0,4

2001 2002 2003 2004 2005 2006


Figure 2

1

2

3

4

2001 2002 2003 2004 2005 2006


Risk capital requirement as a percentage of the bank’s credit

portfolioPer cent


Expected loss and risk capital requirement as

a percentage of the bank’s credit portfolio


0

1

2

3

4

0.0 0.1 0.2 0.3 0.4

Expected loss/portfolio size

Ris

k ca

pita

l req

uire

men

t/por

tfolio

siz

e

SEB

Förenings-sparbanken

Handelsbanken

Nordea

Risk capital and Tier 1 capital

in the banksPer cent


0

1

2

3

4

5

6

7

8

Ris

k ca

pita

l/po

rtfol

io s

ize

Tier

1 c

apita

l/po

rtfol

io s

ize

Ris

k ca

pita

l/po

rtfol

io s

ize

Tier

1 c

apita

l/po

rtfol

io s

ize

Ris

k ca

pita

l/po

rtfol

io s

ize

Tier

1 c

apita

l/po

rtfol

io s

ize

Ris

k ca

pita

l/po

rtfol

io s

ize

Tier

1 c

apita

l/po

rtfol

io s

ize

SEB SHB FSB Nordea

2002 2003 2004 2005

Income breakdown in the four major banks

Per cent

Figure 5 Sources: The banks’ annual reports and the Riksbank

0%

20%

40%

60%

80%

100%

Föreningssparbanken Handelsbanken Nordea SEB

Net interest income Net commission income Actual value of operationsOther bank income Associated companies, etc

ARTICLE 2Hedge funds and the

financial system

Market index

Source: Reuters EcowinFigure 1

0

100

200

300

400

jan-

94

jan-

95

jan-

96

jan-

97

jan-

98

jan-

99

jan-

00

jan-

01

jan-

02

jan-

03

jan-

04

jan-

05

jan-

06

Standard & Poors Hedgefund index Msci World

Number of hedge funds registered in Sweden and the percentage of

capital managedPer cent

Source: Fondbolagens förening

Figure 2

0

10

20

30

40

50

60

Jun-

01

Dec

-01

Jun-

02

Dec

-02

Jun-

03

Dec

-03

Jun-

04

Dec

-04

Jun-

05

Dec

-05

1

2

3

4

5

6

7

Number of funds (left scale) Percentage of capital managed (right scale)

Nordic Hedge fund index (NHX) Sweden

and the Affärsvärlden general index

Source: Hedgenordic

Figure 3

0

40

80

120

160

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06

NHX Sweden AFGX

Financial Stability Report 2006:1

Documents

Transcript of Financial Stability Report 2006:1