Swedbank Estonia

Q3 2008

Priit Perens
I Overview of the macroeconomic situation

II Overview of the Banking sector in Estonia

III Swedbank Estonia

- Market shares/volumes
- Financial results
- Credit portfolio

2
Estonian economy is rebalancing

3
Estonian macroeconomic environment

• 2006-2007 Estonian rapid GDP growth was based on internal consumption and
inflow of external money
• Now GDP growth is negative (-0,5%, Eurostat)
• Consumer confidence is dropping bringing down internal consumption
• Residential real estate market is illiquid and prices are down around 20 %
• Import is declining (-6% in August yoy), export growth is still strong (+8% in August
yoy)
• Economy is rebalancing, but further development depends on success in building
more competitive export companies.
• Dependence on foreign funding still high – loan deposit ratio ca 189%

• KEY Issues:
– How are our export target countries economies doing?
– Access to liquidity?

4
GDP growth has dropped to negative area

15%

10%

5%

0%
1990 1993 1996 1999 2002 2005 2008p 2011p
-5%

-10%

-15%

5
Belief into the future has vanished
But there is strong effect of international financial crisis

Confidence indexes
60

industry 40
consumer
construction 20
retail
0
service
May-02 May-03 May-04 May-05 May-06 May-07 May-08
-20

-40

-60

6
Low confidence is reflected in the consumption

Annual growth of retail sales

80%

60%

40%

20%

0%
Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08
-20%

-40%
retail total cars and related items other goods clothes furnishings etc
During the last months the car sales down average by 38%, incl. new
cars 24%, used cars 47%

7
Without consumption there is no production …

Growth of industrial production

25%

20%

15%

10%

5%

0%
Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08
-5%
industrial production
manufacturing industry production
-10%
export sales
internal market sales

8
But rumors about death of core Estonian export are
exaggerated

50%
Annual export growth 500%

40% 400%

30% 300%

20% 200%

10% 100%

0% 0%
Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08
-10% -100%

-20% -200%

-30% -300%

-40% -400%

electronics passanger cars other goods mineral products (rhs)

9
Labor cost per hour in Euros/ 2006

Germany

Sweden

Finland

Lithuania

Latvia

Estonia

0 10 20 30 40

10
There is no dominant sector in Estonian export
(Jan-Aug 2008, change in the brackets)

others (6.5%) groceries (13.8%)

textiles
(-1.8%) mineral products
(-21.2%)

vehicles (-0.1%)

chemical
products (18.3%)
machinery etc
(+7.8%)

wood, paper
electronics (-2.7%)
(+13.2%)
11
Rebalancing of economy

CAD, % to GDP

15% 40%
10% 35%
5% 30%
0% 25%
-5% 05(I) 05(III) 06(I) 06(III) 07(I) 07(III) 08(I) 20%
-10% 15%
-15% 10%
-20% 5%
-25% 0%
-30% -5%

goods services income transfers export growth import growth

12
 The components of CAD, % to GDP

10
5
0
-5 2007 2008 6M

-10
-15
-20
-25

goods and services FDI reinvested

FDI dividends interests
other private sector return/transfers EU funds
Estonian government payments
13
Real estate market: Estonia
Gradual correction in residential market since April 2007

Market situation
Tallinn apartment price and transaction development
• Lower numbers of transactions, longer sale
1,800 1,800
periods and decreasing prices in residential real 1,600
1,700
estate 1,400

No of transactions
1,600
• Apartment prices down -22% from peak in Apr’07. 1,500
1,200

EUR/m2
1,000
Further decrease is likely. 1,400
800
• Difficult to sell apartments in unfinished buildings 1,300
600
• Largest decrease in transactions of land plots due 1,200 400
1,100
to higher construction costs and higher risk to 200
1,000 0
complete the construction without a profit Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08

No of deals (rhs) Average price (lhs)

Market outlook
• Several developers have liquidity problems and
stock of unsold apartments is increasing. It is Tallinn office rent and vacancy development
likely that prices on new apartments will continue 20 25%
to decrease 18 20%

Vacancy rate
EUR/m2/month
• Risk of tenants reducing their office areas. Start-
16 15%
up office projects and office buildings with weak
14 10%
concepts and poor quality will be most affected
• The quality of tenant mix, rental agreements, 12 5%

location, popularity of retail centers will be crucial 10 0%

2002 2003 2004 2005 2006 2007
Rent rate Vacancy rate

Source:
* Residential data – Estonia land board
** Office data – credit analysts data 14
Banking market

15
Estonian Banking Sector: Financing* and
Deposits
12,000
190%

10,000
170%

8,000 150%
mio EUR

130%
6,000
110%
4,000
90%

2,000
70%

0 50%
03/03 09/03 03/04 09/04 03/05 09/05 03/06 09/06 03/07 09/07 03/08 09/08
Financing - Corporate Financing - Private Deposits - Corporate
Deposits -Private Loan/deposits (rhs)
*Financing – loan, leasing, factoring
16
Estonian Banking Sector: Credit quality

5%

4%

3%

2%

1%

0%
09- 09- 09- 09- 09- 09- 09- 09- 09- 09- 09- 09-
97 98 99 00 01 02 03 04 05 06 07 08

Overdue >60 days Provisions

17
Bank debt to GDP
Outstanding bank debt to GDP (2007)
400%
• Note: Outstanding bank debt only.
300%
Leasing/factoring excluded; other
forms of corporate financing 200%
excluded. Financial institutions
100%
excluded. Public sector under
corporate. 0%

Latvia

Slovakia
Slovenia

Ireland
Estonia

Lithuania

Poland

Spain

Finland
Sweden
Portugal
Czech Republic
Hungary

Denmark
Outstanding bank debt to GDP - Estonia
50% 47%
43% 45%
38%
40%
32%
28%
30% 24%
20% 20% 19% 20% 19%
18% 18% 18%
20% 13% 13% 15% 14%
11%
7% 7% 8%
10% 6% 5%
2% 2% 3%
0%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Corporate Private
18
Swedbank Estonia

19
 Highlights

• Long-term focus maintained on core strategic strengths - performance culture,

credit skills, wide distribution and strong team
• Short-term focus on managing the business through the economic cycle with
particular focus on productivity and asset quality

• Steps taken in the beginning of 2007 have slowed down credit growth and the
trend is expected to continue throughout 2008. As a result, minor deterioration in
market shares has been visible and is also expected going forward. However, no
major change is expected.
• Employee productivity is being monitored closely and employee growth will be
negative during 2008 given slowdown in volume growth. Operational efficiency
program is gradually rolled out in all countries.

• Credit teams have been strengthened and work-out processes are being reviewed
to a more pro-active stance. Asset quality indicators (credit losses, overdues) have
risen according to expectations

20
 Loans and Deposits

Loans (incl leasing&factoring) Loan (incl leasing&factoring)

1,600
300 change * change 9m 2008
1,400
250 Loan (inl leasing and factoring) to deposits
1,200
200 250%
1,000
EURm

EURm
150 800
255 1,411
229
100 600

50 118 400 200%

602
200
0
1Q 08

2Q 08

3Q 08

0
BB Est Market

150%
Deposits (group consolidated) * Deposits' change 9m 2008
700 (bank solo)
150

100
450 100%
EURm

117
EURm

50 90 12/06 03/07 06/07 09/07 12/07 03/08 06/08 09/08

408
Rest of the Market Swedbank Estonia
200
0
155
-50 -115 -50
1Q 08 2Q 08 3Q 08
-100
BB Est Market
-150

* According to Management reporting (consolidated). Trade Finance portfolio was taken into Estonian books from
January (loan +111 m EUR; deposits +71 m EUR) This change was eliminated from 1Q 2008 change 21
 Market Shares
Dec 06 Dec 07 Jun 08 Sept 08
Mortgage 49.2% 48.9% 48.7% 48.6%

Consumer finance 59.0% 55.0% 55.3% 55.3%

Corporate financing 46.0% 43.4% 43.1% 42.9%

Car leasing 56.1% 53.6% 52.7% 52.2%

Deposits 53.2% 53.0% 54.4% 52.4%

P2S 52.3% 52.4% 52.6% 53.0%

Funds 53.9% 57.6% 56.4% 54.9%

Domestic payments 65.4% 65.0% 65.0% 64.9%

POS 61.2% 62.3% 65.9% 68.0%

22
 Quarterly trend - Estonia

Net profit Credit losses

70 16
60 14
50 12
mln EUR

10

mln EUR
40
8
30 57 60 62 14
47 52 49 52 6
20 10 11
4 8 7
10 2
3 2
0 0
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08

Cost - Income ratio Return on Equity

42.5% 45%
45%
40% 36.1% 37.6% 34.4% 37.9% 39.9% 36.3% 40%

35% 35%
30% 30%
25% 25%
20% 20% 41% 41% 39%
15% 15% 33% 32% 32%
28%
10% 10%
5% 5%
0% 0%
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08
23
Performance against mid-term financial
targets

Estonia Q3 2008 YTD 2008 BBTarget

EBT growth, YoY -15% -14% >20%

ROE on actual equity 32% 32% >20%

Cost-income 36% 38% <42%

Net loan losses 0.76% 0.55% <0.35%

Loan to deposit ratio 168.9% 168.9%

*Net loan losses = (changes in general and special provisions + net write offs) / credit portfolio at the beginning of the
year 24
 Financial highlights - Estonia

2008 2007
Q3 08 Q3 07 YoY % YTD %
YTD YTD
Revenues (mln EUR) 104 105 -1% 298 298 0%

Expenses (mln EUR) 38 36 5% 113 107 6%

Net Loan Losses (mln EUR) 14 8 88% 32 13 147%

Net profit (mln EUR) 52 62 -15% 153 178 -14%

Return on Equity 32% 39% 32% 39%

Cost-income 36.3% 34.4% 38.0% 36.0%

Net interest margin 2.76% 2.74% 2.57% 2.75%

Loans (mln EUR) 8,246 7,217 14%

Deposits (mln EUR) 4,883 4,360 12%

Employees (FTE) 2,528 2,729 -7%

25
 Contribution to net income change ‘08 vs ‘07
YTD
Trading Income
By main P&L items
220
30
210
200 25
-7.5
190 22.0 -11.6
20
EURm

EURm
180 -25.9 3.2 -1.7 -4.4 15 27.4 -1.8
170 8.7
160 -19.2 10
178.1 -9.4
150 5 -0.3
-1.6 -1.2 1.6
140 153.2
0
130
07 YTD Markets Asset Life Ins P&C Ins Treasury FX & cl 08 YTD
07 I es nc 08
NI Ins r in
c xp xp NL
L
NI t Fe ingi fr e r se erE NI
Eq Man Eq Eq Eq FI margins
c h
Ne a d In Ot Pe Ot
h
Tr

Net Fees & Commissions

80.0
2.9 -0.5 -0.5
75.0 -4.5

70.0 -5.0
EURm

65.0 75.4

60.0 67.8
55.0

50.0
07 YTD Card Loans Cash Securities Other Sept 08

26
 Net interest income Net fees and commissions
Revenue 80
+12.1%
80

60 60

40 40 -10.0%

20 20
Reveue 2007 Revenue 2008
120 0 0
+0.2% YoY
1Q08 2Q08 3Q08 4Q08 1Q08 2Q08 3Q08 4Q08
100
Trading Income from insurance Other income
80 80 80 80

60 60 60 60
-94.3% YoY
40 40 40 40
+120.1% +53.8%
20 20 20 20

0 0 0 0
1Q08 2Q08 3Q08 4Q08 1Q08 2Q08 3Q08 4Q08 1Q08 2Q08 3Q08 4Q08 1Q08 2Q08 3Q08 4Q08
-20

YTD YTD
EUR in millions 3Q 2008 2Q 2008 Delta QoQ% 2008 2007 YoY%
Net interest income 74.3 64.3 10.0 15.5% 204.0 182.0 12.1%
Net fee income 22.3 22.5 -0.2 -0.9% 67.8 75.4 -10.0%
Trading income -1.0 4.0 -5.0 -125.3% 1.6 27.4 -94.3%
Income from insurance 5.6 5.3 0.3 5.4% 15.9 7.2 120.1%
Other income 3.3 3.2 0.1 2.3% 9.1 5.9 53.8%
Total revenues 104.5 99.4 5.1 5.2% 298.3 297.9 0.2%
27
 Operating expenses
Personnel IT Admin
20 20 40
+3.7% YoY
+8.0% YoY
+27.8% YoY
Total OpEx 2007 Total OpEx 2008
50 10 10 20
+5.7% YoY
40
0 0 0
1Q08 2Q08 3Q08 4Q08 1Q08 2Q08 3Q08 4Q08 1Q08 2Q08 3Q08 4Q08
30 Marketing Other Group
20 20 20

20 +24.0% YoY -34.1% YoY

-9.4% YoY
10 10 10
10

0
0 0 0
1Q08 2Q08 3Q08 4Q08
1Q08 2Q08 3Q08 4Q08 1Q08 2Q08 3Q08 4Q08
1Q08 2Q08 3Q08 4Q08

YTD
EUR in millions 3Q 2008 2Q 2008 Delta QoQ% 2008 YTD 2007 YoY%
Personnel 15.2 16.2 -1.0 -6.0% 48.3 46.5 3.7%
IT expenses 7.5 8.0 -0.4 -5.6% 22.7 21.0 8.0%
Administration 8.1 7.0 1.1 15.7% 21.2 16.6 27.8%
Marketing 1.3 1.5 -0.2 -11.1% 4.1 4.5 -9.4%
Other expenses 2.5 3.2 -0.7 -22.7% 7.9 6.1 31.1%
Depreciation 0.8 0.8 0.0 -1.4% 2.5 2.3 5.8%
Group adjustments 2.5 3.0 -0.5 -16.2% 6.7 10.1 -34.1%
Operating expenses 37.9 39.6 -1.7 -4.3% 113.4 107.2 5.7%
Employees (FTE) 2 528 2 789 -261 -9.4% 2 528 2 729 -7.4%
Employees (FTE) excl pr 2 506 2 621 -115 -4.4% 2 506 2 720 -7.8% 28
Portfolio disclosure

29
 Credit quality of the loan book
Risk profile remains balanced
Large corporate risk profile
1,000

PD<1%
• Well diversified portfolio dominated by retail Non-

EURm
exposures 500 performing

• Macro developments have triggered some

downgrades in all segments:
0
– Real estate sector drives downgrades in large 1 1- 2 2- 3 3- 4 4- 5 5- 6 6- 7
corporate segment (exposure > 0.8 mio EUR). Q4 2007 Q2 2008 Q3 2008
Downgrades counterweighted by new lending
to low risk clients SME/SSE risk profile
350
– SME/SSE has been the most sensitive to 300 PD<1%
downturn. Acceptable risk profile (55% of Non-
250
performing

EURm
portfolio with PD<1) 200
150
– Private portfolio has low risk profile (78% with 100
PD<1%) 50
0
A A- B B- C C- D D- E E- F
Estonia risk exposure (9 053 mEUR)*, Q3 2008
SME/SSE Q4 2007 Q2 2008 Q3 2008
16%
mortgage Private portfolio risk profile
Private 1,500
79%
43% PD<1%
revolving Non-

EURm
3% 750 performing

consumer
Large 10% 0
corporate leasing
1 2 3 4 5 6 7 8 9 10 11 12
42% 8%
Q4 2007 Q2 2008 Q3 2008

* Risk exposure: on-balance + off-balance portfolio 30

 Credit quality
Swedbank Estonia overdue performance considerably better than
the rest of the market

Provisions / current portfolio Overdue over 60 days / current portfolio

3% 3%

2% 2%

1% 1%

0% 0%

May.08
Jun.06

Jun.07

Jun.08

Mar.06

Mar.07

Mar.08

Apr.08

Aug.08
Dec.05

Mar.06

Sep.06

Dec.06

Mar.07

Sep.07

Dec.07

Mar.08

Sep.08

Jun.08
Jul.08

Sep.08
Dec.05

Jun.06
Sep.06

Dec.06

Jun.07
Sep.07

Dec.07
Rest of the market Swedbank Estonia (Bank) Rest of the market Swedbank Estonia (Bank)

31
 Corporate >60 day overdues

Corporates (rating cust) 3.5% SME

3.5%
3.0% 3.0%
2.5% 2.08%
2.5%
1.89% 2.0%
2.0%
1.5%
1.5%
1.0%
1.0%
0.5%
0.5%
0.0%
0.0% 12- 03- 06- 09- 12- 03- 06- 09-
12- 03- 06- 09- 12- 03- 06- 09- 06 07 07 07 07 08 08 08
06 07 07 07 07 08 08 08

4.5% SSE All Corporates

3.5%
4.0%
3.0%
3.5%
3.0% 2.5%
2.38% 1.99%
2.5% 2.0%
2.0% 1.5%
1.5%
1.0%
1.0%
0.5% 0.5%
0.0% 0.0%
12- 03- 06- 09- 12- 03- 06- 09- 12- 03- 06- 09- 12- 03- 06- 09-
06 07 07 07 07 08 08 08 06 07 07 07 07 08 08 08 32
Large corporate portfolio
Credit losses relatively isolated in the real estate sector
Large corporate risk profile
• Downgrades in large corporate (exposure > 25%
EUR 0.8m) portfolio has been 20% Q4 2007
counterbalanced with lending to customers
Q2 2008
with low risk 15%
Q3 2008
10%
• The main part of 6&7 ratings comes from
real estate sector (in particular residential 5%

real estate development & early 0%

development) 1 1- 2 2- 3 3- 4 4- 5 5- 6 6- 7

Estonia Rating 6&7 exposures by industries

Commercial real
estate

Production

Q4 2007
Retailing
Q2 2008

Transportation Q3 2008

Other EURm

0 20 40 60 80 100

33
Lending by sectors
Portfolio, (9053 EURm) Sept 2008

Industry
Individuals 6%
44%
Transport
5%
Retail &
Wholesale
5%

Real-estate
mgmt
15%

Construction
Other 3%
22%

34
 Real estate portfolio
Most sensitive part of portfolio to current changes in macro
environment. Developments according to expectation.

• The residential real estate development is the most

sensitive sector in Baltic Banking portfolio.
Sensitivity’ has started to appear in overdue and
Real Estate
default figures of corporate portfolio.
6%
• Around 60% from total Real Estate
23%
portfolio are cash flow generating 15%
properties with good tenant mix. Office
• Properties under development process
Production &
(25% of RE portfolio) are currently affected the Warehouse
most by decreasing prices and liquidity in the 6% Residential
market.
• Additional defaults in residential real estate Retail

development sector are anticipated in 2008, but no 25%

Land plots
major surprises are expected due to previously
implemented portfolio limitations and individual 25% Other
level monitoring. Restructuring capacity has been
put in place.

35
Other sectors under close watch

Transportation
Trucking companies are facing problems due to increasing fuel prices and lagging freight rates. This
global problem has started to reflect in Baltic Banking provisions (especially in SME segments) since the
beginning of the year.

Retail & wholesale

Well performing sector with low levels of overdues, but potentially vulnerable to decreasing consumption

Wood processing
Raw material price increase coupled with sales price downwards pressure have a negative impact on
Baltic wood processing industry. Current portfolio quality is around average with only few problem cases
observed. Additional problems may occur after export duties will be imposed on Russian round wood as
there is dependence on imported round wood in Estonia.

* Overdues over 60 days / 12 months old portfolio 36

 Private >60 day overdues mortgage
79%
consumer
13%
leasing
8%

Mortgage Consumer finance

1.0% 0.88% 3.0%
2.44%
0.8% 2.5%
2.0% 1.81%
0.6%
0.43% 1.5%
0.4% 1.60%
1.0% 1.01%
0.2% 0.32%
0.12% 0.5%
0.0% 0.0%
12- 03- 06- 09- 12- 03- 06- 09- 12- 03- 06- 09- 12- 03- 06- 09-
06 07 07 07 07 08 08 08 06 07 07 07 07 08 08 08

Car leasing Total private

1.6% 1.2%
1.35% 1.04%
1.4% 1.0%
1.2% 0.99% 0.8%
1.0% 0.58%
0.8% 0.63% 0.6%
0.87%
0.6% 0.4%
0.4% 0.28% 0.48%
0.2%
0.2%
0.0% 0.0%
12- 03- 06- 09- 12- 03- 06- 09- 12- 03- 06- 09- 12- 03- 06- 09-
06 07 07 07 07 08 08 08 06 07 07 07 07 08 08 08

37
 Portfolio quality better than in more stable
developed markets

Mortgage delinquency rates*

Percentage of outstanding amount of loans
6

4
USA

3 Finland

2
France

UK
1
Canada Spain
Swedbank
Australia Estonia
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

*Mortgages >90 days in overdues / portfolio

Note: Loans refer to mortgages for all countries except Finland and Italy where they include all loans to the households sector.
For Italy, they refer to new bad debts during the year as a percentage of outstanding loans. 38
Mortgage portfolio

Main reasons for payment difficulty

• Employers in difficulties – lower workload, loss of work, problems with salary (drop or delay in payment): mainly in
companies connected to real estate, construction, transport, industrial goods, furniture and wood industry
• Change of employment

Portfolio
Mortgage risk profile
250 3,500 45%

3,000 40%
200 35%
2,500
30%
150 2,000 25%
20%
100 1,500
15%
1,000 10%
50
500 5%
0%
0 0 1 2 3 4 5 6 7 8 9 10 11 12
3Q 05
4Q 05
1Q 06
2Q 06
3Q 06
4Q 06
1Q 07
2Q 07
3Q 07
4Q 07
1Q 08
2Q 08
3Q 08

Portfolio, Dec-07 Portfolio, Sept-08

Growth Portfolio (right hand scale)

39
 Mortgage LTV (indexed market values)
Portfolio average LTV below 60%
Mortgage LTV and portfolio by year of origination

EURm Estonia
• Apartment / private house price drop in EE (- 22% from peak)
1000 80%
has reduced positive effect from portfolio ‘maturing’ 63% 68% 64%
60%
750
• Higher LTV portfolio issued for safe ‘home loan’ segment
40%
500
• No difference observed in overdue / default levels for ‘high’ 20%
and ‘low’ LTV segments. 250
0%

0 -20%
2000 2001 2002 2003 2004 2005 2006 2007 2008

Indexed LTV values and

maturity for private apartments 20% Mortgage portfolio - LTV
/ houses* EE
LTV, total portfolio - August '08 59%
Average maturity 21y 10%

*Should be treated as conservative evaluation (do not 0%

account for guarantees and other non-residential RE 0- 10- 20- 30- 40- 50- 60- 70- 80- 90- >100
collaterals) 10% 20 30 40 50 60 70 80 90 100

Back book, Sept 08

40
Summary

• Growth of Estonian economy has stopped

• Resulting fast rebalancing of the economy.
• Still high dependence on foreign funding (but not directly from the
international markets)
• Swedbank Estonia is showing relatively strong results, yoy income declined
by 14% caused by increasing loan losses and losses from equities trading.
• Efficiency still high
• The Bank’s main activity is managing credit portfolio and improving
efficiency
• Credit portfolio quality is deteriorating. Residential real estate development
under growing stress. No spillover to other sectors.

41
Thank you!
Portfolio quality
Credit losses driven by real estate defaults

• Credit losses mostly driven by worsening macro situation

• Real estate (in particular residential real estate development projects) is the main driver of credit losses
• Trend is in line with updated credit loss forecast level

Estonia
Net loan losses, YTD 9m 2008 EURm Ratio
Rated companies (exposure >0.8m EUR) 17.8 0.84%
- Commercial real estate 14.3 1.76%
- Production 1.0 0.43%
- Retailing 0.8 0.45%
- Transportation -0.4 -0.16%
- Other 2.1 0.32%
SME/SSE companies (exposure <0.8m EUR) 6.4 0.67%
Private individuals 7.5 0.27%
- Mortgage 2.7 0.13%
- Revolving 1.0 1.30%
- Consumer products 3.0 1.79%
- Car leasing 0.6 0.34%
- Other 0.1 0.06%
Total 31.6 0.55%

43
Key financials
Estonia
Q3 Q2 Q3 Q3 Q3 YTD YTD YTD
in millions of EUR
2008 2008 ∆ QoQ 2007 % ∆YoY 2008 2007 % ∆ YoY
Loans 8,246 8,128 118 7,217 14%
Deposits 4,883 4,998 -115 4,360 12%

Revenues 104 99 5 105 -1% 298 298 0%

Expenses 38 40 -2 36 5% 113 107 6%

EBT 52 49 3 62 -15% 153 178 -14%

Net income 52 49 3 62 -15% 153 178 -14%

EVA on allocated equity 28 26 2 44 -37% 83 131 -36%

Return on equity1 32.2% 31.5% 38.5% 32.2% 40.0%
Cost-income 36.3% 39.9% 34.4% 38.0% 36.0%

Net interest margin 2.76% 2.41% 2.74% 2.57% 2.75%

Net loan losses 76 bp 58 bp 50 bp 57 bp 29 bp

Employees (FTE)2 2,528 2,789 -261 2,729 -7%

1 ROE is calculated based on Swedbank capital allocation: 8.4% for the Baltics
2 44
without Group and IT
Provisioning principles

• Credit portfolio losses are recognised through special and portfolio provisions
• Main guidelines for estimating provisions:

Portfolio provisions Special provisioning for

Portfolio segment
(for performing portfolio)
default frequency (based on rating) *
Large corporate
LGD (based on credit analyst estimate)
SME Fixed rate for all portfolio
Impairment trigger
impaired assets
Individual assessment based on
Net present value (based on
Rating 6 - 7
discounted value of revalued
collateral and cash flow)
fixed LGD (based on asset type for
Overdue >90 days
leasing)

Retail Fixed rate based on product type Overdue >90 days product specific LGD

• Key regulations for provision estimation are: provisioning principles and provisioning rates
• Supplementary regulations are: LGD methodology and rating methodology
• Current provisions constitute 1.05% of credit portfolio (111 EURm portfolio provisions and 106 EURm
special provisions)
• General and special provision rates are back-tested once per year. Historically provisions have always
covered loan losses with a reserve

LGD – loss given default 45

Regular process of outstanding loan review
• Portfolio quality improvement measures introduced already in 2007
– Increased risk margin in certain sectors (eg real-estate)
– Portfolio limitation and close individual level monitoring for higher risk segments
– Stricter product conditions (LTV, service ratio, previous credit history). Ongoing review
and adjustments Improved credit assessment process through better credit decision
support applications (scoring/rating tools)
• Share of real estate sector decreasing, existing portfolio regularly scrutinized
• Strengthened risk units
– Increased number of people dealing with problem loans
– Strengthened workout team
– Increasing cooperation with Swedabnk FR&R team
– Improved the quality and increased frequency of portfolio quality reporting
• Targets for new origination quality
• Regular loan review process includes
– Overall portfolio stress test once a year
– Extensive portfolio analysis 2x per year, monthly/quarterly portfolio reviews + ad hoq
individual portfolio deep-dive analysis
– Monthly "watch list” report
– IRB portfolio scoring 1x per month
• On the individual loan basis:
– Client rating review minimum 1x per year + review subject to material events
– Rating classes 5 and higher are subject to more frequent assessment
– Quarterly financials/covenants assessment
– For SME/SSE and private portfolio weekly overdue report (with client names identified)
46
Credit quality management process
• Proactive management of watch list clients
– Private clients - communication on step-by-step actions to take before falling into
overdues. Development of standard remedial action to ensure serviceability of the credit
(assistance in family budget planning, restructuring of payments, postponement of
payments for temporary income loss; assistance in voluntary sale of assets)
– Corporate clients - proactive communication, frequent client meetings and positive
attitude to find solutions
• Overdue management - concentrates on time horizon from occurrence of distress situation
(either through late payment or on the bases of client information) to moving credit over to
restructuring or workout phase. The primary focuses in overdue management is:
– Process design for fast and prudent management of overdues, clear process ownership
– Constant re-evaluation of the tactics on their effectiveness and adequacy
– Clearly set timing and channel of client contacts
– Build capacity to work with distressed clients and adequate training of employees
– Centralized decision making
– Internal target setting and incentives to reach targets
– Up to time reporting and follow up on taken activities
• Distressed debt restructuring
– Defined tactics of restructuring. Solutions to ensure client serviceability of the debt
(based on industry of the client, collateral structure)
– Extended capacity to work with distressed clients
– Effective solutions for collected collaterals handling

47