Highlights of Stadshypotek's Annual report January-December 2005
Continued profit improvement with
a strong third quarter
a strong third quarter
In 2005, Stadshypotek's operating profits rose by 9% till SEK 5,599m (5,150) - its highest ever figure. The improvement in profits was attributable to both higher income and slightly lower expenses.
Return on shareholders' equity increased to 18.1% (16.0).
Income totalled SEK 5,600m (5,130), a 9% increase from the 2004 figure. Of the SEK 470m improvement in income, net interest income accounted for an increase of SEK 54m, while "Net gains/losses on financial items" accounted for an increase of SEK 414m.
The rise in net interest income to SEK 5,237m, (5,183) was mainly due to an increased proportion of private market lending. This shift offset the reduced amount of shareholders' equity and the lower interest earned, due to falling interest rates during the year.
Lower expenses and low loan losses
Expenses, excluding loan losses, decreased to SEK 134m (150). Staff costs dropped by 15% and other administrative expenses by 10%. This decrease stemmed from continuing efficiency improvements.
Recoveries exceeded new loan losses and the net amount recovered was SEK 133m (170), which corresponds to a loan loss ratio of -0.03% (-0.04) of lending.
As at 31 December 2005, Stadshypotek's bad debts before deduction of the provision for probable loan losses amounted to SEK 600m (958). Of the bad debts, SEK 54m (87) were non-performing loans and SEK 546m (871) were loans on which the borrowers pay interest and amortisation but which are considered doubtful in view of the borrowers' repayment capacity and uncertainty as to the value of the collateral.
After deduction of the provision for probable loan losses, the volume of bad debts was SEK 454m (710).
Growth in lending
Loans to the public continued to exhibit strong growth, rising by SEK 32bn to SEK 445bn (413). The whole increase was attributable to private market lending.
Stadshypotek strengthened its position as the leading player on the Swedish corporate market, increasing its share of this market segment compared with the corresponding period of the previous year.
As at 31 December 2005, the capital ratio was 8.8% (8.1). The rise stemmed from the fact that the company issued a debenture loan of SEK 3.5bn in January with the parent company as lender. The Tier 1 capital ratio was 7.4% (8.1).
In September, Stadshypotek submitted an application to the Finansinspektionen (the Swedish Financial Supervisory Authority) for permission to issue covered bonds pursuant to the new law in Sweden on issuing covered bonds (2003:1223).
Covered bonds are bonds with priority in the issuing institution's collateral. The collateral in Stadshypotek will mainly consist of loans to private individuals and companies granted against mortgages such as single-family houses, second homes and multi-family dwellings and with a loan-to-value ratio of 75% of the market value.
One precondition for Stadshypotek's issuing of covered bonds is that it obtains the highest ranking, AAA.
This new type of funding will replace the current form of institutional bond funding in Stadshypotek.
Provided that the Finansinspektionen grants permission, the issuing of covered bonds is planned to commence during the first half of 2006. The bonds which Stadshypotek then has outstanding will be converted into covered bonds. New issues under these bond loans and under new loans issued afterwards will be in the form of covered bonds, with the exception of retail bonds.
However, Stadshypotek's other debt, such as other funding from credit institutions and funding in the various commercial paper markets will not be converted into covered bonds.
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Standard & Poor's
The accounting follows the regulations of the Annual Accounts Act for Credit Institutions and Securities Companies (ÅRKL) and the directives issued by the Finansinspektionen (FFFS 2004:20). These directives imply that the Swedish Financial Accounting Standards Council's recommendation 32 is applied and that the accounting as far as possible complies with IFRS through what is known as statutory IFRS.
Stockholm, 21 February 2006
The full report including tables can be downloaded from the following link: