Stadshypotek's interim report January - September 2008

Stadshypotek's operating profit for the period was SEK 2,685m (3,110). As of August 2008, Stadshypotek's branch in Norway has been included, which had a SEK 47m effect on operating profit for the period. Thus, excluding the branch in Norway, operating profit was down by SEK 472m compared with corresponding period in 2007. The decrease was partly due to the net interest income being SEK 204m lower than the same period in the previous year. In addition, net gains/losses on financial operations decreased by SEK 297m, compared to the same period the previous year. This was mainly due to unrealised changes in market value of financial assets and liabilities subject to hedge accounting and derivatives. Unrealised changes in market value were adversely affected in the third quarter, due to the fall in longer-term market interest rates. On the other hand, during the first half of the year, unrealised changes in the market value were positively affected, due to rising market rates.
For a number of years the competition for private customers' mortgage loans has led to reduced margins, which has had a negative impact on net interest income. However, margins for mortgage loans where the rate is newly set were stable in the second half of 2007 and increased during the January to September 2008 period. Stadshypotek's lending volume in the private market continued to perform well during the period. However, when comparing the net interest income to the corresponding period in the previous year, the increase could not offset the falling lending margins. Net interest income was also negatively affected due to the remaining effects from previously repurchased bonds. The crisis on the financial markets has caused an increase in funding costs, chiefly in relation to our short-term borrowing. The rising funding costs have led to increased lending rates to customers.
Loan losses
Recoveries exceeded new loan losses and the net amount recovered was SEK 88m (58), which corresponds to a loan loss ratio of -0.02% (-0.02) of lending.
Before deduction of the provision for probable loan losses, the volume of bad debts was SEK 230m (273). SEK 38m (35) of the bad debts were non-performing loans, while SEK 192m (238) were loans on which the borrowers pay interest and amortisation, but which are considered doubtful in view of the uncertainty as to the borrowers' future repayment capacity and the value of the collateral. In addition, there were non-performing loans of SEK 604m (297) that are not assessed as being bad debts. After deduction of the provision for probable loan losses, the volume of bad debts was SEK 164m (197).
Growth in lending
Lending to the public totalled SEK 605bn. This was an increase of SEK 82bn, of which SEK 48bn was attributable to the branch in Norway which was added during the third quarter. Stadshypotek's share of the private market in Sweden was unchanged at around 25%. Stadshypotek retained its strong position as a leading player on the Swedish corporate market, with a market share of some 32%. 
Capital adequacy
On 1 February 2007, new capital adequacy regulations were implemented - the Basel II regulations. The new regulations entail major changes in how the capital requirement is to be calculated and how a satisfactory capital base is to be ensured. They will be implemented gradually, since the transitional regulations allow for an adaptation over three years. As at 30 September 2008, the capital ratio was 9.6% (9.7). As at 30 September 2008, the Tier 1 capital ratio was 6.8% (6.9). Further information concerning capital adequacy is provided in the 'Capital base and Capital requirement' section.
Stadshypotek's rating was unchanged.

Standard & Poor's
Covered bonds
Accounting policies
The accounts comply with the IASB accounting standards adopted by the EU. The regulations of the Annual Accounts Act for Credit Institutions and Securities Companies and the directives issued by the Swedish Financial Supervisory Authority are also applied. The accounting policies are unchanged from the previous annual report.
Stockholm, 22 October 2008
Lars Kahnlund
Chief executive
The report can be downloaded from the following link:

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