Financial effects due to changes in accounting standards
Swedbank applies the new accounting standard, IFRS 9 Financial Instruments, starting from and including the 2018 fiscal year. IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement and includes new rules regarding classification and impairment of financial instruments, among other things. As a consequence of the transition to IFRS 9, the following financial effects occurred between 31 December 2017 and 1 January 2018:
- Total Equity
The application of IFRS 9 has resulted in a negative effect on equity of SEK 2.1bn. SEK 1.6bn is attributable to the application of the new rules regarding impairment, which mainly reduced the carrying amount for loans to the public. Reclassifications and re-measurement of financial assets have impacted equity negatively by SEK 0.5bn. The main reason for this is that Swedbank Hypotek has ceased to designate loans to the public at fair value through profit or loss. These loans to the public have been reclassified to amortised cost under IFRS 9, similar to the majority of loans to the public held by Swedbank.
- Common Equity Tier 1 capital ratio
The application of IFRS 9 has resulted in a negative effect on the Common Equity Tier 1 capital ratio of 0.06 percentage points. Common Equity Tier 1 capital has decreased by SEK 0.4bn, mainly due to the reclassification and re-measurement of loans to the public, which are no longer designated at fair value through profit or loss. The total effect on Common Equity Tier 1 capital is less than the effect on Total Equity as the new rules regarding impairment have resulted in accounting credit impairment provisions exceeding expected losses calculated according to the capital adequacy rules, for most IRB portfolios. As a consequence, the shortfall (net provisions reported for IRB exposures) that was deducted from Common Equity Tier 1 capital on 31 December 2017 has been reduced. If accounting credit impairment provisions exceed expected losses according to the capital adequacy rules, the excess amount is included as Tier 2 capital. According to transitional rules that apply until the end of 2022, a portion of the increase in credit impairment provisions may be included in Common Equity Tier 1 capital.
These transitional rules are not mandatory and Swedbank has decided not to apply them. The Risk Exposure Amount (REA) has reduced by SEK 0.7bn as a result of implementing the new rules regarding impairment.
Swedbank has not restated comparative periods.
Swedbank has also implemented the below changes to financial reporting in order to improve the presentation of the financial reports:
- Presentation change to contractual accrued interest
Swedbank will present contractual accrued interest for financial instruments as part of the carrying amount of the related assets and liabilities in the balance sheet. Previously contractual accrued interest was reported under the line items Prepaid Expenses and Accrued Income and Accrued Expenses and Prepaid Income in the balance Sheet. The changes will impact Loans to the Public positively by SEK 1.7bn, although it will not impact the size of the total Balance Sheet. Swedbank has not restated comparative periods.
- Presentation changes to compensation for services to the savings banks
Following a review of the services which are provided to the savings banks, Swedbank has moved a part of the income, which was previously reported under the line item Other Income, to Commission Income. The change has been made to better reflect the use of the services. Historic comparative figures have been restated. For the full year 2017, the change means that SEK 176m has moved from Other Income to Commission Income, the majority of which will move to Payments Processing. The change has no impact on Swedbank’s Total Income.
More details on the effects on the Group’s Balance Sheet and Income Statement can be found in the attached spreadsheet.
For further information:
Gregori Karamouzis, Head of Investor Relations, Swedbank, firstname.lastname@example.org, +46 727 40 63 38
Swedbank promotes a sound and sustainable financial situation for the many people, households and companies. Our vision is to contribute to development “Beyond Financial Growth”. As a leading bank in the home markets of Sweden, Estonia, Latvia and Lithuania, Swedbank offers a wide range of financial services and products. Swedbank has over 7 million retail customers and around 625 000 corporate customers and organisations with 218 branches in Sweden and 133 branches in the Baltic countries. The group is also present in other Nordic countries, the US and China. As of 6 February, 2018 the group had total assets of SEK 2 213 billion.
Read more at www.swedbank.com