Handelsbanken's interim report January - September 2002

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Profits were SEK 7 460m (8 556)
The Bank's branch office operations reported their highest profit ever
Net interest income rose by 8% to SEK 10 611m (9 856)
Expenses for comparable units increased by 2.7%
Loan losses continue to be low at SEK 222m (+51)
There is no need for additional capital in the life insurance companies
Continued surpluses in the pension foundation/pension fund
Profits - SEK 7.5bn
Profits were SEK 7 460m (8 556), which was a decrease of 13%. The profit for the quarter was SEK 2 100m (2 551). Results were affected by a write-down of the Bank's equity portfolio of SEK 199m. Return on equity was 14.3% (19.1). For the full year 2001, return on equity was 18.4%. The C/I ratio (cost/income) before loan losses was 50.9% (46.9) and after loan losses 52.3% (46.6), in both cases excluding the write-down of the Bank's equity portfolio. Earnings per share were SEK 7.66 (9.18), as a 12-month moving total SEK 10.47 and for the full year 2001 SEK 11.99.
Income slightly rising - underlying cost increase low
Handelsbanken's income grew by SEK 35m to SEK 16 044m (16 009). Net interest income rose by SEK 755m or 8% to SEK 10 611m (9 856). Lending to the general public was SEK 819bn (785), a rise of just over 4%. In the current year, lending to the general public rose by SEK 33bn, which corresponded to an annual rate of over 5%. Net commission income was SEK 3 782m, (3 729), an increase of just over 1%. Equity market related commission income continued to fall, but this was counteracted by increased commission on lending and deposits, payments, and insurance. Net trading income fell by SEK 746m or 37% to SEK 1 248m (1 994). The decrease in net trading income was due to a continued fall of equity-related trading income and considerably lower income in currency and money market trading. Net trading income also includes the surplus and deficit arising after the insurance policy-holders at Handelsbanken Liv have received their guaranteed return. This deficit reduced net trading income by SEK 142m (0). Expenses totalled SEK 8 163m (7 504), an increase of almost 9%. Adjusted for acquisitions and Handelsbanken Liv's expenses, which have been part of the Group's expenses since the beginning of the year, and also changes in exchange rates, the underlying cost increase was 2.7%. It was mainly increased IT costs and starting up new branches outside Sweden which contributed to the rise in expenses. Expenses for the quarter fell compared with previous quarters and were on a par with the third quarter of 2001. The number of employees for comparable parts of the Group fell by 191 from 1 January to 30 September. IT costs were SEK 2 105m (1 889).
Loan losses still at low level
Loan losses were SEK 222m compared to net recoveries of SEK 51m in the previous year. The share of bad debts in relation to lending fell, the ratio being 0.22% (0.31).
Capital ratio, share buybacks and rating
The Handelsbanken Group's capital ratio was 9.4% (9.5). The Tier 1 capital ratio increased to 6.3% (5.9). These ratios include profits for the third quarter. At the Annual General Meeting in April 2002, Handelsbanken was authorised to repurchase up to 20 million shares. This authorisation has not been used during the year.
The Bank's rating from all three rating agencies was unchanged.
Stock market performance affected the life insurance companies
Handelsbanken owns two life insurance companies: Handelsbanken Liv and SPP Liv. Handelsbanken Liv was demutualised as of 1 January 2002. SPP Liv is run according to mutual principles. The negative trend on the stock market affected both companies but the consequences for the Handelsbanken Group differed according to how the company was run. At Handelsbanken Liv, deficits or surpluses affect the consolidated accounts since the company is demutualised. At SPP, however, the Group's results are not affected by deficits or surpluses since SPP is run according to mutual principles.
Handelsbanken Liv
The Pension and Insurance business area, which to all intents and purposes corresponds to Handelsbanken Liv, reported a loss of SEK 139m (+31).
To reduce the future impact of falling share prices on policy-holders' assets and the company's results, the proportion of shares was reduced in the company's total investment assets.
The concept of 'collective consolidation' is not relevant for a demutualised life insurance company. Handelsbanken Liv's share capital fulfils the function of the collective risk capital in a mutual company. When Handelsbanken Liv was demutualised, Handelsbanken injected share capital so that the life insurance company would be able to manage financial strain and also expand its business volumes.

Solvency is measured at Handelsbanken Liv in the same way as in mutual companies. The solvency ratio for Handelsbanken Liv was approximately 1.3 and the difference between the required solvency capital and the available solvency capital was over SEK 300m.
The solvency ratio is not only affected by market developments and the company's actions but also by administrative decisions, such as 'the highest interest rate' established by the Finansinspektionen, which is used to value the company's life insurance provisions. Handelsbanken Liv's capital base is satisfactory.
There is no change in previous assessments of an annual contribution from Handelsbanken Liv of SEK 150-200m to the Group's results, assuming normal market conditions.
SPP's technical result, i.e. the result which in a mutual company accrues to the policy-holders, was negative. This had no impact on Handelsbanken's results or balance sheet. SPP's available solvency capital exceeded the required solvency capital by SEK 695m and the solvency ratio was 1.2. In the third quarter, SPP took a number of measures with the purpose of strengthening the capital base, including the issue of two perpetual subordinated loans totalling SEK 1.6bn to Handelsbanken. On 2 October 2002, it was decided to freeze payments of excess funds paid out to companies, in connection with Alecta making the corresponding decision. Assuming conditions which are currently known, SPP will be demutualised in 2005.
Handelsbanken is convinced that life insurance operations are run more efficiently in the form of a profit-distributing company than in a company run according to mutual principles. SPP's capital base is satisfactory.
Handelsbanken has the most satisfied customers of the major banks according to Svenskt Kvalitetsindex
At the beginning of October, Svenskt Kvalitetsindex (SKI) presented its annual survey of customer satisfaction among the Swedish banks. Handelsbanken remained at the top for banks with nationwide branch networks, for both corporate and private customers. Handelsbanken attaches great importance to SKI's surveys of customer satisfaction, particularly since it is carried out every year and in a consistent manner. In the nearly 15 years that SKI has being doing these surveys, Handelsbanken has always been the major bank at the top for private customers and in every year but one for corporate customers.
In the third quarter SchroderSalomonSmithBarney, an American investment bank, reported a study of European bank customers' view of their banks. Over 30 000 private customers were interviewed in 12 different countries to obtain responses concerning customer commitment. This survey relates well with SKI's regular survey but used a different method. Handelsbanken was also number one in this survey. 

In other words, commitment among Handelsbanken's customers was greater than for
any other of the around 30 European banks which are separately reported in the survey - and more than twice as large as the second best bank.
Handelsbanken's pension foundation and pension fund
At the end of the period, Handelsbanken's pension foundation/pension fund had a total surplus of almost SEK 3bn.
Stockholm, 22 October 2002
Lars O Grönstedt
President and Group Chief Executive
The full Interim Report including tables is available to download from the enclosed link.

For further information please contact: <!-- hugin-supplied --><br> <!-- hugin-supplied --><br> <!-- hugin-supplied --><br> Lars O Grönstedt, Group Chief <!-- hugin-supplied --><br> Executive <!-- hugin-supplied --><br> tel: +46 8 22 92 20 <!-- hugin-supplied --><br> e-mail: lagr03@handelsbanken.se <!-- hugin-supplied --><br> <!-- hugin-supplied --><br> Lennart Francke, Head of Accounting and Control <!-- hugin-supplied --><br> tel: +46 8 22 92 20 <!-- hugin-supplied --><br> e-mail: lefr01@handelsbanken.se <!-- hugin-supplied --><br> <!-- hugin-supplied --><br> Lars Lindmark, Head of Corporate Communications <!-- hugin-supplied --><br> tel: +46 8 701 10 36 <!-- hugin-supplied --><br> e-mail: lali12@handelsbanken.se <!-- hugin-supplied --><br> <!-- hugin-supplied --><br> Bengt Ragnå, Head of Investor Relations <!-- hugin-supplied --><br> tel: +46 8 701 12 16 <!-- hugin-supplied --><br> e-mail: bera02@handelsbanken.se <!-- hugin-supplied --><br> <!-- hugin-supplied --><br> This interim report has not been examined by the company's auditors. <!-- hugin-supplied --><br> <!-- hugin-supplied --><br> <!-- hugin-supplied --><br> Highlights of the full year report for 2002 will be published on 18 February 2003. <!-- hugin-supplied --><br> <!-- hugin-supplied --><br> Handelsbanken's interim reports and other publications are available on the Internet (http://www.handelsbanken.se/ireng).