• Operating profit increased by SEK 145m to SEK 5,150m
• Net interest income rose by SEK 197m to SEK 5,183m, an in-crease of 4%
• Most satisfied corporate customers in the mortgage market
• Stadshypotek's position as the leading player in the corporate market was reinforced
• Largest proportion of satisfied private customers of the major banks' mortgage institutions
• New features launched for the private market have been warmly welcomed
• Higher rating by Moody's and Standard & Poor's

 

Stadshypotek's operating profit increased by SEK 145m to SEK 5,150m (5,005), Stadshypotek's best performance ever. The improvement in profits compared to the previous year is due to improved net interest income and lower costs.

 

The increase in net interest income by SEK 197m or 4% to SEK 5,183m (4,986) is mainly due to higher lending volumes. A continued increase in the share of private market lending has more than compensated continuing pressure on prices as a consequence of strong competition. Favourable market conditions have also contributed to a positive debt management trend. Lower shareholders' equity combined with low interest rates, which fell even more during the year, have affected net interest income in a negative direction. Return on shareholders' equity was 16.0% (15.4).

 

Expenses decreased by 10% to SEK 150m (166). The reduction is entirely due to the SEK 17m in agent's commissions which Handelsbanken Hypotek paid to Handelsbanken until the merger with Stadshypotek in March 2003. Excluding these commissions, expenses compared to the previous year have been kept virtually unchanged, despite continuing IT investments which are partly a consequence of new products.

 

Recoveries exceeded new loan losses and the net amount recovered was SEK 170m (232), which corresponds to a loan loss ratio of -0.04% (-0.06) of lending.

 

As at 31 December 2004, Stadshypotek's bad debts before deduction of the reserve for probable loan losses amounted to SEK 958m (1,446). Of the bad debts, SEK 87m (207) were non-performing loans and SEK 871m (1,239) are loans on which the borrowers pay interest and amortisation but which are considered doubtful in view of the borrowers' repayment capacity and due to uncertainty as to the value of the collateral. After deduction of the provision for probable loan losses, the volume of bad debts was SEK 710m (1,075).

 

Stadshypotek's lending to the general public again showed a strong growth in 2004 and at the end of the year it was more than SEK 413bn (386). Of a total increase in volumes of SEK 27bn (20), loans to the private market represented SEK 23bn (17) and loans to the corporate market SEK 4bn (3). Growth in the corporate market has led to increased market share and a further reinforced position in this market segment. In the private market, the increase in lending has grown and peaked in December.

 

The Swedish Quality Index survey of customer satisfaction showed that Stadshypotek has the most satisfied corporate customers in the sector and the most satisfied private customers among the bank-owned mortgage institutions. This customer evaluation is very gratifying and is the result of solid and committed work and the high level of skills and competence of all staff in the branch operations.

 

A new loan where the interest rate is fixed for three months at a time was launched on the private market in the spring. In a market with continued strong demand for loans with short-term fixed interest rates, this product has received a very warm welcome. The volume growth for this loan has been good and it is the loan product which has developed most in amount terms this year.

 

An increasing number of customers have used the opportunity to sign up for the "Loan protection with security capital" product and it has been an important factor behind the higher growth in the private market.

 

The improvements made in the e-bud property bidding service, where buyers and sellers can receive an e-mail, or an SMS text message direct to their mobile with information about the last bid submitted, has been greatly appreciated and has contributed to a continued increase in use of the e-bud service.

 

Starting in 2005, the EU requires that listed companies in Europe adapt their consolidated accounts to IASB's accounting standards (IFRS or IAS). However, an accounting standard issued by the IASB will not be valid until the EU has approved it for application within the EU. In 2005, harmonisation will be made with recommendations applying within the EU on 1 January 2005. With the purpose of achieving uniform accounting standards at the Handelsbanken Group, Stadshypotek will apply IFRS from 1 January 2005. The effect of the changeover to new accounting standards will be a reduction in shareholders' equity of SEK 0.6bn.

 

As at 31 December 2004, the capital ratio was 8.1% (9.0). The lower capital ratio compared to last year is due to an increased lending volume and dissolved untaxed reserves. On 1 January 2005, a subordinated loan of SEK 3,500m was raised, after which the capital ratio is 9.3%.

 

In March 2004, Stadshypotek's long term rating was raised by Moody's rating agency from Aa2 to Aa1. In November, Standard & Poor's rating agency upgraded Stadshypotek's long term rating from A+ to AA- and the short term rating from A-1 to A-1+. Thus, Stadshypotek has the same rating as its parent company Handelsbanken, which is the highest rating of all Swedish and Nordic banks.

 

Stockholm, 22 February 2005

 

 

Claes Norlén

Chief executive