Macroeconomic and Banking Sector Developments in Latvia.

Performance of Swedbank in Latvia, Q3 2008.

Māris Avotiņš
CEO, Chairman of the Board

6 November, 2008
Swedbank group home markets
 Overview of the region:
Swedbank Group home markets - main facts
Estonia
• Total population: 1.3m
• GDP growth: 7.1% (2007)
• Private customers: 1.2m
• Corp. customers: 92,000
• Branches: 86
•Typical market share: 50%
Latvia
• Total population: 2.3m
• GDP growth: 10.3% (2007)
• Private customers: 0.9m
• Corp. customers: 58,000
• Branches: 73
• Typical market share: 30%
Lithuania
• Total population: 3.4m
• GDP growth: 8.8% (2007)
• Private customers: 3.0m
• Corp. customers: 82,000
• Branches: 119
• Typical market share: 30%
© Swedbank
Sweden
• Total population: 9.2m
• Private customers: 4.1m
• Corp. customers: 284,000
• Organisations: 117,000
• Branches: 432
• Typical market share: 25%
• GDP growth 2.7% (2007)
• Swedbank Group rating: Moody’s
Aa3; Fitch A+, S&P A
Russia
• Total population: 141.6 m
• Private customers: 3 400
• Corp. customers: 600
• Branches: 6
• Niche player in Russian market
• GDP growth: 8.1% (2007)
Ukraine
• Total population: 46.4 m
• Private customers: 0.1 m
• Corp. customers: 19 000
• Branches: 197
•GDP growth: 7.6% (2007)
3
Focus on credit quality and efficiency
Sweden
• Stricter lending criteria
• Personal contact with all
customers with loans overdues
• Stricter requirements on
minimum margins
• Process efficiency measures
• Restrictive employment policy
• Increased product sales
Share of lending: 78 %
© Swedbank
Baltics
• Stricter lending criteria
• Balanced goal for loan to
deposit ratio
• Personal contact with all
customers with loans overdues
• Increased margins for new
lending
• Staff reductions
• Self-adjusting performance pay
system
Share of lending: 16 %
Ukraine and Russia
• More focus on quality than
growth
• Implementation of Group credit
and risk systems
• Centralized credit decisions
• Group procurement process
successfully implemented
• Streamlining of distribution
network
Share of lending: 2 %
4
Latvia: Macroeconomic Environment
Summary

• Key changes in a baseline forecast for 2009-2010

– Recession has set in, lowest point in the business cycle in late in 2009 or early 2010, recovery expected in 2010

• Economic imbalances swiftly improve

– Necessity of current account deficit’s financing gap expected to narrow to ca 7% in 2009 from ca 21% in 2007
– Export potential remains strong: despite rising unit labour costs and real effective exchange rates, Latvian exporters
have retained their trade shares in the key export markets
– Inflation retreats: wage-inflation spiral breaks

• Labour market – key to adjustment

– Labour productivity growth is negative in H1 2008, adjustment still lagging
– Recovery will come through productivity growth, especially via total factor productivity

• Financial market – money market tightens, financial system remains stable

– Rising interest rates despite easing monetary policy
– Speculative attack on the lats technically close to impossible due to shallow forward market

© Swedbank 6
 Baseline forecast: key changes
• Reasons for downward revisions
Baseline forecast
– Deepening and widening of global credit crunch, risk of global 2004 2005 2006 2007 2008f 2009f 2010f
recession GDP 8.7 10.6 12.2 10.3 -1.5 … -0.5 -5 … -2 -1 … 2
• Liquidity squeeze, cost of capital has risen (-2…0) (-2…0) (1...3)
Inflation 6.2 6.7 6.5 10.1 15.5 … 16 5 … 6.5 2…4
• Slowdown of external demand limits export potential
(16.0) (7.5) (4.0)
CAD -12.8 -12.5 -22.5 -22.9 -16 … -14 -9 … -6 -8 … -5
• Outlook (-15 … -13) (-9 … -7) (-8 … -6)
– Recession with the lowest point in H2 2009 or early 2010, sub-trend Unemployment 10.4 8.9 6.8 6.0 6…7 9 … 11 10 … 12
positive growth recovery in 2010 (7.0) (9.0) (8.5)
(…) August 2008 forecasts
– Contraction driven by domestic demand: household consumption
recovers very gradually in H2 2010 as unemployment remains high,
whereas investments bottom out in late 2009 predominately driven by Real Growth of GDP, % YoY
30
exporting sectors
– Economic recovery is driven by exports
20
• Risks to the forecast
Negative 10

• Deeper global recession extending well into 2010

0
• Delays in domestic restructuring build up pressure of
imbalances that may sharply deepen the recession
-10
• Domestic financial failures, extraordinary market volatility
induces runs on banks destabilizing the financial system
-20
Positive
2004 2005 2006 2007 2008f 2009f 2010f
• Global economic recovery commences in early 2H 2009
• Globally coordinated interventions by authorities effectively stop GDP Households consumption
disorderly deleveraging, i.e. containing the Minsky moment Government consumption Gross fixed capital formation
Exports Imports
• Further decrease in world commodity prices
Source: CSB and Eurostat, Swedbank calculations 7
© Swedbank
 Credit growth slows due to deleveraging
Domestic credit, % of GDP
100
80
• Lending growth gradually decelerating driven by Total
60
deleveraging
40 Households
– Retreating credit demand, e.g.
20
• Expectations of further asset price decreases reduce Corporate
willingness to borrow, consumption/ investment is 0

Q1 04

Q3 04

Q1 05

Q3 05

Q1 06

Q3 06

Q1 07

Q3 07

Q1 08
being postponed and/ or precautionary savings are
built up
• Rising uncertainty, weakening optimism, rising Domestic credit, % YoY
lending rates 100 8 Total (l.s.)
– Weaker supply, e.g. 80 7 Households (l.s.)
• Global credit crunch raises interest rates and cuts 60
funding availability 6
40 Corporate (l.s.)
• Tighter lending standards in response to domestic 20 5
slowdown and global credit crunch Average lending
0 4
rate, eur, % (r.s.)

Q1 04

Q3 04

Q1 05

Q3 05

Q1 06

Q3 06

Q1 07

Q3 07

Q1 08

Q3 08
• Outlook
– Bank lending expected to grow by 10%...15% in 2008 and
remain flat or possibly even decrease in 2009 Number of transactions with apartments and prices of block
– Corporate lending expected to pick up in late 2009 house apartments in Riga, EUR/m 2
depending on recovery in global growth and exports 2 000
– Household credit growth expected to pick up in 2010 as 1 500 Transactions
households regain their confidence
1 000 EUR/m2
500

0
Jan.05 Jan.06 Jan.07 Jan.08

© Swedbank Source: CSB, FCMC and Swedbank estimate 8

 Current account deficit: smaller external financing
necessity
Current account, % of GDP
10
• Current account deficit swiftly narrows as Transfers
– Trade deficit in goods and services expected to narrow from
21% of GDP in 2007 to ca 13% in 2008 and 7% in 2009 due 0 Dividends, net
to decreasing domestic demand
– Net interest payments rise from ca 1% of GDP in 2007 to ca Interest (debt &
2% due to higher cost of capital -10
portfolio)
– Net compensation of employees expected to remain at ca Compens.of
1.5% of GDP in 2009-2010, i.e. lower than in 2007 -20 employees, net
– Net dividend payments assumed at 2% of GDP, less than a Trade in G&S
half of the past few years, due to lower profitability
– Net transfers conservatively assumed at EU pre-accession -30 Current acc.

2008f
2009f
2010f
average level of 2%...3% in 2009-2010, i.e. EU farming

1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
subsidies and long-term emigrants’ remittances

• Necessity of external financing to finance the current account Financing of current account deficit, % of GDP BoL reserves
deficit shrinks to 6% of GDP in 2009-2010, with the likely 40
Long-term Banks'
funding sources:
– EU structural funds expected at 2%...3% of GDP, according 30 Long-term others
to 2007-2013 EU budget pre-allocation
20 Short-term Banks'
– Net FDI inflows expected at ca 2%, very conservatively
assuming all dividend earnings being withdrawn 10 Short-term others
– Net other borrowing expected to decrease to ca 5.5% in FDI retained
2008 and ca 1% in 2009-2010, which could be met by 0
earnings, net
• Banks’ borrowing, i.e. increasing external debt FDI new capital, net
-10
• Sales of residents’ foreign assets (54% of GDP in Other borrowing, net
June 2008, excluding BoL reserves) -20
Capital acc.
• BoL reserves (18.4% of GDP in June 2008)

2008f
2009f
2010f
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Current acc. deficit

© Swedbank 9
Source: Bank of Latvia , Swedbank calculations
 Foreign trade: competitiveness retained
Growth of Goods Exports and Imports in Current Prices,
YoY %
60

• Trade balance improves as imports plunge and exports 40

Exports
growth (albeit slowing) remains good
– Trade and service deficit improved to 140 LVLm in Imports
20
August, back to the level of June 2006
• 8M 2008 cumulative import growth at -2% yoy 0
reflecting weak domestic demand
• 8M 2008 export growth still above 10% yoy -20
– Imports will contract further as domestic demand Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul
weakens and global commodity prices retreat from 04 04 05 05 06 06 07 07 08 08
their recent highs Export market shares, 2001-2007, H1 2008, %
– Exports growth will undoubtedly moderate along with 0.45 8
slowing global economic growth, but still expected to
retain positive nominal growth throughout the cycle
6
• Export potential remains strong 0.30
– Latvia has retained and even boosted its share in key
trade partners imports despite the growing unit labour 4
cost and real effective exchange rate
0.15
2

0.00 0
EU DE SE DK UK FI PL RU EE LT

Source: CSB, Eurostat, Bank of Latvia

© Swedbank 10
 Foreign trade: swift improvement through imports

Exports of Goods, LVLm Annual Growth, % Imports of Goods, LVLm Annual Growth, %

Metal etc. Machines, equipment

Wood, etc. Mineral products
Food, agricultural prod. Food, agricultural prod.
Machines, equipment Metal etc.
Transport Transport
Chemical products Chemical products
Textiles, wearing, leather etc. Textiles, wearing, leather etc.
Mineral products Plastics
Plastics Pulp and paper
Furniture Builiding materials
Builiding materials Wood, etc.
Pulp and paper Furniture
Other Optical instruments
Optical instruments Other
8M 2007 8M 2007
8M 2008 0 200 400 600 -20 0 20 40 60 8M 2008 0 300 600 900 1200 -60 -30 0 30 60 90

Source: CSB
• Exports show solid growth in all sectors except for
– Housing related (wood and furniture): global shock
– Textiles due to rising unit labour cost and price of energy: long term trend, as expected

• Imports show across the board drop except for

– Food and minerals: result of global price rises earlier this year
– Metals, chemicals and optical instruments, which are closely related to exports and reflect global price developments

© Swedbank 11
 Financial market: money market tightens
LVL/EUR exchange rate, BoL interventions and interbank interest rates
• Shortage of the lats is driving rates up, the
Intervention, m LVL (r.s.) EUR/LVL (l.s.)
Bank of Latvia easing monetary policy 0.712 Lower band (l.s.) Higher/Lower band (l.s.) 150

– The Bank of Latvia cut reserve 0.709 100

requirements on liabilities over 2 years 0.706
from 6% to 5% and for other liabilities 50
0.703
from 8% to 7%, effective from Oct24. 0
Further easing of monetary policy likely 0.700
-50
– The lats interest rates have risen sharply 0.697
due to outflows and uncertainty related 0.694 -100
to FX intervention
0.691 -150
14%
• Long term stability depends on macro 3m Rigibor-Euribor spread
12% RIGIBOR 1m
adjustment RIGIBOR 3m
10% EURIBOR 3m
– A successful speculative attack on
currency close to impossible (e.g. very 8%
shallow forward market) but sustainable 6%
growth and swift EMU entry requires
4%
restructuring of the economy and
2%
productivity growth
0%
Jan.07 Apr.07 Jul.07 Oct.07 Jan.08 Apr.08 Jul.08 Oct.08

Devaluation
rumors State Treasury FX interventions
runs down accrued drive % rates up
BoL restricts access to liquidity budget surplus
and its forward market activities
LVL denominated loans BoL announces
converted into EUR, BoL cuts in reserve
intervenes BoL announces requirement from
cuts in reserve 7% to 6%
requirement from
Liquidity tightening, 8% to 7%
still high credit growth BoL announces
cuts in reserve
requirement from
© Swedbank 6% to 5% 12
 Financial system remains stable
• Devaluation is not a policy decision
Resident deposit structure, %
– Any benefits unlikely: strong inflationary effect, high labour 100 others
mobility, imports already contracting, export competitiveness
remains good 80
– Would produce a deep negative real shock: share of forex USD
denominated loans at ca 80% of GDP (ca 90% of domestic 60
credit), the lats denominated deposits ca 21% of GDP
40
EUR
• Financial system is robust to withstand global credit crunch
– Support from parent banks available 20

– Banks’ short term foreign assets other than deposits (e.g. LVL
0
syndicates) at 23.9% of GDP in June 2008

Q1 04

Q3 04

Q1 05

Q3 05

Q1 06

Q3 06

Q1 07

Q3 07

Q1 08
– BoL reserves at 18.4% of GDP in June 2008
– Government external debt at 6.6% of GDP in June 2008
International investment position w/o FDI, % of GDP Domestic credit structure, %
140 100 others
120
80
100 BoL reserves
USD
80 Short-term others 60
60 Banks nonresident demand
dep. 40
40 EUR
Short-term Banks, non deposit
20 20
Long-term others
0
Long-term Banks 0 LVL
A L A L A L

Q1 04

Q3 04

Q1 05

Q3 05

Q1 06

Q3 06

Q1 07

Q3 07

Q1 08
2006 2007 June 2008

© Swedbank Source: the Bank of Latvia and FCMC 13

Labour market: key to adjustment

Labour Market Indicators, %

25 15

20
10
• Despite Latvia entering a recession, labour market 15
adjustment still lagging 5
– Average labour productivity shrinking for the second 10
quarter in a row (-1.7% and -3% YoY in Q1 and Q2 5
0
2008)
– Unemployment expectations are rising fast, while 0 -5
unemployment rate inched up only marginally Q1 02 Q1 03 Q1 04 Q1 05 Q1 06 Q1 07 Q1 08
Harmonised unemployment rate, n.s.a. (l.s.)
– Labour hoarding is squeezing companies’ profits and Official real net wage growth, YoY (l.s.)
reducing their financial agility, making deleveraging Labour productivity growth, YoY (r.s.)
more difficult and potentially introducing a drag on the
future recovery
Consumer Price Inflation, %
– Unemployment to rise significantly very soon, e.g. 20 3
anecdotal evidence: layoffs are rising, although official
statistics do not illustrate it yet 15 2

• Inflation retreats, wage-inflation spiral breaks 10 1

– Demand side inflation factors disappear as domestic
demand continuously weakens 5 0
– Inflation is over its peak and core inflation decelerates
– Lower world prices help disinflation 0 -1
Jan.04 Jan.05 Jan.06 Jan.07 Jan.08
Contribution of core inflation, pp (l.s.)
Total inflation, YoY (l.s.)
Total inflation, MoM (r.s.)

© Swedbank Source: CSB and Eurostat 14

 Real Convergence: progress so far
GDP POPWA EMPL GDP
= × ×
• Real convergence a success: incomes relative to the Euro POP POP POPWA EMPL
area up by ca 75% over the last 10 years driven by
– Initial macro stabilisation and structural reforms of the GDP per Labour utilisation Average
capita labour
1990s to eliminate inefficiencies inherited from central productivity
planning where POP – population
– And further enhanced by EU accession (e.g. more POPWA – working age population
efficient legal/ institutional framework, product and EMPL – employment
financial market integration, EU funds’ support, falling
risk premium) GDP per capita & average labour productivity
30 60
• GDP per capita convergence due to 25 50
– Better labour utilisation (comparison to 2007):
20
• Employment up by 118k since 1997 40
• Participation rate up to 62% from 54% in 1997 15
30
for the age group of 15–74 10
• Population down by 6.7% (i.e. -163k) while the 20
5
share of population in working age up to 79%
10
from 75% in 1997 0
– Productivity growth on average 6.4% pa over 1997– -5 0
2007, which explains just over ¾ of GDP per capita
1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

growth
Real GDP per cap., YoY % (ls)
POPWA / POP., YoY % (ls)
GDP per cap., PPS, % of EA (rs)
Source: CSB and Eurostat; Swedbank calculations
H1 08
EMPL / POPWA., YoY % (ls)
Av. lab.prod., YoY % (ls)
Av. lab.prod., % of EA, (rs)

© Swedbank 15
Real Convergence: progress so far
GDP = EMPL (1−α ) × CAPITAL α
× TFP
α
GDP ⎛ CAPITAL ⎞
=⎜ ⎟ × TFP
EMPL ⎝ EMPL ⎠
• Productivity growth largely in line with the neo-classical
growth theory, i.e. labour vs. capital abundance and
convergence of factor prices Average Capital deepening Total factor
labour productivity
– Using Cobb-Douglas production function with constant productivity
returns to scale and α=0.36 we see that capital-labour
ratio has contributed ca 2/3 of productivity growth or on
average 4.5% pa
Capital / labour ratio and total factor productivity,
– Contribution of TFP on average 1.9% pa, which is the YoY %
lowest between the EU8 countries (see Arrabitel et al 8
(2008))
6 Total factor
productivity
• Still huge growth potential 4
– Average labour productivity significantly less than 50% 2 Capital /
of the euro area average: must discount for a longer labour
working week and ca a half fewer part-time workers 0
than in the euro area countries -2
– Recovery will come through growth of total factor
-4
productivity as investments decrease due to rising cost
1996 1998 2000 2002 2004 2006 H1 08
of capital and employment shrinks
Source: CSB; Swedbank calculations
– Huge potential to be realised via TFP

© Swedbank 16
Swedbank in Latvia. Q3 2008 Performance.

Market Developments.
Summary

• Strong performance of Swedbank in 9M 2008

– Strong revenues from core business
– Relatively stable margins
– Asset quality materially better than the market
– Focus on expense management
• Lending business
– Portfolio growth slowed
– Focus on risk management – minimizing credit losses
– Continuous monitoring and proactive work with problem clients and industries
– Stricter new lending policies
• Saving and investment products
– Focus on resident deposits
– Growing market shares in investment products
• Business priorities 2009

© Swedbank 18
Strong performance in 9M 2009

EUR million 9M 2008 9M 2007 +/-

Net interest income 164,6 151,4 9%

Net commission income 43,7 38,0 15%
Trading income 22,8 23,4 -3%
Other income 6,7 4,6 44%
Total income 237,8 217,4 9%
Personnel expenses 44,5 40,3 11%
Other expenses 46,5 36,8 27%
Total expenses 91,1 77,1 18%
Profit before loan losses 146,7 140,3 5%
Net credit losses 35,2 15,9 121%
Pre tax profit 111,5 124,4 -10%
Income tax 16,9 17,4
Net profit 94,6 107,0 -12%

© Swedbank 19
Net income drivers: stable NIM and margins
5% Deposit margins 10%
Revaluation effect
Net Interest Margin (NIM) 2.90% in 3Q 08
3,5% 4% 8%

2,95% 2,94%
3,0% 2,36%
2,76% 2,76% 3% 6%
2,78% 2,72% 2,54% 2,35%
2,5%

2% 2,12% 2,07% 4%
2,0% 1,51%
1,34%

1% 1,25% 2%
1,5%
Q1 07 Q2 07 Q3 07 Q4 07 1Q 08 2Q 08 3Q 08
Estonia Latvia
Lithuania w/o bond portfolio revaluation 0% 0%
Q1 07 Q2 07 Q3 07 Q4 07 1Q 08 2Q 08 3Q 08
Estonia (ls) Latvia (ls) Lithuania (ls)
Lending margins Sweden (ls) Rigibor 1M (rs)
3,0%
2,65%
2,5% 2,48% Deposit margins
2,10%
2,0% 1,89% • Growing proportion of more expensive time deposits
1,5%
1,88% 1,64% • Deposit margins follow RIGIBOR trend
1,0% 0,93% Lending margins
0,78%
0,5% • New lending priced to reflect higher funding costs
0,0% • Transferring higher funding costs to existing clients takes time
Q1 07 Q2 07 Q3 07 Q4 07 1Q 08 2Q 08 3Q 08

Estonia Latvia Lithuania Sweden

Deposit margin = (FTP-interest expense)/average deposits

Loan margin = (interest income-FTP)/average loans

© Swedbank 20
Net income drivers: asset quality

Net loan losses (NLL)

1,75%
NLL monthly NLL YTD Financing portfolio
1,50%
13% 33%
1,25%
Mortgage
4% Private
Consumer finance lending
1,00% 1%
Other
0,75% 10% Large corporate
SME Corporate
0,50% Other lending
4% Private car leasing
2%
0,25% Corporate ABF ABF
0,00% 34%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08

NLL by products

Corporate lending Mortgage lending Consumer finance

3,50%
3,00% NLL by country Q3 08 Q2 08 Q1 08 2007
2,50%
Estonia 0.76% 0.58% 0.38% 0.39%
2,00%
Latvia 1.08% 0.75% 0.54% 0.56%
1,50%
Lithuania 0.91% 0.31% 0.25% 0.23%
1,00%
0,50% Baltic Banking 0.90% 0.55% 0.39% 0.40%
0,00%
1M 2M 3M 4M 5M 6M 7M 8M 9M 10M 11M 12M 1M 2M 3M 4M 5M 6M 7M 8M 9M
07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08

• NLL calculated as annualized net credit losses to portfolio at the beginning of the period
© Swedbank 21
Net income drivers: credit losses much lower than in the market
Delayed principal amount and interest payment
300 1,15% 1,50% 3,0%
starting from the 1st overdue day Overdues: Swedbank vs. market (%) 2,63%
1,15%
250 1,25% 2,5%

% from portfolio
200 1,00% 2,0%
million EUR

0,70%
0,71% 0,74% 1,84%
150 0,75% 1,5%
1,16%
0,27% 0,91%
100 0,50% 1,0%

50 0,25% 0,5%
0,09%
0 0,00% 0,0%
Q2 06 Q4 06 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08
total market overdues, in mEUR total Swedbank overdues, in mEUR
Market over 90 days, % of portfolio Sw edbank over 90 days, % of portfolio
total market overdues, % from portfolio total Swedbank overdues, % from portfolio

Swedbank overdues over 90 days 3.6 times lower than for other Latvian banks as of June 30, 2008

• Swedbank level 0.91%, total market – 2.63% => other banks 3.24% (calculated based on Swedbank’s market share)

Drivers of higher overdues are largely cyclical

•Slower GDP growth •Decrease in consumer confidence
•Lower domestic consumption level •High inflation

© Swedbank 22
 Revenue & expense drivers
Revenue growth vs 9M 2007, EUR m Expense growth vs 9M 2007, EUR m
91
238
5
6 -1 2 5 +18%
77 4
+9%
13

217

9M 07 NII fees trading other 9M 08 9M 07 Personnel Admin Other 9M 08

Revenue drivers Expense drivers

• Stable income from core businesses
• Adjustment of expenses to keep stable cost-income ratio
• Growing number of clients
• 10% employee adjustment program implemented in October
2007 Q1 08 Q2 08 Q3 08
• Lagging effect in administrative expenses
Number of active private customers, th 518,6 526,9 541,9 555,5
Number of corporate customers, th 52,9 54,8 56,5 57,8
2600 Number of employees
ROE and CI 2517
60% 2502 2489 2499
43% 46% 43% 2476 2484 2476
37% 38% 34% 35% 40% 36% 40% 38% 2500 2445 -10%
40% 2433 2415
Oct’08
32%
20% 23% 28% 26% 26% 27% 23% 2400
20% 20%
16% 13%
0%
Q1 Q2 Q3 4Q Q1 Q2 Q3 Q4 Q1 Q2 Q3 2300
06 06 06 06 07 07 07 07 08 08 08 2007 J 08 F 08 M 08 A 08 M 08 J 08 J 08 A 08 S 08 O 08

© Swedbank 23
Swedbank the most profitable in Latvia
Net profit Net profit market shares
9M 2008
Sw edbank
Other banks 35,7%
9M 2008 105 188
21,7%

9M 2007 108 272 ab.lv

7,3%

Nordea SEB
7,3% 15,6%
0 50 100 150 200 250 300 350 400 DnB NORD Parex
6,5% 6,0%
EURm
Swedbank Others

In 9 months banks earned EUR 293m, i.e. EUR 87m less than in 9M 2007 (-23%)
• Market returns to steady growth rates
• Administrative expenses rising
• More expensive funding
• Provisions increased Lending market shares
September 2008
Sw edbank
Largest banks - net profit 26,4%
Other banks
120 108 9M 2007 21,6%
105
100 9M 2008

80
64
EURm

SEB
60 ab.lv 14,4%
46 41 4,1%
38
40 33
24 21 18 1821 2119 Nordea
Parex
20 12,1%
DnB NORD 11,4%
10,1%
0
Sw edbank SEB RietumuAizkraukles Parex Nordea DnB Nord
© Swedbank 24
Lending portfolio: mortgage lending (1)

Mortgage portfolio, EUR m Mortgage market share

2 500
32%
2 000 234
167
30%
1 500 52 29,8%
28%
27,6% 27,3%
1 000 26% 27,5% 27,1% 27,1%
1 851 1 945
25
1 382 24%
500 13 24,5%
684
322 22% 23,0%
0 159
2003 2004 2005 2006 2007 Sep 2008 20%
2003 2004 2005 2006 2007 Mar 08 Jun 08 Sep 08
Mortgage loans High margin loans

Mortgage margin Stable margins

2% • Low pressure from competitors
• Transferring higher funding costs to customers
• Ability to increase margins if contract change initiated by the
client
1%

Long term potential

• Only 18% of households in Latvia have mortgage loans
0%
2005 2006 2007 Mar 08 Jun 08 Sep 08

© Swedbank 25
Lending portfolio: mortgage lending (2)

Mortgage overdues, % of 12 month old portfolio

Most of overdues come from people employed in industries
4% most sensitive to slowdown in economics

3% • Trade and personal service, RE, transportation

2%
• Data quite precisely reflect latest information in media about
lay-offs in these particular sectors
1%

0%
Sep 07 Dec 07 Mar 08 Jun 08 Sep 08
Stricter lending conditions applied to new lending

LV >60 days LT >60 days EE >60 days

• Precise risk profile of clients
• Avoiding risky industries
• Improved quality of new lending in 2Q and 3Q
Mortgage risk profile
60%
Portfolio, Dec 07
Mortgage clients risk scores
50%
Portfolio, Sep 08 • Rating 1 - 3- very good clients
40%
New sales, September
30% • Rating 4 - 5- good clients
20% • Rating 6 - 7- medium-risk clients
10% • Rating 8 - 9 monitored clients
0%
• Rating 10 - 12 risky clients
1 2 3 4 5 6 7 8 9 10 11 12

© Swedbank 26
Lending portfolio: consumer financing

Consum er financing portfolio, EUR m

300 Consumer overdues, % of 12 month old portfolio
8%

LV >60 days LT >60 days EE >60 days

200 6%
238 254

4%
157
100

73 2%
40
0
0%
2004 2005 2006 2007 Sep 08
Sep 07 Dec 07 Mar 08 Jun 08 Sep 08

Yield and margin

20%
Portfolio growth slows, margins driven by funding cost
• Margin decreases in short term due to fixed interest rate
contracts and increasing funding costs
15%
Margin Yield Portfolio quality has not changed substantially in the last months

10%
• Watch list creation
• Restructuring possibilities rather limited. Sale of debitor contracts
preferred
5%
2005 2006 2007 Mar 08 Jun 08 Sep 08

© Swedbank 27
Lending portfolio: corporate financing (1)

Corporate financing market share (resident)

Corporate financing portfolio, EUR m 35%
4 000
31,5%
682 28,3% 29,6% 29,5%
3 000 29,3%
571 30%
30,1%
421 25,6%
2 000 27,6% 27,5% 27,7%
26,0%
2 971 25%
247 2 515
1 000 2 032
681 1 160 21,8%
0 20%
2004 2005 2006 2007 Sep 2008 2004 2005 2006 2007 Mar 08 Jun 08

Bank lending portfolio ABF portfolio Corporate financing Corporate lending

Corporate financing market shares (by industries)

40%
Corporate lending margin 36,6%
3% 33,0%

30% 28,8%
25,2% 27,7%
25,0%
2% 20% 23,6%

14,2%
10%
1% 2005 2006 2007 Mar 08 Jun 08
2005 2006 2007 Mar 08 Jun 08 Sep 08 Manufacturing Trade Real estate Agriculture

© Swedbank 28
Lending portfolio: corporate financing (2)
Main industries in large corporate overdues are real estate
Corporate overdue loans and production
2,5%
• Proportion of RE in large corporate portfolio is slowly
2,0%
decreasing and in Sept’08 was 37.5%
1,5%
Main industries in SME overdues are transportation and
1,0% production
0,5% • Limited new financing in problematic industries
0,0% • Pro-active monitoring of customers in these industries
Dec 07 Mar 08 Jun 08 Sep 08 Monitoring targeted risk distribution of clients
31-60 days 61-90 days over 90 days • Stricter lending conditions applied to new lending based
on customer ratings
• Restrictions in force for lending to customers in ratings 5
and 5-
Large corporate risk profiles
• Rating 1 - 2- low-risk portfolio
Transport and
communication; 8%
• Rating 3 - 4- moderate-risk portfolio
Trade (incl. Other; 18% • Rating 5 - 5- vulnerable-risk portfolio
repairs); 13%
• Rating 6 - 7 high-risk and non-performing loans
Large corporate risk profile
35,0%
Construction; 11%
30,0%

25,0%
Real estate; 33% 20,0%
Industry; 17%
15,0%

10,0%

5,0%

0,0%
1 1- 2 2- 3 3- 4 4- 5 5- 6 6- 7
© Swedbank Portfolio, Dec-07 Portfolio, Sep-08 29
Risk management: provisioning principles

• Credit portfolio losses are recognised through special and portfolio provisions
• Main guidelines for estimating provisions:

Portfolio provisions Special provisioning for

Portfolio segment Impairment trigger
(for performing portfolio) impaired assets
Individual assessment based on Net
default frequency (based on rating) * LGD
Large corporate Rating 6 - 7 present value (based on discounted value
(based on credit analyst estimate)
of revalued collateral and cashflow)
fixed LGD (based on asset type for
SME Fixed rate for all portfolio Overdue >90 days
leasing)

Retail Fixed rate based on product type Overdue >90 days product specific LGD

• Key regulations for provision estimation are: provisioning principles and provisioning rates
• Supplementary regulations are: LGD methodology and rating methodology
• General and special provision rates are regularly back-tested

© Swedbank LGD – loss given default 30

Risk management: quality monitoring (1)

Strengthening risk management capability

• Enhanced risk managment training for business units
• Built capacity to work with distressed clients

Portfolio monitoring
• Improved quality and increased frequency of portfolio quality reporting
• Regular loan review process includes
– Overall portfolio stress test
– Portfolio review
– Proactive “watch list” report
– IRB portfolio scoring once per month
• On individual loan basis
– Regular client rating review (rating classes 5 and higher - more frequent assessment)
– Quarterly financials/covenants assessment
– For SME/SSE and private portfolio regular overdue report (with client names identified)

© Swedbank 31
Risk management: quality monitoring (2)

New sales quality management

• Set targets for new origination quality (based on rating/score, RLSR and LTV)
• Limitation of sales to sectors under watch
• Internal target setting and incentives to reach targets

Proactive management of watch list clients

• Introduction of preventive and after-sales activities: proactive communication, frequent client meetings
• Development of standard proactive solutions to ensure serviceability of the credit

Overdue management
• Immediate communication with client: Internet bank, SMS, telephone calls
• Constant re-evaluation of the tactics on their effectiveness and adequacy

Distressed debt restructuring

• Defined tactics of restructuring
• Effective solutions for collected collaterals handling

© Swedbank 32
Deposit market in Latvia: Swedbank focuses
on resident business and has higher share of more profitable demand deposits

Deposits by source
16 000
Nearly half of total deposits in Latvia from non-residents
12 000 44% • Non-resident deposits make 16% of private, and 61% of
million EUR

corporate deposits
8 000
• Swedbank focuses on resident market - resident deposits
4 000 make 92% of deposit portfolio
56%

0
Q106 Q206 Q306 Q406 Q107 Q207 Q307 Q407 Q108 Q208 Swedbank demand deposit share in total deposits higher
Private, resident Corporates, residents than market average
Private, non-resident Corporates, non-residents
• Swedbank share of demand deposits higher than average
on the market, i.e. 59.5% and 52,0% respectively

Demand deposits share from total deposits

Global financial market developments influence Latvian
100%
deposit market
71,6%
80% 67,6%
62,7% 59,5% • In September total deposits of the Latvian banks declined
60% by EUR 367 million, while Swedbank deposits declined by
40%
59,0% 56,3%
52,3% 52,0% EUR 88 million

20%

0%
Sep 07 2007 Mar 08 Jun 08
Market Sw edbank

© Swedbank 33
Saving and investment products: deposits
Deposit market share
Private deposits, EUR m 35%
1 500
33%
1 200 31,5%
676 600 31,3% 30,2%
716 655 31%
900 761 29,6% 29,8%
30,2%
29% 27,3% 30,2%
600 490
282 702 733 731 28,1%
300 649 27% 27,7% 27,2%
195 476
237 353 25,8%
167 25%
0
2003 2004 2005 2006 2007 Mar 08 Jun 08 Sep 08 2004 2005 2006 2007 Mar 08 Jun 08
Private time deposits Private demand deposits Private resident deposits Corporate resident deposits

• Number of time deposit contracts increased by 28% from • Deposit campaigns, more competitive interest rates and
September 2007, reaching 112,500 on September 30, 2008 flexible pricing to improve market position
Total deposit margins
5% 4,8% 8%

Corporate deposits, EUR m 3,9%

1 200 7,2% 3,7%
4% 3,4% 6%
3,1%
900 5,7%
3%
797 720 2,0% 4%
600 932 847 4,5%
687 872 4,2%
2% 3,9%
510 1,1%
300 372 3,0% 2%
1% 0,6% 0,6%
220 294 328 0,4%
111 97 171 90 145 0,1%
0
2003 2004 2005 2006 2007 Mar 08 Jun 08 Sep 08 0% 0%
Corporate time deposits Corporate demand deposits 2005 2006 2007 Mar 08 Jun 08 Sep 08
Demand deposit margin (ls) Time deposit margin (ls)
Rigibor 1M (rs)
© Swedbank 34
Saving and investment products:
assets under managment growth impacted by financial market conditions
Assets under management, EUR m Market share by customers
300 50%
37% 39% 39% 38% 38%
40% 33%
30%
200 274 30%
19% 20% 21%
205 20% 16%

100 10% 5% 5%
127 5%
85
62 0%
2004 2005 2006 2007 Mar 08 Jun 08 Sep 08
0
2004 2005 2006 2007 Sep 08 Pension second pillar Pension third pillar

Hansa funds
• Financial market developments put pressure on growing assets
Life insurance market share by customers
25% under management
• Investors move to less risky investments incl. deposits
20%
16% Pension second pillar
14%
15% 10% 11% 13% • Swedbank the largest P2P manager in Latvia
11%
• Attracting large part of newcomers due to successful student
10%
6% programme “Open”
5%
Pension third pillar
• Effective sales campaigns
0% • Growing number of programme participants
2005 2006 2007 Mar 08 Jun 08 Aug 08 Sep 08

© Swedbank 35
Business priorities 2009

1 Manage credit portfolio through the cycle

2 Build domestic funding base

3 Improve operational efficiency and productivity

4 Build new operating model in Baltic banking

5 Talent retention and development

© Swedbank 36
Thank you!
Appendix

© Swedbank 38
Performance by quarters
EUR millions Q1 2008 Q2 2008 Q3 2008
Net interest income 56 55 54
Net fees 14 15 15
Trading 8 9 6
Other 2 2 2
Total revenue 79 81 77

Personnel exp -16 -15 -13

Other exp. -13 -17 -16
Total operating exp. -29 -33 -30

Net loan losses -8 -11 -16

Net income 38 31 27

Total revenue Operating expenses

79 81 33
2 77
2 2 29 30
8 9 6
14 15 15 15
Other 13
Personnel exp 16
Trading
Other exp.
Net fees
Net interest income
56 55 54
17 16
13

Q1 Q2 Q3 Q1 Q2 Q3

© Swedbank 39
 Lending portfolio: structure
by customer type
Transport and
8 000 communication; 8%
Trade (incl. Other; 18%
7 000 repairs); 13%
6 000

5 000
million EUR

3 614 3 821
3 297 3 408
4 000 3 232 Construction; 11%
3 004
2 797
3 000 2 561
2 172
1 963
2 000 1 689
2 507 2 639 2 719 2 782 2 848 Real estate; 33%
1 000 2 146 2 359 Industry; 17%
1 562 1 862
1 078 1 286
0
Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08

Private financing portfolio +14% Corporate financing portfolio +18%

by currencies

EUR LVL USD Other

7 000

6 000 703 Mortgage; 78%

688
709 682
792
million EUR

5 000 816
975 Other; 5%
4 000 912
3 000 859
772 5 319 5587 5821
4 849 5 114 Car leasing; 8%
2 000 689 4 436
3 378 3 859
2 299 2 730
1 000 1 886 Consumer finance; 9%
0
Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08

© Swedbank 40