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Interim report Q2 2008 17 July 2008 Jan Lidén President and CEO

CEO presentation of Q2 2008 results

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Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to contribute to a sustainable development of society and our environment. We are strongly committed to society as a whole and keen to help bring about a sustainable form of societal development. Our Swedish operations hold an ISO 14001 environmental certification, and environmental work is an integral part of our business activities.

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Page 1: CEO presentation of Q2 2008 results

Interim report Q2 200817 July 2008

Jan LidénPresident and CEO

Page 2: CEO presentation of Q2 2008 results

(2)

Continued solid results

• Continued solid results in all business areas– Net profit for the period Jan-Jun

increased by 8 percent to SEK 6 504m (6 022)

• Conversion to covered bonds on 21 April – decreased spreads, increased liquidity and facilitated funding

• New capital adequacy objective for full Basel 2 – Tier 1 capital ratio is to be 8.5-9.0 percent

• Credit quality remains good and in line with expectations

• The macro environment in the Baltic states has deteriorated compared with expectations in Q1, affected by a weaker European economy

• Net gains and losses on financial items were positively affected by unrealized valuation effects –valuation volatility expected to decrease as from Q3 2008.

Page 3: CEO presentation of Q2 2008 results

(3)

H1 2008 – best half-year so far

050

100150

200250

300350

400450

Q206

Q306

Q406

Q107

Q2 07

Q307

Q407

Q108

Q208

Profit for the period of which First Securities

SEKm

Swedish Banking Baltic Banking International Banking Swedbank Markets

500

1,000

1,500

2,000

Q107

Q2 07

Q307

Q407

Q108

Q208

Profit for the period

SEKmSEKm

900950

1 000

1 0501 1001 1501 200

1 2501 300

Q107

Q2 07

Q307

Q407

Q108

Q208

Profit for the period

SEKm

25

50

75

100

125

150

Q107

Q2 07

Q307

Q407

Q108

Q208

Profit for the period

SEKm

Page 4: CEO presentation of Q2 2008 results

(4)

Initiatives in line with our strategy

Ukraine and RussiaBalticsSweden

Stable base Growth and experience

Future growth and profitability

• Structural initiatives –operation and branches

• Channel management• Corporate market and

metropolitan areas• Private banking, life and

pension, environmentallyfriendly products and services

• Build-up of critical functionsand growth management

• Grow distribution network -ATMs, branches and agencynetwork

• Broaden product range• Re-branding completed• Capture future growth

• Productivity improvement • Cross-border capabilities• IT management and

development• Corporate sector – leverage on

pan-Baltic position • Broaden customer offerings• Re-branding starting in autumn

Share of lending: 80 % Share of lending: 16 % Share of lending: 2 %

Page 5: CEO presentation of Q2 2008 results

(5)

A slowing Swedish economy

Real GDP growth

1.0%

1.5%

2.0%

2.5%

3.0%

2007 2008F 2009F

Sweden Euro-zone

CPI growth

0.0%

1.0%

2.0%

3.0%

4.0%

2007 2008F 2009FSweden Euro-zone

• The Swedish economy has performed better than the EU average. However, GDP growth, CPI and other indicators show that the Swedish economy will grow more slowly in the next few quarters

• Higher inflation, rising interest rates and weaker disposable income for households are expected to lead to weakening household consumption and credit growth.

Source: Swedbank, Economic Secretariat

Page 6: CEO presentation of Q2 2008 results

(6)

Baltic macro development weaker than expected

Real GDP growth

0%2%4%6%8%

10%12%14%

2005 2006 2007 2008F 2009FEst Lat Lit

CPI growth

2%4%6%8%

10%12%14%16%

2005 2006 2007 2008F 2009FEst Lat Lit

• Economic slowdown in Estonia continues: GDP growth will slow to about 2% in 2008 and recover to 4% in 2009 if global economic developments improve and price growth slows

• In Latvia growth will slow to about 1.3% in 2008 and 2009, the bottom of the cycle is expected to be in winter 2008/2009

• The slowdown in Lithuania is expected to be modest: growth of about 6.5% is expected in 2008 and about 5.5% in 2009

• Export growth remains relatively strong, while weak domestic demand dampens imports. Trade and current account deficits are falling. The CPI has started to show signs of a slowdown, but external risks are high (oil, food).

Source: Hansabank Markets

Page 7: CEO presentation of Q2 2008 results

(7)

Credit quality, Group

*Loan losses, net = write-offs + provisions - recoveries + change in property taken over

Loan losses, netLoan loss ratio

-200-100

0100200300400500600

Q1-

03Q

2-03

Q3-

03Q

4-03

Q1-

04Q

2-04

Q3-

04Q

4-04

Q1-

05Q

2-05

Q3-

05Q

4-05

Q1-

06Q

2-06

Q3-

06Q

4-06

Q1-

07Q

2-07

Q3-

07Q

4-07

Q1-

08Q

2-08 -0.20

-0.10 0.000.100.200.300.400.500.60

SEKm %

Impaired loans

Share of impaired loans

01,0002,0003,0004,0005,0006,000

Q3-

03Q

4-03

Q1-

04Q

2-04

Q3-

04Q

4-04

Q1-

05Q

2-05

Q3-

05Q

4-05

Q1-

06Q

2-06

Q3-

06Q

4-06

Q1-

07Q

2-07

Q3-

07Q

4-07

Q1-

08Q

2-08

0.000.050.100.150.200.250.300.350.400.450.50

SEKm %

Page 8: CEO presentation of Q2 2008 results

(8)

Baltic banking overdues vs market

Estonia - overdue over 60 days / current portfolio

0.0%

0.5%

1.0%

1.5%

2.0%

31.1

2.05

30.0

6.06

31.1

2.06

30.0

6.07

31.1

2.07

30.0

4.08

Rest of the market HB Bank

Estonia - overdue over 30 days / current portfolio

0.0%0.5%1.0%1.5%2.0%2.5%3.0%

31.1

2.05

30.0

6.06

31.1

2.06

30.0

6.07

31.1

2.07

30.0

4.08

Rest of the market HB Bank

Latvia - overdue over 30 days / current portfolio

0%

1%

2%

3%

4%

5%

31.1

2.04

30.0

6.05

31.1

2.05

30.0

6.06

31.1

2.06

30.0

6.07

31.1

2.07

Rest of the market HBA Bank

Latvia - overdue over 90 days / current portfolio

0,0%0,5%1,0%1,5%2,0%2,5%3,0%

31.1

2.04

30.0

6.05

31.1

2.05

30.0

6.06

31.1

2.06

30.0

6.07

31.1

2.07

Rest of the market HBA Bank

Source: Swedbank, Bank of Estonia, and Financial and Capital Market Commission (Latvia)

Page 9: CEO presentation of Q2 2008 results

(9)

Credit quality, Baltic Banking

0.54%

0.30%0.73%0.55%Q2 08

0.39%

0.25%0.53%0.38%Q1 08

0.47%

0.28%0.64%0.48%H1 08

-0.18%Group level provision adjustment0.28%Baltic Banking

0.10%Lithuania0.63%Latvia0.58%EstoniaQ4 07

*Loan loss ratio, net = (changes in provisions + net write-offs) / credit portfolio at the beginning of the period

Loan loss ratio, net*

Overdue ratio (more than 60 days)*

0.86%0.92%0.79%Q1 08

1.20%1.11%1.24%Q2 08

0.71%Baltic Banking0.75%Private0.65%CorporateQ4 07

*Overdue ratio (more than 60 days) = volume of loans more than 60 days overdue /12 month-old credit portfolio

Page 10: CEO presentation of Q2 2008 results

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Accounting and valuation effects

Accounting and valuation effects, SEKmQ2

2008Q1

2008Q4

2007

Swedbank Markets 0 – 187 – 40

Group Treasury, intra-group lending 419 – 253 20

Swedbank Mortgage 29 – 22 66

Group Treasury, liquidity portfolio – 4 53 – 5

Page 11: CEO presentation of Q2 2008 results

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Swedish Banking• Continued strong corporate lending

growth• Mortgage lending growth has started

to decline• Overall stable lending margins

– Back book mortgage margin stabilizing. New lending shows increasing margin

– Corporate margins are increasing slowly

• Deposit margins decreased as a result of mix effects

• Continued increase in card volumes• Capital gain of SEK 101m from sale of

MasterCard shares• Continued strong credit quality

– Stable low LTV ratio at 43% in Swedbank Mortgage

– Only 1.5% of the lending in Swedbank Mortgage has a LTV ratio over 75%.

0500

1,0001,5002,0002,5003,0003,5004,0004,5005,000

Q107

Q2 07

Q307

Q407

Q108

Q208

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Income Costs C/I-ratio

C/I-ratioSEKm C/I-ratioSEKm

Page 12: CEO presentation of Q2 2008 results

(12)

Baltic Banking Operations

• Strong and stable income• Lending margins decreased as a

result of higher funding costs • Deposit margins affected

negatively by decreasing local interest rates and increased competition

• Capital gain of SEK 66m from the sale of PKK

• Profit based staff costs have been reduced by SEK 185m owing to lower provision requirements.

0200400600800

1,0001,2001,4001,6001,8002,0002,2002,400

Q107

Q2 07

Q307

Q407

Q108

Q208

0.0

0.1

0.2

0.3

0.4

0.5

Income Costs C/I-ratio

SEKm C/I-ratio

C/I-ratio excluding one-offs

Page 13: CEO presentation of Q2 2008 results

(13)

International Banking

• Annika Wijkström new head of International Banking

• Strong net interest income development• Continued strong economic growth in

Ukraine and Russia but with high inflation• Ukrainian Banking operations

– Continued high lending growth– Higher costs due to operational excellence

projects and profit-based staff costs• Russian Banking

– Ownership transferred from Hansabank to Swedbank

– Raimo Valo new CEO– Recovered tax on lease assets of SEK 19m

• Strong lending growth in the Nordic branches.

0

25

50

75

100

Q107

Q2 07

Q307

Q407

Q108

Q208

International Banking, profit for the periodof which Russian Bankingof which Ukrainian Banking Operations

SEKm

Page 14: CEO presentation of Q2 2008 results

(14)

Swedbank Markets

• Magnus Geeber new head of Swedbank Markets

• Good development in fixed income and FX trading despite difficult conditions at times

• Stable market share in equity trading and structured products but lower market activity

• Increased activity in Project and Corporate Finance compared with Q1

• Good performance in First Securities after a slow start to the year.

050

100150

200250

300350

400450

Q206

Q306

Q406

Q107

Q2 07

Q307

Q407

Q108

Q208

of which First Securities

Profit for the period attributable to shareholders of Swedbank

SEKm

Page 15: CEO presentation of Q2 2008 results

(15)

Swedbank lending and funding

Swedbank Treasury (excluding Mortgage)

• Large deposits

• Liquidity reserves

• Net lender in the interbank market

• Liquidity limits – conservative view

Swedbank Mortgage constitutes a larger part of Swedbank Group’s balance sheet than other financial institutions

Distribution of Net Funding Need

Swedbank Mortgage

Lending to the public, SEK 1,169bn

Swedbank Group, excl. Swedbank MortgageSEK 596bn

Swedbank MortgageSEK 573bn- Exclusively Swedish mortgage lending

Funding12%

Equity8%

Deposits80%

Covered Bonds73%

Equity5%

Commercial Papers

22%

Ukraine1%

Russia 1%

Lithuania5%

Latvia5%

Estonia 7%

SwedbankMortgage

49%

Sweden 30%

Nordic; 3%

Page 16: CEO presentation of Q2 2008 results

(16)

New capital adequacy target – mid-term

• New target:The capital ratios will at least meet the level that at any given time is considered appropriate to maintain sustainable financial stability and develop operations. Considering full effect of Basel 2, the Tier 1 capital ratio is to be 8.5-9.0%.

• Swedbank is currently well capitalized given the current risk profile and the risk development under an adverse scenario

• Swedbank is currently capitalized in line with European peers in full Basel 2• In relative terms Swedbank has a low risk business model with a

predominance of Swedish mortgage business and low counterparty risks, which indicates a lower than average Tier 1 capital ratio. Growing presence in Eastern Europe indicates higher Tier 1 capital ratio

Page 17: CEO presentation of Q2 2008 results

(17)

Group resultsMikael Inglander

CFO

Page 18: CEO presentation of Q2 2008 results

(18)

Prof it for the period, SEKm

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

Q2-2008

Q1-2008

Q4-2007

Q3-2007

Q2-2007

Return on equity, %

0.0

5.0

10.0

15.0

20.0

25.0

Q2-2008

Q1-2008

Q4-2007

Q3-2007

Q2-2007

Earnings per share, SEK

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Q2-2008

Q1-2008

Q4-2007

Q3-2007

Q2-2007

Tier 1 capital rat io, %

0.01.02.03.04.05.06.07.08.09.010.0

Q2-2008

Q1-2008

Q4-2007

Q3-2007

Q2-2007

Page 19: CEO presentation of Q2 2008 results

(19)

Income statement, Group

SEKmQ2

2008Q1

2008 %Q2

2007 %Net interest income 5,295 5,241 1 4,591 15Net commission income 2,374 2,180 9 2,552 – 7Net gains/losses on financial items at fair value 1,141 75 579 97Other income 623 950 – 34 504 24Total income 9,433 8,446 12 8,226 15Staff costs 2,268 2,311 – 2 2,016 13Profit-based staff costs 185 268 – 31 409 – 55Other expenses 1,977 1,861 6 1,699 16Total expenses 4,430 4,440 – 0 4,124 7Profit before loan losses 5,003 4,006 25 4,102 22Loan losses, net 423 288 47 102 Operating profit 4,580 3,718 23 4,000 15Tax 935 805 16 856 9Profit for the period 3,645 2,913 25 3,144 16Attributable to shareholders of Swedbank 3,604 2,900 24 3,112 16

Page 20: CEO presentation of Q2 2008 results

(20)

Net interest income Q2-08 (Q1-08)

5,241 5,295

15111 44 1

72

187 2

4,600

4,800

5,000

5,200

5,400

5,600N

et in

tere

st in

com

eQ

1-08

Sw

edis

h B

anki

ng

Bal

tic B

anki

ng O

pera

tions

Bal

tic B

anki

ng

Inve

stm

ent

Inte

rnat

iona

l B

anki

ng

Sw

edba

nk

Mar

kets

Ass

et m

anag

emen

t and

Insu

ranc

e

Sha

red

Ser

vice

s an

d ot

her

Net

inte

rest

inco

me

Q2-

08

SEKm

Page 21: CEO presentation of Q2 2008 results

(21)

Swedish Banking, change in net interest income

SEKmQ2 2008

vs Q1 2008Q2 2008

vs Q2 2007Net interest income Q1 2008 2,982Net interest income Q2 2007 2,905

Changes:Higher lending volumes 54 227Unchanged lending margins 0.0Decreased lending margins – 244Higher deposit volumes 34 140Decreased deposit margins – 44Higher deposit margins 79Other changes – 55 – 136Total change – 11 66Net interest income Q2 2008 2,971 2,971

Page 22: CEO presentation of Q2 2008 results

(22)

Baltic Banking, change in net interest income

SEKmQ2 2008

vs Q1 2008Q2 2008

vs Q2 2007Net interest income Q1 2008 1,575Net interest income Q2 2007 1,377

Changes:Higher lending volumes 33 214Decreased lending margins -92 -108FX-effects, lending -5 11Higher deposit volumes 14 78Decreased deposit margins -76 -127FX-effects, deposits -3 8Other changes 85 78Total change – 44 154Net interest income Q2 2008 1,531 1,531

Page 23: CEO presentation of Q2 2008 results

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Net commission income, Group

SEKmQ2

2008Q1

2008 %Q2

2007 %Payments 839 793 6 743 13Lending 199 136 46 178 12Brokerage 188 213 – 12 242 – 22Asset management 945 950 – 1 1,126 – 16Insurance 71 68 5 80 – 11Corporate finance 177 19 172 3Other – 45 1 11 Total net commissions 2,374 2,180 9 2,552 – 7

Page 24: CEO presentation of Q2 2008 results

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Expenses

SEKmQ2

2008Q1

2008 %Q2

2007 %Swedish Banking 2,239 2,255 – 1 2,330 – 4Baltic Banking 795 899 – 12 851 – 7International Banking 349 309 13 113 of which Ukrainian Banking 197 150 31 Swedbank Markets 585 456 28 499 17Asset Management & Insurance 206 253 – 19 239 – 14Other 256 268 – 4 92 Total expenses 4,430 4,440 – 0 4,124 7of which staff costs in: Swedish Banking 1,017 1,099 – 7 1,084 – 6Baltic Banking 343 522 – 34 495 – 31International Banking 177 157 13 64 Swedbank Markets 390 258 51 318 23Asset Management & Insurance 98 110 – 11 102 – 4

* Baltic Banking profit based staff costs have been reduced by SEK 185m owing to lower provision requirements.

*

Page 25: CEO presentation of Q2 2008 results

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Business areas

Q2 08 vs Q2 07SEKm Q2 08 % Q2 08 % Q2 08 % Q2 08 % Q2 08 %Net interest income 2,971 2 1,531 11 441 476 61 27 13Net commission income 1,057 -5 478 0 55 38 352 – 8 432 – 15Other income 425 12 405 18 132 138 – 29 68 33Total income 4,453 1 2,414 10 628 966 11 527 – 10

Staff costs 1,017 – 6 343 – 31 177 390 23 98 – 4Other expenses 1,222 – 2 452 27 172 198 8 108 – 21Total expenses 2,239 – 4 795 – 7 349 585 17 206 – 14

Profit before loan losses 2,214 7 1,619 20 279 381 2 321 – 7Loan losses 85 245 93 0 0Operating profit 2,129 4 1,374 8 186 381 3 321 -7

Net shareholders' profit 1,601 8 1,272 10 147 235 0 244 – 6

Return on allocated equity, % 22.1 34.8 7.8 23.3 44.7

SwedishBanking

BalticBanking

InternationalBanking

SwedbankMarkets

AssetMgmt

Page 26: CEO presentation of Q2 2008 results

(26)

Key figures

Jan-Jun2008

Jan-Jun2007

Return on equity, % 18.7 19.5Earnings per share, SEK 12.62 11.68Equity per share, SEK 135.81 120.23C/I ratio before loan losses 0.50 0.50Loan loss ratio, net, % 0.12 0.03Share of impaired loans, % 0.20 0.08Tier 1 capital ratio, new rules, % 8.8 9.0Tier 1 capital ratio, transition rules, % 6.7 6.7 Capital adequacy ratio, new rules, % 12.6 13.4

Page 27: CEO presentation of Q2 2008 results

(27)

Continued solid results

• Continued solid results in all business areas– Net profit for the period Jan-Jun

increased by 8 percent to SEK 6 504m (6 022)

• Conversion to covered bonds on 21 April – decreased spreads, increased liquidity and facilitated funding

• New capital adequacy objective for full Basel 2 – Tier 1 capital ratio is to be 8.5-9.0 percent

• Credit quality remains good and in line with expectations

• The macro environment in the Baltic states has deteriorated compared with expectations in Q1, affected by a weaker European economy

• Net gains and losses on financial items were positively affected by unrealized valuation effects –valuation volatility expected to decrease as from Q3 2008.

Page 28: CEO presentation of Q2 2008 results

(28)

Appendix

Page 29: CEO presentation of Q2 2008 results

(29)

Exposure FAQ• No direct US Sub-Prime exposure

– Minimal indirect exposure through investments of EUR 23.4m in bonds issued by US mortgage institutions who, in their turn, have exposures towards US sub-prime

• Total exposure to structured credits is minimal– Total commitments towards conduits or SIVs is EUR 127m

• The exposure has originated when reshaping an existing loan in order to gain better collateral, lower risk and higher margin

– Negligible exposure to CDOs• Swedbank holds a very small CDO trading stock for client trades in CDOs which we have issued

ourselves with mainly large Caps as underlying risk• Total holdings were EUR 21m at end Q2

– Exposure to Mortgage Backed Securities is about EUR 648m• European Aaa and mainly residential (RMBS)• Held for EUR liquidity purposes and client trading

• Hedge fund exposure is about EUR 150m, all collateralized• Exposure towards private equity firms and their target companies is about

EUR 1 375m in total – Nordic related LBOs

• In total, the above mentioned exposures represent less than 1.5% of total assets

Page 30: CEO presentation of Q2 2008 results

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CPI growth

0%

5%

10%

15%

20%

Q105

Q205

Q305

Q405

Q106

Q206

Q306

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Est Lat Lit

Real GDP growth

0%

5%

10%

15%

Q105

Q205

Q305

Q405

Q106

Q206

Q306

Q406

Q107

Q207

Q307

Q407

Q108

Est Lat Lit

Main Baltic macro indicators

Number of real-estate transactions and average sales price

0

600

1 200

1 800

2 400

3 000

jan-05

maj-05

sep-05

jan-06

maj-06

sep-06

jan-07

maj-07

sep-07

jan-08

maj-08

# of

tran

sact

ions

0

400

800

1 200

1 600

2 000

EUR

/m2

Tallinn, # of transactions Riga, # of transactions Vilnius, # of transactionsTallinn, avg sales price Riga, avg sales price Vilnius, avg sales price

Consumer confidence

-30

-20

-10

0

10

20

jan-05

maj-05

sep-05

jan-06

maj-06

sep-06

jan-07

maj-07

sep-07

jan-08

maj-08

Estonia Latvia Lithuania

Page 31: CEO presentation of Q2 2008 results

(31)

Components of GDP growth - Latvia

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

24%

2004 2005 2006 2007 Q108

households government investmentsnet exports errors

Components of GDP growth - Estonia

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

24%

2004 2005 2006 2007 Q108

households government investmentsnet exports errors

Components of GDP growth - Lithuania

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

24%

2004 2005 2006 2007 Q108

households government investmentsnet exports errors

GDP growth components

* Please note that Q1 08 data for GDP growth components are initial figures that can change as new information becomes available

Page 32: CEO presentation of Q2 2008 results

(32)

Current account (% of GDP)

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

Q10

4

Q20

4

Q30

4

Q40

4

Q10

5

Q20

5

Q30

5

Q40

5

Q10

6

Q20

6

Q30

6

Q40

6

Q10

7

Q20

7

Q30

7

Q40

7

Q10

8

Est Lat Lit

Baltic current account deficitEstonia

-5%

0%

5%

10%

15%20%

25%

30%

35%

40%

Q10

5

Q20

5

Q30

5

Q40

5

Q10

6

Q20

6

Q30

6

Q40

6

Q10

7

Q20

7

Q30

7

Q40

7

Q10

8

Exports YoY growth Imports YoY growth

Latvia

0%

5%10%

15%

20%

25%30%

35%

40%

Q10

5

Q20

5

Q30

5

Q40

5

Q10

6

Q20

6

Q30

6

Q40

6

Q10

7

Q20

7

Q30

7

Q40

7

Q10

8

Exports YoY growth Imports YoY growth

Lithuania

0%5%

10%15%20%25%30%35%40%45%

Q10

5

Q20

5

Q30

5

Q40

5

Q10

6

Q20

6

Q30

6

Q40

6

Q10

7

Q20

7

Q30

7

Q40

7

Q10

8

Exports YoY growth Imports YoY growth

Page 33: CEO presentation of Q2 2008 results

(33)

Estonia

-5

0

5

10

15

20

25

30

35

2005 2006 2007 2008

HICP, %Energy, %Food including alcohol and tobacco, %Core inflation, %

Baltic consumer price indexLatvia

-5

0

5

10

15

20

25

30

35

2005 2006 2007 2008

HICP, %Energy, %Food including alcohol and tobacco, %Core inflation, %

Lithuania

-5

0

5

10

15

20

25

30

35

2005 2006 2007 2008

HICP, %Energy, %Food including alcohol and tobacco, %Core inflation, %

Page 34: CEO presentation of Q2 2008 results

(34)

0

2

4

6

8

10

12

14

jan-07 feb-07 mar-07 apr-07 maj-07 jun-07 jul-07 aug-07 okt-07 nov-07 dec-07 jan-08 feb-08 mar-08 apr-08 jun-08

%

3m Talibor 3m Rigibor 3m Vilibor 3m Euribor

Talibor, Rigibor, Vilibor, Euribor

Page 35: CEO presentation of Q2 2008 results

(35)

Asset quality and provisioning costsNet loan losses

0%

50%

100%

150%

200%

250%

Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 080

5

10

15

20

25

30

EU

Rm

Net loan losses NLL YoY % growth

Net loan losses

-2,0%-1,5%-1,0%-0,5%0,0%0,5%1,0%1,5%2,0%2,5%

1999 2000 2001 2002 2003 2004 2005 2006 2007 Q108

Q208

Estonia Latvia Lithuania Group

0.55%0.31%0.75%0.58%Q2 08

0.39%0.25%0.54%0.38%Q1 08

0.40%Group0.23%Lithuania0.56%Latvia0.39%Estonia

2007

Net loan losses by country

Net loan losses = (changes in general and special provisions + net write offs) / credit portfolio at the beginning of the year

0.55%0.06%

0.32%0.83%0.98%

0.71%Q2 08

0.31%0.09%incl industry0.57%0.86%incl real estate

0.39%0.16%

0.32%

0.43%Q1 08

0.40%GroupN/Aincl home loans

0.33%Private

0.42%Corporate2007

Net loan losses

Page 36: CEO presentation of Q2 2008 results

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Asset quality – overdue more than 60 daysOverdue more than 60-days/12m old

portfolio

0,0%

0,4%

0,8%

1,2%

1,6%

2,0%

1999 2000 2001 2002 2003 2004 2005 2006 2007 Q108

Q208

Group

Overdue over 60-days/12m old portfolio

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008Real estate, rent Retail and wholesaleConstruction IndustryLogistics and comm Other business services

Overdue over 60-days/12m old portfolio

0,0%

0,4%

0,8%

1,2%

Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08

Private Corporate

Overdue over 60-days/12m old portfolio

0,0%

0,4%

0,8%

1,2%

1,6%

2,0%

Q106

Q206

Q306

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Est Lat Lit Group

Page 37: CEO presentation of Q2 2008 results

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Baltic Banking lending by sectors

580

1 050

1 801

1 803

3 110

8 621

3 181

0 2 000 4 000 6 000 8 000 10 000

Other

Construction

Transport

Industry

Retail &Wholesale

Real-estatemgmt

Individuals

-13

-26

21

2

176

249

93

-75 0 75 150 225 300

Portfolio (EURm), June 2008 Portfolio growth (EURm), Q2 08

43%

xx% - share of portfolio

3%

5%

9%

9%

15%

16%

*Real estate management related portfolio growth includes refinancing of existing loan from Sweden to Latvian business unit (Nordic real estate group with significant Latvian investments)

**

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Estonian lending by sectors

201

308

513

694

1 158

3 685

1 570

0 1 000 2 000 3 000 4 000

Other

Construction

Transport

Industry

Retail &Wholesale

Real-estatemgmt

Individuals

-4

-40

18

-5

28

116

-17

-50 0 50 100 150

Portfolio (EURm), June 2008 Portfolio growth (EURm), Q2 08

45%

xx% - share of portfolio

2%

4%

6%

9%

14%

19%

Page 39: CEO presentation of Q2 2008 results

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Latvian lending by sectors

262

287

653

536

1 052

2 739

838

0 1 000 2 000 3 000 4 000

Other

Construction

Transport

Industry

Retail &Wholesale

Real-estatemgmt

Individuals

6

11

28

0

114

38

13

-50 0 50 100 150

Portfolio (EURm), June 2008 Portfolio growth (EURm), Q2 08

43%

xx% - share of portfolio

4%

5%

10%

8%

17%

13%

*Real estate management related portfolio growth includes refinancing of existing loan from Sweden to Latvian business unit (Nordic real estate group with significant Latvian investments)

**

Page 40: CEO presentation of Q2 2008 results

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Lithuanian lending by sectors

455

636

573

899

2 197

116

867

0 1 000 2 000 3 000 4 000

Other

Construction

Transport

Industry

Retail &Wholesale

Real-estatemgmt

Individuals

-16

3

-25

8

34

95

97

-50 0 50 100 150

Portfolio (EURm), June 2008 Portfolio growth (EURm), Q2 08

38%

xx% - share of portfolio

2%

8%

11%

10%

16%

15%

* Other - largest increase in Energy, gas and water supply sector

**

Page 41: CEO presentation of Q2 2008 results

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Mortgages

• Standard mortgage product allows issue of new loans with maximum LTV of 85% and loan-service ratio below 50%.

• Mortgage portfolio LTV ratios have remained solid at 59% in Estonia, 74% in Latvia and 61% in Lithuania.

• Quality of existing portfolio and each new customer/transaction are evaluated using automated scoring tools.

• Decision making process, product conditions, and pricing are adjusted based on creditworthiness of the clients.

• Sub-prime mortgage lending is not practiced in Baltics

22y23y21yAverage maturity

LithuaniaLatviaEstonia30 June 2008

61%74%59%Average portfolio LTV

Page 42: CEO presentation of Q2 2008 results

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Group lending by sectors – real estate

Portfolio, June 2008

Estonia

22%

6%

26%

25%

15%

6%

3%

16%

43%

5% 9%

9%

15%

Construction OtherIndividuals TransportIndustry Retail & WholesaleReal-estate mgmt

Latvia13%

10%

38%

22%

15%2%

Lithuania13%

5%

34%

41%

4% 4%

Office

Production&Warehouse

Residential

Retail

Land plots

Other

Page 43: CEO presentation of Q2 2008 results

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Real estate portfolio

• As indicated by internal stress-tests and portfolio analyses, real estate and in particular residential real estate development is the most sensitivesector in Baltic Banking portfolio. ‘Sensitivity’ has started to appear inoverdue and default figures of corporateportfolio.

• Around 2/3 from total Real Estate portfolio are cash flow generating properties with good tenant mix. Properties under development process (1/3 from portfolio) are currently affected the most by decreasing prices and liquidity in the market. Hansabank has always strictly restrained from financing speculative type of properties.

• Additional defaults in the residential real estate development sector are expected in the second half of 2008, but no major surprises are expected due to previously implemented portfolio limitations and individual level monitoring. Restructuring capacity has been put in place.

* Overdues over 60 days / 12 months old portfolio

Real estate management overdues*

-0,5%

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008

Estonia Latvia Lithuania

Page 44: CEO presentation of Q2 2008 results

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Group lending by sectors – retail & wholesale

Portfolio, June 2008

Estonia

34%

35%

32%

3%16%

43%

5%

9%

9%

15%

Construction OtherIndividuals TransportIndustry Retail & WholesaleReal-estate mgmt

Latvia

31%

43%

26%

Lithuania

69%

19%

12%

Distributors

Specialty retail

Other

Page 45: CEO presentation of Q2 2008 results

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Group lending by sectors – transport

Portfolio, June 2008

Estonia23%

28%25%

24%

3%

16%

43%

5%

9%

9%

15%

Construction OtherIndividuals TransportIndustry Retail & WholesaleReal-estate mgmt

Latvia

41%

11%13%

35%

Lithuania

85%

4%

1%10%

Trucking

Marine

Terminals&Ports

Other

Page 46: CEO presentation of Q2 2008 results

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Sectors under close watch

TransportationTrucking companies are facing problems due to increasing fuel prices and lagging freight rates. This global problem has started to be reflected in Baltic Banking provisions (especially in SME segments) since the beginning of the year.

Retail & wholesaleTrade volume growth rates slowed down and started to decrease in Estonia and Latvia in Q2 2008 (still growing in Lithuania). There is no substantial impact on portfolio quality yet, but deterioration is expected along with a decrease in consumption.

Wood processingRaw material price increases coupled with downward pressure on sales prices are having a negative impact on Baltic wood processing industry. Current portfolio quality is around average with only few problem cases observed. Additional problems may occur after export duties are imposed on Russian round wood as there is dependence on imported round wood in Estonia.

Transportation overdues*

0,0%

0,5%

1,0%

1,5%

2,0%

Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008Estonia Latvia Lithuania

* Overdues over 60 days / 12 months old portfolio

Page 47: CEO presentation of Q2 2008 results

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Collateral breakdown

20,167

279

706

985

3,621

668

7,960

6,660

273

2007

100%

2%

4%

6%

18%

2%

38%

35%

1%

%1%270State

20,667

320

852

1,172

3,810

316

7,927

7,172

Q2 08

100%

1%

4%

5%

18%

3%

39%

33%

%

Other collateral*

Unsecured

Unsecured corporate

Unsecured private

Corporate real-estate

Private real-estate

Guarantees

Total

• Hansabank’s loan portfolio is adequately secured.

• Private mortgage portfolio is fully covered by family houses and apartments (as a rule owner occupied).

• Full asset pledge, including tangible assets and current assets, is the most common case for the Corporate portfolio. Collateral position enhancement with owner guarantees and additional collateral is used for more risky customers and SME segments.

• The share of unsecured loans is insignificant (used for top ratings in corporate segment and consumer products in private segment).

Baltic Collateral (EUR m)

*Other collateral is deposits, customer payments, vehicles, etc

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Regular process of outstanding loan review • Portfolio quality improvement measures were introduced at the end of 2006• Real estate sector growth is under control, with regular scrutiny of existing portfolio• Strengthened risk units

– Increased number of people dealing with problem loans– Strengthened workout team– Improved quality and increased frequency of portfolio quality reporting

• Targets set for new origination quality

• Regular loan review process includes– Overall portfolio stress test once a year – Portfolio review twice a year– Quarterly “watch list” report– IRB portfolio scoring once a month

• On the individual loan basis:– Client rating review minimum once a year

• Rating classes 5 and higher are subject to more frequent assessment– Quarterly financials/covenants assessment– For SME/SSE and private portfolio weekly overdue report (with client names identified)

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Credit quality management process

1. Proactive management of watch list clients– Private clients - communication on step-by-step actions to take before falling into overdues.

Development of standard proactive solutions to ensure serviceability of the credit– Corporate clients - proactive communication, frequent client meetings and positive attitude to find

solutions2. Overdue management - concentrates on time horizon from occurrence of distress situation (either through

late payment or on the basis of client information) to moving credit over to restructuring or workout phase. The primary focuses in overdue management are:

– Process design for fast and prudent management of overdues, clear process ownership– Prudent tactics to handle overdue payments. Constant re-evaluation of the tactics on their

effectiveness and adequacy– Clearly set timing and channels for client contacts– Build capacity to work with distressed clients including adequate training of employees– Internal target setting and incentives to reach targets– Timely reporting and follow up on activities taken

3. Distressed debt restructuring– Defined tactics of restructuring. Solutions to ensure client serviceability of the debt– Extended capacity to work with distressed clients– Effective solutions for collected collaterals handling