Svenska Handelsbanken

ANNUAL REPORT 1997

Svenska Handelsbanken THE ANNUAL GENERAL MEETING OF SVENSKA HANDELSBANKEN will be held at the Grand Hôtel’s Winter Garden, Royal entrance, Stallgatan 4, Stockholm, at 10.00 a.m. on Tuesday, 28 April 1998.

Notice of attendance at Annual General Meeting Shareholders wishing to attend the Meeting must • be recorded in the register of shareholders kept by Värdepapperscentralen VPC AB, on or before Friday, 17 April 1998, and • give notice of attendance to the Chairman’s office at the Head Office of the Bank, Kungsträdgårdsgatan 2, 106 70 Stockholm, telephone +46 8 701 19 84, by 3 p.m. on Thursday, 23 April 1998.

Any shareholders whose shares are nominee- registered must also, in order to be entitled to take part in the Meeting, request a temporary entry in the register of shareholders kept by VPC. Shareholders must notify the nominee about this well before 17 April 1998, when this entry must have been effected.

Dividend The Board of Directors recommends that the record day for the dividend be Monday, 4 May 1998. If the Annual General Meeting votes in accordance with this recommendation, the Swedish Securities Register (Värdepapperscentralen VPC AB) expects to be able to send the dividend to shareholders on Monday, 11 May 1998.

Publication dates for interim reports January – March 27 April 1998 January – June 25 August 1998 January – September 27 October 1998

Svenska Handelsbanken AB (publ) Registered no. 502007-7862 www.handelsbanken.se ANNUAL REPORT 1997

HANDELSBANKEN HIGHLIGHTS...... 2

THE GROUP CHIEF EXECUTIVE´S COMMENTS...... 4

OBJECTIVES, POLICY AND ORGANISATION...... 10

Objectives and principles ...... 10 Policy...... 10 Organisation...... 10 Our staff...... 12 Branches...... 14 Regional Head Offices in the Nordic countries...... 16 Units outside the Nordic countries...... 18 Central Head Office and Subsidiaries...... 20 Board of Directors...... 22 Senior Management...... 24 Auditors...... 24

REVIEW OF OPERATIONS...... 25

Lending...... 25 Deposits...... 25 Payments...... 25 Card services...... 26 Property finance...... 26 Stadshypotek...... 27 Finance company operations...... 28 Pensions savings/Life assurance...... 30 Nordic bank operations...... 31 Handelsbanken Markets...... 32 Handelsbanken Asset Management...... 35 EMU...... 36 IT development...... 36 The Bank and the environment ...... 37

DIRECTORS’ REPORT...... 39

Objective...... 39 A well-integrated universal bank...... 39 Total assets...... 39 Capital ratio...... 39 Rating...... 39 Result and profitability...... 40 Loan losses and credit risks...... 42 Financial risks...... 43 Derivative instruments...... 45 Operational risks...... 46 Competent staff...... 47 Oktogonen...... 47 Acquisition of Stadshypotek...... 47

PROFIT AND LOSS ACCOUNTS AND BALANCE SHEETS...... 48

Accounting principles...... 50 Notes...... 52

RECOMMENDATION FOR DISTRIBUTION OF PROFITS...... 74

REPORT OF THE AUDITORS...... 75

HANDELSBANKEN’S SHARES...... 76

Share price performance and dividend...... 76 Market capitalisation...... 76 The shares...... 76 The shareholders...... 76 PROFIT AND LOSS ACCOUNTS AND BALANCE SHEETS 1993–1997...... 78

ADDRESSES...... 80 HANDELSBANKEN HIGHLIGHTS

Svenska Handelsbanken highlights

Performance for the Handelsbanken Group

1997 1996 Change SEK m SEK m % Net interest income 11 169 9 381 19 Commission, net 3 337 2 628 27 Net result on financial operations 593 2 143 – 72 Other income 716 397 80 Total income 15 815 14 549 9 Staff costs 4 150 3 477 19 Other expenses 3 543 2 547 39 Total expenses 7 693 6 024 28 Profit before loan losses 8 122 8 525 – 5 Loan losses 302 1 806 – 83 Operating profit 7 820 6 719 16 Minority interests – 19 – 1 — Appropriations 532 201 165 Profit before taxes 8 333 6 919 20 Taxes – 2 326 – 1 829 27 Profit for the year 6 007 5 090 18 Total assets 859 466 571 123 50 Number of employees 8 184 7 398 11 Number of branches in Sweden 485 480 Number of branches in other Nordic countries 30 24

DEFINITIONS

ADJUSTED SHAREHOLDERS’ EQUITY PER ORDINARY In order to cover the capital requirement on (30% 1993, 28% since 1994) divided by the SHARE. Shareholders’ equity as reported in the market risks, subordinated loans with an number of ordinary shares. An adjustment the balance sheet adjusted for the capital original maturity of at least two years can has been made to take into account prefe- part of the difference between the book value be included in the capital base. rence shares, index shares and full conver- and market value of interest-bearing securities sion of convertible subordinated notes. which are classified as financial fixed assets CAPITAL RATIO. Capital ratio or the total capi- divided by the number of ordinary shares tal ratio is the capital base in relation to P/E RATIO. The share price at year-end divided after full conversion of convertible subordi- risk-weighted volume. The Act on Capital by net earnings per ordinary share. nated notes. An adjustment has been made Adequacy and Large Exposures of Credit PROBLEM LOANS. The total of bad debts (net) where preference and index share capital are Institutions and Securities Companies stipu- and reduced rate loans. lates that it should be at least 8%. calculated at current redemption value. PROFITABILITY. See Return on equity. DIRECT YIELD. BAD DEBTS. A non-performing loan, or a loan Dividend per ordinary share divided by the share price at year-end. PROPORTION OF BAD DEBTS. Bad debts (net) in where other circumstances lead to doubt relation to total lending to the general public concerning its value and where the value of I/E RATIO. Total income in relation to total and credit institutions (excl. banks). the collateral does not cover the principal expenses. The I/E ratio is computed before amount and the accrued interest by a satis- and after loan losses incl. changes in value REDUCED RATE LOANS. Loans for which the factory margin. Net bad debts are bad debts of property taken over. interest rate has been reduced relative to market rates. minus the reserve for possible loan losses. INTEREST SPREAD. Difference between the RETURN ON EQUITY. The result for the period BAD DEBT RESERVE RATIO. Reserve for possible average interest rate on all assets and the loan losses as a percentage of gross bad debts. average interest rate on all liabilities. after appropriations and tax in relation to average shareholders’ equity adjusted for CAPITAL BASE. The capital base is the sum of LOAN LOSS RATIO. Loan losses and changes in rights issues, dividend and also including tier 1 (primary) and tier 2 (supplementary) value of property taken over as a percentage minority interest. capital. Tier 1 capital comprises shareholders’ of the opening balance for the period for RETURN ON TOTAL ASSETS. Operating profit equity less goodwill plus 72% (1993–1994 lending to the general public, lending to cre- before tax in relation to average total assets. 70%) of untaxed reserves in the parent dit institutions (excl. banks), property taken company. Tier 2 capital includes subordinat- over and credit guarantees. RISK-WEIGHTED VOLUME. The risk-weighted volume is determined by the assets and off- ed loans with some reduction when the resi- NET EARNINGS PER ORDINARY SHARE. The result balance-sheet items being placed in varying dual maturity is under five years. This part for the period after appropriations and tax risk classes, in accordance with the Act on of the supplementary capital may not exceed divided by the number of ordinary shares. 50% of tier 1 capital. With specific permis- Capital Adequacy and Large Exposures of An adjustment has been made to take into Credit Institutions and Securities Compani- sion from the Government or, following account preference shares, index shares and authorisation by the Government, from the es. The volumes are weighted taking into full conversion of convertible subordinated account the assessed risk such that they are Financial Supervisory Authority, other notes. instruments may also be included in tier 1 or included in the risk-weighted volume by tier 2 capital. However, tier 2 capital must NON-PERFORMING LOANS. Loans where interest, 0%, 20%, 50% or 100%. never exceed tier 1 capital. The capital base repayments or overdrafts have been due for TIER 1 CAPITAL RATIO. Primary capital in rela- is obtained by reducing the total of tier 1 payment for more than 60 days. tion to risk-weighted volume. (See Capital and tier 2 capital by the book value of hold- OPERATING PROFIT PER ORDINARY SHARE. base and Risk-weighted volume.) ings in insurance and banking operations Operating profit after deduction of not included in the Consolidated Accounts. minority interest and after standard tax

2 SHB 1997 HANDELSBANKEN HIGHLIGHTS

Key figures for the Handelsbanken Group

1993 1994 1995 1996 1997 Profit before loan losses, SEK m 7 525 6 916 7 437 8 525 8 122 Loan losses, SEK m 6 801 2 809 2 392 1 806 302 Operating profit, SEK m 724 4 107 5 045 6 719 7 820 Total assets, SEK m 399 189 405 852 506 554 571 123 859 466 Shareholders’ equity, SEK m 20 802 22 771 25 955 27 557 32 362 Return on shareholders’ equity, % 5.1 10.9 14.9 19.8 20.1 Income/expenses ratio before loan losses 2.40 2.21 2.24 2.41 2.06 Income/expenses ratio after loan losses 1.06 1.48 1.60 1.86 1.98 Interest spread, % 1.93 1.82 1.42 1.39 1.06 Loan loss ratio, % 2.20 0.96 0.84 0.60 0.05 Bad debt reserve ratio, % 45.6 51.6 61.0 65.2 52.6 Proportion of bad debts, % 3,1 1.8 1.1 0.8 0.6 Capital ratio, % 12.6 13.7 14.2 12.2 10.4 Tier 1 capital ratio, % 8.4 9.3 10.3 10.0 6.2 Return on total assets, % 0.18 1.00 1.01 1.20 0.95 Operating profit per Ordinary Share, SEK 2.44 12.41 15.36 20.25 23.50 Net earnings per Ordinary Share, SEK 4.38 10.14 15.38 21.32 25.15 Dividend per Ordinary Share, SEK 2.00 3.00 3.75 5.00 6.50 Adjusted shareholders’ equity per Ordinary Share, SEK 88.83 96.72 110.03 114.47 134.01 Adjusted share price, Ordinary A, on 31 Dec, SEK 106 92 129 196 274 Average number of employees 7 040 7 101 7 395 7 398 8 184 Number of branches in Sweden 485 487 488 480 485 Number of branches in other Nordic countries 9 11 19 24 30

Key figures 1993–94 are not adjusted for changes in accounting principles and reclassifications made in 1997. Dividend 1997 in accordance with the Board’s recommendation. See also Key figures per share, page 77, and Profit and Loss Accounts and Balance Sheets, pages 78–79.

Quarterly performance of the Handelsbanken Group, SEK m

1996:4 1997:1 1997:2 1997:3 1997:4 Net interest income 2 484 2 593 2 794 2 783 2 999 Commission, net 655 797 785 765 990 Net result on financial operations 980 20 213 177 183 Other income 106 165 292 133 126 Total income 4 225 3 575 4 084 3 858 4 298 Staff costs 869 978 1 037 1 057 1 078 Other administrative expenses 582 629 744 660 893 Depreciation and write-downs 76 105 156 166 190 Total expenses 1 527 1 712 1 937 1 883 2 161 Profit before loan losses 2 698 1 863 2 147 1 975 2 137 Loan losses 499 136 98 – 55 123 Operating profit 2 199 1 727 2 049 2 030 2 014 Minority interests – 1 0 – 8 – 4 – 7 Pension provisions 70 141 137 146 108 Taxes – 657 – 524 – 565 – 602 – 635 Net result for the period 1 611 1 344 1 613 1 570 1 480

SHB 1997 3 THE GROUP CHIEF EXECUTIVE’S COMMENTS

The group chief executive’s comments

The Handelsbanken Group’s profit for 1997 is weighted by a factor corresponding to the Handels- was SEK 7.8 billion, 16% higher than the pre- banken Group’s risk-weighted assets in the country vious year. During the 1990s, we have managed concerned. At some stage in the future when Sweden to increase our lead in profitability which we has joined EMU and is thus subject to joint European monetary policy, it would be reasonable to extend the have maintained for over a quarter of a century. comparison to cover – for example – the 30 largest I am not devoting my comments this year to a traditio- banks in Europe. nal review of the events of 1997. Instead I would like to The Bank’s profits for 1997 were SEK 7.8 billion. give you, our shareholders, a picture of what I see as This was 16% more than the year before, despite the the essence of Handelsbanken. fact that in that year we had one-off profits of over SEK The word “economy” means management of scarce 600 million. This year’s profit corresponds to a return resources. A company which can provide its customers on equity of a full 20%. This level of return on equity with a better product or service while using fewer of means that for the 26th year running we have achieved society’s scarce resources is also making a better contri- our stated goal – better return on equity than compar- bution to society. The company has higher productivity able banks. If our comparison during the last few years and in the long run this is the only way to increase the had included the 30 largest banks in Europe, our lead prosperity of a society. would have been even greater. Handelsbanken aims to make a better contribution to society than other banks. This should be done by Oktogonen – a good instrument of control offering better service while using fewer of society’s from the shareholders’ point of view resources, i.e. by having lower costs. If we succeed in Our staff profit-sharing system, Oktogonen, is directly this we will also achieve higher profitability. This is linked to the goal of having higher return on equity why our goal is to have higher profitability than com- than the average for comparable banks. A certain pro- parable banks. We define profitability as return on portion of our “surplus” return on equity is allocated shareholders’ equity after tax. to the Oktogonen Foundation. Our staff receive this money when they retire, the same amount irrespective Higher return on equity than the average of their position. The excellent result for 1997 means for the 26th year running that the allocation for the year is the largest ever – SEK For many years we compared our return on equity with 390 million. Since the Oktogonen funds are mainly that of other Swedish banks. The reason for this was invested in Handelsbanken shares, our profit-sharing that a bank’s profitability is chiefly affected by domestic system is a good instrument of control from the point conditions. As the Nordic region has tended to become of view of the shareholders. The amount of money a single financial market and as we have expanded in received by a member of staff upon retirement is the other Nordic countries, the comparison has been dependent both on the Bank’s return on equity and on extended to include other Nordic banks. In the com- the development of the share price. The Oktogonen parison, the return on equity of the other Nordic banks Foundation currently manages SEK 13 billion.

Cost effectiveness of some Return on shareholders’ equity after tax Trend for Handelsbanken’s Nordic banking groups, 31 December 1997 ordinary shares

% Index Income/ Expenses 1) expenses 1) expressed as 30 Svenska Handelsbanken 350 a percentage of total assets 20 300 Svenska Handelsbanken Handelsbanken (S) 2.1 0.9 10 Nordbanken (S) 1.9 1.7 0 250 Unidanmark 2) (DK) 1.6 1.7 -10 Other listed banks 200 Den Danske Bank 2) (DK) 1.6 1.4 -20 Den norske Bank (N) 1.6 2.1 Affärsvärlden 150 General Index Merita 2) (FIN) 1.6 2.2 -30 Standard tax 100 FöreningsSparbanken (S) 1.5 1.9 -40 50% 1985–1988 Christiania Bank (N) 1.5 1.9 30% 1989–1993 -50 S-E-Banken (S) 1.3 2.2 3) 28% 1994– 50 Bank share index -60 excl Handelsbanken Average excl.

Handelsbanken 1.6 1.9 1971 19751980 1985 1990 1997 19901991 1992 1993 1994 1995 1996 1997 1) Excl. loan losses 2) Adjusted to Swedish accounting principles 3) Pro forma incl. Trygg-Hansa

4 SHB 1997 THE GROUP CHIEF EXECUTIVE’S COMMENTS

reason is for Handelsbanken’s lead in profitability and how it has been possible to maintain it for such a long period. What is more, it has increased during the 1990s. Let me start by saying what it is not a result of. It is not because we have unique technology. Our IT operations maintain a good standard but we do not have access to anything which could be said to be unique or unknown to our competitors. Nor do we have a unique strategy. We are a classic universal bank doing all the business which is normally included in a universal bank – including life assurance. Following the structural changes in the Swedish banking sector in 1997, some media are of the opinion that the four major banks are now moving in different direc- tions in strategic terms. I think that this is wrong. The strategies of the four major Swedish banks have never been more similar than at present. Before the structural changes of 1997, Nordbanken had the embryo of a different strategy. They said they wanted to be a mass market bank in Sweden without international ambitions and with no ambitions in the fields of investment banking and trading. They also closed down large parts of these activities. After their merger with Merita it appears that this strategy has been abandoned. MeritaNordbanken, Handelsbanken, FöreningsSpar- banken and S-E-Banken are now all classic universal banks with Nordic ambitions and all are active on the life assurance market. The four large banks have the same general strategy, although they sometimes stress things differently and have different strengths and weaknesses. In my opinion, differences in strategy cannot explain either historic or future differences in profitability. Instead it is a matter of implementation. In my experience, this is usually the case. Strategy is 10%, implementation 90%. If you have the wrong strategy but carry it out well, things may turn out all right anyway. If you It took almost two decades to create the first 3 billion are bad at implementation, the most perfect strategy in in the Oktogonen Foundation and the remaining the world will not help. During the 1990s most experts 10 billion was created during the 1990s. This is mainly agree that Handelsbanken has done things best. So a result of the good performance of the Bank’s shares. what have we done? From the point of view of our shareholders, the Okto- gonen Foundation’s dependence on the performance of Better service and lower costs the Handelsbanken share is of vital importance. High We have systematically devoted ourselves to creating return on equity in an individual year is not the same a service company which offers its customers better ser- as long-term higher growth in shareholder value. Only vice in the long term while having lower costs than our SEK 2 billion of the 12 billion currently managed by competitors. This is the dream of every chief executive the Oktogonen Foundation comes from the Bank. in a service company. It cannot be done with a wave The rest is increase in value. of a magic wand. Instead it is a matter of creating a system where all parts work together towards the goal. Strategy is 10% – implementation is 90% Service companies are unique in so much as a large It is unique for a company in the service sector to out- proportion of the staff are in contact with the custom- perform its competitors in profitability for such a long ers. At Handelsbanken, perhaps 90% of the staff have period. Usually the profitability lead is lost after a cer- customer contact. Good service means exceeding custom- tain amount of time. One might therefore ask what the ers’ expectations. Handelsbanken has approximately

SHB 1997 5 THE GROUP CHIEF EXECUTIVE’S COMMENTS

100 000 customer contacts each day. It is a very dif- No centralised prime customer systems ficult task to get all the employees to exceed the Our view of service means that we do not wish to have customers’ expectations every day. It demands commit- centralised prime customer systems of the type to be ment of the employees on a broad level. It is always found in almost all banks today. This goes against our easy to get the hundred top managers to work in a decentralised way of working. It is the person who is committed way. In a good service company, this is not responsible for the customer who must decide what enough. Every-one must be committed in order for the terms and conditions a customer should have. customers to obtain long-term better service. An on-going and long-term dialogue between the employee with customer responsibility and the customer Decentralisation – a condition for good service is the foundation of good service. It is therefore impor- All these employees who meet customers must have tant for the Bank to get to know the customer and the excellent skills so that, in a dialogue with the customer, customer’s circumstances well. This is why all corporate they can give the right advice and offer the correct prod- and large private customers have a specially designated uct and make our customer satisfied in the long term. person as their account manager. This dialogue must take place in a competent and During the 1990s I have visited around 500 branch pleasant manner. Furthermore, the Bank’s organisation offices and sat down and talked to staff. Many times must be such that the person who meets the customer I have been struck by the fact that branches which have can also take decisions on important matters pertaining a pleasant, easy-going atmosphere internally are also to the relationship with that customer. Examples of this those which succeed best in the market. When you are credit matters and prices. That is why Handels- think about it, it is actually quite obvious. In the long banken’s decentralised organisation is important for our run you cannot be pleasant to customers if the internal ability to deliver long-term good service. The customers atmosphere is not happy. Good branches often do do not want to talk to a messenger. They want to talk those simple everyday things that matter in order to the person who makes the decision. Good service to look after their customers and employees. Simple often means that the person who is responsible for the everyday caring always means much more than customer must think for himself or herself and must expensive dinners and presents to both staff and take initiatives in order to make the customer satisfied. customers. It is therefore important that the formal rules are kept Another important service factor is our low staff at a reasonable level. A bureaucratic organisation which turnover. During 1997, our staff turnover was only is strictly governed by rules can never deliver good ser- 3%. The fact that our employees tend to stay at the vice. Instead, the person responsible for the customer Bank for a long time makes our customer service better. must be given as much scope as possible. It contributes to our branches always receiving high

6 SHB 1997 THE GROUP CHIEF EXECUTIVE’S COMMENTS

rankings where competence is concerned. As our profit responsibility, combined with our staff profit- employees stay at the Bank for so long, they build up sharing system. Our branches appear to be more inclined sound professional competence. Customers also always to work on everyday improvements in efficiency than want account managers to stay at their jobs long enough branches of other banks. Directives about savings from to build up a relationship based on trust. They do not central management are often met with a shower of want to meet new faces all the time. We want our staff counter arguments. This type of discussion should instead to have a long-term view of their employment at the start over a coffee break at the branch. The profit Bank. To contribute to this, the Bank tries to have a responsibility of the branch office combined with our long-term view of its employees. We have not dismissed profit-sharing system means that coffee-break discus- anyone in our Nordic domestic market due to lack of sions of this kind are more common at Handelsbanken work during the whole of the 20th century. We always than at other banks. try to do our best to look after our staff. I also think that our decentralised organisation and Better service and lower costs – a paradox? our profit-sharing system contribute to a general sense of thrift. This is what is important – not a temporary Better service and lower costs may sound like a paradox. cost-cutting campaign now and then. These do not In fact, it seems to be the rule rather than the exception that the service companies in various business sectors usually have long-term effects. When the campaign is with the best service are also the ones with the lowest over, costs rise again. Furthermore, a temporary econo- costs. The explanation is focus. Focus on what really my drive tends to have a detrimental effect on customer means something to the customer. The world is full of service. pointless or even annoying “service”. A good example Most satisfied customers – lowest costs in Europe of this in my opinion is the “service” you are given when you arrive at a hotel and have 10 metres left to During the whole of the 1990s, Handelsbanken has had the reception desk, when somebody comes along and more satisfied customers than the average for the Swed- pulls your suitcases out of your hands. And they expect ish banks, both for corporate and private customers, a tip for it. In my opinion, if you have carried your suit- according to the official survey Svenskt Kundindex. cases halfway around the world you can manage to Actually, we have had the greatest number of satisfied carry them the last 10 metres as well. Apart from this, very customers of the four major banks each year on the pri- often you have to wait for the suitcases when you get to vate side and every year except one on the corporate your room if you let somebody else take care of them. side. During the whole of the 1990s we have also had a There are also countless examples of unnecessary lower proportion of complaints to the National Board internal work which takes time from the important for Consumer Complaints than corresponds to our work with customers. At Handelsbanken we have made share of the banking market in Sweden. We also have good progress when it comes to eliminating unnecessary the lowest costs of the 30 largest universal banks in internal work. Take as an example the fact that we Europe. This is the foundation of our success in the abolished all budgeting many years ago. Many banks of market and our profitability during the 1990s. It is not Handelsbanken’s size devote hundreds of man-years to achieved by a single wave of a magic wand. Instead, all budgeting. The work of eliminating unnecessary inter- parts of the finely-tuned system which a first-class servi- nal work must be pursued with great force at all times. ce company constitutes must be persuaded to work in A recent example is the new private insurance scheme the same direction. This applies to the Bank’s organisa- which we launched during 1997. This is a life insurance policy which can include an old-age pension, a family tion, training policy, management of complaints, per- pension, accident and sickness insurance, depending on sonnel policy, attitudes, rules, profit-sharing system etc. what the customer needs. This insurance policy can be The work is never finished. It is extremely difficult to taken out at any branch of Handelsbanken. It is tai- create a good service company and it is very easy to lored to the customer’s wishes during a discussion at destroy it. It must be continually developed and im- the branch office and the customer receives the contract proved in order to stay at the top. when he leaves. The insurance policy is valid when the Is good service important in the IT society of the future? customer goes out through the door and the internal work is also finished at that point. Many people wonder if good service will be as important in the IT society of the future. My answer is an Permanent thrift – not temporary cost-cutting campaigns unreserved yes. Good service will be even more impor- The most important explanation for Handelsbanken’s tant in the future than it is today. The Internet and low costs is, of course, that we have fewer employees other technology means that competition is tightening. than other banks. This is where our decentralised orga- The company which does best is the one which can nisation plays a key role with each branch office having offer the best service. The Internet is not a threat to the

SHB 1997 7 THE GROUP CHIEF EXECUTIVE’S COMMENTS

Fifteen new branches during the year Instead of – as many other banks are doing – closing down branches, in 1997 we decided to start more new branches than we have done since the 1960s. We decided to start 15 new branches in the Nordic countries – 9 in Sweden and 2 each in Norway, Finland and Den- mark. In Sweden, the new branches are Trosa, Bålsta, Sigtuna, Hjo, Lerum, Vaxholm, Åtvidaberg, Söder- köping and Hammarby business park in Stockholm. In Norway, Kristiansand and Tønsberg. In Finland, Vantaa and Lahti. In Denmark, we decided to start another branch in Copenhagen and one in Århus. We now have 485 branches in Sweden, 15 in Norway, 12 in Finland and 3 in Denmark. Operations in the other Nordic countries reached such a size during the year that these organisations have become separate regional banks. The heads of operations in Norway and Finland also became Executive Vice Presidents of the Bank. Handelsbanken is now divided into 10 regional banks – 7 in Sweden and one each in Norway, Finland and Denmark. We conduct our operations in the other Nor- dic countries using the same concept as in Sweden. We aim to have complete universal banking operations which provide better service while having lower costs than our competitors. This concept is the foundation of our belief that we will be able to become a strong force in the whole Nordic region. We are already the fourth largest commercial bank in Finland and the fifth in Norway. During the year we were also the first Swedish bank to open an office in Warsaw. The reason that we opened new branches in Sweden was the acquisition of Stadshypotek. Although we cover Sweden better than most other banks, there are important towns where we do not have branches. For some of these towns, the acquisition of Stadshypotek gave us a sufficiently large customer base to start. They are places where for a long time we have thought about establishing branches. For our branches in Sweden, the acquisition of Stadshypotek was a historic chance to advance our positions in the local market. For many branches, the acquisition has meant that the customer base has doubled. A great deal of work has been put into looking after the new customers and persuading as many as possible to move all their banking business to Handelsbanken. So far we have surpassed our expecta- branch offices. For a long time we have worked tions. The extra business with the new customers from towards offering easy-to-use electronic solutions for Stadshypotek is greater than we expected. customers’ routine transactions. By getting rid of unprofitable routine transactions from the branches, Handelsbanken is well-positioned in the pension market we can create branches with fewer but more competent By far the largest part of all pension payments in West- employees. This is a trend which is highly desirable. ern Europe comes from public tax financed systems with- The Internet helps us to take yet another big step in this out earmarked investment funds. If the people of West- direction. In 1997, we started our new Internet banking ern Europe in the future are to receive the pensions that service. Here our customers can very easily make trans- they have been promised today, the contributions will fers and pay bills and it is also cost-effective for the Bank. eventually need to be doubled in many countries.

8 SHB 1997 THE GROUP CHIEF EXECUTIVE’S COMMENTS

all Swedes will be able to decide how the “premium reserve” in the general pension system will be managed. This means that practically all Swedes during the 1990s will be able to decide how part of their own pension funds are to be managed. This will lead to substantially increased interest from the general public in pension savings and asset management. The Handelsbanken Group is well-positioned in the pensions market. We have around 12% of new policies in the unit-linked market and 13% of the market for traditional life assurance. Through our purchase in 1992 of a life assurance company, RKA, we were the first Swedish bank to enter the market for traditional life assurance. At an early stage we made the strategic decision to do business in both sectors. Due to the boom on the stock market, unit-linked insurance has become very popular. But today’s situation will not last forever. Most customers will be well-advised to set aside part of their pension savings in traditional insurance policies with guaranteed returns.

Asset management becomes a separate business area It is important for sales of both unit-linked insurance and traditional life insurance and also for normal savings in mutual funds that asset management is of top quality. By separating asset management from Handels- banken Markets, we will focus on these operations. Asset management will become a separate business area led by an Executive Vice President. With the large In view of the tax pressure which already exists, this resources of the Handelsbanken Group, we will be method is usually not possible. All that remains are second to none in this field. pension reforms which imply lower pensions in the future. A pension agreement of this kind has already been made in Sweden. This means that the market for Finally, I would like to offer my warmest thanks to private pension insurance will grow in the whole of all the employees of Handelsbanken. Due to the acqui- Europe. Furthermore, the existing pension systems will sition of Stadshypotek we have had more work to do be increasingly constructed so that individuals can than for many years. But once again, Handelsbanken’s influence how their pension savings are managed. Back organisation has surpassed itself. Extraordinary efforts in 1990, white-collar workers in Sweden were given the have been made to take care of all the new customers right to decide how part of their pensions would be we have gained. It is thanks to you that for the 26th managed. During 1998, blue-collar workers will be year running we have achieved our goal – higher return given the same opportunity. From 1 January 1999, on equity than the average for the banking sector.

Stockholm, February 1998

ARNE MÅRTENSSON

SHB 1997 9 OBJECTIVES, POLICY AND ORGANISATION

Objectives, policy and organisation

OBJECTIVES AND PRINCIPLES This also means that the responsibility for the Group’s marketing is held by the individual branch. We have Handelsbanken’s overall objective is to have a higher no central marketing departments, we make no central profitability than a weighted average of other listed marketing plans and we do not control the branches’ Swedish, Norwegian and Finnish banks. marketing activities by giving central priority to custom- The quality of the Group’s services should meet the er categories or product areas. Product campaigns are expectations of demanding customers and we should rare. charge a fair price for our services. Our cost level For many years, Handelsbanken has consistently should be lower than in other banks. and successfully applied and developed this basic concept. Profitability must always be given higher priority It has proved to work flexibly and efficiently during than volume. When granting credits, this also means major changes in the environment in which we work. that we must never neglect the quality of our loan portfolio in favour of a large lending volume. • Universal bank It is intended that higher profitability should benefit Handelsbanken aims to be a universal bank, i.e. we the shareholders via a higher dividend growth than the should cover the entire banking area – traditional cor- average for other Swedish banks. porate transactions, investment banking and trading, We aim to have more satisfied customers than other as well as consumer banking including life assurance. banks. We seek to employ young, well-educated staff and • Growth in the Nordic countries train them within the Group. As far as possible, man- With almost 500 branches, Handelsbanken is strong agers should be recruited internally. in the Swedish market. We aim to work in such a way that we are of benefit Our policy for growth is to establish universal banking to our customers, the Bank itself and society as a whole. operations in the Nordic countries. We regard Norway, We must work within the formal and ethical frame- Denmark and Finland as natural domestic markets work which applies to banking operations and take where we can apply Handelsbanken’s experience in into account our responsibility for the environment. running profitable universal banking operations. POLICY With our network of units located outside the Nor- dic countries, we are also able to provide our Nordic customers with first-class service in other parts of the Overall customer responsibility • world and to do Nordic-related business with interna- close to the customer tional customers. The business operations of the Handelsbanken Group are strongly decentralised. The most important means ORGANISATION of control are a fundamental corporate policy which is deeply rooted throughout the entire Group and an Handelsbanken’s organisation is aimed at promoting efficient financial control system. the interplay between strong branches, highly-trained The main concept is that our organisation and specialists and efficient support functions. methods of work should be based on the branches’ On the next page, the Handelsbanken Group’s orga- responsibility for individual customers and not on nisation is presented as a combined unit concentrating central units’ responsibility for product areas or market on the individual customer and with the individual segments. branch office at the forefront. For each individual customer there is an overall responsibility at one place in the Group, as close to the customer as possible – at the customer’s branch. Responsibility for providing the customer with expert and co-ordinated services from all units in the Handels- banken Group lies there, as does the responsibility for all loans held in the Group by individuals, companies or groups of companies. There too lies the responsibility for profitability within the Group for our overall business relationship with the customer.

10 SHB 1997 OBJECTIVES, POLICY AND ORGANISATION

The Handelsbanken Group’s organisation

CENTRAL HEAD OFFICE REGIONAL BRANCHES AND SWEDISH HEAD OFFICES CUSTOMER SUBSIDIARIES

CENTRAL REGIONAL BRANCHES HEAD OFFICE HEAD OFFICES IN SWEDEN GROUP MANAGEMENT NORTHERN 485 NORRLAND OPERATIONAL Umeå THE OTHER NORDIC DEPARTMENTS COUNTRIES Asset Management SOUTHERN Denmark (3) Markets NORRLAND Finland (12) Gävle BUSINESS SUPPORT Norway (15) DEPARTMENTS STOCKHOLM CITY OUTSIDE THE NORDIC Administration Stockholm Asset Management COUNTRIES Auditing CENTRAL SWEDEN China Business Development Stockholm Estonia Control France Corporate Communi- EASTERN SWEDEN Germany (2) cations Linköping Hong Kong Credits Japan Information Systems WESTERN SWEDEN Luxembourg Legal Göteborg Poland Markets Russia Personnel SOUTHERN SWEDEN Singapore Treasury Malmö Spain SUBSIDIARIES Switzerland Handelsbanken Finans DENMARK Taiwan Handelsbanken Fonder Copenhagen U.K. (3) Handelsbanken Liv U.S.A. Stadshypotek FINLAND – Handelsbanken Hypotek Helsinki – Stadshypotek Fastigheter NORWAY Stadshypotek Bank Oslo

SHB 1997 11 OBJECTIVES, POLICY AND ORGANISATION

OUR STAFF Many companies, especially those in the service sector, stress that the company’s employees are its most important asset. This is particularly true of a company which is as strongly decentralised as Handelsbanken. Handelsbanken’s basic philosophy, which focuses on the customer’s requirements, demands of every employee an interest in the customer’s circumstances and an overview of the Group’s range of services. This makes demands that are different from the traditional sale of products. We must make sure that we have employees and managers who understand and agree with Handelsbanken’s basic philosophy and who are able to meet its demands. For this reason, the Bank considers it very important that the right staff and managers are recruited. In this context, mention should be made of ever-increasing requirements and refined selection methods for recruit- ing new employees; a comprehensive programme for skills development in the banking profession; a well- tried system for annual appraisals for all staff in the Group; individual development plans for employees who are interested in and suitable for advancement Our basic philosophy, which focuses within the Group; and an advanced programme for “on the customer’s requirements, demands manager development. Almost all training is carried out within the Bank and 90% of all managers are of every employee an interest in the recruited through internal promotion. customer’s circumstances. A special training scheme, which includes a PC ” for use at home was established at the end of 1996. Over 5 000 employees have joined the scheme, which leads to basic PC skills. A means of motivation for Handelsbanken’s staff, which has become more and more important over the years, is the Bank’s profit-sharing system which was formed in 1973. The funds which have been allocated since then are managed on behalf of the employees by the Oktogonen Foundation. From 1995 the profit- sharing system also includes Handelsbanken’s staff in Norway and from 1997, staff in Finland, at Stads- hypotek AB and Stadshypotek Bank AB. However, we think that the most important source of motivation and personal development can be found in the decentralised customer and profit responsibility itself. The Bank lays great emphasis on always keeping this basic philosophy alive in its daily work and making sure that it is applied in all activities.

12 SHB 1997 OBJECTIVES, POLICY AND ORGANISATION

SHB 1997 13 OBJECTIVES, POLICY AND ORGANISATION

BRANCHES IN THE NORDIC COUNTRIES On 1 January 1998, three new regional banks were started in the Nordic countries, one each in Denmark, Finland and Norway. The Bank now has complete universal banking operations in the Nordic region and Northern Norrland with ten regional banks covers the whole of its Nordic Arvidsjaur Gullänget Luleå Näsåker Umeå domestic market. Backe Gällivare - Storgatan Pajala - Storgatan Bjurholm Haparanda - Örnäset Piteå - Teg In SWEDEN, nine branches were started in 1997: Lerum, Bjästa Holmsund Lycksele Ramsele - Västerslätt Hjo, Bålsta, Trosa, Söderköping, Sigtuna, Åtvidaberg, Björna Hoting Lövånger Robertsfors Vilhelmina Vaxholm and Hammarby in Stockholm. Four branches Boden Husum Mellansel Råneå Vindeln Bredbyn Härnösand Malmberget Skellefteå Vännäs were closed: Norrköping Repslagargatan, Jönköping Bureå Jokkmokk Malå Sollefteå Ånäset Öster, Malmö Nydala and Eskilstuna Skogsängen. Burträsk Junsele Nordingrå Sorsele Åsele Byske Kalix Nordmaling Storuman Älvsbyn Operations were transferred to nearby branches. At the Domsjö Kiruna Norrfors Trehörningsjö Örnsköldsvik end of the year there were 485 branches in Sweden. Dorotea Kramfors Norsjö Ullånger Överkalix Övertorneå In DENMARK, two branches were started: Park Allé Gammelstad Lugnvik Nyåker in western Copenhagen and Århus. This makes a total of 3 branches. Southern Norrland In FINLAND, two branches were started: Lahti and Vantaa. The total number of branches there is now 12. Alfta Furudal Kilafors Ockelbo Svenstavik Arbrå Föllinge Kopparberg Offerdal Säter NORWAY In , two branches were started: Kristiansand Avesta Gagnef Krokum Orsa Söderhamn and Tønsberg. The total number of branches there is Bergby Gnarp Kvissleby Oviken Sörberge now 15. Bergsjö Grangärde Leksand Rätan Tierp Bispgården Grängesberg Liden Rättvik Timrå Bjursås Gällö Lima Sala Torsåker Bjuråker Gävle City Lit Sandviken Tärnsjö Western Sweden Björbo Hammarstrand Ljusdal Skinnskatte- Vansbro Boda Kyrkby Hammerdal Ljusne berg Venjan Skutskär Alingsås - City Karlstad Surte Bollnäs Heby Ludvika Västanfors Skärplinge Ambjörnarp - Friskväderstorget Kristinehamn Svenljunga Borlänge Hede Långshyttan Ånge Skönsberg Arvika - Frölunda Torg Kungsbacka Säffle Bräcke Hedemora Malung Åre - Första Långgatan Stora Tuna Blidsberg Kungälv Tibro Delsbo Hedesunda Matfors Östersund - Gårda Edsbyn Hudiksvall Mockfjärd Storvik Östervåla Bohus - Hisings Kärra Landvetter Tidaholm Strömsund Bollebygd - Hjällbo Lerum Torsby Fagersta Insjön Mora Sundsvall Borås - Högsbo Lidköping Trollhättan Falun Järpen Mörsil Sveg - Hulta - Kortedala Lilla Edet Trädet Fränsta Järvsö Norberg - Landala - Norrby Lödöse Uddevalla - Stora torget - Lilla Bommen - Majorna Mariestad Ulricehamn Falkenberg - Marieholm Mellerud Vara Falköping - Odinsgatan Mölndal Varberg Eastern Sweden Filipstad - Sisjön Nödinge Vargön Fristad - Volvo PVB Partille Vårgårda Alvesta Färjestaden Linköping Nässjö Virserum Färgelanda - Vågmästare- platsen Rävlanda Vänersborg Anderstorp Gislaved - City Oskarshamn Visby Gällstad - Tornby - Örgryte Skara Åmål Bankeryd Hemse Rörvik - Adelsgatan Göteborg Mjölby - Öster Hagfors Skövde Årjäng Borensberg Hultsfred Slite - Almedal Motala Vislanda Herrljunga Sollebrunn Älvängen Borgholm Huskvarna Stockaryd - Avenyn Mönsterås Värnamo - Backa Ringön Hjo Stenungsund Burgsvik Högsby Strängnäs Mörbylånga Västervik - Brunnsgatan Karlskoga Sunne Eksjö Järnforsen Sävsjö Emmaboda Jönköping City Mörlunda Söderköping Växjö Eskilstuna Kalmar Norrköping Tingsryd Ålem - Fristadstorget - Berga - Drottninggatan Torsås Åseda - Eneby Centrum Central Sweden - Östermalm - Kvarnholmen Tranås Åtvidaberg Finspång Katrineholm - Hageby - Såpkullen Vaggeryd Flen Klintehamn Arboga Jakobsberg Stockholm Vällingby Nybro Vetlanda Fårösund Lammhult Axelsberg Järna - Fleminggatan Värmdö Nyköping Vimmerby Blackeberg Kolbäck - Fridhemsplan Västerhaninge Landsbro Brommaplan Kumla - Globen Västertorp - Götgatsbacken Bålsta Kungsängen - Hornsberg Västerås Dalarö Kungsör - Hornsgatan - Emausgatan Enköping Kärrtorp - Hornstull - Köpingsvägen - Stora gatan Southern Sweden Farsta Köping - Kungsholmstorg - Marieberg - Vasagatan Fellingsbro Lindesberg Arlöv Höör Lund Markaryd Vellinge - Renstiernas gata Årsta PC Finnerödja Marievik - S:t Eriksgatan Älvsjö Bjärnum Karlshamn Lönsboda Olofström Vittsjö Fjugesta Nacka Forum - Skanstull Äppelviken Broby Karlskrona Malmö Osby Vollsjö Frövi Norrtälje Stuvsta Örebro Båstad Kivik - Amiralsgatan Ronneby Ystad - City Hallsberg Nynäshamn Södertälje - Drottninggatan Eslöv Klippan Simrishamn Åhus Hallstavik Pålsboda Trosa Glimåkra Knislinge - Dalaplan Sjöbo Älmhult - Ekersgatan - Fosie Hallunda Rimbo Trångsund - Våghustorget Halmstad Kristianstad - Fridhemstorget Staffanstorp Ängelholm Hammarby Saltsjö-Boo Tullinge Ösmo Helsingborg Kävlinge - Köpenhamns- Svedala - Norr Haninge Centrum Skultuna Tyresö Österbybruk Laholm vägen Sölvesborg Huddinge Centrum Skärholmen Ulvsunda - Stortorget Landskrona - Lantmanna- Sösdala Östhammar - Söderport Hässelby Gård Sköndal Uppsala Liatorp gatan Tomelilla Hässleholm - Lundavägen Högdalen Spånga - City Limhamn Trelleborg - Eriksberg Höganäs - Triangeln Hökarängen Ljungby Tyringe - Industriområdet Höllviken - Värnhem - Luthagen Ljungbyhed Veberöd

14 SHB 1997 OBJECTIVES, POLICY AND ORGANISATION

Norway Finland Denmark

Bergen Espoo Copenhagen Haugesund Helsinki - City Kristiansand - Bulevarden - Park allé Lysaker - Böle Århus - Kampen Oslo - Södra Kajen - Fyrstikktorget Jakobstad - Kirkegaten - Olav V´s gate Lahti - Skøyen Tampere Sandnes Tornio Ski Vantaa Skårer Vaasa Stavanger Turku - Sentrum - Løkkeveien Trondheim Tønsberg

The map shows branches at 31 March 1998.

Stockholm City

Akalla Stockholm - Stureplan Arlanda Sky City - Birger Jarlsgatan - Sveavägen - Erik Dahlbergsgatan - Upplandsgatan Danderyd - Frihamnen - Vanadisplan Mörby Centrum - Fältöversten - Vasagatan Djursholm - Gamla Stan - Värtavägen Kista - Gustav Adolfs Torg - Östermalmstorg Lidingö - Humlegården - Östra Station - Baggeby - Hötorgscity Sundbyberg - Brevik - Karlaplan Sundbyberg - Centrum - Karlavägen Hallonbergen - Kungsgatan - Larsberg Täby - Näset - Kungsträdgården - Norrmalmstorg - Centrum Märsta - Norrtull - Näsby Park Rotebro - Nybrogatan Upplands Väsby Sigtuna - Odengatan Vallentuna Sollentuna Centrum - Odenplan Vaxholm Solna - S:t Eriksplan Vreten - Sergels Torg - Strandvägen Åkersberga

SHB 1997 15 OBJECTIVES, POLICY AND ORGANISATION

REGIONAL HEAD OFFICES IN THE NORDIC COUNTRIES The Nordic branch network is organised in ten regional banks – seven in Sweden and one each in Denmark, Finland and Norway. Branch managers report directly to the Head of the Regional Bank. At the Regional Head Office there are specialists to support the work of the branch offices, for example, Regional Area Managers, specialists for credits, international business, payments, asset management, insurance and legal matters. There are also internal functions for finance and control, administration, personnel and auditing.

NORWAY

BOARD: DAG MEJDELL, Oslo, Chairman JON FREDRIK BAKSAAS, Oslo HANS CHRISTOFFERSON, Åkersberga BJÖRN-ÅKE WILSENIUS, Head of Regional Bank

WESTERN SWEDEN

BOARD: JAN CARLSTEIN, Hovås, Chairman BENGT BENGTSSON, Hovås THOMAS DAFGÅRD, Källby LARS LINDFELT, Hovås ANDERS LÖFBERG, Karlstad SÖREN MANNHEIMER, Göteborg MARTIN ORRBECK, Mölndal EVA PERSSON, Västra Frölunda ANDERS SJÖBERG, Romelanda ANDERS WIKING, Trollhättan (E) M JOHAN WIDERBERG, Head of Regional Bank

DENMARK

BOARD: HANS CHRISTOFFERSON, Åkersberga, Chairman BJÖRN BÖRJESSON, Malmö HANS-OLOF HARRISSON, Linköping NILS-ERIK PERSSON, Head of Regional Bank

16 SHB 1997 OBJECTIVES, POLICY AND ORGANISATION

NORTHERN NORRLAND

BOARD: DONALD JOHANSSON, Älvsbyn, Chairman BJÖRN FRANKLIN, Lycksele SOUTHERN NORRLAND BENGT-OVE HÖGSTRÖM, Härnösand ERIK ORRING, Umeå BOARD: ULRIKA RÄNNAR-OLAUSSON, Luleå (E) LENNART ZEDENDAHL, Borlänge, Chairman STEFAN NILSSON, Head of Regional Bank OVE ANONSEN, Gävle ULF BERGKVIST, Insjön ÅKE RYDÉN, Sveg FINLAND LEIF SUNNERMALM, Sandviken GÖTHE ÖSTLUND, Mora BOARD: JAN LARSSON, Gävle (E) STIG-ERIK BERGSTRÖM, Esbo, Chairman HÅKAN SANDBERG, Head of Regional Bank KAJ JANSSON, Sibbo HANS CHRISTOFFERSON, Åkersberga CARL-AXEL OLSSON, Head of Regional Bank

CENTRAL SWEDEN

BOARD: PER SORTE, Saltsjöbaden, Chairman PER JOHAN BEHRN, Örebro ESKIL FLORVALL, Saltsjöbaden CARL-HUGO HAMILTON, Hjortkvarn ESBJÖRN OLSSON, Stockholm GUSTAV OHLSSON, Västerås ALLAN PETTERSSON, Huddinge OLOF G WIKSTRÖM, Järfälla JURGEN KLEFELT, Stockholm (E) CURT KÄLLSTRÖMER, Head of Regional Bank

STOCKHOLM CITY

BOARD: ÅKE RIETZ, Stockholm, Chairman JAN BLOMBERG, Stockholm CARL-OLOF BY, Saltsjöbaden GÖRAN LARSSON, Stockholm GÖRAN NORD, Bromma LENNART SVENSSON, Stockholm MAINE GRÄNS, Vallentuna (E) MAGNUS UGGLA, Head of Regional Bank

SOUTHERN SWEDEN EASTERN SWEDEN

BOARD: BOARD: SVEN-ERIC HERSVALL, Malmö, Chairman ANDERS HULTMAN, Växjö, Chairman ROLAND BENGTSSON, Viken LENNART BOHLIN, Linköping ROLF BÖRJESSON, Malmö JAN CEDWALL, Nyköping JAN EKBERG, Åhus PER JÄRNLAND, Norrahammar DAG IVARSSON, Osby JAN-ERIC NILSSON, Visby (E) = Employee representative KURT J JOHANSSON, Sölvesborg KENNETH STÅHL, Jönköping SVEN OHLSSON, Skanör KENNETH SYNNERSTEN, Västerås MIKAEL ROOS, Malmö LARS HULTMAN, Tranås (E) ANN-CHRESTIN SAEDÉN-NILSSON, Blentarp (E) HANS-OLOF HARRISON, Head of Regional Bank BJÖRN BÖRJESSON, Head of Regional Bank

SHB 1997 17 OBJECTIVES, POLICY AND ORGANISATION

UNITS OUTSIDE THE NORDIC COUNTRIES Operations outside the Nordic countries were transferred to Handelsbanken Markets’ organisation when the new Nordic regional banks were formed. Units are situated in other European countries, Asia and the USA. These units focus their operations on Nordic companies with operations abroad and non-Nordic companies with operations in the Nordic region. Private services for Nordic citizens residing abroad are also offered via Handelsbanken in Luxembourg and London. During the year, a representative office was opened in Warsaw.

Tallinn Moscow Manchester Hamburg Birmingham London Warsaw Luxembourg Frankfurt Paris Zürich New York

Marbella

18 SHB 1997 OBJECTIVES, POLICY AND ORGANISATION

Beijing Tokyo

Taipei Hong Kong

Singapore

SHB 1997 19 OBJECTIVES, POLICY AND ORGANISATION

THE CENTRAL HEAD OFFICE The Central Head Office departments provide support to the branches with development work, day-to-day services and specialist skills. Our Swedish subsidiaries, which are integrated in the Bank’s business operations, are also shown here.

ADMINISTRATION DEPARTMENT CORPORATE COMMUNICATIONS DEPARTMENT Head: JANITA THÖRNER-LEHRMARK Responsible for investments in premises, Head: LARS LINDMARK machinery and equipment, and for Overall responsibility for the Group’s purchasing, archive, telephone, security, marketing policy, external/internal insurance and environmental issues. information, advertising, investor rela- Manages the Bank’s properties and is tions, complaints and contacts with the responsible for building and premises media. Publishes the Group’s house matters. Also in charge of the Head journal. Office’s distribution and mail services. CREDIT DEPARTMENT HANDELSBANKEN ASSET MANAGEMENT Head: LENNART FRANCKE Overall responsibility for the Group’s Head: BJÖRN C ANDERSSON lending policies, credit procedures and Responsible for asset management and risk assessment of the lending portfolio. fund management and also custodian Prepares credits to be presented to the and capital investment services. Central Board.

AUDITING DEPARTMENT INFORMATION SYSTEMS DEPARTMENT

Head: TORD JONEROT Head: GÖRAN ELVÄNG Overall responsibility for internal audit- Responsible for development, co-ordina- ing within the Group. tion, maintenance and operation of the PERSONNEL DEPARTMENT Group’s computer systems, work sta- tions, and communications network. BUSINESS DEVELOPMENT Head: BARBRO JOHANSSON Overall responsibility for the Group’s Head: LARS O GRÖNSTEDT LEGAL DEPARTMENT human resources strategy, personnel and Responsible for overall development management recruitment, management issues within the Group. Responsible for Head: LARS KINANDER and skills development, personnel admi- developing payment and cash manage- Has overall responsibility for legal mat- nistration and negotiations on salaries ment services, deposits and lending ters in the Group. Provides legal support and employment conditions. Also services, electronic services and branch for all units within the Group. responsible for working environment, office systems. corporate health care, pension matters Responsible for investments in com- and the Bank’s Conference Centre at HANDELSBANKEN MARKETS puter systems. Södergarn on Lidingö, near Stockholm.

Head: GÖRAN BJÖRLING CONTROL AND ACCOUNTING TREASURY DEPARTMENT Operations comprise corporate finance, DEPARTMENT debt capital markets, foreign exchange, Head: PEHR WISSÉN money market and equities trading, cor- Head: SVEN GREVELIUS respondent banking, trade finance and Responsible for Group funding on Swed- Responsible for accounting, Group economic research. ish and international capital markets. accounts, annual accounts, financial and Handelsbanken Markets also includes Manages the investment bond portfolio. administrative control systems, internal the Group’s units outside the Nordic Overall responsibility for the Group’s cash management and tax analysis. countries. exposure to interest rate, foreign exchange, liquidity and share price risks. Operates the internal bank and central bank clearing.

20 SHB 1997 OBJECTIVES, POLICY AND ORGANISATION

SUBSIDIARIES:

HANDELSBANKEN FINANS HANDELSBANKEN FONDER

Head: ULF RIESE Head: PETER ENGDAHL Offers leasing, conditional sales, finance Manages and administers the Bank’s collaboration with suppliers of invest- mutual funds and administers funds ment assets, car finance and administra- for corporate customers. tion, factoring (with and without financing), debt collection and sales finance in STADSHYPOTEK GROUP collaboration with vendors. Has operations in Sweden, Norway, Finland and Head: MICHAEL ZELL Denmark. STADSHYPOTEK and its subsidiary HANDELSBANKEN HYPOTEK provide first- HANDELSBANKEN LIV mortgage loans for single-family houses, second homes, shares in housing co- Head: MAGNUS OHLSSON operatives, multi-family dwellings Offers a complete range of life assur- and office and commercial buildings. ance products, such as individual pen- STADSHYPOTEK FASTIGHETER is also sion insurance, occupational pensions included in the Group. scheme, group life insurance, unit- linked insurance, health and accident STADSHYPOTEK BANK insurance and international capital insurance. Head: YONNIE BERGQVIST A telephone bank which provides savings products for private customers and small companies.

SHB 1997 21 OBJECTIVES, POLICY AND ORGANISATION

BOARD OF DIRECTORS Board Members At the Annual General Meeting on 22 April 1997, the Central Board of Directors was re-elected with the exception of Mr Carl-Erik Feinsilber TOM HEDELIUS, Chairman who had declined re-election. * 1939, Stockholm JAN EKMAN, Vice Chairman Mr Hans Christofferson, Executive Vice Member since 1977 BO RYDIN, Vice Chairman * 1929, Lidingö President at Handelsbanken, succeeded Chairman of Bergman & * 1932, Stockholm Member since 1976 Beving AB; Member since 1973 Director of Gränges AB, Mr Hans-Olof Harrison as Deputy Board Member. Vice Chairman of AGA AB, Chairman of Svenska Cellulosa NCC AB, PLM AB, Ingka Eleven meetings of the Board were held in AB Industrivärden, Telefon AB SCA, AB Industrivärden, Holding B.V., Waste Manage- 1997. AB L M Ericsson; Graningeverken; Vice Chair- ment International plc, London, Director of SAS, man of Skanska AB; The Banking Advisory Group Svenska Cellulosa AB SCA, Director of SAS, AB Scancem, of International Finance Corp Committees AB Volvo IBM EMEA Board (IFC), Washington Credit committee. This committee makes decisions Shareholding: 8 800 Shareholding: 12 100 Shareholding: 4 500 on behalf of the Central Board of Directors on the majority of the credit matters which the Board has to determine and prepares matters which, because of their size or importance, must be presented to the whole Board. Eleven meetings of the credit committee were held in 1997. Members: Tom Hedelius, Chairman, Bo Rydin, Vice Chairman, Jan Ekman, Vice Chairman, Göran Björling, Lennart Claesson, Roland Fahlin, Hans Larsson, Olle Persson, Clas Reuterskiöld and Arne Mårtensson. Deputy Members: Lotty Bergström and Bengt Samuelsson. Election committee. Every year since 1988, the Central Board of Directors of Handelsbanken has appointed an election committee which nominates members of the Board and auditors before the Annual General Meeting. Members: Tom Hedelius, Chairman, Lennart Claesson, Jan Ekman, Gunnar L Johansson, Bo Rydin and Sven Ågrup. Compensation committee. This committee reviews the Chairman’s emoluments and benefits in accordance with his contract; it adjusts the salary and benefits of the Group Chief Executive in accordance with his contract; it also establishes the principles and overall policy for the salaries, benefits and pensions of the Executive Vice Presidents. Members: Gunnar L Johansson, Chairman, Clas Reuterskiöld, Bo Rydin and Sven Ågrup.

Honorary Chairmen

ROLAND FAHLIN GUNNAR L JOHANSSON HANS LARSSON * 1938, Group CEO of ICA * 1928, Göteborg * 1942, President of Nordst- Handlarnas AB, Stockholm Member since 1987 jernan AB, Stockholm Member since 1993 Chairman of Kronans Member since 1990 Chairman of Hakon Gruppen Droghandel AB; Vice Chair- Chairman of Althin Medical A/S, Oslo man of the Foundation for AB; Director of BTL AB, Bilia Shareholding: 500 the Chalmers School of Tech- AB, AB Linjebuss, Mo och nology; Director of BTL AB Domsjö AB, NCC AB Shareholding: 4 000 Shareholding: 6 200

TORE BROWALDH JAN WALLANDER * 1917, Stockholm * 1920, Drottningholm

22 SHB 1997 OBJECTIVES, POLICY AND ORGANISATION

ARNE MÅRTENSSON * 1951, President and Group Chief Executive, Danderyd Member since 1990 PER-OLOF ERIKSSON Chairman of Swedish * 1938, Sandviken Bankers’ Association; Member since 1986 Vice Chairman of Business Chairman of Svenska Kraftnät; Leadership Academy, Royal Director of Assa Abloy AB, Swedish Yachting Association; LENNART CLAESSON GÖRAN ENNERFELT AB Custos, Preem Petroleum Director of Mo och Domsjö * 1944, Nässjö * 1940, President and Group AB, Sandvik AB, Skanska AB, AB, V&S Vin & Sprit AB, LOTTY BERGSTRÖM Member since 1985 CEO of Axel Johnson Group, AB SKF, SSAB Svenskt Stål OM Gruppen AB, Council * 1949, Ekerö Chairman of Oktogonen Upplands Väsby AB, AB Volvo, N.V. Koninkli- of World Economic Forum Member since 1996 Foundation Member since 1985 jke Sphinx Gustavsberg Shareholding: 8 000 Shareholding: 0 Shareholding: 0 Shareholding: 8 000 Shareholding: 6 000

OLLE PERSSON CLAS REUTERSKIÖLD BENGT SAMUELSSON SVEN ÅGRUP HANS CHRISTOFFERSON * 1935, Östersund * 1939, President and CEO * 1934, Professor, Danderyd * 1930, Lidingö (Deputy) Member since 1989 of AB Industrivärden, Member since 1989 Member since 1973 * 1942, Åkersberga Chairman of Byggelit AB, Danderyd Chairman of the Nobel Foun- Chairman of AGA AB; Executive Vice President Z-Invest Member since 1994 dation; Director of Pharmacia Director of Telefon AB Member since 1997 Shareholding: 6 000 Chairman of PLM AB; & Upjohn Inc., The Liposome L M Ericsson, Sandvik AB, Shareholding: 9 330 Director of AGA AB, Co., Inc., USA Tetra Laval AB Sandvik AB, Svenska Cellu- Shareholding: 1 000 Shareholding: 3 000 losa AB SCA, Telefon AB L M Ericsson Shareholding: 5 509 For members of the Board who were previously Deputies, the year stated for election to the Board is the year the person was elected Deputy.

SHB 1997 23 OBJECTIVES, POLICY AND ORGANISATION

SENIOR MANAGEMENT

President and CURT KÄLLSTRÖMER, * 1941 Executive Vice Presidents Head of Regional Bank Central Sweden Group Chief Executive Employed: 1961 at the Central Head Office Shareholding: 18 429 ARNE MÅRTENSSON, * 1951 HANS-OLOF HARRISON, * 1943 BJÖRN C ANDERSSON, * 1946 Employed: 1972 Head of Regional Bank Eastern Sweden Head of Handelsbanken Shareholding: 8 000 Employed: 1964 Asset Management Shareholding: 10 869 Employed: 1985 M JOHAN WIDERBERG, * 1949 Shareholding: 6 000 Executive Vice Presidents Head of Regional Bank Western Sweden GÖRAN BJÖRLING, * 1942 at the Regional Banks Employed: 1972 Head of Handelsbanken Markets Shareholding: 1 180 Employed: 1977 Shareholding: 0 STEFAN NILSSON, * 1957 BJÖRN BÖRJESSON, * 1951 GÖRAN ELVÄNG, * 1940 Head of Regional Bank Head of Regional Bank Southern Sweden Northern Norrland Employed: 1981 Head of Information Systems Department Employed: 1980 Shareholding: 1 000 Employed: 1996 Shareholding: 500 CARL-AXEL OLSSON, * 1938 Shareholding: 0 HÅKAN SANDBERG, * 1948 Head of Regional Bank Finland LENNART FRANCKE, * 1950 Head of Regional Bank Employed: 1958 Head of Central Credit Department Southern Norrland Shareholding: 1 000 Employed: 1972 Employed: 1969 BJÖRN-ÅKE WILSENIUS, * 1944 Shareholding: 428 Shareholding: 2 003 Head of Regional Bank Norway SVEN GREVELIUS, * 1942 MAGNUS UGGLA, * 1952 Employed: 1961 Head of Central Control and Head of Regional Bank Stockholm City Shareholding: 770 Accounting Department Employed: 1983 Employed: 1984 Shareholding: 10 000 Shareholding: 7 000 LARS O GRÖNSTEDT, * 1954 Changes Head of Business Development Employed: 1983 Carl-Axel Olsson was appointed Executive Vice President and Head of Regional Shareholding: 200 Bank Finland (from 1 January 1998). Björn-Åke Wilsenius was appointed Executive Vice President and Head of Regional BARBRO JOHANSSON, * 1944 Bank Norway (from 1 January 1998). Head of Central Personnel Department Magnus Uggla, Executive Vice President, was appointed Head of Regional Employed: 1961 Bank Stockholm City (from 1 January 1998). He was previously Head of Regional Shareholding: 0 Bank Svenska Handelsbanken International. PEHR WISSÉN, * 1951 Björn C Andersson, Executive Vice President, was appointed Head of Handelsbanken Head of Central Treasury Department Asset Management (from 1 March 1998). He was previously Head of Handelsbanken Employed: 1983 Markets. Shareholding: 0 Göran Björling, Executive Vice President, was appointed Head of Handelsbanken Markets (from 1 March 1998). He was previously Head of the Central Credit Department. Lennart Francke was appointed Executive Vice President and Head of the Central Credit Department (from 1 March 1998). He was previously Deputy Head of the same department.

AUDITORS

Auditors Deputy Auditors

Appointed by the Annual Appointed by the Swedish Financial ÅKE DANIELSSON General Meeting Supervisory Authority Authorised Public Accountant, Öhrlings BERTIL EDLUND, Chairman PETER MARKBORN Coopers & Lybrand AB, Stockholm Authorised Public Accountant, Öhrlings Authorised Public Accountant, STEFAN HOLMSTRÖM Coopers & Lybrand AB, Sollentuna Arthur Andersen AB, Danderyd Authorised Public Accountant, SIGVARD HEURLIN KPMG Bohlins AB, Täby Authorised Public Accountant, Öhrlings Coopers & Lybrand AB, Stockholm HANS KARLSSON Authorised Public Accountant, KPMG Bohlins AB, Stockholm

24 SHB 1997 REVIEW OF OPERATIONS

Review of operations

LENDING Lending to the general public, Handelsbanken Group From 31 December 1996 to 31 December 1997, the 31 Dec 31 Dec 1997 1996 Change Handelsbanken Group’s lending to the general public SEK m SEK m % increased by 111% to SEK 587bn (278). SEK 243bn Lending in Swedish kronor of this increase of 309bn was directly attributable to to households 192 244 79 351 142 Stadshypotek, the mortgage subsidiary which was to companies etc. 302 948 131 417 131 acquired during the year. Volumes excluding Stads- 495 192 210 768 135 hypotek increased by SEK 66bn or 24% compared to 1996. Foreign currency lending Since the Bank acquired Stadshypotek, large volumes to households 8 318 6 112 36 of mortgage loans have been converted without any to companies etc. 87 348 64 561 35 major loss in volume being noted in the Group’s total 95 666 70 673 35 Swedish krona lending. The adjoining table illustrates Reserve for possible the development of market share in Sweden. loan losses – 4 034 – 3 651 10 The Group’s lending in foreign currency went up Total lending 586 824 277 790 111 by SEK 25bn to SEK 96bn. The Nordic countries outside Sweden represented SEK 3bn of this increase. Lending – market shares in Sweden, The remainder of the increase is mainly attributable SEK and foreign currency to volumes at branches outside the Nordic area. 31 Dec 31 Dec 1997 1996 DEPOSITS %% The Handelsbanken Group’s deposits from the general Lending market share in Sweden public rose during 1997 by 13% to SEK 138bn. to households 29.6 12.3 Swedish kronor deposits went up by 7%. Household to companies etc. 28.6 14.2 deposits in the Swedish banking system showed a Total 29.0 13.4 moderate decrease during 1997. As a result of the acquisition of Stadshypotek Bank, the Handelsbanken Deposits from the general public, Handelsbanken Group Group’s deposits rose by SEK 6bn. The Handelsbanken Group’s corporate Swedish kronor deposits went up by 1997 1996 Dec Dec Change 8%. These deposits are relatively volatile, since their SEK m SEK m % size is chiefly determined by the banks’ liquidity at any Deposits in Swedish kronor time and by what each bank is prepared to pay. from households 61 763 58 517 6 Foreign currency deposits increased by 79% to from companies etc. 57 039 52 826 8 SEK 20bn. Most of the increase is in foreign currency 118 802 111 343 7 deposits in the Swedish operations. Approximately half of the volume is attributable to the Nordic branches. Foreign currency deposits from households 2 721 1 983 37 PAYMENTS from companies etc. 16 848 8 943 88 19 569 10 926 79 Payment services Total deposits 138 371 122 269 13 The number of customers using Handelsbanken Dialog, the electronic banking system for corporate customers Deposits from households – market share in Sweden, SEK in Sweden, increased by 54%. The number of customers using NordicLink, Handelsbanken’s cross-border 16% system for payments and cash management, went up by 85%. The functionality of NordicLink was also signifi- 15 cantly improved during 1997. 14 Handelsbanken has been accredited by BIS (Bank for International Settlements) as a clearing bank for inter- 13 national ECU clearing. This also means that the Bank will be able to partici- 12 pate in euro clearing. This is important for the Bank even though Sweden will not be a member of EMU 11 from the start. 1990 1991 1992 1993 1994 1995 1996 1997

SHB 1997 25 REVIEW OF OPERATIONS

First, the Bank has considerable operations in the coun- The mortgage institutions’ loans to the general public tries which will be members from day one and second, decreased during the year by SEK 8bn to 1 008bn. The it is becoming increasingly apparent that the euro will decrease is mainly attributable to companies repaying gain a special position in Sweden in 1999 and will not their loans with the mortgage institutions and instead be just one of many foreign currencies. At a relatively borrowing from the banks. early stage many transactions will be in euro, even if The Stadshypotek Group is a leading force in the both remitter and beneficiary are located in Sweden. mortgage finance market with a market share of almost Handelsbanken is also the only Nordic bank to be- 35%. Apart from this, the Bank also has a share of come a member of TES (TransEuropean banking Ser- mortgage loans. vices), a collaboration which aims to develop a new With a shrinking total market for mortgage loans, range of international banking services for corporate there is, of course, stiff competition among the mort- customers. gage institutions for the existing loans. A natural result of this is falling margins. This in turn has a negative Internet banking impact on net interest income. During the year, Handelsbanken’s Internet banking ser- Decentralisation, as applied at Handelsbanken, implies vice was launched for private customers. It has a high that the branch offices have overall responsibility for level of security and is also very user-friendly. During contacts with customers and the pricing and processing the coming year, Handelsbanken’s Internet services will of all mortgage loans. Thus, the primary task of the be developed significantly for both private and corpo- Stadshypotek Group is to raise funds in the market rate customers. in order to finance lending. During the year, some of the funding requirement was also met abroad via CARD SERVICES Handelsbanken. During 1997, considerable resources were concentrated on development in anticipation of the winding down of Servo, a company jointly-owned by several Swedish banks, which handled card transactions and merchant acquisition agreements. Servo was closed down due to the new anti-trust legislation. During the year it was decided to replace the majority of Handelsbanken’s cash dispenser machines. The new cash dispenser machines are equipped for handling notes in several different currencies and for loading cash cards.

PROPERTY FINANCE Within the Handelsbanken Group, most property finance is carried out by the Stadshypotek Group which comprises Stadshypotek AB and Handelsbanken Hypotek AB. Due to continued weak demand and high building costs, there was little new production of residential, office and commercial property. During 1997, only 10 000 housing units were completed. There is still a shortage of housing in the metropolitan areas, while many smaller towns have a surplus. Interest rates rose slightly during the year. Variable interest rate loans rose by 0.5 percentage points, while loans with two- and five-year fixed rates went up by 0.95 and 0.10 percentage points respectively. Although the spread between variable rate loans and five-year fixed-rate loans decreased, many borrowers have continued to choose variable rates. The spread between variable rates and fixed rates on longer maturities seems likely to fall even more during 1998. Turnover of property in the secondary market for single-family houses and housing co-operatives continued to be high. This is mainly explained by the fact that interest rates continued to be favourable.

26 SHB 1997 REVIEW OF OPERATIONS

banken, to create new business. This was often achieved by offering Handelsbanken’s loan protection scheme, thereby ensuring that customers moved all their banking business to the Bank. At an early stage, computer systems came into focus. It was important to take advantage of the extensive work done in recent years at Stadshypotek to achieve efficient processing of large volumes. In view of Stads- hypotek’s well-known brand name and the popularity of its products among customers, it was natural to use the Stadshypotek loan as Handelsbanken’s main mortgage product in the future. Another important element of the change process immediately was to make the staff at Stadshypotek’s regional offices – around 600 of a total of 800 employees – an organisational part of Handelsbanken’s branch office network. To a considerable extent, it has been possible to integrate Stadshypotek’s head office with Handelsbanken’s central head office. Functions which are important for management and control remain at Stadshypotek, however. Product development and marketing are managed in close co-operation with branch office operations. At the year-end, some 60 of previously 200 employees remained at the company’s head office.

Co-ordination with Handelsbanken Hypotek In view of Stadshypotek’s size and strong position in the Swedish bond market, it was natural to co-ordinate the Group’s funding for mortgage purposes. Consequ- ently, since June 1997, Stadshypotek has also been responsible for Handelsbanken Hypotek’s funding. Large volumes have been raised directly on international markets via Handelsbanken. As a natural consequence, a group was formed with Stadshypotek as parent company. At present a merger is not possible, since there are minority shareholders in Handelsbanken Hypotek who own preference shares. They own some 5% of the capital and 0.5% of the voting power. The preference shares were issued as part STADSHYPOTEK of the acquisition of Stadshypotek to shareholders who wanted to postpone payment of capital gains tax. Since The process of integration June 1997, the shares have been quoted on the O list On 26 February 1997, Handelsbanken became the of the Stockholm Stock Exchange. owner of Stadshypotek AB, a Swedish mortgage company. An extraordinary general meeting of the sharehold- Trend for business volumes ers was held on 7 March when a new Board and Chief Stadshypotek’s lending volume has developed in line Executive were appointed. This was also the starting with the assumptions reported in the acquisition cal- point for a major process of change. culation at the time of Handelsbanken’s bid for the The strategy was to immediately integrate Stads- company. At that time, Stadshypotek had been losing hypotek’s lending operations with the Bank’s branch business volumes for a number of years and there was office operations. Customers were allocated to a branch no reason to believe that this situation would change and the branches were then given responsibility for immediately. It was rather the case that the decline in customer and loan issues. Letters were sent to all volumes could be expected to continue at a faster pace. customers informing them about the change and the In the new situation, however, it is important not to local services offered by Handelsbanken’s extensive look at Stadshypotek’s volumes in isolation. The inte- branch office network. gration process has advanced to such an extent that At the same time, intensive activity started in various large volumes have benefited units within the Handels- forms to contact customers in order to secure the exist- banken Group other than Stadshypotek. This applies to ing business relationship and, by introducing Handels- new lending and conversion of loans which for practical

SHB 1997 27 REVIEW OF OPERATIONS

reasons are often arranged by Handelsbanken or (Stockholm, Göteborg and Malmö) and Helsingborg Handelsbanken Hypotek. In the case of some corporate and Uppsala represent 92% of the book values. The customers, Stadshypotek’s lending has also been cut largest single property is the Globen City area, in South- back when the Bank’s branch offices in exercising their ern Stockholm, containing offices, shops and a hotel overall customer and credit responsibility have taken with a total rentable area of some 115 000 sq.m. and into account the Group’s total exposure. a book value of SEK 1.8bn. Furthermore, the extra business generated for the Most of the properties were taken over during the Bank with Stadshypotek’s customers from other banks period 1992–1995. During 1996 and 1997, only a few has been substantial. properties were added. Stadshypotek Fastigheter has therefore been able to concentrate on reducing vacancy Stadshypotek Bank rates and lowering management costs. Additional For Stadshypotek Bank, which offers telephone-banking investments have been made to increase the value of services, 1997 was the second year of operations and in certain properties when new contracts are entered into many respects an eventful year. Stadshypotek Bank has with tenants. During the last two years, the vacancy been a wholly-owned subsidiary of Handelsbanken rate has been reduced from 12% to 6% in rental in- since 30 June 1997. come and from 20% to 9% in area. A number of small The year started with a large amount of work in properties have been sold. The net operating surplus connection with Handelsbanken’s bid for Stadshypotek excluding interest subsidies corresponded to a direct and the offer to Stadshypotek Bank’s some 470 000 yield of 6.4%. The full impact of increased letting in custody account customers whose only holdings were previous years is expected during 1998. shares in Stadshypotek. These customers were invited The surplus on property management during 1997 to invest the proceeds of the sale in various types of was SEK 96m after net financial items but excluding savings products. depreciation. Net operating income excluding deprecia- During the spring, a new share savings system was tion was SEK 148m, including profits on sales of pro- launched which gives customers the opportunity to buy perty and write-ups and write-downs totalling SEK 51m. and sell all shares which are quoted on the Stockholm Shareholders’ equity at the end of 1997 was SEK 1 650m, Stock Exchange. Over 100 000 customers chose to use thus resulting in an equity/assets ratio of 26%. this system which also enables them to save every As appears on page 41 and page 74, the Board is month in shares. proposing that the property company be distributed The number of deposit accounts increased to over to the holders of ordinary shares in the Bank. 220 000. Stadshypotek Bank is the Swedish telephone bank with the largest number of customers. Deposits FINANCE COMPANY OPERATIONS on these accounts rose from SEK 4.2bn to around In 1997 Handelsbanken Finans achieved its best result SEK 5.7bn. ever in spite of a continued increase in competition Despite a large number of retail bonds maturing which pushed margins downwards. Profitability was during the past year, Stadshypotek Bank has succeeded also good. Substantially increased volumes in the core in defending its market share. It was also noticeable operation compensated planned decreases in volume in that saving in interest-rate related products was more those parts of the operation which have been subject to attractive following the turmoil on the global equity winding down since 1992. Loan losses continued to be markets during the autumn. at a low level. During the second half of 1997, a service called From 1 January 1998, finance company operations FondSpar was introduced, whereby the customer can in Norway were organised under Handelsbanken buy and sell units in a selection of Handelsbanken’s Finans. This means that all the Group’s units for finance mutual funds over the phone. Within a short period company services are now gathered under Handels- of time, several thousand new savers have joined. banken Finans. Leasing, conditional sales, vehicle finance and factoring services and collaboration with vendors Stadshypotek Fastigheter are now an integral part of the universal bank services Handelsbanken’s acquisition of Stadshypotek also offered by the branch offices. included Stadshypotek Fastigheter, which is the equiva- During the year, the Nordic range of products has lent of Näckebro, a company previously owned by been further expanded. Local operations in Sweden, Handelsbanken for property taken over to protect Finland, Denmark and Norway can now enter into claims. Stadshypotek Fastigheter manages several multi- agreements about services covering the whole of the family dwellings and commercial and office property Nordic area. This uniform approach – allowing for which Stadshypotek has taken over to protect its adaptations to local laws, languages and customs – claims. offers many advantages to the customer. 1997 was also At the end of 1997, Stadshypotek Fastigheter owned the breakthrough year for our efforts to finance Nordic 139 properties with a total rentable area of some industrial exports via leasing. Examples of this are 860 000 sq.m. and a book value of SEK 6.1bn. These two very large export transactions for a Finnish and holdings are concentrated from a geographical point a Swedish exporter – the two largest transactions in of view; the properties in the three metropolitan areas the history of Handelsbanken Finans.

28 SHB 1997 REVIEW OF OPERATIONS

The importance of collaboration with vendors has In Sweden, Handelsbanken Finans is one of the leading increased. As a result of our coverage of the Nordic finance companies offering a complete range of services. area, we have been able to establish contact with an There was considerable growth in almost all areas. Leas- increasing number of business partners. Several impor- ing and conditional sale business increased sharply and tant international corporations have started co-operat- are now established and important parts of the branch- ing with Handelsbanken Finans. The purpose of this is es’ financing services. By far the largest increase was for to offer their customers financial solutions in the Nor- vehicle services, partly due to new company car regula- dic countries and to offer Handelsbanken’s customers in tions which removed doubts about the taxation of car these countries assistance with finance company trans- benefits. actions in other parts of the world. One example is the Retail financial services, which offers consumer requirement of many European corporate groups for finance in collaboration with retailers and branch offices, pan-European negotiations in the field of car fleet finance. continued to develop very well during the year. Higher consumption combined with the ability to meet customers’ specific demands quickly resulted in strong growth in volumes. In spite of much greater competition from both new and old competitors, market shares and profits increased. The past year also witnessed a breakthrough for our conditional sale service. Using this service, the branches’ private customers are easily able to finance their purchases of consumer durable goods at competitive interest rates. Factoring and Collection offers a complete range of services for corporate customers’ ledger routines such as invoice processing, monitoring, claims and debt collection. An increasing number of companies have discovered the advantages these services imply with a more rapid inflow of cash, better control and more efficient administration. Factoring, where invoices are used as security for loans, is a flexible way of financing growth and releasing working capital. The first agreements were concluded for Nordic factoring services during the year. Kredit-Inkasso has for many years offered a debt collection service to property companies. This specialist service also became available to Stadshypotek AB’s customers after the company was acquired by Handels- banken. In order to achieve this, responsibility for Stadshypotek Inkasso (a debt collection subsidiary) was transferred to Kredit-Inkasso AB. Via its subsidiary Handelsbanken Rahoitus, Handels- banken Finans is one of the leading finance companies in Finland, offering a complete range of services such as leasing, conditional sales, vehicle services and factoring and also retail consumer finance via its credit card Aktiiviraha. In 1997, operations performed very well and profitability was good. During the year, the Finnish power industry discovered and utilised Handelsbanken Rahoitus’ ability to arrange special financing for major investment projects. In Denmark there are three units: the subsidiary Nordan which runs Denmark’s largest debt collection operation and extensive factoring services, Privatlån A/S which provides consumer credit and thirdly a branch with leasing operations. The number of incoming debt collection orders more than doubled in Denmark – mainly because new major customers chose Nordan as their debt collection agency. A new service was created for providing credit information via the Internet. The Norwegian finance company focuses mainly on leasing, conditional sales and vehicle services.

SHB 1997 29 REVIEW OF OPERATIONS

1997 saw increased volumes and good profitability in the During 1997, both companies’ total premium income expansive Norwegian market. In particular, the opera- continued to rise substantially. Total premium income tion has strengthened its position in the area of collabo- was SEK 3.8bn, an increase of 59% compared to the ration with vendors and thus the prospects of continued previous year. Unit-linked insurance showed the largest growth in volumes are good. increase. For the first time, premium income for new policies was larger for unit-linked insurance than for PENSIONS SAVINGS/LIFE ASSURANCE traditional life assurance. In new premium income terms, the market share was 12% during 1997 for unit- Handelsbanken’s universal bank concept includes life linked insurance and 13% for traditional life assurance. and pension insurance. These products are offered by The unit-linked company’s large increase in sales is two subsidiaries – Handelsbanken Liv Försäkringsaktie- a result of growing interest in saving in mutual funds bolag, which is a traditional life assurance company, which Handelsbanken Liv has met with products to and Handelsbanken Liv Fondförsäkringsaktiebolag attract this kind of saver. (unit-linked). These companies are marketed under the Handelsbanken Private Insurance scheme was name Handelsbanken Liv. At present, by law, the launched in April 1997. In a single insurance agreement, surplus on operations in the traditional life assurance this covers the complete life insurance requirements of company goes back to the policy-holders. A change in private customers. Normally it is entered into directly the law is expected which will make it possible to pay at the branch office. It is a flexible insurance policy and dividends to the shareholder. Dividends are already paid can thus be adapted to fit the customer’s personal situa- in the unit-linked company. tion. Possible insurance components are life assurance, old-age pension, family pension, accident and sickness protection and waiver of premium in the case of long- term sickness. The insurance savings can either be managed by the traditional assurance company or by the unit-linked company. In the latter case, the insured person decides how the funds are to be invested. In order to provide expertise on insurance for the branch offices’ customers and staff, Handelsbanken Liv has some 50 insurance advisers located at Handels- banken’s regional banks. Their function is to assist with all insurance products but above all with more complex insurance packages in the field of occupational pensions, inheritance planning and asset investment. The cutbacks in the social security systems have caused individuals to save increasingly in pensions for their old age. The limited tax deductions which are permitted for private pensions insurance have led to increased savings in endowment insurance. All the political parties in the Swedish parliament have now agreed on the design of the new public insurance system and how it is to be funded. The new system gives the individual a certain freedom of choice. Blue- collar workers will soon be able to decide how part of their pension funds are invested, as white-collar workers already do. For the basic state pension, this means that 2.5% of the pension fee will be chosen by the individual and 2% of the collective agreement part. Pen- sions savings are also therefore expected to increase in life assurance companies. Also in the other Nordic countries, life insurance is to be a natural component in the Bank’s range of products. At the beginning of 1998, Handelsbanken Liv Fondförsäkringsaktiebolag is setting up a subsidiary in Denmark. This subsidiary will have branches in both Norway and Finland. Handelsbanken Liv has had operations in Norway for a couple of years in the form of branches.

30 SHB 1997 REVIEW OF OPERATIONS

NORDIC BANK OPERATIONS

New Nordic regional banks During 1997 it was decided that operations in the Nordic countries would be organised in separate regional banks. In connection with this, the regional bank called Svenska Handelsbanken International dis- appeared. Units outside the Nordic countries were incorporated with Handelsbanken Markets.

Nordic bank operations 1997 was another year of rapid expansion for Handels- banken’s units in the Nordic countries. In FINLAND, customers are now offered a complete range of products. Finnish mutual funds and life assurance were new products during the year. Handelsbanken is the fourth largest commercial bank in Finland and has been well received by private and corporate customers alike. Operations are expanding rapidly and profitability is good. During 1997, new branches were started in Lahti and Vantaa. This means that Handelsbanken now has 12 branches in 9 Finnish towns. The number of employees in Finland increased to 376. In NORWAY, Handelsbanken is a universal bank com- peting with the largest banks. The Bank has continued to experience a large increase in volume in the loans and payments field and is also well-established on the private market. The loan portfolio now contains a good proportion of loans to the household sector. Sales of mutual funds have increased significantly during the year. Handelsbanken’s Norway Fund has performed very well and is one of the top funds in Norway. Two new branches started, in Kristiansand and Tønsberg. Handelsbanken now has 15 branches in 10 Norwegian towns. The number of staff was 280. In DENMARK, expansion continued in a positive way. Handelsbanken is the only non-Danish bank to be able to offer its customers universal banking services. The expansion has taken place in line with Handelsbanken’s policy with independent branches close to their customers. The Bank’s Nordic drive has proved to be attractive for both corporate and private customers. Several international corporate groups which have their Scandi- navian head office in Copenhagen have chosen Handels- banken as their Nordic bank. A very interesting region at present – as a consequence of the link being built between Sweden and Denmark – is Öresund, and here the Bank is contributing to building up an infrastruc- ture through its presence on both sides of the water, offering products which facilitate business for both private and corporate customers. Since Handelsbanken Liv has started a subsidiary in Denmark, the Bank can also offer life assurance products there. Two new branches were opened: in Århus and Park Allé in Western Copenhagen. The Bank already has a branch in central Copenhagen. There were 160 employees in Denmark.

SHB 1997 31 REVIEW OF OPERATIONS

HANDELSBANKEN MARKETS by 44%. Handelsbanken’s market share increased in Finland and was more or less unchanged in Norway Handelsbanken Markets includes the units at the Bank and Denmark. which are active in the securities and foreign exchange markets, mainly on behalf of institutional customers. Equity trading and research operations were restruc- Following the formation of the three Nordic regional tured during the year. The area mainly affected was banks, since 1 January 1998, Handelsbanken Markets proprietary trading. A special unit for development of also includes the whole of the Bank’s operations outside new equity products has also been started. the Nordic countries. By gathering together all interna- American investors are showing increased interest tional operations in a single organisation, major syner- in Nordic stocks. During the year, Handelsbanken gy effects can be achieved. Markets in New York expanded its operations to include Handelsbanken Markets has some 1 300 employees trading in Nordic equities on NYSE and NASDAQ. in 19 countries, most of them in the Nordic countries During 1997, Handelsbanken Markets became a and global financial centres such as London, New York member of the Paris Stock Exchange. Becoming a mem- and Singapore. ber of the stock exchange has increased the Bank’s credibility with Nordic investors and had a positive Investment banking effect on profitability. During 1997, the Bank’s operations in the field of insti- The Bank’s focus on research during the last few tutional equities sales and trading, equities research and years has continued, including the reinforcement of risk corporate finance were merged into one area of respon- analysis focusing on risk management of structured sibility. The purpose of this was to achieve more effi- equity products and quantitative analysis. Handels- cient use of resources and better overall control of ope- banken Markets’ research analysts continue to have rations which are currently conducted in 8 countries. high rankings in external surveys, not only for Swedish The expansion of a strong Nordic platform for equities but also for other Nordic equities. Activities Investment Banking has continued. During the year, organised during the year included a large seminar in a small Estonian company was acquired, which special- Helsinki focusing on Nordic base industry, a Nordic ises in corporate finance and is also a member of the seminar in Stockholm on small companies and a tele- Tallinn Stock Exchange. During the year, operations com seminar in New York. A well-attended seminar there were also expanded to include equities sales and was organised in Paris focusing on French equities. research. CORPORATE FINANCE EQUITIES SALES AND TRADING Corporate finance operations mainly consist of financial Handelsbanken Markets is one of the leading players advisory services in relation to and execution of equity on the Nordic equity markets and is a member of the and equity-related issues, public offerings and mergers four Nordic stock exchanges. and acquisitions. The Nordic stockmarkets performed well during 1997 was the best year ever for Corporate Finance. 1997. In Sweden, the stockmarket went up by 25%, in The Copenhagen, Helsinki and Oslo units all contrib- Norway by 32%, in Finland by 32% and in Denmark uted to the increased profits.

32 SHB 1997 REVIEW OF OPERATIONS

The flow of business in the Nordic markets was large in 1997. Handelsbanken Markets maintains a strong position in the face of increased competition among the largest market players. At the start of the year, the corporate finance department acted as adviser when Handelsbanken acquired Stadshypotek, a mortgage company listed on the Stock- holm Stock Exchange. This was the first of a number of major restructurings which have taken place recently in the Swedish financial sector. Handelsbanken Markets also acted as adviser in a number of other public equity transactions with NCC’s acquisition of Siab and Näckebro’s acquisition of Fabege as the two largest, with each bid worth over SEK 2bn. Handelsbanken Markets was adviser to the purchaser in the Danish company VT Holding’s bid for Blücher Metal and in Finland the Bank was adviser to Sandvik in the acquisition of Tamroc. In cross-border transactions, the Bank played a lead manager role in Norwegian Steen & Strøm’s acquisition of the Danish listed company Foras Holding and also the French company CGEA’s purchase of the Swedish company Linjebuss. During the year, Handelsbanken Markets was involved in 10 Swedish Initial Public Offerings (IPOs), förlaget in Sweden and Emil Moestue in Norway, including ORESA Ventures, ProfilGruppen and Artim- Nordic Capital’s acquisition of Apax Industri and plant, and also in the IPOs of one Norwegian and two Industri Kapital’s sale of Lithells. Danish companies. Handelsbanken’s stockmarket launch A large number of private placements were carried of Football Club Copenhagen attracted a great deal of out for small companies. For a number of these com- publicity in Denmark. In several transactions, the Bank panies, stockmarket launches are planned within a was lead manager in the offer to institutional investors year or so. and the public, preceding the stockmarket launch. During 1997, Handelsbanken was the leading Swed- At the end of the year, Handelsbanken Markets was ish player in designing and selling equity-linked bonds one of two lead banks in one of the major transactions and warrants. Several issues were arranged. The total on the Norwegian market during 1997. On behalf of volume of public equity-linked bonds was some SEK the newly-formed property company Phønix, a com- 7.6bn, of which Handelsbanken’s share was almost bination of index-linked bonds and equities totalling 40%. The borrowers were Handelsbanken and Svensk NOK 1.3bn was placed with Norwegian institutions. Exportkredit and the total number of investors was Handelsbanken Markets also participated as lead around 35 000. Three public warrants based on baskets manager in five new issues by listed companies – Gull- of shares were issued. This is also a product which is spång, Piren, Segerström & Svensson, Elanders and now established as a natural investment alternative for the Danish company VT Holding. a growing number of the Bank’s private customers. Handelsbanken Markets also managed the split of listed Rörviksgruppen into two separate companies, Trading Rörvik Timber and R-vik Industrigrupp. Since this 1997 was characterised by a high degree of uncertainty could not be done using the “Lex Asea” method, and great volatility on the global currency, money and the transaction was carried out using a new technique bond markets and this had a negative impact on the developed by the Bank. Bank’s result in this field. The largest private acquisition where Handelsbanken The economies of the USA and the UK performed Markets participated as adviser was Vasakronan’s sale well during the year and both the dollar and sterling of Stenvalvet to an international consortium. Using became stronger. On several occasions, UK interest rates both a Swedish and international bidding procedure, were raised. The first half of the year was characterised the most suitable buyer could be identified. by strong growth expectations but during the summer Handelsbanken Markets was also adviser in Industri- and autumn, there was a great deal of currency and värden’s sale of the property company Fundament, interest rate turbulence in Asia. Thailand and Malaysia including properties worth some SEK 1bn. were the first countries to be hit by falling currencies The Bank also acted as adviser in a number of trans- and higher interest rates, but during the autumn, the actions in the trade, industrial and service sectors such turmoil spread to other parts of Asia. The Japanese as ABB’s sale of the Austrian electrical wholesaler Serien- market was also affected by a widespread banking produkte, Finnish WSOY’s acquisition of Almanacks- crisis. The dramatic fall of the South Korean currency

SHB 1997 33 REVIEW OF OPERATIONS

at the end of the year – despite massive efforts from the and reduced income in its role as arranger of financing. IMF – took with it the more stable Asian currencies. Towards the end of the year, this trend became less The increasing scope and seriousness of the crisis in marked and was further weakened by the global turbu- Asia has radically changed growth and inflation expec- lence on the stockmarkets, the overall effect of which tations and has thus had a major impact on the global may lead to increased funding costs for many borrowers. currency, money and bond markets. Handelsbanken continues to be one of the leading The goal of Handelsbanken Markets’ trading opera- participants in this field in the Nordic countries. During tions is to be a leader in trading in international the year, Handelsbanken Markets arranged a large currency and interest-bearing products for Nordic cus- number of issues for Nordic customers. These com- tomers and in Nordic-related trading for international prised both traditional bond loans, structured notes customers. The Bank’s expansion in its Nordic domestic and syndicated bank loans. market has led to a broader customer base in these The bond loans were placed as public loans and as countries. The Bank has reinforced its position in private placements both in the Nordic countries and London, New York and Singapore in handling greatly internationally. The Bank arranged loans for borrowers increased flows from international financial institutions such as Investor, SKF and Swedish Match. The market and customers. for corporate bonds has continued to expand and the Derivative instruments are increasingly used and investor base is today larger than it has ever been in during the last year, Handelsbanken Markets further recent years. strengthened its position in the market in both currency In the Swedish capital market, Handelsbanken and interest rate options. defended its position as a leading arranger of MTN Handelsbanken’s strong position has again been (Medium Term Notes) loans by arranging loans for noted in financial publications such as FX & MM and companies such as Landshypotek and Stadshypotek. Euromoney Corporate Finance. MTN loans have become the established means of funding for regular borrowers. RESEARCH AND ADVISORY SERVICES During 1997, Handelsbanken Markets significantly The continued globalisation of the financial markets advanced its positions in Finland by arranging bond combined with an ever-expanding range of products has loans for Municipality Finance and participating in increased the importance of economic and financial loans for Enso, Finnish Power Grid and TVO. The research and advisory services. Handelsbanken Mar- Bank has also been appointed the only Nordic bank in kets’ economic and financial research and advice is an Municipality Housing Finance’s Euro MTN programme. integral part of business operations and has the goal of Handelsbanken has continued to be one of the trend- creating added value in the relationship with the cus- setting banks where syndicated loans are concerned, tomer. The Bank has economists and analysts in the especially for Swedish borrowers but increasingly for Nordic capitals and in London. Finnish and Norwegian borrowers. During 1997, the The positive effects of the last two years’ focus on first loan was arranged for a Finnish borrower, Nokian research and advisory services can be seen in the shape Tyres, and in Norway for Kverneland. In Sweden, loans of increased business volumes and closer relationships were arranged for Cardo, NCC and Sandvik. Today, with both Nordic and international customers. Handelsbanken is the second largest lender to Nordic The range of publications was expanded during 1997 companies through syndicated loans. to cover new areas of research and customers now have During 1997, Handelsbanken Markets in London access to a number of electronic distribution channels continued to be the leader in the Nordic public Euro- such as Bloomberg, Reuters and the Internet. In 1997 bond markets, both as arranger and marketmaker. there was a continued focus on various types of cus- During 1997, public Eurobond loans were arranged tomer events. Apart from a number of seminars and for among others, Finsk Exportkredit and Nordiska conferences, the economists and analysts have had Investeringsbanken. Handelsbanken Markets also par- increased direct contact with the Bank’s customers. ticipated in 57 other loans, in all currencies, although Advisory services, in the field of asset management and mainly Nordic ones. Apart from these public loans, a currency and interest rate risk management for exam- large number of private placements have been made of ple, have been expanded by launching new models and loans for Nordic borrowers to international investors. concepts developed by the Bank’s analysts. Banking operations outside the Nordic countries Debt Capital Markets Since 1 January 1998, Handelsbanken’s units outside Debt Capital Markets is responsible for the Bank’s the Nordic countries are part of Handelsbanken Mar- activities in the public debt capital markets. The primary kets. These units focus on Nordic-related corporate products are syndicated bank loans, bond loans and banking, meaning Nordic companies with operations commercial paper programmes. During 1997, the credit abroad and non-Nordic companies with operations and markets were characterised by tightening margins, which business in the Nordic region. Handelsbanken in Lux- favoured the Bank’s Nordic customers. Like other banks, embourg and London also offer private banking ser- Handelsbanken has been affected by lower margins on vices for Nordic citizens resident abroad. Traditionally, lending to major borrowers with high creditworthiness Handelsbanken’s operations outside the Nordic countries

34 SHB 1997 REVIEW OF OPERATIONS

have concentrated on the international subsidiaries of Fund), Utlandsfonden (International Fund) and Norge- Nordic companies. However, many major international fonden (Norway Fund) also performed well. Handels- companies have become aware of Handelsbanken’s banken’s Aktiefond (Equity Fund), which is an index Nordic expansion and have chosen Handelsbanken as fund, rose by 29% thus making it one of the best equity their only Nordic bank. This part of operations has funds in Sweden. therefore become increasingly important at the Bank’s The fall in Swedish interest rates resulted in a rise units outside the Nordic countries. for funds such as Obligationsfonden (Bond Fund), by In September, Handelsbanken was the first Swedish 7.3%, and Avkastningsfonden (Yield Fund), by 4.5%. bank to start an office in Warsaw. This means that Handelsbanken has continued its Nordic drive in Handelsbanken now has its own operations around this field. Since 1994, in both Finland and Norway, the whole Baltic Sea. the Bank has sold Luxembourg-based funds and some of the Swedish funds. Since 1995, the company has HANDELSBANKEN ASSET MANAGEMENT a Norwegian equity fund managed from Norway. On 1 March 1998, a new business area was formed During the second half of the year, a Finnish fund called Handelsbanken Asset Management. The purpose management company was formed and during the of this organisational change is to increase focus on spring an equity fund and three fixed-income funds asset management in the Handelsbanken Group. will be offered on the Finnish market. The growth in value of financial assets in recent During 1997, Handelsbanken started a new fund: years has resulted in the general public becoming Handelsbanken’s Tillväxtmarknadsfond (Emerging increasingly interested in saving in products such as Markets Fund), which means that the Bank now mutual funds. Savings in funds is now greater than manages four emerging markets funds. The three traditional bank account savings for households. others are Asia, Latin America and Eastern Europe. The trend which has existed for a long time in the USA and Western Europe with increased private savings as a result of cutbacks in social security systems has also reached Sweden. The inflow of capital to mutual funds will also increase substantially when the Swedish pension reform becomes effective during 1999 and individuals will themselves be able to decide how a part of the pension funds is managed. This also places greater demands for high-quality services in the field of asset management at Handelsbanken. Handelsbanken Asset Management offers management of mutual funds which are sold via the Bank’s branch offices, discretionary portfolio management for both institutions and wealthy private customers and also custody services. Handelsbanken Asset Manage- ment also acts as a vital support for the branches in investment and management issues.

Mutual funds At the end of the year, the Bank’s fund management company managed 41 mutual funds with some 560 000 unit-holders. The total value of the funds was SEK 45bn, an increase from the previous year of SEK 14bn or 46%, which was second best of the four major participants in the mutual fund market in Sweden. This implies that Handelsbanken retained its market share, while two of our main competitors lost market shares. A considerable part of the net inflow to Handels- banken’s funds came from insurance products developed by Handelsbanken Liv’s unit-linked company. The first half of 1997 saw very strong growth on the global equity markets while the second half was characterised by difficulties due to the turbulence in Asia. In general, Handelsbanken’s international equity funds performed better than their benchmark indexes. Europafonden was the best European fund in Sweden with an increase of 47%, i.e. nearly 8% better than the index. Japanfonden (Japan Fund), Asienfonden (Asia

SHB 1997 35 REVIEW OF OPERATIONS

Discretionary management Since Handelsbanken conducts operations in a number Handelsbanken offers discretionary asset management of countries which are expected to join EMU at the for both institutional and wealthy private customers. beginning – such as Finland, Germany and Luxembourg The demand for asset management services continued – the fact that Sweden is not a member will not prevent to expand strongly during 1997 and the volume of assets the Bank from using the new euro payment routes to be managed grew substantially. At the end of the year, asset created in Europe on behalf of its customers. Also the management had discretionary management assignments Bank’s customers in Sweden will be offered deposits, with a market value of some SEK 35bn. New sales of loans, payments and cash management services in the asset management services were SEK 4bn in 1997. new currency.

Custody services IT DEVELOPMENTS The number of custody accounts increased by around During 1997, the Bank spent more than SEK 2bn on 35% during 1997. One important reason for this is IT operations, corresponding to 27% of total expenses. improved reporting which gives customers a good over- This is a record-high level, more than that of running view of how their assets are allocated on the equity and almost 500 branches in Sweden. fixed income markets. This is essential in order to be The adaptations necessary for EMU and Year 2000 able to assess the risk level of a portfolio in accordance represent only a small part of this increase. The reason with the Bank’s investment advice concept. for the increase is mainly a number of offensive invest- Since autumn 1997, private customers can see the trans- ments in IT operations. actions on their custody accounts on the Internet. Swed- ish shares can also be bought and sold via the Internet. Stadshypotek The volume of business for institutional custody Major efforts have been made during the year to devel- services increased by 40% in 1997 and for the seventh op and integrate Stadshypotek’s computer systems with year running, Handelsbanken was top-rated by the the Bank’s branch office operations. This work will leading periodical Global Custodian. In order to meet continue unabated in 1998. customers’ requirements and demand, these services will soon cover the whole Nordic region. Handelsbanken Branch office operations can already offer custody services for institutional During the year, installation of the new branch office investors in Finland and Denmark and expects to be terminal system started. The installation is scheduled to able to offer the same service in Norway towards the continue until 1999 and includes replacing the actual end of 1998. The goal is for the Bank to provide com- terminals and installing new software, which will lead plete Nordic custody services for both domestic and to great improvements in the branches’ ability to pro- international customers. vide customers with more rapid service.

EMU A joint Nordic computer system Within the EU, the work of preparing for economic and The development of a joint Nordic computer system monetary union, EMU, continues. According to plan, for Handelsbanken has begun. When the system is EMU will start on 1 January 1999 when the domestic launched, almost all of the Bank’s IT operations in currencies of the countries which are to become mem- the Nordic countries will be conducted from the bers will be locked to the single currency – the euro – Bank’s computer centres in Stockholm. The new system at a fixed conversion rate. Some three years later, notes provides a modern and efficient data structure, which and coins in euro will replace the national equivalents. will increase productivity in system development, allow For the banks, EMU will lead to one-off costs and the round-the-clock operations seven days a week and offer loss of some income while in other areas, new business customers completely integrated services across the opportunities can be expected to arise. borders. In Sweden, the government proposed in a bill in The system will replace over 100 different systems autumn 1997 that Sweden does not join EMU from the in the four Nordic countries. outset but that the door is kept open for entry at a later Trading date. On 4 December the Swedish parliament passed the government’s bill. During 1997, development of a joint trading system At Handelsbanken the preparations for EMU which started. When this system is implemented, the Bank had started during 1996 continued. These include stra- will have a joint system structure for all trading rooms tegic considerations in market terms, changes in the which will lead to improved risk management and range of services, new work routines, changes to com- greater flexibility for trading operations. puter systems and training of staff. There are EMU project groups within the Handelsbanken Group in most of EMU the countries where the Bank has operations – including Development and adaptation of the Bank’s products the countries which will not be members at the outset, and computer systems ready for the start of EMU in since EMU will also have an impact on the Bank’s January 1999 is proceeding on a broad front. The units operations in these countries. in Finland, Germany and Luxembourg are preparing

36 SHB 1997 REVIEW OF OPERATIONS

to participate in EMU, while Handelsbanken’s work When planning for building and rebuilding branches, in Sweden is oriented towards adapting operations account is nowadays taken of the need for space for to meet the new demands which customers will make waste-sorting systems. When new terminals are installed on the Bank. at the branches, the old cables are replaced to a great extent and are sent for recycling. Year 2000 At the Bank’s head office, waste management was In connection with the change from 1999 to 2000, radically changed during 1997. Handelsbanken is now problems may arise in many computers and micropro- able to sort waste in a more efficient manner. Freon is cessors if they use only the last two digits of the year being replaced in cooling equipment and halon in fire and therefore cannot distinguish between the years 1900 extinguisher systems according to an established and 2000. This may result in erroneous calculations, schedule. comparisons and the order of data. As a consequence The Bank’s head office and computer centre in Stock- of this, the Bank is running two projects, one at the holm have been linked up to district cooling systems. Central Information Systems Department and one at These units have also adopted an energy saving pro- the Central Administration Department. The purpose gramme implying a 3% annual saving in energy. This of these projects is to ensure that the Group will enter is achieved through energy recycling techniques, better the next millennium with complete functionality, in control equipment and training of service personnel. other words that all computer systems and technical equipment will work exactly as they did before the Environmental issues associated with granting loans year 2000 and that all relations with the outside world Handelsbanken’s environmental policy states that, when are unchanged. granting loans to companies whose operations may The first project analysed most programming codes entail environmental risks or in any other way be during 1997. At present, systems are being adapted and affected by environmental considerations, it is important tested and the majority of the Bank’s computer systems that the Bank obtains special information in order to will be ready for the year 2000 by the end of 1998. make a better assessment of the borrower’s risk situa- The second project is responsible for technical equip- tion. Although the company – and not the lender – ment such as alarm installations, office machines and is responsible for its business activities meeting the property systems being checked and for taking action, environmental demands laid down by law and in if necessary. Both projects are active in Sweden and regulations, the Bank’s credit risk may be affected by at the Bank’s units in other countries. the will and ability of the borrower to comply with the regulations in force and the demands of the market. THE BANK AND THE ENVIRONMENT Thus, an investigation into the impact of possible Environmental issues are nowadays a well-established environmental risks on the credit is a natural part of part of all operations in the Handelsbanken Group. the Bank’s assessment of corporate customers. This is true both of internal work and when granting Environmental risks exist in many types of company, credits and in other business operations. Handelsbanken not only in manufacturing. Sales and distribution of has joined the International Chamber of Commerce’s products which should follow environmental demands (ICC) environmental programme and has signed the or be marked as environmentally-friendly, may be UN environmental declaration for banks. affected if the products do not meet the relevant demands. The company’s repayment capacity may be Internal environmental work reduced if it is obliged to carry out expensive environ- Like other activities in the Handelsbanken Group, mental improvements or if demand for its products environmental issues are dealt with within the fram- falls. For similar reasons, assets such as stocks, machin- ework of the Bank’s decentralised organisation and ery or property may also drop substantially in value. method of operating. An environmental plan, which If assets of this type are pledged to the bank, the is up-dated every year, provides directives and advice assessment of the security may be affected. for the local work. The main principle is that, as far as An opinion on the company’s focus on environmen- technically and economically possible, Handelsbanken tal risk can be formed by investigating whether it has must take measures to minimise the negative effect on adopted an environmental policy, introduced environ- the environment. Environmental demands are made mental control systems, appointed a person to be when negotiating purchase of equipment and sub- responsible for environmental issues, taken out special contracting. insurance policies for environmental damage and certi- During the year, there has been widespread and com- fied its operations according to some accepted standard mitted work at the Bank’s branches and departments such as ISO 14001 or EMAS. concerning environmental issues. As far as is permitted All units at the Bank with credit and customer by local conditions, there are functioning systems for responsibility are obliged to take into account the envi- sorting waste at source and recycling. Since most ronmental aspects – where relevant – in connection branch offices are small and do not have the space for with the business evaluation performed when a loan is waste management, the Bank often collaborates with granted. It is particularly important to see how environ- property-owners, municipalities and external contractors. mental issues affect the customer’s repayment capacity.

SHB 1997 37 REVIEW OF OPERATIONS

These business evaluations are usually carried out at least once a year. It is important that environmental aspects are assessed for each individual customer. Together with other banks, Handelsbanken is active in ensuring that the proposals of the parliamentary committee on environmental information are implemented as rapidly and effectively as possible. Directly and via the Swedish Bankers’ Association, it has been made clear to the public agencies and other authorities involved how environmental information for the purposes of granting credits should be presented so that it is sufficiently comprehensive and accessible.

Training The Bank invests large resources in spreading knowledge about environmental issues in the whole organisation. During 1996, a course was arranged for the regional environmental managers in the Handelsbanken Group. In 1997, all staff at the regional and branch offices were trained in order to become more effective in the internal environmental work and better aware of how environmental issues affect customers. In 1998, similar training courses will be held at Handelsbanken Markets where environmental aspects are also important, for example in Corporate Finance assignments, in financial research and when the composition of the assets in the Bank’s mutual funds is determined.

38 SHB 1997 DIRECTORS’ REPORT

Directors’ report

OBJECTIVE as fixed assets have decreased as lending has risen. The stock of securities in trading is also smaller. For many years, the Handelsbanken Group’s overall objective has been to achieve return on shareholders’ Deposits from and lending to the general public equity which is higher than the average for other listed rose sharply during the year. Swedish kronor deposits banks active in the same domestic market. As the Grou- increased by 7% or by SEK 7bn, of which companies p’s establishment in the Nordic countries has increased, represented SEK 4bn. Foreign currency deposits in- the comparison has been extended to include both Nor- creased by SEK 9bn to SEK 20bn. wegian (from 1995) and Finnish (from 1997) banks. Issued securities consist of certificates and bonds. Profitability must always be given higher priority The increase for the year mainly refers to acquired than volumes. When granting credit, this also implies funding in connection with the acquisition of Stads- that the quality of the loan portfolio must never be hypotek. The volume of subordinated loans in Handels- neglected in favour of a large lending volume. banken has also increased. The Group’s foreign currency funding has risen in comparison with the previous A WELL-INTEGRATED UNIVERSAL BANK year. Balance sheets for 1993–1997 are shown on pages Handelsbanken is a universal bank. A universal bank 78–79, and key figures for the same years on page 3. covers all types of banking services for both corporate and private customers: deposits, lending, property CAPITAL RATIO finance, payments, investment banking, trading, fund management, factoring, leasing and life assurance. At the end of 1997, the Handelsbanken Group’s capital At Handelsbanken, customer responsibility rests with ratio was 10.4% (12.2). The tier 1 capital ratio was the local branch. This is where the services for each cus- 6.2% (10.0). The changes compared with the previous tomer are co-ordinated, in collaboration with regional year are mainly due to the acquisition of Stadshypotek. and central specialists when necessary. The risk-weighted volume has increased from 1996 The universal bank concept applies to Handels- to 1997 by SEK 156bn. The tier 1 capital is in principle banken’s operations in all four Nordic countries. Out- unchanged. The increase in tier 1 capital which nor- side this area, the Bank’s units concentrate mainly on mally arises as a result of profits generated during the Nordic-related business. year was absorbed in 1997 by the increased goodwill Handelsbanken’s objectives, policy and organisation amount resulting from the acquisition of Stadshypotek. are described in more detail on page 10 onwards. When determining tier 1 capital, the total amount of goodwill is deducted from shareholders’ equity. The tier TOTAL ASSETS 2 capital has doubled through the subordinated loans which were issued in connection with the acquisition During 1997, the Handelsbanken Group’s total assets of Stadshypotek. increased by 50% to SEK 859bn. Lending to the general public rose by 111% or SEK RATING 309bn, mainly through the volumes provided to the Group through the acquisition of Stadshypotek, but also The costs of the Bank’s funding in the international through an increase at the Bank. Swedish kronor lending markets are affected by the rating agencies’ credit increased by 135% and foreign currency lending by 35%. assessments. The Bank has the best rating of the The portfolios of interest-bearing securities decreased Swedish banks, as shown in the table on page 40. during 1997 by 39% to SEK 66bn. Securities classified

Assets, Handelsbanken Group Source of funds, Handelsbanken Group

31 Dec 31 Dec Change 31 Dec 31 Dec Change 1997 1996 % 1997 1996 % SEK m SEK m SEK m SEK m Interest bearing securities 65 955 107 965 – 39 Deposits and funding Lending to the general public 586 824 277 790 111 from the general public 204 747 167 507 22 Credit institutions 134 472 119 166 13 Credit institutions 241 436 170 974 41 Other 72 215 66 202 9 Issued securities 284 051 129 284 120 Total assets 859 466 571 123 50 Other liabilities 73 639 63 499 16 Subordinated loans 23 231 12 302 89 Shareholders’ equity 32 362 27 557 17 Total liabilities and shareholders’ equity 859 466 571 123 50

SHB 1997 39 DIRECTORS’ REPORT

RESULT AND PROFITABILITY Capital base and requirement, 31 December 1997

GROUP PARENT Result SEK m COMPANY The Handelsbanken Group’s operating profit increased SEK m by 16% to SEK 7 820m (6 719). This favourable trend CAPITAL BASE is mainly due to the substantial reduction in loan losses. Tier 1 capital (net, less goodwill) 25 906 27 292 Profit and loss accounts for 1993–1997 are shown Tier 2 capital 16 717 14 499 on pages 78–79. Less shareholdings in insurance companies and domestic financial Income institutions – 677 – 677 Income increased by 9%. All types of income items Total tier 1 and tier 2 capital 41 946 41 064 showed a good increase, with the exception of the net Augmented part of capital base 1 250 1 250 result on financial operations. Capital base 43 196 42 314 Net interest income rose by 19%. It includes the fee of SEK 312m (139) to the Swedish government for the CAPITAL REQUIREMENT deposit protection guarantee. Total volume credit risks 891 688 482 488 Most of the increase in net interest income is the Risk-weighted volume credit risks 392 053 191 617 result of higher lending volumes due to the acquisition Credit risks – market risks 22 732 22 747 of Stadshypotek. Following the acquisition, the Total risk-weighted volume 414 785 214 364 Handelsbanken Group continued to increase its lending Capital ratio 10.4% 19.7% volumes at a steady pace during the whole year. Tier 1 capital ratio 6.2% 12.7% The spread between deposit and lending rates in the Handelsbanken Group excluding Stadshypotek dropped For detailed information see page 71. by 0.1% to 3.0%, in spite of spreads for both mortgage loans and bank loans having fallen even more. The Handelsbanken Group – performance reason for this relatively small drop in spread is that the volume of bank loans with a better than average spread 1997 1996 Change has increased more quickly than the volume of mortgage SEK m SEK m % loans. This is due to a large amount of extra business Interest income 11 169 9 381 19 generated by Stadshypotek’s customers. Net commission 3 337 2 628 27 Net commission increased by 27%. The main part of Net result on the increase refers to equity trading and fund manage- financial operations 593 2 143 – 72 ment and custodian services. The net result on financial Other income 716 397 80 operations has fallen by SEK 1 550m compared with Total income 15 815 14 549 9 the previous year. The reasons are partly a substantial Staff costs 4 150 3 477 19 deterioration in interest-rate related t6rading and partly Other expenses 3 543 2 547 39 the fact that in the previous year the Bank reclassified Total expenses 7 693 6 024 28 fixed assets as current assets. This was done prior to the Operating profit sale of part of the bond portfolio and in preparation for before loan losses 8 122 8 525 – 5 the acquisition of Stadshypotek. Loan losses 302 1 806 – 83 The positive effect on the result for 1996 was Net operating profit 7 820 6 719 16 SEK 621m. Other income has increased, mainly due to the contribution to the Group of the net operating income from Stadshypotek’s properties which were taken over to protect claims.

Nordic bank ratings, 28 February 1998

MOODY’S S&P FITCH IBCA BANKWATCH

Financial Long- Short- Long- Short- Indivi- Long- Short- Short- Strength term term term term dual Legal term term Issuer term Handelsbanken B Aa3 P-1 A+ A-1 B 2 AA– F1+ B TBW-1 Nordbanken C+ A1 P-1 A A-1 B 2 A+ F1 B/C TBW-1 S-E-Banken C A2 P-1 A A-1 B/C 2 A+ F1 C TBW-1 FöreningsSparbanken C+ A1 P-1 — A-2 B/C 2 A+ F1 B/C TBW-1 Merita Bank D+ A2 P-1 A A-1 C 2 A F1 C TBW-1 Den Danske Bank B Aa3 P-1 A+ A-1 B 2 AA– F1+ B TBW-1 Unibank C+ A1 P-1 — A-1 B/C 2 A+ F1 B/C TBW-1 Den norske Bank C A2 P-1 A A-1 B/C 2 A+ F1 B/C TBW-1

40 SHB 1997 DIRECTORS’ REPORT

Expenses Income/Expenses ratio

Expenses rose by 28%. Approx. 16 percentage points 1997 1996 of the cost increase is due to the acquisition of Stadshy- potek. IT costs (excluding Stadshypotek) have increased I/E ratio before loan losses 2.06 2.41 by 6 percentage points and exchange rate fluctuations I/E ratio after loan losses 1.98 1.86 account for 2 percentage points of the cost increase. The I/E ratio – income in relation to expenses – was Sensitivity analysis of the Handelsbanken Group’s results 2.06 in 1997 (2.41) before loan losses and 1.98 (1.86) Change Impact on Impact on after loan losses. operating earnings per result ordinary Profitability share SEK Handelsbanken’s profitability, expressed as return Market interest rate 1) on shareholders’ equity after 28% standard tax, was (percentage point) +/– 1% –/+ 103 0.31 18.8% (18.8). Return on equity after standard tax for Commission, net +/– 1% +/– 33 0.10 1997 for the other listed banks is estimated at 9.6%. Employees (number) +/– 100 –/+ 49 0.15 Handelsbanken’s profitability has been higher than Salary change +/– 1% –/+ 38 0.11 the average for the other listed banks since 1972. Other general Return on equity after full tax is 20.1% (19.8). administrative expenses +/– 1% –/+ 29 0.09

Definitions, see page 2. Appropriations and tax 1) If market interest rates change, the result is affected differently depending on the size of the difference between the maturities for invested and borrowed funds. The impact on net interest Compensation from the Bank’s pension fund was SEK income of an increase of all interest rates by one percentage point over a twelve-month period 600m (244). The increase is explained by the fact that may be estimated at – SEK 103m. The immediate impact on the operating profit which would in 1997 the Bank also reimbursed itself for other pen- arise as a result of changes in the market value of various balance-sheet items has not been taken into account. sion expenses than pensions paid out during the year. The change becomes negative when interest rates go up, since fixed-interest investments are The Group’s computed tax expense for 1997 is SEK considerably larger than fixed-interest funding. If market rates fall, the impact on the result is 2 326m (1 829). the opposite. Return on shareholders’ equity after tax Dividend % The Board of Directors recommends a dividend of 30 SEK 6.50 (5.00) on the ordinary shares, class A and B. Svenska Handelsbanken The dividend on index shares, which according to the 20 Bank’s Articles of Association is to follow the consumer 10 price index, will be SEK 0.80 (0.80). In accordance with 0 the Articles of Association, the dividend on preference shares will be SEK 0.45 on class A and SEK 0.60 on class -10

B shares. The cash dividend will require SEK 1 565m. -20 In addition, the Board of Directors proposes that Other listed banks the shares in Stadshypotek Fastigheter Holding AB 1) be -30 Standard tax distributed to the holders of ordinary shares, which is -40 50% 1985–1988 expected to utilise about SEK 2.4bn of the Group’s 30% 1989–1993 -50 equity. 28% 1994– -60 Distribution of Stadshypotek Fastigheter The Board of Directors of Handelsbanken is proposing 1971 19751980 1985 1990 1997 to the 1998 Annual General Meeting that all shares in Stadshypotek Fastigheter be distributed to the Bank’s Background and reasons holders of ordinary shares. For shareholders in Sweden, Since 26 February 1997, Stadshypotek Fastigheter has this is possible without tax being payable. The distribu- been a wholly-owned subsidiary within the Handels- tion is intended to take place using the same technique banken Group. At present, Stadshypotek Fastigheter – as when Fastighets AB Näckebro was distributed in 1996. which was formed at the end of 1992 – is a Group It is expected that Stadshypotek Fastigheter will be listed consisting of 14 property management companies and on the Stockholm Stock Exchange at the end of June 1998. 4 subsidiaries with only hotel operations. The proper- Further information will be sent to Handelsbanken’s ties owned and managed by the Group were acquired shareholders at the beginning of April 1998 in order to by the Stadshypotek Group to protect its claims. assist them in the decision-making process ahead of the The Handelsbanken Group’s capital situation following Annual General Meeting. the large cash acquisition of Stadshypotek costing SEK 23bn did not allow for Stadshypotek Fastigheter to be immediately distributed to the shareholders in the same 1) The distribution will actually be of shares in a newly-formed and wholly-owned subsidiary within the Handelsbanken Group to which the shares in Stadshypotek Fastigheter Holding AB way as the Bank had previously done with Fastighets have been transferred prior to the distribution. AB Näckebro. As a result of the Bank’s strong perfor-

SHB 1997 41 DIRECTORS’ REPORT

mance in 1997, the capital situation has improved so Loan losses by category quickly that it is now possible to distribute Stadshypotek 1997 1996 Fastigheter to the Bank’s shareholders. SEK m %1) SEK m %1) As a result of the distribution, Stadshypotek Fastig- heter will be able to structure its property stock by both Industrial, trading and service companies, etc 230 0.23 532 0.69 buying and selling properties. As a bank-owned proper- Households 220 0.11 321 0.40 ty company, Stadshypotek Fastigheter is not allowed to buy properties in the market. For the ordinary share- Construction and property companies 321 0.16 727 0.78 holders of Handelsbanken, the distribution means that they will be able to decide themselves whether they Housing co-operative associations 112 0.17 — — want to own a property company. Before the shares in Stadshypotek Fastigheter are Credit institutions excl. banks – 11 – 0.10 336 2.18 distributed, the Handelsbanken Group will sell the Country risk – 42 — – 55 — majority of its other properties – with the exception of Less amounts recovered premises housing the head office and the regional head but not categorised – 599 — – 144 — offices – to Stadshypotek Fastigheter. In connection Change in value of with this, Stadshypotek Fastigheter will receive a capital property taken over 71 — 89 — injection, thus increasing its equity to approx. SEK 2bn. 302 0,05 1 806 0,60 Stadshypotek Fastigheter will also change its name 1) As a percentage of loans per category and total loans at beginning of year. prior to the distribution. Detailed information as a result of sale of property, the capital injection to Stadshypotek Fastigheter, name change, effects for the Handelsbanken Group etc is pro- to SEK 71m (89). The total amount represented 0.05% vided in the documentation to be sent to shareholders. (0.60) of the Group’s lending. If Stadshypotek Fastigheter had been distributed as At Stadshypotek, loan losses, after the acquisition, at 1 January 1997, the Handelsbanken Group’s pro were SEK 777m. These have not been charged to the forma 1997 return on equity would have increased consolidated result due to the lump-sum provision made by just over 1 percentage point and pro forma 1997 at the time of acquisition (see page 47). earnings per share would have fallen by some 2%. A number of major recoveries also contributed to the As at 31 March 1998, the Handelsbanken Group’s low loan loss level. Amounts recovered from previous capital ratio and tier 1 ratio, with regard to the distri- actual losses amounted to SEK 616m (144) and provi- bution, are estimated at approx. 10% and nearly 6% sions written back were SEK 617m (469). respectively. The sale of properties to Stadshypotek Fastigheter is Loan loss structure expected to lead to capital gains of approx. SEK 300m Of the year’s reported loan losses, five were over SEK which will have an impact on the Handelsbanken Grou- 20m. They represented 79% of loan losses. In addition, p’s profits for 1998. five losses of more than SEK 20m in mortgage loans Please see page 28 for a description of the company. have been covered by the above-mentioned lump-sum provision. In the above table, loans and loan losses LOAN LOSSES AND CREDIT RISKS are shown by category of borrower. The housing co- operatives category is reported separately for 1997. The banks and the business cycle The 1996 figures included these losses under the con- The upswing in 1997 affected both export industry and struction and property companies category. the domestic market. The increase in private consump- The problems affecting newly-built multi-family tion and the improved performance among companies dwellings with state interest subsidies are not yet totally contributed to a further decrease in credit risks in the over. banks’ loan portfolios. A continuing low interest rate Handelsbanken’s exposure to the problem countries level also contributed. in South-East Asia (Thailand, Malaysia, The Philip- Statistics show that the number of bankruptcies in pines, South Korea and Indonesia) is SEK 3.4bn, which Sweden fell by 8% compared with 1996. Towards the represents 0.47% of total lending to the general public end of the year, however, the number of bankruptcies and credit institutions. Half of this exposure is loans was again showing a tendency to rise. Many sectors to local banks. The remaining part is mainly L/Cs and are experiencing intensifying competition. loans to the subsidiaries or branches of Nordic and The loan loss level among Swedish banks was also other foreign companies. affected in 1997 by recoveries of loan losses from the The Bank has made the necessary provisions for early 1990s. possible loan losses in these countries on the basis of the information currently available. The Handelsbanken Group’s loan losses In 1997, the Handelsbanken Group’s loan losses were Bad debts SEK 231m (1 717), a decrease of 87%. Apart from this, Bad debts, after deduction of provision for possible the reduction in value of property taken over amounted loan losses, rose to SEK 3 821m (2 195). This was

42 SHB 1997 DIRECTORS’ REPORT

mainly due to the acquisition of Stadshypotek. Bad debts The largest sources of interest rate risk are represented represented 0.64% (0.76) of lending at the year-end. by the trading portfolios and the investment portfolio. The reserve for possible loan losses was SEK 4 242m To a small extent, interest rate risks also arise in the (4 117), which is 53% (65) of gross bad debts. lending and deposit operations of Handelsbanken’s A full report is given in note 17, page 58. regional banks and subsidiaries. The investment portfolio is the portfolio in which Managing credit risks the bank’s surplus liquidity is managed. After the acqui- In accordance with the credit policy laid down by the sition of Stadshypotek and with the increasing demand Central Board, the branch office which is responsible for credit, the liquidity surplus has decreased. The inter- for the customer must also assess and manage the credit est rate risk in the investment portfolio has decreased risk. In this way, the Bank draws on the branch’s knowl- partly as a result of lower volume and partly as a result edge of the customer and the local market and the of the investment portfolio being invested in shorter- problem loans are dealt with quickly and efficiently. term instruments. The duration of Handelsbanken’s The branch office is assisted by experts at regional investment portfolio was 0.31 years (0.53) at the year-end. and central head office. The investment portfolio was SEK 5 790m (21 191) at the year-end or 0.7% (3.7) of total assets. The invest- FINANCIAL RISKS ment portfolio contains only interest-bearing assets as In the daily operations of the Bank, various types of shown in the table below. financial risk arise apart from credit risks. The risk The trading portfolio is the Bank’s trading book of must be controlled and limited taking into account the financial assets. The interest rate risks in the trading bank’s risk tolerance. portfolio vary on a daily basis. They arise as a result of Financial risks mainly consist of market and liquidity customer transactions and positions which are taken in risks. Market risks consist of interest rate risks, order to profit from daily fluctuations in market rates. exchange rate risks and share price risks. They consti- As a result of the reduced liquidity surplus, the interest tute the changes in value which arise as a result of a rate risk in the Group’s balance sheet has fallen as a change in price, exchange rate or volatility. Liquidity whole. The interest rate risk measures the effect on the risk is the risk that the bank’s costs will increase as a market value of all assets and liabilities, both on and result of the funding requirement on a particular day Holdings in the investment portfolio becoming too large in relation to available funding. (financial fixed assets), 31 December 1997

Interest rate risks Book value Duration Effective Interest rate risks arise because the maturity period of SEK m yrs interest rate % the Group’s assets and liabilities or off-balance-sheet items do not coincide. A shift or change in the yield Government bonds 1 546 0.18 4.4 curve may lead to a deterioration in net interest income Mortgage bonds 3 615 0.18 4.7 or fall in value when the maturities for assets and liabil- Other securities 629 1.41 6.7 ities are different. Total 5 790 0.31 4.8

Maturity periods for the Group’s assets and liabilities on 31 December 1997

–3 mths 3–6 mths 6–12 mths 1–5 yrs 5 yrs– Total

ASSETS Loans 246 962 38 001 57 343 248 709 6 220 597 235 Banks and other financial institutions 158 093 17 430 7 509 1 456 3 228 187 716 Bonds etc. 30 334 7 055 11 921 6 140 2 370 57 820 Total assets 435 389 62 486 76 773 256 305 11 818 842 771

LIABILITIES Deposits 200 524 4 013 1 752 297 2 766 209 352 Banks and other financial institutions 199 144 23 023 16 283 54 019 5 305 297 774 Issued securities 107 310 32 317 31 431 109 766 3 650 284 474 Total liabilities 506 978 59 353 49 466 164 082 11 721 791 600 Off-balance-sheet items, net 64 661 – 18 614 9 675 – 50 530 3 085 8 276 Difference between assets and liabilities including off-balance-sheet items – 6 928 – 15 481 36 982 41 693 3 182 59 447 Accumulated difference – 6 928 – 22 410 14 572 56 265 59 447 59 447 Accumulated difference as percentage of total assets 0.82% 2.66% 1.73% 6.68% 7.05% 7.05%

The table shows the maturity for the Group’s interest-related assets and liabilities as at 31 December 1997. The assets and liabilities are reported as at the transaction day.

SHB 1997 43 DIRECTORS’ REPORT

off the balance sheet, when all interest rates change by sons and aggregation. In addition, the diversification one percentage point. The risk is measured as at one effects between different currencies, stock exchanges specific date. The interest rate risk in the event of a rise and interest-rate related markets are also captured. in all market rates of one percentage point at the year- Quantification of the market risk exposure using the end was SEK 596m (1 414). When calculating the in- VaR method requires specification of three parameters. terest rate risk for subsidiaries, the equity is assigned Firstly, the period expected for closing out the position a maturity which corresponds to the average life of the or eliminating the risk (holding period). Secondly, how assets. The table on page 43 shows the maturity periods long a history of market data should be used for the for the Group’s assets and liabilities on the balance sheet calculation – and thirdly, the extent of the market dis- and off-balance-sheet items for all currencies at the end ruptions for which VaR is to be computed. When there of 1997. is major fluctuation in market prices, the potential losses are usually great and when there is little fluctuation, Exchange rate risks they are small. Therefore, the size of the change in mar- Exchange rate risks arise when assets and liabilities and ket prices which can be regarded as reasonable when cash flows from derivatives in a currency are not the calculating the risk must be specified. same size. When this is the case, the Group’s profit is The Bank’s VaR calculations are based on a holding affected by fluctuations in exchange rates. Exposure period of one day and on historical prices and rates to exchange rate risk is in all essentials restricted to during the past three years. VaR is calculated for a price Handelsbanken Markets’ trading operations as sub- variation of three standard deviations. This is the same sidiaries and regional banks’ exposures in foreign as the VaR figure calculating the greatest loss in a port- currencies are hedged with Handelsbanken Markets. folio which can arise with 99% probability. The VaR level in Handelsbanken Markets’ interest and exchange Share price risks rate positions (including option positions) was on aver- The Bank’s exposure to share price risk, i.e. the risk age SEK 26m (42). During the year, the VaR level was of losses as a result of changes in share prices, can be SEK 62m at its highest and SEK 13m at its lowest. divided into systematic and unsystematic risk. The sys- Correlations between interest-rate related and foreign tematic risk originates in the price movements of the exchange markets have not been taken into considera- entire stock market. The unsystematic, or share-specific tion. risk, originates in the price variation of each individual The VaR level in Handelsbanken Markets’ share share. Share-related risks mainly arise at Handelsbanken price risk positions, disregarding the share-specific risk, Markets. The Bank is also market-maker in the equity was on average SEK 9m. At its highest, the share price and index option market, where share-related risks arise. risk was SEK 18m and at its lowest SEK 5m. The exposure to exchange rate risk and interest rate Value-at-Risk risk, measured with the VaR method, has decreased in Value-at-Risk (VaR) is regarded as an appropriate meth- comparison with the previous year. od for measuring the market risk, primarily in trading The VaR figure is based on assumptions and should operations. The VaR method estimates the potential be supplemented by conventional measurements and future losses in a portfolio with the help of historical so-called stress tests. Stress tests show how the profit is market movements. The method measures various types affected by very extreme market fluctuations. Such tests of market risk in a uniform way, which allows compari- were carried out during 1997.

Daily Value-at-Risk for Handelsbanken Markets, interest-rate related, currency and equity markets

Frequency (no. of days) 30

15 20 25 30 35 40 45 50 55 60 SEK m

44 SHB 1997 DIRECTORS’ REPORT

Limiting market risk Foreign currency funding Interest rate, exchange rate and share price risks including 31 Dec 31 Dec Change options are controlled by means of limits. Limits are to 1997 1996 % prevent the occurrence of a loss in excess of a certain level. SEK m SEK m The trading operation’s exchange rate risks are General public 64 642 45 398 42 controlled by limits which restrict the various units’ Certificates of deposit 75 143 39 703 89 exchange rate risk exposure. The limits are of two Credit institutions 118 613 131 478 – 10 kinds. One refers to the net position, the maximum Bonds 22 474 5 006 349 exposure in an individual currency. The other refers Subordinated loans 10 889 4 170 161 to aggregate net positions and is intended to limit the Total 291 761 225 755 29 extent of the Bank’s total exchange rate risks. VaR is used to follow up the risk exposure under these limits. The change in value of a portfolio or balance sheet, Organisation of the Group’s risk control when there is a parallel shift of one percentage point in The President of the Bank establishes the market risk all market rates, is used as a measurement to limit inter- and liquidity risk limits for the entire Group within est rate risks both in trading and in other units of the each type of risk. The overall responsibility for financial Bank. For interest rate risks, Value-at-Risk is used as risks and further allocation of limits lies with the head a supplement to other measurements. of the Central Treasury Department. Within given limits Interest and exchange rate options are controlled and the Group units are responsible for follow-up and limited by means of a limit of maximum losses allowed control of the financial risks. when there are extreme fluctuations in volatility and The composition of the investment portfolio as prices. These so-called risk matrices provide a limiting regards duration and types of security is restricted by framework for trading. VaR figures are used as guide- rules laid down by the President of the Bank and report- lines as regards probable outcomes and in certain cases ed to the Central Board. for setting credit limits. The financial risks and limit utilisation are checked Share trading is also controlled through a risk matrix on a daily basis for trading-related operations, the limit. This risk matrix covers all option risks and both investment portfolio and mortgage business. In practice, probable and improbable events. The portfolio is also the risk in the trading portfolio changes more frequent- limited as regards portfolio concentrations in individual ly than in the mortgage and investment portfolios. types of shares. VaR figures are available daily to fol- There is, however, potential for considerable fluctua- low the loss risk. tions in interest rate risks in the latter two portfolios. For this reason, they are also followed carefully. The Liquidity risks limit utilisation for the whole Group and particularly Liquidity risks arise when assets and liabilities and for the investment portfolio is reported monthly to the off-balance-sheet cash flows have varying maturities. President and quarterly to the Board. When, for example, assets mature later than liabilities, A unit at the Central Treasury Department works the assets must be refinanced once or several times exclusively on risk control independent of the trading during their lifetime. The risk is that, if on a particular organisation. The unit has the overall responsibility for day the refinancing requirement in an individual cur- measurement methods, setting limits and examining rency is large, the funding cost may increase. A dis- financial risks, regardless of whether the risk is trading- tinction is made between Nordic and non-Nordic curren- related or arises in business with customers in the re- cies when limiting liquidity risks. Nordic currencies are gional bank operations or the subsidiaries. Apart from Handelsbanken’s domestic currencies. It is possible, for continuous analysis of the Group’s exposure to market example, to cover temporary deficits by borrowing fluctuations, the department carries out regular reviews from the central banks in the Nordic countries. of the local risk controls at the Bank’s units. These re- The majority of funding in non-Nordic currencies views include the unit’s positions, measurement methods, comes from deposits from foreign banks and regular issues limit structure, administrative controls and risk reports. in the international capital markets. In order to secure In addition, the Central Auditing Department carries the Group’s foreign currency funding, a target has been out independent examinations. set that medium- and long-term foreign currency funding must be at least 25% of medium- and long-term foreign DERIVATIVE INSTRUMENTS currency lending. Handelsbanken has a US Commercial Paper Programme, a Euro Commercial Paper Program- Derivative instruments do not give rise to any unique me and a Euro Medium-Term Note Program. type of market risk. The value of a derivative contract Funding through issued securities has increased during is dependent on an exchange rate, interest rate or share 1997 in a conscious drive to increase the number of price. Derivatives are instruments for handling financial sources of funding. risks. They are a natural part of trading portfolios and Exposure to liquidity risk is measured by grouping are also used to change and limit the financial risks the expected cash flows from assets and liabilities (both outside the trading operation. The risks in derivative on and off balance sheet) on the basis of when the instruments can be measured in the same way that risk flows occur in time. is measured in the underlying portfolios. This means

SHB 1997 45 DIRECTORS’ REPORT

that the risks in derivatives and the corresponding Unlike the credit risk in lending commitments, the underlying instruments can be aggregated and compared. counterparty risk is affected by the development in Options are derivatives which differ from underlying market prices. If the derivative instrument is valued instruments with respect to sources of risk. The value of positively, an unrealised gain arises which constitutes an option depends not only on the level of interest rates a counterparty risk. and prices but also on changes in the pace of interest Counterparty risks in a derivative transaction are rate and price fluctuations. The value of an option can assessed in the same way as other credit risks. also change proportionally much more than the under- Exchange-traded instruments transfer the counter- lying interest rate, share price or exchange rate. The party risk exposure to the clearing institution. Exposure risks are said to be non-linear. They can rise very rapid- is consequently considerably lower here than in OTC ly in turbulent markets. Option-related risks constitute instruments. The clearing institution applies multilateral a minor part of the Group’s total risks but must be netting of the market participants’ internal commit- monitored particularly carefully for the reasons given ments, which means that the settlement flows are kept above. to a minimum. In addition, the participants provide margin security in relation to their positions. Trends in derivative trading Netting The volume of derivative instruments held by Handels- banken is growing. This does not necessarily mean that The counterparty risk applicable to derivative contracts the amount of risk in the Bank has grown. Derivative amounted to SEK 47.0bn at year-end, calculated in products are included in all risk management with the accordance with prevailing capital adequacy rules. This aim of limiting the Group’s exposure to interest rate, amount includes a reduction of SEK 13.4bn, which was exchange rate and share price fluctuations. Derivative the effect of netting exposure under legally binding products are also included in computations in order to master agreements. limit the Group’s liquidity exposure. This means that Legal risks the risks involved in using derivative products are restricted by the limits and controls applied to financial risks. An example of legal risk would be if the terms of a Trading operations accounted for more than 98% of contract cannot be fulfilled as intended, due to Swedish this volume both in 1996 and 1997. There has also or foreign law or legal practice. been a continued rise in FRAs and interest rate futures, The overall responsibility for monitoring the Bank’s which is a result of Handelsbanken Markets’ expansion legal risks rests with the Bank’s central legal depart- in proprietary trading. ment, which regularly consults internal and external advisers in countries where the Bank is active. The Bank Counterparty risks in derivative trading has an internal committee consisting of lawyers and The Bank’s holdings of derivative contracts not only other specialists who determine the Bank’s policy for imply exposure to various market risk, but also to Swedish and international agreements in the securities so-called counterparty risks. There is a risk that those and foreign exchange markets. who issue the derivatives will not meet their obliga- OPERATIONAL RISKS tions. If such a situation arises, the Bank must acquire a new equivalent contract in the market to replace Administrative risks the old one. Losses may arise in operations for reasons which cannot directly be related to the financial risks. Operational Derivatives 31 December 1997, SEK bn losses may arise due to human error as well as deficient Total Total routines, systems, controls and instructions. Examples 31 Dec 31 Dec of events which lead to such losses are collapse of a 1997 1996 computer system, errors in handling transactions and Currency forwards 1 346 1 140 errors in handling collateral. Losses resulting from fraud Interest rate and currency swaps 739 538 and physical catastrophes can also be counted as opera- Interest rate futures and FRAs 3 207 2 658 tional losses. Events in the international markets in recent years Interest rate and currency options 53 40 have illustrated that the consequences of these operational Equity forwards and options 10 7 risks can be devastating. For this reason, Handels- Total 5 355 4 383 banken puts considerable resources into restricting this risk. Perhaps the most important tool in handling op- Counterparty risks in derivatives, SEK m erational risks is the Bank’s extensive set of instructions. Other examples of methods for handling the Bank’s Nominal amount Converted amount operational risk exposure are contingency planning and Class A 103 531 1 449 back-up routines. The trading organisation regularly Class B 3 748 691 38 374 investigates the occurrence of transaction errors to Class C 405 478 7 206 identify weak areas. New services and instruments are Total 4 257 700 47 029 exposed to an extensive approval process in which

46 SHB 1997 DIRECTORS’ REPORT

internal audit, the accounts department, the computer tion strengthens the customer base of the branch offices department, the legal department and independent risk and improves their competitiveness. When establishing control examine the quality of risk control and adminis- the acquisition balance, the following material correc- trative routines. tions have been made compared with the book values in the Stadshypotek Group at the time of acquisition. COMPETENT STAFF The reduction of the book values in Stadshypotek refer- Handelsbanken’s decentralised organisation and the ring to lending to the general public is predominantly increasing complexity in banking make high demands attributable to housing co-operative associations. on the skills of our staff. Handelsbanken therefore SEK m channels a great deal of resources and effort into training Properties according to external valuation + 700 and development of managers and employees at all levels. Lending to the general public – 1 850 OKTOGONEN Estimated cost of early repayment of 'golden' loans – 450 Adjustment of liabilities, net – 159 Every year since 1973, apart from 1992 when no dividend was paid to the shareholders, the Bank has allocat- Impact on results ed part of its profit to a profit-sharing system for its For the first year of acquisition, the impact on results employees. The funds are managed by the Oktogonen of the Stadshypotek acquisition was estimated to be Foundation. The main condition for an allocation to be some SEK 1.5bn on a twelve-month basis. made is that the Handelsbanken Group has higher The far-reaching integration of Stadshypotek’s busi- return on shareholders’ equity after standard tax than ness with Handelsbanken’s branches (see page 27) other banks in accordance with the overall goal laid makes it difficult to isolate in detail the effects of the down for operations. Some of the extra earnings can acquisition. However, it can be stated that the con- then be allocated to the employees in accordance with tribution to the result in 1997 exceeded the above- certain regulations. mentioned estimate. All employees receive an equal part in the allocated amount. Disbursement can be made when the employee reaches the age of 60. One of the fundamental concepts in managing the foundation is that a considerable part of the funds is invested in shares in Handelsbanken. Today, Oktogonen is the Bank’s largest shareholder. The profit-sharing system is based on the idea that the Bank’s employees should receive a portion of the extra earnings in which they have played such a large part. Over the years, this has increased in importance as an incentive to the staff of the Bank. Since the beginning of 1995, the profit-sharing system has also included staff in Norway and from 1997 the staff in Finland, Stadshypotek AB and Stadshypotek Bank AB.

ACQUISITION OF STADSHYPOTEK With the permission of the court, Svenska Handels- banken has been registered as owner of the remaining shares in Stadshypotek AB, and thereby now holds 100% of the shares. The purchase price was SEK 22 870m. In accordance with the Swedish Financial Accounting Standards Council’s recommendation on consolidated accounts, the Stadshypotek Group’s assets and liabilities were valued in an acquisition analysis.

Acquisition balance and goodwill Since the original acquisition balance was established, some minor changes have been made to it on the basis of new information. The present acquisition balance gives rise to goodwill in the Handelsbanken Group of SEK 4 783m. This will be amortised over 20 years. This amortisation period has been chosen in view of the long-term importance of the acquisition. The acquisi-

SHB 1997 47 PROFIT AND LOSS ACCOUNTS

Profit and Loss Accounts

GROUP PARENT COMPANY 1997 1996 1997 1996 SEK m SEK m SEK m SEK m

Interest income Note 1 58 357 40 179 28 976 28 822 Interest expense Note 1 – 47 188 – 30 798 – 22 941 – 21 864 Net interest income 11 169 9 381 6 035 6 958

Dividends received Note 2 150 107 1 729 1 839 Commission income Note 3 4 024 3 294 3 736 3 389 Commission expense Note 4 – 687 – 666 – 608 – 576 Net result on financial operations Note 5 593 2 143 570 2 093 Other operating income Note 6 566 290 2 037 244 Total income 15 815 14 549 13 499 13 947

General administrative expenses Staff costs Note 7 4 150 3 477 3 520 3 183 Other administrative expenses Note 8 2 926 2 237 2 347 2 045 Depreciation and write-down in value of tangible and intangible fixed assets Note 9 617 310 321 249 Total expenses before loan losses 7 693 6 024 6 188 5 477 Profit before loan losses 8 122 8 525 7 311 8 470

Loan losses, net Note 10 231 1 717 – 123 1 289 Change in value of property taken over Note 11 71 89 — 43 Write-down of financial fixed assets Note 12 — — — 306 Operating profit 7 820 6 719 7 434 6 832 Minority interests – 19 – 1 Appropriations Note 13 532 201 – 706 – 1 450 Profit before taxes 8 333 6 919 6 728 5 382

Taxes Note 14 – 2 326 – 1 829 – 888 – 1 185 Profit for the year 6 007 5 090 5 840 4 197

48 SHB 1997 BALANCE SHEETS

Balance Sheets 31 December

GROUP PARENT COMPANY 1997 1996 1997 1996 SEK m SEK m SEK m SEK m

ASSETS Cash and balances with central banks 3 025 7 487 3 023 7 347 Instruments eligible as collateral with central banks etc Note 15 13 298 41 794 13 147 41 744 Lending to credit institutions Note 16 134 472 119 166 175 771 133 517 Lending to the general public Note 17 586 824 277 790 223 426 160 451 Bonds and other interest-bearing securities Note 15 52 657 66 171 77 019 80 518 Shares and participations Note 18 2 007 4 204 1 755 3 859 Shares and participations in associated companies Note 19 45 36 42 33 Shares and participations in Group companies Note 20 247 248 28 588 4 131 Intangible fixed assets Goodwill Note 21 4 770 228 64 91 Tangible assets Equipment Note 22 721 492 521 435 Buildings and land Note 23 8 608 1 445 1 267 1 297 Other assets Note 24 44 920 42 841 39 589 40 311 Prepayments and accrued income Note 25 7 872 9 221 8 176 9 404 Total assets 859 466 571 123 572 388 483 138

LIABILITIES, PROVISIONS AND SHAREHOLDERS’ EQUITY Liabilities to credit institutions Note 26 241 436 170 974 172 855 177 362 Deposits and funding from the general public Deposits Note 27 138 371 122 269 157 547 131 455 Funding Note 28 66 376 45 238 64 614 44 372 Issued securities Note 29 284 051 129 284 72 311 38 264 Other liabilities Note 30 57 504 55 074 53 740 52 113 Accruals and deferred income Note 31 12 272 6 199 4 701 4 920 Provisions Provisions for taxes 3 595 2 219 — — Subordinated liabilities Note 32 23 231 12 302 15 609 8 934 Total liabilities and provisions 826 836 543 559 541 377 457 420

Minority interest in shareholders’ equity 268 7 0 0

Untaxed reserves Note 33 5 959 5 298

Share capital Note 34 2 605 2 605 2 605 2 605 Statutory reserve Note 34 3 169 3 144 2 936 2 936 Reserve for unrealised profits Note 34 21 746 11 733 Other restricted reserves Note 34 5 319 4 827 — — Profit brought forward Note 34 15 241 11 145 13 660 9 949 Profit for the year Note 34 6 007 5 090 5 840 4 197 Total shareholders’ equity 32 362 27 557 25 052 20 420 Total liabilities, provisions and shareholders’ equity 859 466 571 123 572 388 483 138

MEMORANDUM ITEMS Collateral pledged for own debt Note 35 59 437 48 650 59 193 47 573 Contingent liabilities Note 36 81 921 58 984 83 648 65 736 Pension commitments Note 37 5 091 3 838 5 091 3 838 Other commitments Note 38 5 452 935 4 445 388 5 408 299 4 482 371

SHB 1997 49 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

ACCOUNTING PRINCIPLES Liabilities in foreign currencies which refer to financing of shares in subsidiaries or holdings of subordinated loans issued The Annual Accounts have been prepared in accordance with the by subsidiaries are recorded at the rate applicable on acquisition. provisions of the Annual Accounts Act for Credit Institutions and Forward contracts in foreign currencies are recorded at present Securities Companies (ÅRKL) and the directives issued by the value. Swedish Financial Supervisory Authority (FFFS 1996:28). Unrealised gains or losses which have arisen as a result of the Changed accounting principles above-mentioned translation methods are credited or charged to the operating result. The accounting principles applied have been adapted to the Swedish Financial Accounting Standards Council’s recommenda- Financial instruments tion RR6, Accounting for leasing agreements. On the Balance Sheet, interest-bearing securities are reported In accordance with the accounting principles applied before either as Instruments eligible as collateral with central banks or 1997, all leasing assets were reported as Tangible assets. Deprecia- as Bonds, depending on the category of issuer. Both the trading tion according to plan was entered over the period of the leasing book and securities which are held long-term, but without the agreement. Payment from the lessee was reported as Leasing in- intention of being kept until maturity, are classified as Financial come. In accordance with the changed accounting principles intro- current assets. Securities in the trading book are valued at market duced in 1997, leasing agreements in which the lessee substantially value, while other financial current assets are valued at the lower bears the economic risks and acquires the rewards associated with of cost or market. Realised and unrealised gains/losses are repor- the ownership of the asset (finance leasing) are reported as Lend- ted under Net result on financial operations. ing. The contractual leasing fee is allocated between interest and Interest-bearing securities which have been acquired with the amortisation. Leasing agreements which do not constitute finance intention of being held to maturity are classified as Financial fixed leasing are reported in accordance with principles applied assets and reported at acquisition value. For securities where the previously. value has fallen and this decline in value is considered to be per- The comparative figures for 1996 have been revised using the manent, a write-off is made. Realised price gains and losses are new accounting principles, in accordance with the Swedish Finan- reported under Other operating income. cial Accounting Standards Council’s recommendation No. 5. The By acquisition value of discount and coupon instruments (held revision has not had any effect on the reported operating profit and issued) is meant the accrued acquisition value. This price is or on opening shareholders’ equity. the discounted present value of future payments where the dis- Consolidated Accounts count interest rate represents the effective interest rate at the time of acquisition. This implies that acquired premiums and discounts The recommendation from the Accounting Standards Council on coupon instruments are allocated over the bond’s remaining on Consolidated Accounts has been applied. The Consolidated period to maturity or, for loans with interest rate adjustments, Accounts have been prepared in accordance with the acquisition until the next time the interest rate is adjusted. accounting method. Uniform accounting principles have been Purchases and sales of money market and capital market applied within the Group in all material respects. The Consolidat- instruments on the spot market are subject to trade date accounted Accounts comprise all companies in which Handelsbanken ing. Forward transactions are registered on the transaction date directly or indirectly holds more than 50% of the voting power. but until the date of settlement are regarded as commitments off Associated companies are reported in the Consolidated Accounts the Balance Sheet. On the date of settlement, they are reported in accordance with the equity method. As stipulated by the on the Balance Sheet. Swedish Financial Supervisory Authority, companies taken over Equities in the trading book are recorded at market value. to protect claims are not included in the Consolidated Accounts. Other equities which are classified as current assets are recorded Handelsbanken Liv, which is a mutual life assurance company, at the lower of cost or market. is not consolidated, since any surplus of the life assurance opera- Short positions in both interest-bearing securities and equities tion accrues to the policy-holders in the form of bonuses. are reported as a liability at their market value. Holdings of intra-Group bonds classified as financial fixed Derivative instruments are valued at market value. An excep- assets are eliminated on consolidation. The difference thus arising tion is made for derivative transactions which are hedging balance- between the book value of the intra-Group bonds and that of the sheet items not reported at a market value. If the hedge is con- corresponding liabilities is credited/charged to net interest income. sidered to represent an effective protection against unfavourable When translating the foreign subsidiaries’ balance sheets and changes in value, the derivative transaction is reported using the profit and loss accounts, the current rate has been used. Assets, accounting principles which apply to the hedged transaction. liabilities and minority interests in equity have been valued at the Derivative transactions with a positive market value at the balance closing day rate. Shareholders’ equity is translated at the rate sheet date are reported under Other assets and transactions with a applicable at the time of investment or earning. The acquired por- negative market value are reported under Other liabilities. Receiv- tion of untaxed reserves has been translated at the current rate on ables and payables with the same counterparty which can be set the date of acquisition. The Profit and Loss Account has been off, i.e. where a contractual relationship exists implying that there translated at the average annual rate. The resulting translation are legal grounds for applying set-off, are reported net on the differences have been classed as shareholders’ equity. Balance Sheet.

Assets and liabilities in foreign currencies Lending Assets and liabilities in foreign currencies have been recorded in Lending to the general public and credit institutions is classified accordance with the Swedish Accounting Board’s recommendation as financial fixed assets and is reported on the Balance Sheet on BFN R7. The average of the buying and selling price for the cur- the settlement date at acquisition value. Leasing agreements in rency in question, according to the officially listed rates on the which the lessee substantially bears the economic risks and acquires balance sheet date, has been used. Foreign banknotes have been the rewards associated with the ownership of the asset are also recorded at the buying rates applicable to the general public on reported as lending. Loans which represent bad debts are reported the balance sheet date. on the Balance Sheet at their net amount, i.e. after deduction of

50 SHB 1997 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

the provision for possible loan losses. Undrawn loans (including interest by a satisfactory margin is not taken up as income. the risk related to fixed advanced interest rates) are regarded as an Interest on these claims which was reported as income but not off-balance-sheet commitment until the settlement date. If a loan is paid during the accounting year has been reversed. Interest pay- redeemed ahead of time, the early redemption fee received is ments received thereafter in respect of this type of credit are repor- allocated over the remaining period of the loan. ted in the year of receipt. Pension costs Valuation of property taken over to protect claims A calculated pension cost relating to pension commitments which are backed by Handelsbanken’s pension foundation is reported as Property which has been taken over to protect claims is a current an operating expense. Premiums paid for pension insurance for asset and is valued at the lower of cost or market. By market staff outside Sweden are also reported under Operating expenses. value is meant the market value after deduction of costs of sale. The calculated pension premium is restored as an appropria- This value is based upon an individual valuation by a firm of tion under Settlement of pensions, where settlement is made valuers with the required skills in the field. When taken over, the against disbursed pensions and any compensation from the pen- properties are written down to market value. If this value is less sion foundation. than that of the Bank’s original collateral, the difference is reported as an actual loan loss. Changes in value after the property has Depreciation been taken over are reported under Changes in value of property EQUIPMENT taken over. Equipment is mainly depreciated on a straight-line basis over 5 years. Personal computers are depreciated over 3 years and investments in bank vaults and similar investments in premises are depreciated over 10 years. PROPERTY CONTAINING BANK PREMISES Property containing the Bank’s premises is depreciated at the highest percentage rate allowed for taxation purposes. PROPERTY TAKEN OVER TO PROTECT CLAIMS Properties taken over to protect claims are reported at the lower of cost or market at the balance-sheet date. Consequently, there is no depreciation of these properties. GOODWILL Goodwill arising in 1997 in connection with the acquisition of Stadshypotek is amortised over 20 years. The amortisation period chosen is justified by the long-term significance of the acquisition, as the customer base of the branch office network and relative competitiveness have been strengthened. Other goodwill is amortised over 10 years.

Loan losses Actual loan losses for the year and write-offs in respect of possible losses for loan receivables are reported as loan losses. Also reported as loan losses are write-offs of interest shown as income in previous annual accounts. Provisions for country risks are made in amounts which are considered necessary in the opinion of the Bank. In the accounts, the reserve is allocated to the asset items in the balance sheet to which the reserve refers. Reported as actual loan losses are losses where the amounts have been finally determined or are more than likely as a result of an official receiver providing an estimation of bankruptcy dividends, the acceptance of composition recommendations or the reduction of claims in some other way. Write-offs of possible loan losses are made in respect of bad debts if the borrower’s ability to repay is not considered likely to improve sufficiently within two years and the value of the collateral does not cover the loan amount. Write-offs are made down to the amount which is expected to be realised, taking into account the value of the collateral. If the collateral is a listed asset, the valuation is based on the list price; otherwise on the yield value or the market value estimated in some other manner. If the collateral consists of a mortgage on a property, the valuation of the underlying security is made in the same way as for properties taken over (see below). Unpaid interest on non-performing loans where the value of the collateral does not cover the principal amount and the accrued

SHB 1997 51 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

NOTES TO THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET

Amounts in SEK m unless otherwise stated

Note 1 Interest GROUP PARENT COMPANY 1997 1996 1997 1996

INTEREST INCOME Credit institutions 8 906 8 306 10 310 9 194 General public 42 716 24 288 12 136 12 583 Interest-bearing securities, fixed assets 1 817 4 042 1 808 3 813 Interest-bearing securities, current assets 2 378 2 177 2 317 2 162 Other interest income 2 540 1 366 2 405 1 070 Total interest income 58 357 40 179 28 976 28 822

INTEREST EXPENSE Credit institutions 18 490 8 652 8 950 9 199 General public 6 615 7 401 7 626 8 252 Securities issued 17 296 10 956 2 943 1 744 Subordinated liabilities 1 561 1 092 1 011 721 Other interest expense 3 226 2 697 2 411 1 948 Total interest expense 47 188 30 798 22 941 21 864

Net interest income 11 169 9 381 6 035 6 958

Average lending rate general public1) 7.18% 8.49% 6.26% 7.52% Average deposit rate general public1) 3.38% 4.37% 3.57% 4.81% Interest spread1) 1.06% 1.39% 0.87% 1.26% Interest income from Group companies 2 950 3 045 Interest expense to Group companies 2 011 1 923 Insurance premiums paid to Group companies 39 27 39 27 1) Average interest rate during the year

Note 2 Dividends received GROUP PARENT COMPANY 1997 1996 1997 1996 Dividends on shares and participations 144 90 141 87 Dividends from associated companies 6 17 6 11 Dividends from Group companies 1 582 1 741 150 107 1 729 1 839

Note 3 Commission income GROUP PARENT COMPANY 1997 1996 1997 1996 Payments 662 588 659 585 Lending 344 322 179 174 Deposits 152 160 152 160 Guarantees 156 170 156 170 Securities 1 915 1 433 1 588 1 241 Other commission 795 621 1 002 1 059 4 024 3 294 3 736 3 389

Commission income from Group companies 447 503

Note 4 Commission expense GROUP PARENT COMPANY 1997 1996 1997 1996 Payments 428 408 416 403 Securities 82 62 58 51 Other commission 177 196 134 122 687 666 608 576

Commission expense to Group companies 00

52 SHB 1997 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Note 5 Net result on financial operations GROUP PARENT COMPANY 1997 1996 1997 1996 Shares and participations 86 48 68 41 Interest-bearing securities 42 920 51 913 Realised profit 128 968 119 954

Shares and participations – 42 38 – 46 26 Interest-bearing securities – 360 822 – 361 806 Unrealised changes in value – 402 860 – 407 832

Changes in exchange rates 867 315 858 307 Net result on financial operations 593 2 143 570 2 093

Unrealised changes in value on interest-bearing securities in 1996 include SEK 621m in respect of changes in value on securities which were reclassified in preparation for the acquisition of Stadshypotek.

Note 6 Other operating income GROUP PARENT COMPANY 1997 1996 1997 1996 Realised share price gains, not trading book1) 97 35 1 893 35 Surplus on sales of properties 35 72 1 72 Profit before depreciation on property taken over for protection of claims 294 6 3 5 Rental income 54 64 53 61 Other operating income 86 113 87 71 566 290 2 037 244 1) Realised share price gains in the Parent Company in 1997 refers to SEK 1 796m sale of Handelsbanken Hypotek to Stadshypotek AB.

Specification of net operating surplus of property taken over for protection of claims

External income 616 9 3 6 Operating expenses – 287 – 3 0 – 1 Net operating surplus 329 6 3 5

Note 7 Staff costs GROUP PARENT COMPANY 1997 1996 1997 1996 Salaries and remuneration 2 728 2 332 2 301 2 114 Social security costs 821 690 684 632 Pension costs1) 244 207 213 194 Appropriation to profit-sharing foundation 141 30 121 28 Other staff costs 216 218 201 215 4 150 3 477 3 520 3 183

1) SEK 163m (137) of pension costs are computed costs and SEK 81m (70) pension premiums. The computed pension cost, which is charged to the operating result, is based on the number of employees in active service.

Insurance premiums paid to Group companies 4 5 4 5

Salaries and other emoluments Board, CEO and EVPs Sweden 46 42 38 37 Norway 1 1 Finland 1 1 Denmark 1 1 France 2 2 Luxembourg 1 2 USA 3 3 Australia 3 55 55 38 37

SHB 1997 53 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

GROUP PARENT COMPANY 1997 1996 1997 1996 Other staff Sweden 2 034 1 714 1 714 1 601 Norway 123 98 117 94 Finland 133 126 107 100 Denmark 73 63 61 51 UK 133 115 129 111 Luxembourg 35 34 10 9 Germany 17 18 17 18 USA 68 59 61 57 Singapore 22 17 22 17 Hong Kong 18 16 18 16 Other countries 17 17 7 3 2 673 2 277 2 263 2 077 Total 2 728 2 332 2 301 2 114

Number of employees (average during year) Women Men 1997 1996 Sweden 3 902 2 996 6 898 6 133 Norway 120 159 279 254 Finland 183 162 345 341 Denmark 51 80 131 116 UK 67 142 209 225 Luxembourg 32 43 75 77 Germany 18 22 40 42 USA 25 62 87 86 Singapore 31 16 47 48 Hong Kong 15 30 45 48 Other countries 15 13 28 28 4 459 3 725 8 184 7 398

The number of employees at Handelsbanken Liv and the Stadshypotek Fastigheter Holding AB Group (SFH AB) is not included in the above number of employees. Handelsbanken Liv’s costs are not included as this company is run on mutual principles and is not included in the Consolidated Accounts. For SFH AB, staff costs are deducted when calculating the net operating surplus to be included in the Group. Handelsbanken Liv had 198 (196) employees. SFH AB has 478 employees.

Terms and emoluments of the Bank’s senior management and the Chairman and Vice Chairman of the Board

TERMS: The Bank has no agreements on severance pay. For many years, the Bank has had an agreement with the Chief Executive Officer, whereby if he is not re-appointed at the annual general meeting, up to and including the fifth annual general meeting thereafter, he is to be offered other work and to be paid as if he had been CEO. If he takes up employment outside the Bank, no compensation will be paid to him. Arne Mårtensson, like his predecessors, has a retirement age of 55. This is considered to be desirable both for the Bank and the CEO in view of the Bank’s tradition of often appointing relatively young people to the position of Chief Executive Officer. The retirement pension is 75% of the salary up to the age of 65 and 65% thereafter. The pension is earned gradually during the years up to the age of retirement and is fully earned by the age of 55. The Bank is charged annually for the cost at the same rate as the pension is earned. An earned pension commitment is guaranteed by the Bank’s pension fund. If the CEO leaves the Bank before the age of 55, a paid-up policy is issued for the pension earned. The basic principle is that Executive Vice Presidents retire at the age of 60, with occasional exceptions. The retirement pension is 65% of the salary in the age band 60-64. From the age of 65, the retirement pension is 65% of the annual salary up to 40 index-linked base amounts and 32.5% above this level. The pension includes amounts due in the form of national basic pension (AFP) and national supplementary pension (ATP). For the Chairman of the Board of Handelsbanken, Tom Hedelius, there is a CEO agreement as described above. From November 1994, when Tom Hedelius reached the contracted age of retirement and a pension was payable, a supplementary agreement was made valid for five years. This agreement implies that Tom Hedelius, as in the previous agreement, does not serve as a director on any other boards than those desired by the Bank and that the emoluments are paid to the Bank. In return, Tom Hedelius receives a fee during the period of the agreement which is the difference between the pension and the remuneration prior to retirement. The emoluments of the Chairman and CEO are reviewed annually by the Compensation Committee of the Central Board of Directors.

EMOLUMENTS: During 1997 the Chairman, Tom Hedelius, received emoluments and benefits from the Bank amounting to SEK 220 101 after the fees which Tom Hedelius has received for serving on other boards have been deducted from the fee agreed with the Bank. A pension was paid under the agreement described above. No bonus is paid. The President and CEO, Arne Mårtensson, has received emoluments and benefits amounting to SEK 6 455 386. Fees from serving on other boards have been paid to the Bank. No bonus is paid.

PENSION COMMITMENTS Increased pension commitments and paid pension insurance premiums for the present and previous boards, CEOs and EVPs amount to SEK 94m (59) for the Group and SEK 81m (55) for the Parent Company. Pension commitments for the same people are SEK 452m (383) for the Group and SEK 409m (356) for the Parent Company. The number of people in the Group covered by these commitments is 60 (57) of whom 27 (26) are pensioners. In addition to normal changes in salaries, the increase in pension costs can be explained by altered technical assumptions (length of life and interest rate assumptions). The comparative figures have been altered due to the new calculation principles. The commitments are covered by the Bank’s pension foundation.

Note 8 Other administrative expenses GROUP PARENT COMPANY 1997 1996 1997 1996 Property and premises 674 595 570 550 Information technology 781 499 666 494 Communication 322 257 235 224 Travel and marketing 304 212 198 175 Purchased services 469 364 392 344 Supplies 150 116 129 105 Other expenses 226 194 157 153 2 926 2 237 2 347 2 045

Leasing expenses paid to Group companies 81 59

54 SHB 1997 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Note 9 Depreciation and write-down in value of tangible and intangible fixed assets GROUP PARENT COMPANY 1997 1996 1997 1996 Equipment 299 198 248 182 Property 49 40 39 39 Goodwill 246 45 27 26 Other depreciation/write-downs 23 27 7 2 617 1 278 321 249

Note 10 Loan losses GROUP PARENT COMPANY 1997 1996 1997 1996

A. INDIVIDUALLY VALUED CLAIMS: The year’s write-down for actual loan losses 2 200 2 503 1 854 1 967 Write-back of previous provisions for possible loan losses which are reported as actual losses in this year’s accounts – 1 705 – 1 471 – 1 487 – 1 140 The year’s write-down relating to possible loan losses 940 1 247 619 914 Recovered from actual losses in previous years – 605 – 132 – 588 – 99 Write-back of provisions for possible losses which are no longer necessary – 548 – 350 – 460 – 299 Net cost for the year for individually valued loan losses 282 1 797 – 62 1 343

B. CLAIMS VALUED AS A GROUP: The year’s write-down for actual loan losses 29 51 5 5 Recovered from actual losses in previous years – 11 – 12 – 1 – 1 Allocation to/dissolution of reserve for loan losses – 7 – 64 – 3 – 3 Net expense for the year for loan losses valued as a group 11 – 25 1 1

C. PROVISION TO GENERAL RESERVE FOR COUNTRY RISKS – 62 – 55 – 62 – 55 Total loan losses (A+B+C) 231 1 717 – 123 1 289

Both actual and possible loan losses reduce the corresponding claim amount on the assets side of the Balance Sheet. The reserve for possible loan losses increased by SEK 42m for the Group and SEK 37m for the Parent Company in the form of foreign currency translation differences. In 1996 the country risk also reduced the corresponding claim amount on the assets side of the Balance Sheet and the change in reserve for country risks was reported when claims were sold directly against the claim in question. In 1997 all country risk reserves were written back. In the 1997 accounts, individual provision has been made instead.

GROUP PARENT COMPANY 1997 1996 1997 1996 Write-downs: Claims on credit institutions — 228 — 228 Claims on the general public 1 464 2 102 991 1 518 Total write-downs 1 464 2 330 991 1 746

Write-backs: Claims on credit institutions 11 13 11 13 Claims on the general public 606 456 514 344 Total write-backs 617 469 525 357

Note 11 Change in value of property taken over GROUP PARENT COMPANY 1997 1996 1997 1996 Properties taken over — — — — Other property taken over – 2 42 — 42 Realised change in value – 2 42 — 42

Properties taken over 0 1 — 1 Other property taken over 73 46 — 0 Unrealised change in value 73 47 — 1 Change in value of property taken over 71 89 — 43

Note 12 Write-down of financial fixed assets GROUP PARENT COMPANY 1997 1996 1997 1996 Shares and participations in Group companies — — — 306 Write-down of financial fixed assets — — — 306

Refers to write-down of shareholdings in Industrialiseringsfonden AB and Fastighetsbanken i Finland AB in connection with dividends for the corresponding amount.

SHB 1997 55 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Note 13 Appropriations GROUP PARENT COMPANY 1997 1996 1997 1996 Settlement of pensions Computed pension premiums in the Bank 163 137 163 137 Pensions paid by the Bank – 231 – 199 – 231 – 199 Compensation from pension foundation 600 244 600 244 Settlement pensions, branches outside Sweden 19 19 532 201 532 201

Change in tax equalisation reserve K 456 456 Change in tax allocation reserve – 1 100 – 1 550 Change in other untaxed reserves – 17 11 Group contribution – 577 – 568 532 201 – 706 – 1 450

Note 14 Taxes GROUP PARENT COMPANY 1997 1996 1997 1996 Income tax 1 715 1 435 875 1 176 Deferred tax liability 595 382 — — Other taxes 16 12 13 9 2 326 1 829 888 1 185

After a tax audit, the Swedish tax authority has made a decision which could imply, if the decision is upheld in a higher court, that the Group’s tax expense will increase by SEK 418m. The Bank has appealed against the tax authority’s decision. Fot reasons of prudence, the Bank has made a provision of SEK 159m of the amount, SEK 59m of which during the financial year. At the year-end 1997, the Group had unutilised loss carry forwards, the taxation effects of which are SEK 115m. These loss carry forwards, which it is estimated will be possible to use in their entirety, have not been taken into consideration when calculating the tax expense for the year.

Note 15 Interest-bearing securities GROUP PARENT COMPANY 1997 1996 1997 1996

INSTRUMENTS ELIGIBLE AS COLLATERAL WITH CENTRAL BANKS Government instruments eligible as collateral 11 558 41 728 11 407 41 678 Other securities eligible as collateral 1 740 66 1 740 66 13 298 41 794 13 147 41 744

Instruments eligible as collateral with central banks Residual maturity: maximum one year 9 161 26 228 9 065 26 227 Residual maturity: over one year but maximum five years 2 709 12 120 2 704 12 104 Residual maturity: over five years but maximum ten years 1 089 2 589 1 062 2 567 Residual maturity: over ten years 339 857 316 846 Total 13 298 41 794 13 147 41 744

Average residual maturity 1.2 1.8 1.2 1.7

BONDS AND OTHER INTEREST-BEARING SECURITIES Issued by public bodies — 3 196 — 3 196 Issued by other borrowers 52 657 62 975 77 019 77 322 Bonds and other interest-bearing securities 52 657 66 171 77 019 80 518

Of which unlisted securities 14 639 13 819 14 639 13 817 Of which subordinated 6 83 6 83 Of which claims on Group companies 24 472 22 062

Bonds and other interest-bearing securities Residual maturity: maximum one year 42 539 42 826 60 505 45 566 Residual maturity: over one year but maximum five years 9 149 21 952 15 449 33 463 Residual maturity: over five years but maximum ten years 812 1 134 908 1 230 Residual maturity: over ten years 157 259 157 259 Total 52 657 66 171 77 019 80 518

Average residual maturity 1.3 1.0 0.9 1.5

56 SHB 1997 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

GROUP PARENT COMPANY 1997 1996 1997 1996

CURRENT ASSETS Current assets acquisition price Swedish government 4 512 18 353 4 365 18 308 Swedish local authorities 297 110 297 110 Swedish housing finance institutions 13 216 36 050 13 184 36 020 Other Swedish issuers: non-financial companies 2 459 4 910 2 413 4 910 other financial companies 3 336 2 196 3 326 2 141 Foreign governments 6 016 9 693 6 016 9 693 Other foreign issuers 30 517 14 427 30 517 14 426 Total 60 353 85 739 60 118 85 608 Of which subordinated (debenture loans) 6 83 6 83

Current assets market value Swedish government 4 514 18 688 4 361 18 639 Swedish local authorities 297 111 297 111 Swedish housing finance institutions 13 106 36 581 13 074 36 550 Other Swedish issuers: non-financial companies 2 544 4 919 2 483 4 919 other financial companies 3 296 2 246 3 286 2 181 Foreign governments 6 008 9 650 6 008 9 650 Other foreign issuers 30 565 14 601 30 564 14 598 Total 60 330 86 796 60 073 86 648 Of which subordinated (debenture loans) 6 83 6 83

Current assets book value Swedish government 4 491 18 688 4 340 18 639 Swedish local authorities 297 111 297 111 Swedish housing finance institutions 13 084 36 581 13 051 36 550 Other Swedish issuers: non-financial companies 2 479 4 919 2 418 4 919 other financial companies 3 296 2 246 3 286 2 181 Foreign governments 6 008 9 650 6 008 9 650 Other foreign issuers 30 510 14 579 30 510 14 576 Total 60 165 86 774 59 910 86 626 Of which subordinated (debenture loans) 6 83 6 83

During 1996, interest-bearing securities with a book value of SEK 16bn were reclassified from fixed assets to current assets. The reason for the reclassification was the acquisition of Stadshypotek.

FIXED ASSETS Fixed assets acquisition price Swedish government 900 12 192 900 12 192 Swedish local authorities — — — — Swedish housing finance institutions 3 614 7 713 28 080 22 158 Other Swedish issuers: non-financial companies — — — — other financial companies — 89 — 89 Foreign governments 164 26 164 26 Other foreign issuers 1 112 1 171 1 112 1 171 Total 5 790 21 191 30 256 35 636 Of which subordinated (debenture loans) — — — —

Fixed assets market value Swedish government 898 12 216 898 12 216 Swedish local authorities — — — — Swedish housing finance institutions 3 681 7 947 28 439 23 161 Other Swedish issuers: non-financial companies — — — — other financial companies — 90 — 90 Foreign governments 165 27 165 27 Other foreign issuers 1 111 1 173 1 111 1 173 Total 5 855 21 453 30 613 36 667 Of which subordinated (debenture loans) — — — —

In connection with the unrest in the Asian interest-rate related and currency markets in the autumn of 1997, the Bank decided to wind up securities classified as fixed assets with a book value of SEK 163m. From a credit risk point of view, the issuers were assessed to be exposed to exchange and interest rate risk in their operations. A loss of SEK 1m was realised on the sale. Book value higher than nominal value 1 141 3 549 1 217 3 853 Book value lower than nominal value 244 506 432 607

SHB 1997 57 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Note 16 Lending to credit institutions GROUP PARENT COMPANY 1997 1996 1997 1996

FIXED ASSETS Banks, in foreign currencies 91 584 85 300 93 135 88 105 Banks, in Swedish kronor 33 267 23 136 32 769 23 845 Other credit institutions, in foreign currencies 5 497 3 777 11 129 7 840 Other credit institutions, in Swedish kronor 4 281 7 306 38 895 14 083 134 629 119 519 175 928 133 870

Possible loan losses – 157 – 332 – 157 – 332 Country risk reserve — – 21 — – 21 134 472 119 166 175 771 133 517 Of which subordinated — — 288 — Of which claims on Group companies 43 541 13 751 Of which claims on associated companies 319 320 — —

Information concerning maturities: Payable upon demand 22 896 16 761 28 060 25 225 Residual maturity: maximum three months 71 790 58 763 74 581 62 079 Residual maturity: over three months but maximum one year 37 409 37 489 45 945 38 892 Residual maturity: over one year but maximum five years 1 244 2 922 25 392 5 408 Residual maturity: over five years 1 133 3 231 1 793 1 913 Total 134 472 119 166 175 771 133 517

Average residual maturity 0.3 0.5 0.3 0.5

In 1997 maturities have been allocated in accordance with the final maturity date. It has not been possible to convert the 1996 maturities, and therefore, as in the 1996 annual report, these have been allocated on the basis of the date on which the terms were changed.

Total value of claims covered by country risk reserve, after provision for possible loan losses

Lending to credit institutions — 88 — 88 Lending to the general public — 235 — 235 Country risk reserve — 62 — 62

In 1997 all country risk reserves were written back. In the 1997 accounts, individual provision has been made instead.

Note 17 Lending to the general public GROUP PARENT COMPANY 1997 1996 1997 1996

FIXED ASSETS Lending SEK Companies etc 302 948 131 417 109 156 75 566 Households 192 244 79 351 29 717 25 768 Total 495 192 210 768 138 873 101 334

Lending foreign currency Companies etc 87 348 64 561 79 897 57 170 Households 8 318 6 112 6 641 5 032 Total 95 666 70 673 86 538 62 202

Possible loan losses – 4 034 – 3 611 – 1 985 – 3 045 Country risk reserve — – 40 — – 40 Total lending 586 824 277 790 223 426 160 451 Of which subordinated 3 — 3 3 Of which claims on Group companies — 1 980 2 073 Of which claims on associated companies 9 — 9 —

Gross investments referring to financial leasing agreements concluded in 1997 have been calculated to be SEK 3 955m. Unearned finance income according to the same calculation is SEK 1 300m.

58 SHB 1997 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Information concerning maturities: Payable upon demand 48 937 58 752 30 315 58 569 Residual maturity: maximum three months 95 425 52 789 57 672 39 434 Residual maturity: over three months but maximum one year 118 541 50 240 52 313 21 688 Residual maturity: over one year but maximum five years 273 642 102 294 53 841 29 860 Residual maturity: over five years 50 279 13 715 29 285 10 900 Total 586 824 277 790 223 426 160 451

Average residual maturity 2.1 1.6 2.2 1.3

Bad debts etc (For definitions see “Svenska Handelsbanken Highlights”)

GROUP PARENT COMPANY 1997 1996 1997 1996 Bad debts 8 063 6 312 3 446 4 529 Reserve for possible loan losses – 4 242 – 4 117 – 2 183 – 3 538 Bad debts, net 3 821 2 195 1 263 991

Reduced rate loans without a provision for possible loan losses 272 357 165 279 Total problem loans 4 093 2 552 1 428 1 270

Bad debt reserve ratio 52.6% 65.2% 63.3% 78.1% Proportion of bad debts 0.64% 0.76% 0.46% 0.54% Problem loans before write-down for possible loan losses 8 335 6 669 3 611 4 808 Income on problem loans during the year 488 141 58 103 Annual interest rate on problem loans 5.85% 2.11% 1.61% 2.14% Annual interest rate on loans which are not problem loans 8.30% 8.71% 6.48% 7.91% Non-performing loans for which interest is accrued 1 983 884 296 560

COLLATERAL TAKEN OVER Book value Buildings and land 6 876 69 33 38 Shares and other participations 347 390 94 35 Other 28 20 0 0 7 251 479 127 73

Net income (Net operating surplus) Buildings and land 329 6 3 5 Shares and other participations — — — — 329 6 3 5

Net operating surplus, % of book value Buildings and land 5.7% 8.7% 9.3% 13.1% Shares and other participations 0.0% 0.0% 0.0% 0.0%

See note 23 for more detailed information about properties for protection of claims.

Note 18 Shares and participations GROUP PARENT COMPANY 1997 1996 1997 1996 Trading book 1 164 987 1 027 864 For protection of claims 347 390 94 35 Other shares 293 298 427 432 Current assets 1 804 1 675 1 548 1 331

Shares in housing co-operatives 6 4 4 4 Shares in credit institutions 174 2 511 174 2 511 Other shares 23 14 29 13 Fixed assets 203 2 529 207 2 528 Shares and participations 2 007 4 204 1 755 3 859 Of which unlisted 561 595 439 284

SHB 1997 59 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Shares and participations, current assets, for protection of claims, 31 December 1997 No. of shares/ Book Estimated participations value market value Evidentia Fastigheter AB conv. loan 1994/2001 100 000 000 60 60 Gamlestaden Intressenter AB 2 448 4 4 KEBO Care Scandinavia AS 39 150 51 51 Mansson K.K. 6 000 000 13 13 Kongsbo Holding AG 33 998 4 4 Calmar Inc.1) 1 305 144 197 197 K/S Siboelf, participations 16 16 Rights in housing co-operatives, two 22 Other companies, ten 00 Group 347 347

Of which in the Parent Company: Evidentia Fastigheter AB conv. loan 1994/2001 100 000 000 60 60 Gamlestaden Intressenter AB 2 448 4 4 KEBO Care Scandinavia AS 39 150 30 30 Other companies, ten 00 Parent Company 94 94

1) The company’s registered office is City of Industry, California, USA. Calmar Inc.’s equity at 31 December 1996 was SEK – 202m (– 158) and its result SEK – 27m (– 107). Handelsbanken’s participation in the company is 34%.

Shares, current assets, other shares 31 December 1997 No. of shares/ Book Estimated participations value market value Atle AB 4 719 336 94 592 Industrivärden AB 37 500 16 17 AH Småföretagsinvest AB 1 000 2 2 Gunnebo AB 11 980 0 1 Gunnebo convertible debentures 111 804 0 0 MoDo AB 1 260 000 181 253 Fv Fastighetsvärden AB 1 000 134 232 Eurosa Furniture Co Plc Ltd 500 000 0 0 Parent Company 427 1 097

Group elimination Fv Fastighetsvärden AB – 134 – 232 Group 293 865

Fv Fastighetsvärden AB is a wholly-owned subsidiary of the Bank. The shares in the company are regarded as investment shares and as such are current assets.

Shares and participations, fixed assets 31 December 1997 No. of Nominal value Book Dividend Parent shares each currency value Company’s 000 voting power %

SWEDISH CREDIT INSTITUTIONS AB Svensk Exportkredit 72 870 72 870 170 68 10.4 Företagskapital AB 25 334 2 533 3 1 12.7 173 69

FOREIGN CREDIT INSTITUTIONS Adela Investment Co. S.A. 5 250 USD 525 0 0 0.9 Cedel International, Luxembourg 10 USD 13 1 0 0.0 Development Bank of Singapore 237 600 SGD 238 0 0 0.1 1 0 Shares in credit institutions 174 69

60 SHB 1997 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

No. of Nominal value Book Dividend Parent shares each currency value Company’s 000 voting power %

OTHER COMPANIES BankomatCentralen AB 875 88 0 0 17.5 Euroclear Clearance System Ltd 250 USD 31 0 1 1.3 OM Gruppen AB, shares 90 000 450 2 1 0.4 Penningmarknadsinformation PMI AB 80 400 1 0 12.8 Society for Worldwide Interbank Financial Telecommunication (SWIFT) 493 BEF 2 465 1 0 0.6 Stockholms Fondbörs AB 114 948 6 081 9 2 8.1 Värdepapperscentralen VPC AB 49 200 4 920 1 0 8.2 Société des Bourses Fran¸caises 50 000 FRF 7 500 9 0 Helsingfors Fondbörs AB 80 000 FIM 600 1 0 1.0 Kreditlaget (co-op. society) 300 FIM 150 0 0 0.7 Helsingfors Penningmarknadscentral AB 250 FIM 250 0 0 0.4 Helsingfors Värdeandelscentral AB 664 FIM 645 1 0 0.7 Helsingfors Telefonförening 39 FIM 183 0 0 0.0 Exportfinans AS 13 FIM 13 0 0 0.2 Bankernes Betalingssentral AS 6 713 NOK 168 0 0 0.1 London International Financial Futures Exchange 1 GBP 20 4 0 Deutsche Börse AG, Frankfurt am Main 15 DEM 1 0 0 BNL-Beteiligungsgesellschaft Neue Länder GmbH & Co. KG DEM 17 0 0 Various companies, four 00

OTHER COMPANIES (PARENT COMPANY) 29 4

Group elimination Stockholms Fondbörs AB – 6 OTHER COMPANIES (GROUP) 23 4

Note 19 Shares and participations in associated companies GROUP PARENT COMPANY 1997 1996 1997 1996

FIXED ASSETS Credit institutions 33 33 30 30 Other associated companies 12 3 12 3 45 36 42 33

Shares and participations, associated companies 31 December 1997 No. of Nominal value Book Dividend Parent shares each currency value Company’s 000 voting power %

CREDIT INSTITUTIONS Svensk Bostadsfinansiering AB BOFAB 25 000 25 000 30 0 50.0 Parent Company 30 Proportion of equity BOFAB 3 Group 33

All associated companies are unlisted.

OTHER ASSOCIATED COMPANIES Backupcentralen Infosec Holding AB 87 500 2 188 9 0 25.0 B.C. Backupcentralen Publikt AB 3 BankgiroCentralen BGC AB 12 620 12 620 1 3 25.2 Centralen för Elektroniska Korttransaktioner CEK AB 370 185 0 0 37.0 KontoCentralen AB 170 17 0 0 16.7 Privatgiro AB 290 290 1 29.0 Upplysningscentralen UC AB 2 429 243 0 0 24.3 Sambox i Skåne HB 800 1 33.3 Total associated companies 12 6

Particulars of any associated company’s organisation number, registered office, profit/loss and equity are not included in these annual accounts.

SHB 1997 61 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Note 20 Shares and participations in Group companies GROUP PARENT COMPANY 1997 1996 1997 1996

FIXED ASSETS Shares in Swedish credit institutions 0 0 27 376 2 937 Shares in foreign credit institutions 0 0 716 698 Shares in other Swedish companies 1) 247 248 460 460 Shares in other foreign companies 0 0 36 36 247 248 28 588 4 131

1) Handelsbanken Liv Försäkrings AB is not included in the Consolidated Accounts. All Group companies are unlisted.

Shares and participations, Group companies 31 December 1997 No. of Nominal value Book Dividend Parent shares each currency value Company’s 000 voting power %

SWEDISH CREDIT INSTITUTIONS Stadshypotek AB (Stockholm) 162 000 000 4 050 000 26 870 1 500 100 Handelsbanken Finans AB (Stockholm) 1 550 000 155 000 145 100 Stadshypotek Bank AB (Stockholm) 3 000 000 360 000 361 100 27 376 1 500

FOREIGN CREDIT INSTITUTIONS Handelsbanken Markets Securities Inc. (New York) 1 000 USD 0 4 100 Svenska Handelsbanken S.A. (Luxembourg) 1 150 000 LUF 1 150 000 166 21 100 Svenska International plc (London) 32 500 000 GBP 32 500 373 100 SVE Asia Ltd (Singapore) 10 000 000 SGD 10 000 41 100 Svenska Handelsbanken, Inc. (Delaware) 1 000 USD 10 0 100 Handelsbanken Finans AS (Oslo) 800 000 NOK 80 000 88 100 A.C.N. 003 237 572 Ltd (Sydney) 5 000 000 AUD 5 000 23 100 Aktoris A/S (Tallinn) 100 000 EEK 10 000 11 100 Svenska France S.A. (Paris) 349 993 FRF 34 999 10 99.99 716 21

OTHER SWEDISH COMPANIES Handelsbankens Fondbolagsförvaltning AB 10 000 1 000 1 61 100 Handelsbanken Liv Försäkrings AB 1 500 150 000 300 100 Handelsbanken Liv Fondförsäkrings AB 100 000 100 000 139 100 AB Handel och Industri 100 000 5 000 5 100 Förvaltnings AB Lejontrappan 1 000 100 0 100 Siboelf Shipping AB 1 000 100 0 100 Kommanditbolaget Mjölner 1) 15 300 15 100 460 61

OTHER FOREIGN COMPANIES Forva AS, Oslo 4 809 236 NOK 480 924 1 100 Svenska Re S.A., Luxembourg 19 999 LUF 199 990 35 99.99 36 TOTAL 28 588 1 582

Particulars of any subsidiary’s business organisation number, registered office, profit/loss and equity are not included in these annual accounts. 1) Handelsbanken is general partner in Kommanditbolaget Mjölner, business organisation number 916557-5789, a limited partnership with its registered office in Göteborg.

Note 21 Goodwill GROUP PARENT COMPANY 1997 1996 1997 1996

FIXED ASSETS Acquisition value 463 443 274 274 Acquisition value of future goodwill 4 788 20 0 Total acquisition value 5 251 463 274 274

Accumulated amortisation at beginning of year – 231 – 186 – 178 – 152 Amortisation for the year according to plan – 246 – 45 – 27 – 26 Accumulated amortisation at year-end – 477 – 231 – 205 – 178

Foreign currency effect – 4 – 4 – 5 – 5 4 770 228 64 91

62 SHB 1997 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Note 22 Equipment GROUP PARENT COMPANY 1997 1996 1997 1996

FIXED ASSETS Residual value according to plan on 1 January 493 417 435 379 New acquisitions, net during the year 1) 499 254 334 238 The year’s depreciation according to plan – 299 – 199 – 248 – 182 Book value of leasing assets taken over 28 20 0 0 Residual value according to plan 721 492 521 435

1) The figure for the year includes acquisitions of SEK 148m in connection with the Stadshypotek acquisition. Apart from equipment which it owns, the Bank also has equipment which is subject to leasing contracts. The book residual value of leased equipment in the Group as at 31 December 1997 was SEK 20m (6). For the Parent Company, the equivalent value was SEK 142m (156).

Note 23 Buildings and land GROUP PARENT COMPANY 1997 1996 1997 1996

FIXED ASSETS Containing bank premises 1 732 1 376 1 234 1 259

CURRENT ASSETS For protection of claims etc 6 876 69 33 38 8 608 1 445 1 267 1 297

CONTAINING BANK PREMISES Acquisition value carried forward 1 325 1 420 1 195 1 267 New acquisitions during the year 1) 521 0 0 0 Capitalised new and rebuilding costs 14 4 14 4 Acquisition value of properties sold during the year – 131 – 99 0 – 76 Total acquisition value 1 729 1 325 1 209 1 195

Accumulated depreciation at beginning of year – 310 – 295 – 297 – 283 Accumulated depreciation of sold properties 0 10 0 10 Depreciation during the year – 34 – 25 – 25 – 24 Total accumulated depreciation – 344 – 310 – 322 – 297

Revaluation at beginning of year 436 436 436 436 Accumulated depreciation on revaluation – 74 – 60 – 74 – 60 Depreciation for the year – 15 – 15 – 15 – 15 Total revaluation 347 361 347 361 Residual value according to plan 1 732 1 376 1 234 1 259

Tax assessment value 1 893 1 560 1 579 1 500 1) Refers to properties from purchase of Stadshypotek.

Properties taken over for protection of claims and property-related exposures No. of Rentable Book Market Book value (SEK) Occupancy Occupancy Direct proper- area m2 value value m2 of rentable ratio rental ratio area % yield % ties SEK m SEK m area value %

OFFICE AND COMMERCIAL PROPERTY Central Stockholm 46 621 802 17 197 100 98 3.2 Greater Stockholm/Uppsala 157 665 1 986 12 603 96 93 5.6 Municipality of Göteborg 21 999 200 9 091 95 93 1.0 Malmö/Helsingborg 33 791 443 13 105 97 96 8.2 Municipalities > 75 000 inhabitants 7 401 27 3 654 95 95 3.3 Rest of Sweden 29 036 52 1 784 68 64 7.5 Outside Sweden 6 215 16 2 623 49 65 4.3 44 302 728 3 526 3 640 11 647 96 92 5.1

MULTI-FAMILY HOUSING Central Stockholm 58 890 448 7 602 99 97 6.0 Greater Stockholm/Uppsala 89 879 498 5 535 98 98 7.1 Municipality of Göteborg 25 438 222 8 740 100 100 9.0 Malmö/Helsingborg 53 785 199 3 702 90 89 6.6 Municipalities > 75 000 inhabitants 18 152 60 3 331 86 82 4.9 Rest of Sweden 53 222 118 2 213 75 73 1.6 Outside Sweden — — — — — — 63 299 366 1 545 1 638 5 161 94 92 6.5

SHB 1997 63 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

No. of Rentable Book Market Book value (SEK) Occupancy Occupancy Direct proper- area m2 value value m2 of rentable ratio rental ratio area % yield % ties SEK m SEK m area value %

INDUSTRIAL AND WAREHOUSE PROPERTY Central Stockholm — — — — — — Greater Stockholm/Uppsala 117 444 566 4 826 86 83 9.5 Municipality of Göteborg 26 030 59 2 268 75 72 neg. Malmö/Helsingborg 11 941 32 2 702 96 96 8.5 Municipalities > 75 000 inhabitants 43 780 78 1 780 87 87 9.1 Rest of Sweden 479 4 9 048 100 100 4.1 Outside Sweden — — — — — — 44 199 674 739 817 3 701 86 84 8.3

HOTEL AND CONFERENCE PROPERTY Central Stockholm — — — — — — Greater Stockholm/Uppsala 30 085 199 6 623 100 100 14.2 Municipality of Göteborg 4 155 44 10 659 100 100 9.7 Malmö/Helsingborg — — — — — — Municipalities > 75 000 inhabitants 5 183 30 5 692 100 100 9.7 Rest of Sweden 55 380 192 3 458 100 100 8.9 Outside Sweden — — — — — — 16 94 803 465 629 4 905 100 100 11.3

TOTAL Central Stockholm 105 511 1 250 11 847 99 98 4.2 Greater Stockholm/Uppsala 395 073 3 249 8 226 95 92 7.1 Municipality of Göteborg 77 622 525 6 764 94 88 4.6 Malmö/Helsingborg 99 517 674 6 773 94 92 7.7 Municipalities > 75 000 inhabitants 74 516 195 2 610 88 87 7.1 Rest of Sweden 138 117 366 2 645 85 83 6.3 Outside Sweden 6 215 16 2 623 49 65 4.3 167 896 571 6 275 6 724 6 999 94 91 6.3 Single-family houses 64 29 29 Housing co-operatives 2 2 2 Total 233 6 306 6 755

Group adjustment, net1) 570 121 Total 6 876 6 876

Book value of bad debt with property as main collateral 5 474 The direct yield has been calculated as recommended by the Swedish Association of Financial Analysts. 1) In connection with the acquisition of Stadshypotek, the total stock of property was valued by external valuers.

Note 24 Other assets GROUP PARENT COMPANY 1997 1996 1997 1996 Pre-paid tax 31 24 13 4 Claims on investment banking settlements 8 744 4 320 6 032 4 239 Derivative contracts with a positive value 31 316 33 863 30 933 33 805 Possible loan losses – 11 – 12 — — Other 4 840 4 646 2 611 2 263 44 920 42 841 39 589 40 311

Note 25 Prepayments and accrued income GROUP PARENT COMPANY 1997 1996 1997 1996 Accrued interest income 7 262 7 266 6 054 7 434 Other accrued income 469 1 852 2 038 1 890 Prepayments 141 103 84 80 7 872 9 221 8 176 9 404

64 SHB 1997 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Note 26 Liabilities to credit institutions GROUP PARENT COMPANY 1997 1996 1997 1996 Banks, in foreign currencies 112 326 126 922 113 416 128 252 Banks, in Swedish kronor 34 671 38 396 36 051 38 539 Other credit institutions, in foreign currencies 6 287 4 556 7 370 5 706 Other credit institutions, in Swedish kronor 88 152 1 100 16 018 4 865 241 436 170 974 172 855 177 362 Of which liabilities to Group companies 19 272 7 967 Of which liabilities to associated companies — — — —

Information concerning maturities: Payable upon demand 34 463 46 401 47 374 50 383 Residual maturity: maximum three months 84 342 81 286 88 168 84 007 Residual maturity: over three months but maximum one year 55 169 41 587 35 202 41 947 Residual maturity: over one year but maximum five years 52 682 661 2 074 651 Residual maturity: over five years 14 780 1 039 37 374 Total 241 436 170 974 172 855 177 362

Average residual maturity 1.0 0.3 0.2 0.2

Note 27 Deposits from the general public GROUP PARENT COMPANY 1997 1996 1997 1996 Deposits, Swedish kronor Corporate etc 57 039 52 826 55 779 53 077 Private 61 763 58 517 57 079 58 402 Total 118 802 111 343 112 858 111 479

Deposits, foreign currencies Corporate etc 16 848 8 943 42 110 18 134 Private 2 721 1 983 2 579 1 842 Total 19 569 10 926 44 689 19 976 Total deposits 138 371 122 269 157 547 131 455 Of which liabilities to Group companies 26 850 10 952 Of which liabilities to associated companies 3 16 3 16

Information concerning maturities: Payable upon demand 138 371 114 751 157 547 113 993 Residual maturity: maximum three months 0 3 450 0 11 761 Residual maturity: over three months but maximum one year 0 32 0 1 637 Residual maturity: over one year but maximum five years 0 3 910 0 3 940 Residual maturity: over five years 0 126 0 124 Total 138 371 122 269 157 547 131 455 Average residual maturity 0.0 0.1 0.0 0.1

Note 28 Funding from the general public GROUP PARENT COMPANY 1997 1996 1997 1996

FUNDING FROM THE GENERAL PUBLIC in foreign currencies 45 073 34 472 43 959 34 398 in Swedish kronor 21 303 10 766 20 655 9 974 66 376 45 238 64 614 44 372 Of which liabilities to Group companies 400 1 798 Of which liabilities to associated companies — — — —

Information concerning maturities: Payable upon demand — 14 996 — 15 037 Residual maturity: maximum three months 51 929 24 874 47 206 23 614 Residual maturity: over three months but maximum one year 9 578 4 049 12 929 4 429 Residual maturity: over one year but maximum five years 4 225 554 3 845 547 Residual maturity: over five years 644 765 634 745 Total 66 376 45 238 64 614 44 372 Average residual maturity 0.3 0.3 0.3 0.3

SHB 1997 65 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Note 29 Issued securities GROUP PARENT COMPANY 1997 1996 1997 1996

CERTIFICATES in foreign currencies 75 143 39 703 48 915 28 408 in Swedish kronor 57 330 32 099 1 649 4 202 Total certificates 132 473 71 802 50 564 32 610

BOND LOANS in foreign currencies 22 474 5 006 15 201 2 799 in Swedish kronor 129 104 52 476 6 546 2 855 Total bond loans 151 578 57 482 21 747 5 654 284 051 129 284 72 311 38 264

Of which liabilities to Group companies —— Of which liabilities to associated companies — — — —

Information concerning maturities: Residual maturity: maximum one year 148 426 89 912 50 817 33 699 Residual maturity: over one year but maximum five years 117 924 38 533 7 019 4 218 Residual maturity: over five years but maximum ten years 17 491 839 14 265 347 Residual maturity: over ten years 210 — 210 — Total 284 051 129 284 72 311 38 264

Average residual maturity 1.5 1.7 0.9 0.6

Note 30 Other liabilities GROUP PARENT COMPANY 1997 1996 1997 1996 Tax liabilities 666 310 444 173 Liabilities on investment banking settlements 5 476 3 594 4 598 3 511 Derivative contracts with a negative value 34 412 36 907 32 916 36 163 Short-term positions 9 768 6 530 9 768 6 530 Other 7 182 7 733 6 014 5 736 57 504 55 074 53 740 52 113

Note 31 Accruals and deferred income GROUP PARENT COMPANY 1997 1996 1997 1996 Accrued interest income 9 815 5 150 3 651 4 130 Other accrued expenses 1 270 885 967 724 Deferred income 1 187 164 83 66 12 272 6 199 4 701 4 920

Note 32 Subordinated liabilities GROUP PARENT COMPANY 1997 1996 1997 1996 Subordinated loans in foreign currencies 10 889 4 170 10 818 4 023 Subordinated loans in Swedish kronor 12 342 8 132 4 791 4 911 Total subordinated loans 23 231 12 302 15 609 8 934

Of which liability to Group companies —— Of which liability to associated companies — — — —

Specification, subordinated loans, Parent Company 31 December 1997 Year of issue/ Orginal nominal Interest Out- maturity amount in each rate % standing currency (million) amount SEK m

IN SEK 1990/05 2 000 *) 2 000 1997/99 1 000 5.000 1 000 1997/99 100 *) 100 1997/00 150 6.275 150 1997/02 300 6.750 300 1997/02 250 6.635 250 1997/08 1 0006.900 991 Subtotal 4 791

66 SHB 1997 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

IN FOREIGN CURRENCY 1991/01 USD 54 6.040 428 1992/00 BEF 1 000 8.875 213 1992/04 USD 400 8.350 3 148 1992/07 USD 100 8.125 787 1997/02 USD 350 *) 2 755 1997/07 USD 360 7.130 2 833 1997/02 BEF 1 400 *) 298 1997/02 FIM 245 5.750 356 Subtotal 10 818 Total 15 609 *) Floating rate of interest based on LIBOR/STIBOR

Note 33 Untaxed reserves GROUP PARENT COMPANY 1997 1996 1997 1996 Accumulated depreciation on property in excess of plan 13 13 Tax equalisation reserve 1 370 1 826 Tax allocation reserve 4 543 3 443 Other untaxed reserves 33 16 5 959 5 298

Note 34 Shareholders’ equity GROUP PARENT COMPANY 1997 1996 1997 1996

RESTRICTED SHAREHOLDERS’ EQUITY: Share capital 2 605 2 605 2 605 2 605 Statutory reserve 3 169 3 144 2 936 2 936 Reserve for unrealised profits 21 746 11 733 Other restricted reserves 5 319 4 827 — —

UNRESTRICTED SHAREHOLDERS’ EQUITY: Profit brought forward 15 241 11 145 13 660 9 949 Profit for the year 6 007 5 090 5 840 4 197 32 362 27 557 25 052 20 420

Reserve for unrealised profits by balance sheet item: Government debt instruments eligible as collateral with central banks 240 236 Bonds and other interest-bearing securities 506 497 Shares and participations 21 11 21 746 11 733

GROUP Share Restricted Unrestricted Profit for Total (SEK m) capital reserves reserves the year Shareholders’ equity carried forward 2 605 8 717 11 145 5 090 27 557 Dividend – 1 208 – 1 208 Balance carried forward 3 882 – 3 882 0 Transfer between restricted and unrestricted equity – 256 256 0 Change of foreign currency component 153 – 42 111 Exchange rate difference on hedging instruments – 105 – 105 Profit for the year 6 007 6 007 Shareholders’ equity at year-end 1997 2 605 8 509 15 241 6 007 32 362

No transfer from unrestricted equity to restricted equity is needed in 1997.

PARENT COMPANY Share Restricted Unrestricted Profit for Total (SEK m) capital reserves reserves the year Shareholders’ equity carried forward 2 605 3 669 9 949 4 197 20 420 Dividend – 1 208 – 1 208 Balance carried forward 2 989 – 2 989 0 Transfer between restricted and unrestricted equity – 722 722 0 Profit for the year 5 840 5 840 Shareholders’ equity at year-end 1997 2 605 2 947 13 660 5 840 25 052 The share capital comprises: Ordinary share capital 2 383 238 248 980 shares at SEK 10.00 Index share capital 172 17 205 866 shares at SEK 10.00 Preference share capital 50 5 000 000 shares at SEK 10.00 2 605 260 454 846

SHB 1997 67 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Note 35 Collateral pledged for own debt GROUP PARENT COMPANY 1997 1996 1997 1996 Mortgages on property 178 1 1 1 Pledged bonds 45 473 28 105 45 473 28 105 Repledged securities 13 688 19 460 13 688 19 460 Other 98 1 084 31 7 59 437 48 650 59 193 47 573

Note 36 Contingent liabilities GROUP PARENT COMPANY 1997 1996 1997 1996 Guarantees, loans 34 948 18 505 39 827 25 321 Guarantees, other 17 325 16 591 17 164 16 527 Special guarantees 62 62 62 62 Irrevocable letters of credit 23 278 18 962 23 278 18 962 Own acceptances 3 317 4 864 3 317 4 864 Other 2 991 — — — 81 921 58 984 83 648 65 736

Note 37 Pension commitments GROUP PARENT COMPANY 1997 1996 1997 1996 Market value of assets in the Bank’s pension foundation 12 661 10 386 12 661 10 386 Commitments – 5 091 – 3 838 – 5 091 – 3 838 Surplus 7 570 6 548 7 570 6 548

The pension commitments in the Bank’s pension fund (Pensionskassan SHB, försäkringsförening) are SEK 1 225m (1 136) and the market value of the assets is SEK 4 889m (3 998). The surplus in the fund is thus SEK 3 664m (2 862).

Note 38 Other commitments GROUP PARENT COMPANY 1997 1996 1997 1996 Certificate programmes 3 344 665 3 339 660 Other commitments 380 261 380 261 Commitments regarding future payments 3 724 926 3 719 921

Interest rate swaps 653 677 482 595 649 225 520 877 FRA/Futures 3 207 229 2 657 602 3 207 229 2 657 602 Interest rate options 5 972 9 961 5 972 9 961 Interest-rate related contracts 3 866 878 3 150 158 3 862 426 3 188 440

Forward currency contracts 1 345 943 1 140 723 1 345 333 1 141 367 Currency swaps 85 755 55 198 71 550 55 198 Currency options 46 519 29 857 46 519 29 857 Currency-related contracts 1 478 217 1 225 778 1 463 402 1 226 422

Equity futures 154 556 154 556 Equity options 9 565 6 170 9 565 6 170 Equity-related contracts 9 719 6 726 9 719 6 726

Guaranteed amount for liquidity management 0 9 0 9 Credits granted but not yet drawn 48 591 23 588 23 227 21 650 Unutilised part of overdraft facilities granted 45 806 38 203 45 806 38 203 Other commitments 94 397 61 800 69 033 59 862 Total commitments 5 452 935 4 445 388 5 408 299 4 482 371

The Swedish Financial Accounting Standards Council’s recommendation on accounting for operating leases stipulates that disclosure must be made concerning contracted future leasing fees, stating the periods during which they fall due for payment.

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total 256 219 153 111 84 53 44 36 32 27 21 15 5 1 056

68 SHB 1997 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

OTHER INFORMATION Information concerning fair value, Group Book Adjustment value to fair value ASSETS Lending to the general public fixed assets 586 824 11 698

Lending to credit institutions fixed assets 134 472 75

Interest-bearing securities fixed assets 5 790 65 current assets 60 165 0

Other assets fixed assets 7 718 1 050 current assets 64 497 4 299 Total assets 859 466 17 187

LIABILITIES Deposits and funding from the general public 204 747 – 829 Liabilities to credit institutions 241 436 3 679 Issued securities 284 051 5 813 Subordinated liabilities 23 231 601 Other liabilities 73 371 3 614 Total liabilities 826 836 12 878 Total surplus value 4 309

In accordance with the Swedish Financial Supervisory Authority’s directives (1996:28), Current assets and liabilities which are traded on liquid markets have been valued at the a comparison is to be made between fair value and book value for both assets and liabil- average price on the balance sheet day. Market-listed off-balance sheet items are valued ities in the Balance Sheet and also financial items which are not reported in the Balance in the same way. Sheet. Values which are based on customer relations are not to be taken into account, Items which are not traded on liquid markets, irrespective of whether these are current although they may be of importance in valuing, for example, deposit accounts and mort- assets, fixed assets, issued liabilities or off-balance sheet financial items are valued at the gage and consumer credits. The directives allow scope for choice of method and various current market rate for the corresponding maturity adjusted to take into account the credit assumptions. Thus, the methods applied and the assumptions made may vary among the and liquidity risk. The credit and liquidity risk premium by which the market rate has been credit institutions. Information concerning fair value is not a corporate valuation and adjusted when making the valuation is assumed to be the same as the average margin for therefore cannot constitute the basis of a comparison between credit institutions. new lending at the time of measurement. For means of payment, current claims and liabilities and also for claims and liabilities Properties are valued at their yield value, using the cash flow method over a five-year with a variable interest rate, the fair value is considered to be the same as the book period of computation and with the requirement of a market rate of return. value. Claims and liabilities with final maturity or date for next interest-rate fixing within With the method applied, the interest rate risk in the Balance Sheet gives rise to 30 days are considered to be short-term. surplus values if short-term interest rates are falling and losses if interest rates are rising. A surplus value also occurs when margins decrease and a loss when margins increase.

Geographical distribution of income 1997 GROUP Nordic Rest of Rest of countries Europe world Interest income 47 270 5 582 5 505 Dividends received 148 2 0 Commission income 3 750 193 81 Net result on financial operations 720 – 150 23 Other operating income 551 13 2

PARENT COMPANY Nordic Rest of Rest of countries Europe world Intererst income 18 205 5 278 5 493 Dividends received 1 728 1 0 Commission income 3 596 84 56 Net result on financial operations 708 – 162 24 Other operating income 2 033 2 2

SHB 1997 69 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Derivative Instruments

GROUP REPORTED AT MARKET VALUE REPORTED AS HEDGES Nominal Book value Nominal Market value Book value value Positive Negative value Positive Negative Positive Negative

Interest-rate related instruments Options 5 972 15 26 — — — — — FRA/Futures 3 206 901 1 374 1 467 328 1 1 — — Swaps 612 072 16 214 19 783 41 605 2 209 4 095 870 1 898 Total 3 824 945 17 603 21 276 41 933 2 210 4 096 870 1 898

Of which cleared 503 037 117 113 — — — — —

Currency-related instruments Options 46 519 231 230 — — — — — Futures 1 330 049 21 824 20 667 15 894 204 157 44 23 Swaps 69 766 2 855 3 265 15 989 2 713 1 651 483 316 Total 1 446 334 24 910 24 162 31 883 2 917 1 808 527 339

Of which cleared

Equity-related instruments Options 9 469 1 368 213 96 15 — 15 — Futures 154 2 6 — — — — — Total 9 623 1 370 219 96 15 — 15 —

Of which cleared 438 13 15 — — — — —

For derivative instruments with a market value, the market value corresponds to the book value. The differences between market value and book value reported in the table correspond to the reversed differences between market value and book value in that part of the Group’s operations which is subject to hedge accounting.

Assets and liabilities in foreign currency

GROUP Total SEK USD DEM GBP NOK FIM DKK Other currencies Assets Lending to credit institutions 134 472 37 391 48 818 3 617 1 466 1 943 9 352 15 182 16 702 Lending to the general public 586 824 491 394 34 063 6 283 12 637 16 656 13 694 2 762 9 337 Interest-bearing securities 65 955 24 612 26 227 654 805 1 834 5 687 1 938 4 198 Other assets 72 215 25 090 24 209 127 2 112 8 474 6 293 812 5 097 Total assets 859 466 578 487 133 317 10 681 17 020 28 907 35 026 20 694 35 334

Liabilities Liabilities to credit institutions 241 436 122 823 73 565 8 058 7 684 2 057 2 644 17 780 6 823 Deposits and funding from the general public 204 747 140 105 33 718 3 072 8 356 7 232 8 090 2 618 1 557 Issued securities 284 051 186 434 75 077 281 4 821 334 16 204 450 450 Other liabilities 73 371 33 353 24 783 2 253 450 3 397 6 650 322 2 164 Subordinated liabilities 23 231 12 342 10 291 0 0 0 440 0 158 Total liabilities 826 836 495 057 217 434 13 664 21 311 13 020 34 028 21 170 11 152

Almost half of the Group’s assets and liabilities, excluding cash flows from derivatives, are in foreign currency. The allocation between currencies in the balance sheet is not an expression of exchange rate risks. The Bank raises funding in the currencies offering the best terms at the time of funding. The loans can then be swapped into other currencies through transactions on the derivative market. These off-balance-sheet transactions eliminate exchange rate risks and are the reason that the table does not show exposure to exchange rate risks. See page 44 for information about exchange rate risks.

70 SHB 1997 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Capital base, 31 December 1997 GROUP PARENT COMPANY Tier 1 capital (net, less goodwill) 25 906 27 292 Tier 2 capital 16 717 14 449 Less shareholdings in insurance companies and domestic financial institutions – 677 – 677 Total tier 1 and tier 2 capital 41 946 41 064 Augmented part of capital base 1 250 1 250 Total capital base 43 196 42 314

Capital requirement, 31 December 1997 GROUP PARENT COMPANY PARENT COMPANY Weighting Risk-weighted Risk-weighted factor Investments amount Investments amount

FOR CREDIT RISKS Balance sheet items Group A 0 211 771 — 148 996 — B 20 110 417 22 083 108 013 21 603 C 50 327 282 163 641 43 081 21 541 D 100 177 303 177 303 120 302 120 302 Total A-D 826 773 363 027 420 392 163 446

Off-balance-sheet items GROUP PARENT COMPANY Weighting Nominal Converted Risk-weighted Nominal Converted Risk-weighted factor amount amount amount amount amount amount Group A 0 38 537 33 003 — 38 544 32 663 — B 20 29 491 3 505 701 11 363 1 489 298 C 50 1 831 164 82 1 562 142 71 D 100 52 411 28 243 28 243 51 618 27 802 27 802 Total A-D 122 270 64 915 29 026 103 087 62 096 28 171 Total credit risks 891 688 392 053 482 488 191 617

FOR MARKET RISKS GROUP PARENT COMPANY Specific General Total Specific General Total risk risk risk risk risk risk Interest rate risks 3 510 7 136 10 646 3 510 7 136 10 646 Share price risks 179 136 315 179 135 314 Settlement risks 26 26 Counterparty and other risks 10 818 10 816 Exchange rate risks 927 945 Total market risks 22 732 22 747 Total risk-weighted amount 414 785 214 364 Capital ratio 10.4% 19.7%

Tier 1 capital is affected by the Board of Directors’ recommendation regarding appropriations and allocation of profit.

SHB 1997 71 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Handelsbanken Liv Försäkrings AB

PROFIT AND LOSS ACCOUNT 1997 1996 Technical account – life assurance business Premium income 1 922 1 845 Investment income 1 696 2 097 Insurance provisions – 847 – 748 Changes in other technical provisions for life assurance – 1 095 – 1 123 Bonus – 58 – 47 Operating expenses – 166 – 211 Result on technical account – life assurance business 1 452 1 813

Non-technical account Tax – 179 – 178 Surplus for the year 1 273 1 635

BALANCE SHEET 1997 1996 1997 1996 Assets Equity, provisions and liabilities Buildings and land 432 828 Equity 151 152 Shares and participations 4 760 4 540 Bonuses 2 880 2 279 Bonds and other securities 6 599 6 533 Surplus for the year 1 273 1 634 Other investment assets 310 15 Technical provisions for life assurance 8 965 8 556 Claims 157 303 Provisions for taxes 113 83 Other assets 862 723 Liabilities 151 543 Prepayments and accrued income 433 347 Accruals and deferred income 20 42 Total assets 13 553 13 289 Total liabilities, provisions and equity 13 553 13 289

Comments: The accounts have been prepared in accordance with the Accounting Act for Insurance Companies and also with the instructions issued by the Swedish Financial Supervisory Authority. The profit and loss account and balance sheet for Handelsbanken Liv Försäkrings AB are based on preliminary information and may differ from the final figures published in Handelsbanken Liv’s annual report. Handelsbanken Liv Försäkrings AB is run on mutual principles. According to the Insurance Companies Business Act, dividends may not be paid to the shareholders of a traditional life assurance company. The entire surplus should accrue to the policy-holders.

72 SHB 1997 SHB 1997 73 RECOMMENDATION FOR DISTRIBUTION OF PROFITS

Recommendation for distribution of profits

including distribution of the shares in property-owning company

The Handelsbanken Group’s unrestricted equity is SEK 21 248m. In accordance with the Balance Sheet for Handelsbanken, profits totalling SEK 19 500m are at the disposal of the Annual General Meeting.

The Board of Directors recommends that the profits be distributed as follows:

Dividend to shareholders SEK m

on Ordinary Shares, SEK 6.50 (SEK 5.00 for 1996) 1 548.6 on Index Shares, SEK 0.80 (SEK 0.80 for 1996) 13.8 on Preference Shares Class A, SEK 0.45 (SEK 0.45 for 1996) 1.1 on Preference Shares Class B, SEK 0.60 (SEK 0.60 for 1996) 1.5 and Distributed to holders of ordinary shares

shares in a newly-formed limited company which directly or indirectly will own the properties included in the Board of Directors’ recommendation 1 950.0 1) Total dividends (SEK 1 207.6m for 1996) 3 515.0

Balance carried forward 15 985.0 Total allocated 19 500.0

Stockholm, 17 February 1998

TOM HEDELIUS BO RYDIN JAN EKMAN

LENNART CLAESSON GÖRAN ENNERFELT PER-OLOF ERIKSSON HANS LARSSON ROLAND FAHLIN OLLE PERSSON GUNNAR L JOHANSSON LOTTY BERGSTRÖM SVEN ÅGRUP CLAS REUTERSKIÖLD BENGT SAMUELSSON

ARNE MÅRTENSSON President and Group Chief Executive

1) The distribution is described briefly on page 41 and in greater detail in separate documentation to be sent to shareholders in April 1998 before the Annual General Meeting.

74 SHB 1997 REPORT OF THE AUDITORS

Report of the auditors

To the General Meeting of the Shareholders of Svenska Handelsbanken AB (publ) Registered Number 502007-7862

We have audited the Parent Company and the Consolidated Financial Statements, the accounts and the administration of the Board of Directors of Svenska Handelsbanken AB (publ) for 1997. These accounts and the administration of the Company are the responsibility of the Board of Directors. Our responsibility is to express an opinion on the financial statements and the administration based on our audit.

We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. During the year, the auditing department of Svenska Handelsbanken has continuously examined the internal controls and accounts. We have received the reports that have been prepared. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and their application by the Board of Directors, as well as evaluating the overall presentation of information in the financial statements. We examined significant decisions, actions taken and circumstances of the Company in order to be able to determine the possible liability to the Company of any board member or whether they have in some other way acted in contravention of the Banking Companies Act, the Banking Business Act, the Annual Accounts Act for Credit Institutions and Securities Companies or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below.

In our opinion, the Parent Company and the Consolidated Financial Statements have been prepared in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies, and, consequently, we recommend

that the profit and loss accounts and the balance sheets of the Parent Company and the Group be adopted, and

that the profit of the Parent Company be dealt with in accordance with the proposal in the Directors’ Report.

In our opinion, the board members have not committed any act or been guilty of any omission, which could give rise to any liability to the Company. We therefore recommend

that the members of the Board of Directors be discharged from liability for the financial year.

Stockholm, 4 March 1998

BERTIL EDLUND SIGVARD HEURLIN HANS KARLSSON Authorised Public Authorised Public Authorised Public Accountant Accountant Accountant

PETER MARKBORN Authorised Public Accountant Appointed by the Swedish Financial Supervisory Authority

SHB 1997 75 HANDELSBANKEN’S SHARES

Handelsbanken’s shares

SHARE PRICE PERFORMANCE AND DIVIDEND THE SHARES The strong performance of the Stockholm Stock Handelsbanken’s share capital was SEK 2 605m distrib- Exchange continued during 1997. Measured by the uted over 260 454 846 shares with a nominal value per Affärsvärlden Share Index, the increase was 25%. Bank share of SEK 10. shares rose on expectations of higher earnings resulting Since 1 January 1993, all shares are unrestricted. from the structural changes in the banking sector Ordinary class A shares each carry one vote, while ordi- during the year and due to falling market interest rates. nary class B shares, index shares and preference shares Handelsbanken’s ordinary shares increased by 40%. carry one-tenth of a vote each. Handelsbanken’s long-term dividend policy reflects At the Annual General Meeting, no shareholder is the ambition to raise dividends at a rate which is above allowed to vote for more than 5% of the aggregate the average for the banking sector. The Board recom- number of votes to which the shares represented at the mends a dividend of SEK 6.50 per ordinary share for Meeting are entitled. 1997, which is an increase of 30% compared with the Handelsbanken’s shares are listed on the Stockholm previous year. Stock Exchange. One trading unit is equivalent to 200 For 1997, the dividend on the index shares, which shares. follows the consumer price index, is unchanged at SEK 0.80. THE SHAREHOLDERS For the preference shares, in accordance with the At the year-end, Handelsbanken had around 77 000 Articles of Association, the dividend will be SEK 0.45 shareholders, most of them private individuals. As can for class A and SEK 0.60 for class B. be seen from the table on the next page, the majority of shareholders owned only a small number of shares. MARKET CAPITALISATION Of the 118 shareholders with more than 250 000 shares, During 1997, the market capitalisation of Handels- there were a number of asset managers representing banken’s shares rose by SEK 18.5bn to SEK 65.2bn at foreign private individuals and legal entities. At the end the year-end, the highest ever. Since 1991, the Bank’s of 1997, around 24% of the shares were owned by market capitalisation has more than quadrupled. investors outside Sweden. The proportion of Swedish institutional holders was just over 50%. These mainly included insurance companies, investment companies and equity funds representing a large number of private individuals. Eight of the Swedish shareholders each held more than 2% of the number of votes, as shown in the adjoining table.

Trend for Handelsbanken’s Market capitalisation 31 December Net earnings and dividend ordinary shares 1990–1997 SEK bn per ordinary share SEK

Index 70 350 Net earnings 25 60 per ordinary share

300 Svenska Handelsbanken 50 Dividend per 20 ordinary share 40 250

30 15 200 25 Affärsvärlden 10 150 General Index 20 100 15 5 10 50 Bank share index excl Handelsbanken 5 0

19901991 1992 1993 1994 1995 1996 1997 1990 1991 1992 1993 1994 1995 1996 1997 1990 1991 1992 1993 1994 1995 1996 1997

76 SHB 1997 HANDELSBANKEN’S SHARES

Key figures per share

1993 1994 1995 1996 1997 Operating profit per ordinary share, SEK 2.44 12.41 15.36 20.25 23.50 Net earnings per ordinary share, SEK 4.38 10.14 15.38 21.32 25.15 Dividend per ordinary share, SEK 2.00 3.00 3.75 5.00 6.50 Dividend growth, % — 50.0 25.0 33.3 30.0 Adjusted shareholders’ equity per ordinary share, SEK 88.83 96.72 110.03 114.47 134.01 Stock exchange price of ordinary A share, 31 Dec, SEK 113 98 137 196 274 Adjusted stock exchange price of A shares, 31 Dec, SEK1) 106 92 129 196 274

Average daily turnover on Stockholm Stock Exchange Ordinary class A, number 467 930 508 970 426 220 393 040 401 790 Ordinary class B, number 55 960 54 200 31 580 28 720 26 026 Highest/lowest price paid, ordinary class A shares, SEK 126/24 150/88 140/84 201/120 300/183 Direct yield, % 1.8 3.1 2.7 2.6 2.4 P/E ratio 28.3 9.7 8.9 9.2 10.9 Stock exchange price/Equity, % 127 101 124 171 204

Dividend for 1997 in accordance with the Board’s recommendation. Adjusted to take account of current accounting principles and definitions.

1) Stock exchange price 1992–95 recalculated to take account of distribution of Näckebro.

Shares per shareholder 31 December 1997

Number of shares Shareholders Shareholdings Number Percentage of Number of shares Percentage of Average number all shareholders in thousands share capital per holder 1 – 500 shares 53 838 69.6 8 748 3.4 162 501 – 2 500 shares 19 168 24.8 20 681 8.0 1 079 2 501 – 25 000 shares 3 912 5.1 21 699 8.3 5 547 25 001 – 250 000 shares 312 0.4 23 560 9.0 75 514 250 001 – shares 118 0.1 185 727 71.3 1 573 954 Bonus shares not exercised 40 Total 77 348 100.0 260 455 100.0 3 367

The major Swedish shareholders 31 December 1997 Shares divided into share classes 31 December 1997

Share class Number % of % of % of votes capital votes The Oktogonen Foundation 9.8 Ordinary shares Sparbanken and Föreningsbanken Class A 216 649 873 83.18 98.02 mutual funds (24) 6.8 Class B 21 599 107 8.29 0.98 Industrivärden 6.7 Total 238 248 980 91.47 99 AMF-Pension 4.3 Index shares 17 205 866 6.61 0.78 SPP 3.7 Preference shares National Swedish Pension Fund, 4th fund board 3.4 Class A 2 500 000 0.96 0.11 Nordbanken mutual funds (15) 2.5 Class B 2 500 000 0.96 0.11 Skandia 2.4 Total 260 454 846 100 100

SHB 1997 77 PROFIT AND LOSS ACCOUNTS AND BALANCE SHEETS 1993-97

Profit and loss accounts and Balance sheets 1993–97

Group

PROFIT AND LOSS ACCOUNT (SEK m)1) 1993 1994 PROFIT AND LOSS ACCOUNT (SEK m) 1995 1996 1997 Net interest income 9 028 9 273 Interest income 40 112 40 179 58 357 Commission 2 830 2 561 Interest expense – 31 368 – 30 798 – 47 188 Other operating income 1 026 788 Dividends received 65 107 150 Total operating income 12 884 12 622 Commission income 2 770 3 294 4 024 Personnel expenses 2 846 3 001 Commission expense – 404 – 666 – 687 Other expenses 2 253 2 388 Net result on financial operations 1 574 2 143 593 Depreciation 260 317 Other operating income 689 290 566 Total expenses 5 359 5 706 Total income 13 438 14 549 15 815 Possible and actual losses 6 801 2 809 Staff costs 3 413 3 477 4 150 Other administrative expenses 2 248 2 237 2 926 Total operating expenses 12 160 8 515 Depreciation and write-downs 340 310 617 Operating profit 724 4 107 Total expenses 6 001 6 024 7 693 Minority interests 0 – 17 Profit before appropriations and Profit before loan losses 7 437 8 525 8 122 taxes excluding minority interests 724 4 090 Net loan losses 2 392 1 806 302 Appropriations 452 – 1 302 Operating profit 5 045 6 719 7 820 Profit before taxes 1 176 2 788 Minority interests 10 – 1 – 19 Taxes – 247 – 384 Appropriations – 72 201 532 Profit for the year 929 2 404 Profit before taxes 4 983 6 919 8 333 Taxes – 1 340 – 1 829 – 2 326 Net profit 3 643 5 090 6 007

BALANCE SHEET (SEK m)1) 1993 1994 BALANCE SHEET (SEK m) 1995 1996 1997

ASSETS ASSETS Cash 2 423 1 992 Cash 1 304 7 487 3 025 Banks and other financial institutions 42 796 63 996 Interest-bearing securities 87 758 107 965 65 955 Bonds 63 239 60 127 Lending to credit institutions 92 286 119 166 134 472 Loans to the general public 248 670 243 745 Lending to the general public 259 168 277 790 586 824 Leasing assets 2 987 3 117 Shares and participations 2 629 4 488 2 299 Other assets 25 828 21 342 Tangible assets 8 560 1 937 9 329 Shares and participations 3 261 1 854 Other assets 54 849 52 290 57 562 Equipment 403 412 Total assets 506 554 571 123 859 466 Property housing bank premises 1 525 1 546 Handelsbanken Liv 8 057 7 721 LIABILITIES AND SHAREHOLDERS’ EQUITY Total assets 399 189 405 852 Liabilities to credit institutions 143 646 170 974 241 436 Deposits and funding LIABILITIES AND SHAREHOLDERS’ EQUITY from the general public 137 452 167 507 204 747 Clearing liabilities and banker’s drafts 1 996 2 424 Issued securities 120 741 129 284 284 051 Deposits and certificates of deposit 171 213 184 554 Other liabilities 65 904 63 492 73 371 Banks and other financial institutions 107 807 110 589 Subordinated liabilities 12 826 12 302 23 231 Other liabilities 20 793 19 920 Total liabilities 480 569 543 559 826 836 Long-term funding 68 324 57 841 Minority interest in shareholders’ Provision for country risks 312 143 equity 30 7 268 Handelsbanken Liv 7 907 7 571 Shareholders’ equity 25 955 27 557 32 362 Total liabilities 378 352 383 042 Total liabilities and Minority interest in shareholders’ equity 35 39 shareholders’ equity 506 554 571 123 859 466 Shareholders’ equity 20 802 22 771 MEMORANDUM ITEMS Total liabilities and shareholders’ equity 399 189 405 852 Collateral pledged for own debt 39 639 48 650 59 437 Guarantees etc. 37 181 37 931 Contingent liabilities 62 768 58 984 81 921 Letters of credit, granted but not utilised 14 916 17 866 Capital value of pension commitments Capital value of pension commitments (covered by the Bank’s pension foundation) 3 095 3 838 5 091 covered by the Bank’s pension foundation 2 410 2 662 Other commitments 3 258 729 4 445 388 5 452 935

1) As a consequence of the new Annual Accounts Act for Credit Institutions, the layout of the b) The Net result on financial items includes both realised and unrealised changes Profit and Loss Account and Balance Sheet was changed in 1996. The Profit and Loss in value of financial current assets and derivatives as well as the Total result for foreign Account and Balance Sheets for 1993–94 are drawn up in accordance with the layout and currencies which was previously reported as Commission income. principles applying at the end of 1995 since a retroactive recalculation for the years in c) External expenses for transaction-based services associated with the Bank’s income are now question entails considerable difficulties. Among the reclassifications carried out, the reported as Commission expense instead of Other expenses as before. following can be mentioned: In the Balance Sheet: In the Profit and Loss Account: a) Trade date accounting has been introduced for transactions in interest-bearing securities and a) Net interest income was previously reported in the Profit and Loss Account and included equities instead of, as previously, settlement date accounting. realised profits and losses in the trading portfolio. These items are now reported under b) Positive/negative market values of derivative instruments are reported as Other Net result on financial operations. assets/liabilities respectively and are no longer reported net.

78 SHB 1997 PROFIT AND LOSS ACCOUNTS AND BALANCE SHEETS 1993-97

Svenska Handelsbanken

PROFIT AND LOSS ACCOUNT (SEK m)1) 1993 1994 PROFIT AND LOSS ACCOUNT (SEK m) 1995 1996 1997 Net interest income 8 307 7 588 Interest income 29 342 28 822 28 976 Commission 2 741 2 607 Interest expense – 22 669 – 21 864 – 22 941 Other operating income 870 445 Dividends received 385 1 839 1 729 Total operating income 11 918 10 640 Commission income 2 948 3 389 3 736 Personnel expenses 2 472 2 622 Commission expense – 430 – 576 – 608 Other expenses 2 008 2 190 Net result on financial operations 1 598 2 093 570 Depreciation 186 229 Other operating income 175 244 2 037 Total expenses 4 666 5 041 Total income 11 349 13 947 13 499 Possible and actual loan losses 5 988 1 900 Staff costs 3 100 3 183 3 520 Total operating expenses 10 654 6 941 Other administrative expenses 2 028 2 045 2 347 Operating profit/loss 1 264 3 699 Depreciation and write-downs 275 249 321 Appropriations 2 340 1 528 Total expenses 5 403 5 477 6 188 Profit before taxes 3 604 5 227 Profit before loan losses 5 946 8 470 7 311 Taxes – 948 – 1 291 Net loan losses 1 672 1 332 – 123 Profit for the year 2 656 3 936 Write-down of financial Dividend for the year 470 701 fixed assets — 306 0 Operating profit 4 274 6 832 7 434 Appropriations – 1 548 – 1 450 – 706 Profit before taxes 2 726 5 382 6 728 Taxes – 634 – 1 185 – 888 Profit for the year 2 092 4 197 5 840 Dividend for the year 3 877 1 208 3 515*

BALANCE SHEET (SEK m)1) 1993 1994 BALANCE SHEET (SEK m) 1995 1996 1997

ASSETS ASSETS Cash and clearing assets 2 407 1 988 Cash 1 303 7 347 3 023 Swedish financial institutions 33 053 44 381 Interest-bearing securities 106 530 122 262 90 166 Foreign banks 35 077 41 192 Lending to credit institutions 116 084 133 517 175 771 Bonds and government securities 81 513 84 098 Lending to the general public 148 259 160 451 223 426 Loans to the general public 143 943 142 475 Shares and participations 8 147 8 023 30 385 Other assets 15 030 10 433 Tangible assets 1 826 1 732 1 788 Shares and participations 7 624 6 986 Other assets 53 449 49 806 47 829 Equipment 313 358 Total assets 435 598 483 138 572 388 Property 1 224 1 397 Total assets 320 184 333 308 LIABILITIES AND SHAREHOLDERS’ EQUITY Pledged assets 3 13 187 Liabilities to credit institutions 153 265 177 362 172 855 Loans to the general public, amount granted 169 712 168 142 Deposits and funding from the general public 154 677 175 827 222 161 LIABILITIES AND SHAREHOLDERS’ EQUITY Issued securities 30 749 38 264 72 311 Clearing liabilities and banker’s drafts 1 971 2 410 Other liabilities 63 203 57 033 58 441 Deposits from the general public 126 801 137 122 Subordinated liabilities 10 126 8 934 15 609 Certificates of deposit 20 550 26 026 Total liabilities 412 020 457 420 541 377 Swedish financial institutions 12 076 12 802 Untaxed reserves 4 215 5 298 5 959 Foreign banks 102 904 104 855 Shareholders’ equity 19 363 20 420 25 052 Other securities issued abroad 83 0 Total liabilities and Other liabilities 17 403 15 108 shareholders’ equity 435 598 483 138 572 388 Long-term funding 17 471 15 215 MEMORANDUM ITEMS Provision for country risks 312 143 Total liabilities 299 571 313 681 Collateral pledged for own debt 38 840 47 573 59 193 Untaxed reserves 7 748 3 217 Contingent liabilities 75 234 65 736 83 648 Shareholders’ equity 12 865 16 410 Capital value of pension Total liabilities, untaxed reserves commitments (covered by the and shareholders’ equity 320 184 333 308 Bank’s pension foundation) 3 095 3 838 5 091 Other commitments 3 359 828 4 482 371 5 408 299 Guarantees 55 191 58 378 Letters of credit, granted but not utilised 14 915 17 866 Capital value of pension commitments covered by the Bank’s pension foundation 2 410 2 662 *) According to the Board of Directors’ recommendation

SHB 1997 79 ADDRESSES

Addresses

CENTRAL REGIONAL BANKS’ UNITS OUTSIDE THE NORDIC COUNTRIES HEAD OFFICE HEAD OFFICES

Kungsträdgårdsgatan 2 Northern Norrland Svenska Handelsbanken Svenska France S.A. Postal address Storgatan 48 Beijing R Paris SE-106 70 Stockholm, Sweden Box 1002 CITIC Building No 15-05 29-31, rue Saint-Augustin Telephone +46 8 701 10 00 SE-901 20 Umeå 19 Jianguomenwai Dajie F-75002 Paris, France Handelsbanken Markets Telephone +46 90 15 45 60 Beijing, 100004 China Telephone +33 1 42665898 Blasieholmstorg 11 and 12 Southern Norrland Telephone +86 10 65004691 Telefax +33 1 42669612 Telex 22910 SHBBJ CN Postal address Nygatan 20 Svenska Handelsbanken Telefax +86 10 65126692 SE-106 70 Stockholm Box 196 Singapore Telephone +46 8 701 10 00 SE-801 03 Gävle Svenska Handelsbanken 65 Chulia Street, Units 21-00 Information Systems Department Telephone +46 26 17 20 60 Frankfurt am Main OCBC Centre, Singapore 049513 Tegeluddsvägen 10 Stockholm City Mittlerer Hasenpfad 25 Telephone +65 5 323800 Telex RS 29012 SHBSIN Postal address Kungsträdgårdsgatan 20 Postfach 700955 Telefax +65 5 344909 SE-115 82 Stockholm Postal address D-60559 Frankfurt am Main Telephone +46 8 701 10 00 SE-106 70 Stockholm Germany Svenska Handelsbanken Telephone +49 69 605060 Telephone +46 8 701 10 00 Taipei Telex 414796 SHB D Central Sweden Telefax +49 69 60506252 Room 0813, International SUBSIDIARIES Kungsträdgårdsgatan 2 Trade Building Svenska Handelsbanken Postal address 333, Keelung Road SE-106 70 Stockholm Hong Kong Section 1, Taipei, Taiwan Handelsbanken Finans Telephone +46 8 701 10 00 2008 Hutchison House Telephone +886 22 7577112 Mäster Samuelsgatan 42 10 Harcourt Road, Telefax +886 22 7576270 Postal address Eastern Sweden Central Hong Kong Svenska Handelsbanken SE-106 35 Stockholm Nygatan 20 Telephone +852 28682131 Tallinn Telephone +46 8 701 46 00 Box 421 Telex 64765 SHBHK Registered no. 556053-0841 SE-581 04 Linköping Telefax +852 28684339 2 Rävala Street Telephone +46 13 28 91 00 P O Box 102 Handelsbanken Fonder Svenska Handelsbanken EE-0090 Tallinn, Estonia Western Sweden Blasieholmstorg 12 London Telephone +372 6314251/52 Postal address Östra Hamngatan 23 Trinity Tower Telefax +372 6314250 SE-106 70 Stockholm Box 1530 9 Thomas More Street Svenska Handelsbanken Telephone +46 8 701 10 00 SE-401 50 Göteborg London E19WY, U.K. Tokyo Registered no. 556070-0683 Telephone +46 31 774 80 00 Telephone +44 171 5788000 Handelsbanken Hypotek Southern Sweden Telex 894716 SVNSKC G Toranomon Ishizaka Building 6F Telefax +44 171 5788300 4-1-9 Toranomon, Minato-ku Smålandsgatan 12 Södergatan 10 Tokyo 105-0001, Japan Box 70286 Postal address Svenska Handelsbanken Telephone +81 3 5401 1 3121 SE-107 22 Stockholm SE-205 40 Malmö Luxembourg Telefax +81 3 5401 3122 Telephone +46 8 701 54 00 Telephone +46 40 24 50 00 146, Boulevard de la Pétrusse +81 3 5405 2761 Registered no. 556000-7618 Handelsbanken Denmark P O Box 678 Svenska Handelsbanken Handelsbanken Liv L-2016 Luxembourg Amaliegade 3 Warsaw Torsgatan 12 Postboks 1032 Telephone +352 4998111 ul. Szpitalna 1, room 16 Box 1325 DK-1007 Copenhagen K Telex 2405 SHBLX LU PL-00-020 Warsaw, Poland SE-111 83 Stockholm Denmark Telefax +352 490004 Telephone +48 22 8280191 Telephone +46 8 613 20 00 Telephone +45 33 418200 Svenska Handelsbanken Telefax +48 22 8280180 Registered no. 516401-8326 Telex 15051 HAND DK Marbella Telefax +45 33 418260 Svenska Handelsbanken Stadshypotek Centro Plaza 2 Zürich Smålandsgatan 12 Handelsbanken Finland Nueva Andalucia SE-103 70 Stockholm Södra kajen 8 E-29660 Marbella Gotthardstrasse 21 Telephone +46 8 701 54 00 P O Box 315 (Málaga), Spain P O Box 4378 Registered no. 556459-6715 FIN-00131 Helsinki, Finland Telephone +34 52 817550 CH-8022 Zürich, Switzerland Telephone +358 9 166771 Telefax +34 52 817567 Telephone +41 1 2871020 Stadshypotek Bank Telex 125003 SHB SF Telefax +41 1 2871029 Svenska Handelsbanken Arenavägen 33 Telefax +358 0 16677299 Box 10085 Moscow Handelsbanken Norway SE-121 27 Stockholm ul. Donskaja, 18/7 Telephone +46 8 725 53 00 Rådhusgaten 27 Apartment 29 Registered no. 516401-9803 Postboks 1342 Vika 117049 Moscow, Russia N-0113 Oslo, Norway Stadshypotek Fastigheter Telephone +7 502 2204200 = Subsidiary Telephone +47 22 940700 Telefax +7 503 2306256 = Branch Arenavägen 23 Telex 79114 HAND N = Representative office Box 25 Telefax +47 22 411524 Svenska Handelsbanken SE-121 21 Johanneshov New York Telephone +46 8 725 53 00 153 East 53rd Street, 37th floor Registered no. 556237-7225 New York, NY 10022-4678, USA Telephone +1 212 3265100 Telex 1561322 SVNY UT Telefax +1 212 3265196

80 SHB 1997 Produced by: Ulla Jansson Information AB Photographs: Photojournalist Inc./Victor Lenson Brott unless otherwise stated Repro: Typografen Text&Bild Printing: Tryckcentra AB Svenska Handelsbanken