Länsförsäkringar Bank Annual Report Annual About us Contents Länsförsäkringar Bank Introduction 1 The 2017 fiscal year Sweden’s fifth 2 Statement by the President Operations largest retail bank 4 Strategy and position Länsförsäkringar Bank is the fifth largest satisfied customers, maintain healthy 6 Economic environment and market retail bank in Sweden and its strategy is to growth in volumes and profitability at low 8 Offering offer attractive banking services to the cus- risk, and to increase the share of customers 10 Loans and credit quality tomers of the Länsförsäkringar Alliance. who have both banking and insurance with Close customer relationships are created at Länsförsäkringar. According to the 2017 12 Funding and liquidity personal meetings at the 128 branches of Swedish Quality Index, Länsförsäkringar 14 Länsförsäkringar Fondförvaltning the regional insurance companies through- Bank is once again the single player on the 16 Sustainability and employees out Sweden and via digital services and bank market with Sweden’s most satisfied 20 Board of Directors’ Report telephone. The aim is to have the most retail customers. 25 Five-year summary 26 Corporate Governance Report Financial statements Group 33 Income statement 33 Statement of comprehensive income 34 Balance sheet 35 Cash-flow statement 36 Statement of changes in shareholders’ equity 37 Notes to the financial Länsförsäkringar in brief statements Financial statements Local companies with customers who are owners and the only principal Länsförsäkringar comprises 23 local, customer-owned regional insurance companies and Parent Company the jointly owned Länsförsäkringar AB with subsidiaries. Customers are provided with a 71 Five-year summary complete solution for banking, insurance, pension and real-estate brokerage services 73 Income statement through their regional insurance company. The regional insurance companies are owned by 73 Statement of comprehensive the insurance customers – there are no external shareholders and customers’ needs and income requirements are always Länsförsäkringar’s primary task. Long-term respect for customers’ 74 Balance sheet finances and their security is fundamental. The Länsförsäkringar Alliance jointly has slightly more than 3.8 million customers and approximately 6,400 employees. 75 Cash-flow statement 76 Statement of changes in shareholders’ equity 3.8 million customers 77 Notes to the financial statements 23 local regional insurance companies 93 Audit report Other information Länsförsäkringar AB 96 Board of Directors and auditor Länsförsäkringar Bank AB 98 Executive management 99 Definitions Länsförsäkringar Wasa Kredit 99 Financial calendar Länsförsäkringar Hypotek AB Fondförvaltning AB Leasing, hire purchase and 100 Addresses Mortgages Mutual funds unsecured loans Länsförsäkringar Bank 2017 The 2017 fiscal year Significant events • A number of organisational changes were made on 1 January 2017 Business volumes and net interest income whereby operations were transferred from the Parent Company, SEK bn SEK M 600 6,000 Länsförsäkringar AB, to the Bank Group. A total of 116 full-time 500 5,000 employees joined the Bank Group. Mutual funds 400 4,000 • Operating profit increased 9% to SEK 1,599 M (1,467) and the Deposits return on equity amounted to 10.0% (10.1). 300 3,000 Mortgages Agricultural loans • Net interest income increased 15% to SEK 3,996 M (3,464). 200 2,000 Other loans • Operating income increased 12% to SEK 3,258 M (2,904). 100 1,000 Net interest • Operating expenses amounted to SEK 1,601 M (1,399). 0 0 income, SEK M • Loan losses amounted to SEK 57.7 M (37.6*), net, corresponding to 2013 2014 2015 2016 2017 a loan loss level of 0.02% (0.02). Total business volumes have increased an average of 12% over the past five years. Net interest income has risen an average of 15%. • Business volumes increased 14% to SEK 519.5 billion (456.1). • Deposits rose 9% to SEK 99.4 billion (91.2). Lending increased 15% to SEK 261.4 billion (226.7). • The Common Equity Tier 1 capital ratio for the consolidated Primary customers and market shares situation amounted to 23.3% on 31 December 2017. Customers, thousands % 500 10 • The number of customers with Länsförsäkringar as their primary bank rose 11% and the number of cards increased 13%. 400 8 • According to the 2017 Swedish Quality Index customer satisfac- 300 6 tion survey, Länsförsäkringar Bank is the single player on the bank Customers, thousands market with the most satisfied retail and corporate customers. 200 4 Market share of Länsförsäkringar Bank also has the most satisfied mortgage cus- 100 2 retail mortgages tomers and corporate customers for property loans according to Market share of the 2017 Swedish Quality Index. 0 0 retail deposits 2013 2014 2015 2016 2017 Figures in parentheses pertain to the same period in 2016. The number of customers has risen an average of 11% per year over the past five 1 The comparative figure includes the dissolution of reserves amounting to SEK 23.3 M. years. The market position was continuously strengthened. Key figures SEK M 2017 2016 2015 2014 2013 Return on equity, % 10.0 10.1 8.9 8.3 6.7 Return on total capital, % 0.53 0.54 0.48 0.42 0.31 Return on total assets, % 0.41 0.42 0.37 0.32 0.23 Investment margin, % 1.32 1.28 1.22 1.15 1.06 Cost/income ratio before loan losses 0.49 0.48 0.57 0.62 0.63 Common Equity Tier 1 capital ratio, Bank Group, % 24.3 24.8 23.7 16.2 – Tier 1 ratio, Bank Group, % 26.8 27.5 26.6 16.2 – Total capital ratio, Bank Group, % 32.1 33.4 32.0 20.6 – Common Equity Tier 1 capital ratio, consolidated situation, % 23.3 21.2 21.4 13.9 – Tier 1 ratio, consolidated situation, % 24.8 23.2 23.7 13.9 – Total capital ratio, consolidated situation, % 28.1 27.6 28.2 17.5 – Percentage of impaired loans, gross, % 0.11 0.11 0.12 0.17 0.23 Reserve ratio in relation to loans, % 0.10 0.11 0.14 0.19 0.25 Reserve ratio in relation to loans, incl. withheld remuneration to regional insurance companies, % 0.14 0.17 0.19 0.23 – Loan losses in relation to loans, % 0.02 0.021 0.001 0.001 0.08 1 Includes the dissolution of reserves. Länsförsäkringar Bank 2017 The 2017 fiscal year 1 Market leader in customer satisfaction Statement by the President We are continuing on our journey of growth on the bank market and reaffirming our position as the fifth largest retail bank in Sweden. The increased inflow of new customers clearly shows that our offering is competitive and appreciated among our customers. 2017 – A strong year with high Sweden’s Best App and Mobile Site for the for this reason, particularly on improving customer satisfaction third consecutive year at the Web Service turnover in the housing market and also 2017 was another strong year for Läns- Award in January 2018. making it easier for those groups that face försäkringar Bank. We reported our best difficulties in entering the market. ever earnings, driven by strong underlying Focus on housing market net interest income. Business volumes con- Despite positive signals in the Swedish Changing financial markets tinued to grow in all product segments and economy, the Riksbank decided to wait out The rate of change in the financial markets growth was very robust throughout the interest rate increases, and the repo rate has further accelerated and we can see entire banking business during the year. We has been negative for almost three years. more robust technological developments of can see that tremendous work carried out The Swedish economy continued to perform several banking services. The Payment Ser- locally at the regional vices Directive (PSD2) is insurance companies is increasing the importance resulting in high customer The healthy customer inflow is of providing solutions satisfaction. For the 12th whereby customers them- time in the past 14 years, confirmation that our offering selves decide how they Länsförsäkringar Bank want to interact with the was named the single and approach to the bank business is bank, be it via digital chan- player with the most sat- appreciated by customers. nels or a personal meeting. isfied retail customers on We see many opportunities the bank market, accord- for driving digital develop- ing to the 2017 Swedish Quality Index. well and household finances are healthy, ment forward through Open Banking and It is gratifying that the Swedish Quality although there are macroeconomic risks offering new services that enhance the cus- Index also named Länsförsäkringar Bank related to household indebtedness and tomer experience. Partnerships with fintech the single player with the most satisfied housing prices. Given these risks, the Swed- companies have become a natural element corporate, mortgage and property loan ish Financial Supervisory Authority decided in such development and vast amounts of customers in 2017. In other words, we to introduce stricter mortgage repayment customer data present many opportunities remain an attractive alternative for new requirements for households with high debt for developing new services. However, there bank customers and the high customer ratios. It is not surprising that trends in the are risks and threats in the form of data satisfaction is the key to our success. housing market were thus one of the major being used incorrectly or falling into the focus areas for the year. Following a contin- wrong hands, which is why it is essential Sustained customer inflow driven by ued upturn during the first part of the year, that customer security and integrity is clear local and digital strategy housing prices declined by about 5% in the put first. Länsförsäkringar Bank is continuing to wit- second half of the year.