Managing the transition period Basel I Transition period Basel II Capital Requriement 2006 2007 2008 2009 2010 2011 Long term Basel II capital level Buffer Basel I Capital Basel II pillar 1 capital Transitional capital level Group Credit Committee. Credit granting is almost exclusively decided by the Group Credit Committee, with the exception of a few matters that are reserved for the Risk and Capital Committee of the Board. Each Committee has its own decision mandate. The Board’s Risk Policy and Capital Policy form the foundations of the Group’s risk and capital management. The Corporate Governance chapter on pages 42–51 describes the risk organisation and responsibilities, the roles of the Risk and Capital Committee of the Board, the Group Asset & Liability Committee, the Group Credit Committee and the Group Risk Control function. Risk, risk management and risk control SEB defines risk as the possibility of a negative deviation from an expected financial outcome. For overall risk quantification purposes SEB’s Economic Capital framework establishes a uniform measure, as further described below. Risk management includes all activities relating to risk-taking, risk mitigation, risk analysis, risk control and follow-up. To this end the Group has implemented processes and systems in order to identify, measure, analyse, monitor and report defined risks at an early stage. Internal control processes, which consist of rules, systems and routines, including follow-up of compliance therewith, ensure that the business is carried out in efficient and controlled forms. Independent risk control comprises the identification, measurement, monitoring, stress testing, analysis, reporting and follow-up of risks, separate from the risk-taking functions. Report of the Directors Credit risk Credit risk is the risk of loss due to the failure of an obligor to fulfil its obligations towards SEB. The definition also encompasses counterparty risk in the trading operations, country risk and settlement risk. SEB pays special attention to the concentration of credit risk in particular sectors and to individual obligors. Credit risk refers to all claims on companies, banks, public institutions and private individuals. The exposures consist mainly of loans, but also of contingent liabilities such as credit commitments, letters of credit, guarantees and counterparty risks arising in derivatives and foreign exchange contracts. The credit policy of the Group is founded on the principle that all lending shall be based on credit analysis and be proportionate to the repayment capacity of the customer. The customer shall be known to the Group in order to evaluate both capacity and character. Depending upon the customer’s creditworthiness and the nature and complexity of the transaction, collateral and netting agreements are used to a varying extent. All counterparties (excluding private individuals) on whom the Group has credit exposure are assigned an internal risk class that reflects the risk of default on payment obligations. The risk classification scale has 16 classes, with 1 being the best possible risk and 16 being the default class. Risk classes 1–7 are considered “investment grade”, while classes 13–16 are classified as “watch list”. SEB uses the risk classes for decisions on credit limits and for monitoring and managing the credit portfolio. In order to manage the credit risk on each individual customer or group of customers, a total limit is decided, reflecting the maximum exposure that the Group currently accepts, given the customer’s financial status and existing business relations. Limits are also established for the total exposure on various countries and for settlement risks in trading operations. All total limits and risk classes are subject to a minimum of one review annually by a credit approval authority. High-risk exposures (risk classes 13–16) are subject to more frequent reviews in order to identify potential problems at an early stage, thereby increasing the chances of finding constructive solutions. Credit portfolio monitoring The aggregate credit portfolio is reviewed regularly, e.g. by industry, geography, risk class, product type, size etc. In addition, specific analyses and stress tests are made when market developments require a more careful examination of certain sectors. Credit portfolio – by category Credit portfolio – geographical distribution In total SEK 1,552bn In total SEK 1,552bn Corporates 37 % (35) Sweden 40% (39) Households 28 % (28) Germany 23% (27) Banks 16 % (13) Rest of the world 14% (13) Property management 13 % (13) Rest of the Nordic countries 11% (10) Public sector 6 % (11) The Baltic countries 11% (10) For details about Credit exposure see Note 44. Emerging markets 1% (1) SEB ANNUAL REPORT 2007 35
