Our business model must be built on a sustainable economy

Swedbank’s main source of income is the interest paid on the money we lend. Lending must be financed, however, through deposits from businesses and private customers and through funding from the capital market. Net interest income, the bank’s most important profit variable, is the difference between the interest income on deposits and funding expenses.

To contribute to the stability of the financial system, we have to understand and correctly price risk. It is also crucial to our survival. The margin we earn on our lending has to be high enough to cover any credit impairments for borrowers who fail to pay interest or amortise their loans. It must also cover administrative expenses and provide a return on shareholders’ equity.

It is important for us that the money we lend contributes to sustainable development. This is manifested in many ways. In 2017, for example, we established a green asset framework that provides a foundation for the issuance of green bonds, two of which have already been issued. The money is used to finance sustainable investments in real estate and renewable energy sources that reduce carbon emissions. Net interest income and credit impairments are strongly tied to the real economy and are affected by factors such as economic growth, interest rates and unemployment. To limit the impact of a severe recession and continue to support our customers regardless of economic conditions, we also maintain capital for unforeseen losses. The size of this buffer, which largely consists of the capital our shareholders have invested, is determined by various regulators and depends in part on how risky the assets are considered to be. 

Net commission income is our second largest source of income  and is comprised of a range of services and products that mainly generate fees. This income, adjusted for transaction expenses, is reported in the income statement as net commission income. The large part comes from asset management and cards. Our asset management company, Robur, managed SEK 1 083bn at year-end 2019. To manage assets and cover costs, we charge a fee based on a percentage of the invested amount. Income in the fund business therefore depends on growth in assets under management, which in turn is affected by the stock market’s performance. Sustainability aspects are important in asset management as well, and we have a fund, Swedbank Robur Global Impact, which invests in companies that meet the UN’s 17 Sustainable Development Goals. In the card business, which represents the large share of our payment operations, we are both a card issuer and payment acquirer. Our income is generated from customers who use our cards to make purchases and the stores and restaurants that use our terminals for payments. The income consists of annual fees, but is also based on transaction volume.

Swedbank’s largest operating expense is salaries. Other major expenses include IT as well as properties and rents, which is partly because of the distribution network we provide our customers in the form of digital channels and physical meeting places. Swedbank is also a major taxpayer in the markets where we operate.