More than half of the bank's lending consists of Swedish mortgages, which are primarily financed through covered bonds. This leads to a limited structural need for senior funding.
Swedbank is the leading deposit bank in its home markets. Deposit volumes, together with covered bonds and shareholders equity, nearly cover Swedbank's total funding requirements. This means that to a great extent the bank is able to choose between funding itself with covered or unsecured bonds. Swedbank considers this as a strength in part because covered bonds are a more secure funding source. Swedbank strives to match-fund unsecured financing against assets of an equivalent amount and maturity.
Swedbank’s senior debt issuance is determined by the bank's liquidity needs and the buffer it wants to maintain in its cover pool in the form of overcollateralisation to manage fluctuations in housing prices. Swedbank's Board of Directors has established a minimum overcollateralisation level in the cover pool.
Swedbank's most important internal metric to limit and manage liquidity risk is the survival horizon, a stress test measuring how long the bank can meet its contractual cash flows without access to capital market financing. This metric is the most important factor determining the Group's funding strategy and plan. The measurement assumes that the bank can pledge high-quality assets with central banks. Securities with low credit rating or own issued bonds are not included. Swedbank's Board of Directors has established a minimum survival horizon limit for the Group.
The Board of Directors has also set a floor for Group Treasury's liquidity portfolio. The portfolio needs to exceed a certain volume and has to be invested in liquid and pledgeable assets (not to be confused with the liquidity reserve, which in addition to the liquidity portfolio includes liquidity placed with central banks and in the overnight market). The minimum size of the liquidity portfolio is merely a complementary measure to the survival horizon, since it does not provide any information on how the liquidity portfolio is financed.