Interim Report 2018-06

Statement by the Managing Director . Building for the future 2018 began with growth in markets. The most ... Ikano Bank AB (publ), corporate identity ...

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Interim Report 2018-06

IKANO BANK AB (publ), corporate ID no. 516406-0922

Ikano Bank AB (publ) Interim Report, 30 June 2018 Results for the first half-year 2018 (Comparative figures in brackets are as of 30 June 2017 unless otherwise stated)

• • • • • • • • •

Business volumes increased by 5 percent to SEK 69,272 m (65,732) Lending including leasing increased by 6 percent to SEK 37,621 m (35,523) Deposits from the public rose by 4 percent to SEK 26,311 m (25,285) Operating profit decreased by 35 percent to SEK 235 m (361) Net profit for the period decreased to SEK 122 m (265) Net interest income decreased marginally, totalling SEK 978 m (982) Return on equity was 6.5 percent (10.4) The common equity Tier 1 capital ratio was 14.5 percent (14.4) and the total capital ratio was 16.7 percent (16.7) The liquidity reserve was SEK 2,404 m (2,557) and the total liquidity portfolio amounted to SEK 5,583 m (5,506)

Outlook for the remainder of 2018: We expect continued growth on our markets and our comprehensive work with outsourcing our IT-services will continue. We have so far seen results in terms of increased stability. We are continuing to invest in our technical platform to secure sustainable and profitable growth and customer benefit. Our strategy to act and grow in the UK market as a branch also after Brexit remains.

Key ratios

30 J u n 2018

30 J u n 2017

31 D ec 2017

Return on adjusted equity

16.7% 14.5% 4.4% 6.5%

16.7% 14.4% 4.6% 10.4%

16.5% 14.3% 4.6% 6.2%

Leverage ratio C/I-ratio before loan losses

11.4% 72.0%

10.5% 60.9%

10.9% 66.3%

0.9%

1.4%

1.6%

Total Capital ratio Common equity Tier 1 Capital ratio Investment margin

Loan loss ratio

For definitions of alternative indicators used to describe the Bank's activities see the Bank's Annual Report for 2017, available on the Bank's website: www.ikanobank.se/om-banken/ekonomisk-information

Lending including leasing, SEK m

Deposits from the public, SEK m

40 000 35 000

30 000

2014-12 2015-12

30 000

2016-12

25 000

2017-12

20 000

2018-06

15 000

2014-12 25 000 20 000 15 000

2015-12 2016-12 2017-12 2018-06

10 000

10 000 5 000

5 000 0

0

Ikano Bank’s Interim Report is available on the Bank’s website: www.ikanobank.se/om-banken/ekonomisk-information

INTERIM REPORT JUNE 2018

1

IKANO BANK AB (publ), corporate ID no. 516406-0922

Statement by the Managing Director Building for the future 2018 began with growth in most markets. The work to ensure long-term profitable growth and customer benefit continued, with related costs negatively affecting our result for the period. The result for 2018 was also positively affected by a portfolio sale. We work with improving our cost efficiency and profitability, while at the same time building new ways to strengthen our future competitiveness. The comprehensive work with outsourcing our IT-services to Capgemini proceeds and has so far resulted in increased stability. But we are also building completely new solutions. The work to create a modern, digital business platform for financial services and new smart solutions that aim at simplifying the lives of our customers continues. As part of this, the work with our first private loan product on the Polish market is progressing. Poland is a large and exciting market with growth potential. We have worked closely with our customers and partners and delivered financial solutions to the many people. Our relationship with IKEA has strengthened further during the period. We work together in various projects with the new IKEA card with credit in Germany launched in autumn 2017 as one example. GDPR and PSD2 are two important regulations we have worked with implementing during this period. The enhancement of consumer protection via PSD2 also opens up opportunities for new exciting consumer services in the future. Also the work with transitioning to new accounting rules under IFRS9 has been completed during the period. Another current topic is Brexit. Our growth plans for operations in the UK remain. We are preparing for Brexit and are monitoring developments in close cooperation with both British and Swedish authorities.

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Simplifying everyday life for our customers and offering simple and smart solutions on fair terms is continuous work. Therefore, it is particularly gratifying when it is noted in the market. During spring, our offer of savings and loan products in Germany has won several awards and positioned itself among the best financial services and products on the market. Concluding, I note that we have good customer offerings, business volume has increased and we see potential to grow in all our markets. With that as a base, we build for the future. Håkan Nyberg

About Ikano Bank Ikano Bank has three business lines: Consumer, Sales Finance and Corporate. The Consumer business line conducts traditional banking operations that focus on private individuals by offering simple and attractive savings and loan services. Sales Finance administers and markets finance solutions for partners, and Corporate offers leasing solutions as well as factoring services to businesses. Ikano Bank has operations in Sweden, the UK, Norway, Denmark, Finland, Germany, Austria and Poland. Sweden is the largest market, where the Bank also has the broadest offering for all target groups. Ikano Bank offers a selection of the Bank’s services in the other geographical markets. Ikano Bank has no physical offices for customers, but delivers its services digitally.

INTERIM REPORT JUNE 2018

IKANO BANK AB (publ), corporate ID no. 516406-0922

The Bank’s results for the first halfyear 2018 compared to the corresponding period of 2017 Lower operating results Operating results for the first half of 2018 decreased by 35 percent to SEK 235 m (361). The result was positively affected by SEK 41 m from leasing growth. At the same time, the result was negatively affected by our continued investments in the business platform and increased customer benefit. The result for 2018 was also positively affected by a portfolio sale. Marginally lower interest net income and lower net commission income Net interest income developed differently in the markets, but overall it decreased marginally by SEK 4 m or 0.4 percent to SEK 978 m (982). Net commission income decreased by 16 percent to SEK 156 m (185), mainly as a result of increased commission expenses of SEK 27 m on the German market related to the portfolio sale. Increased net leasing income due to growth Leasing net income increased by 23 percent compared with the same period last year and amounted to SEK 221 m (180) mainly due to volume growth. Increased operating expenses due to volume growth Operating expenses increased by 10 percent to SEK 2,639 m (2,405). The higher costs are mainly due to increased depreciation of leasing assets held on behalf of customers, resulting from volume growth within the Corporate business line. Lower loan losses Overall, net loan losses decreased by SEK 85 m to SEK 163 m (248). This decrease compared to the same period in 2017 is mainly due to the portfolio sale of non-performing loans which affected loan losses positively by SEK 155 m. As a result of the implementation of IFRS 9, loan losses increased by SEK 40 m compared with the same period last year. Loan losses measured as a percentage of average total lending fell to 0.9 (1.4) percent, also as a result of the portfolio sale during the same period last year.

The Bank’s position as of 30 June 2018 compared to 31 December 2017 Increased deposits from the public Deposits from the public are an important part of the Bank's funding and have shown stable growth

for several years. Deposits from the public rose by 3 percent to SEK 26.3 bn (25.6). The largest part of this volume increase relates to deposits in the UK market. Deposits in the Danish and German markets also increased during the first half of the year. In the Swedish market, deposit volumes are marginally lower than at year-end. Decreased loans to the public and increased leasing The Bank's loans to the public decreased marginally to SEK 27.7 bn (27.8) after provisions for loan losses. Leasing assets held on behalf of customers increased by 7 percent to SEK 10.0 bn (9.3) as a result of continued strong demand for financing with our partners in all markets within the Corporate business line. Mediated mortgage lending to SBAB increased by 3 percent to SEK 5.3 bn (5.2). As previously communicated the cooperation between SBAB and Ikano Bank will end during 2018. SBAB has decided to prioritise sales under its own brand. This means that Ikano Bank will not continue to offer mortgages provided by SBAB to our customers after 31 August 2018. Growth in total business volumes The total business volume rose by 2 percent to SEK 69.3 bn (67.9). Deposits in the Bank's foreign branches account for the largest volume growth. Increased leasing volumes in all markets also contribute to the total increase in business volume. Good liquidity and high demand for the Bank’s certificates and bonds The Bank's liquidity portfolio remained largely at the same level on 30 June 2018 as at year-end and amounted to SEK 5.6 bn (5.1), which equals 21 percent of the Bank's total deposits from the public. The Bank continuously obtains funding in the Swedish capital market and demand for the Bank's short certificate programme continues to be good. In addition to ongoing issuance of commercial papers, four new MTN bonds were issued during the first half of the year with a total nominal amount of SEK 1,350 m. The maturities were between two and four years and the issues were met with strong interest from the market. In addition to the new issues, a repurchase to the nominal amount of SEK 100 m was also made. The own funds amounted to SEK 6.4 bn by 30 June 2018, compared to the capital requirement of SEK 3.0 bn. The total capital ratio amounted to 16.7 percent (16.5) and the Tier 1 ratio was 14.5 percent (14.3).

INTERIM REPORT JUNE 2018

3

IKANO BANK AB (publ), corporate ID no. 516406-0922

Other information

Post balance sheet events

Ikano Bank AB (publ), corporate identity number 516406-0922, is an incorporated bank with its registered office in Älmhult and its head office in Malmö, Sweden. Ikano Bank is owned by Ikano S.A. with its registered office in Luxembourg. Originally part of IKEA, Ikano S.A. (the “Ikano Group”) became a separate group in 1988. Ikano Group conducts business within banking, real estate, production, insurance and retail. Ikano Bank has operated its business under a banking license since 1995.

No significant events have occurred after the end of the reporting period that affected the financial statements for the first half-year 2018.

Operations Ikano Bank AB (publ) conducts banking operations regulated by the financial supervisory authorities of Sweden, the UK, Norway, Denmark, Finland, Germany, Austria and Poland. There are three business lines: Corporate, Sales Finance and Consumer. The operations in Denmark, Norway, Finland, the UK, Germany and Poland are operated as branches, while Austria is conducted as cross-border operations.

Board of Directors During the year Jean Champagne, Group Head of HR Ikano S.A., has resigned as a member of the Board of Directors and Yohann Adolphe, CFO for Ikano S.A., has been appointed to the Bank’s Board of Directors.

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Outlook We expect continued growth on our markets and our comprehensive work with outsourcing our ITservices will continue. We have so far seen results in terms of increased stability. We are continuing to invest in our technical platform to secure sustainable and profitable growth and customer benefit. Our strategy to act and grow in the UK market as a branch also after Brexit remains.

Next reporting date Ikano Bank reports its results half-yearly. The Year-end Report for 2018 will be available on the Bank’s website at the end of February 2019. Ikano Bank publishes information on capital adequacy and liquidity on a quarterly basis on its website. This Interim Report has not been reviewed by the Bank’s auditors.

INTERIM REPORT JUNE 2018

IKANO BANK AB (publ), corporate ID no. 516406-0922

Income statement Note

SE K 000 Interest income

4

Jan-Jun

Jan-Jun

J a n - D ec

2018 1 180 590

2017 1 177 536

2017 2 354 945

-202 636 977 954 0

-195 801 981 734 0

1 960 176 0

1 839 412

1 635 376

3 395 930

Interest expense Net in teres t in co me

4

Leasing income

5

Commission income

6

334 406

334 760

647 629

Commission expense

6

-178 830

-149 291

-319 298

Net co mmis s io n in co me

0

155 576

185 469

328 331

10 433

-10 922

-6 455

53 879 3 037 254

221 732 3 013 389

268 200 5 946 183

-856 655

-817 380

-1 670 051

-1 663 823 -118 801 -2 639 279

-1 488 781 -98 520 -2 404 681

-3 085 917 -199 863 -4 955 831

397 975

608 708

990 352

-162 553

-247 980

-555 588

235 422

360 728

434 764

-113 446

-95 521

-150 903

121 976

265 206

283 861

Net gains and losses on financial transactions Other operating income

7

To ta l in co me General administrative expenses

-394 770

Depreciation/amortisation and impairments of tangible and intangible assets

5

Other operating expenses To ta l exp en s es b efo re l o a n l o s s es P ro fit b efo re l o a n l o s s es Loan losses, net

8

O p era tin g res u l t Tax expense Net res u l t fo r th e p erio d

Report on total comprehensive income for the period SE K 000 Net p ro fit fo r th e p erio d

Jan-Jun 2018

Jan-Jun 2017

J a n - D ec 2017

121 976

265 206

283 861

189 669

-9 240

33 309

O th er co mp reh en s iv e in co me Items th a t ca n b e recl a s s ified to n et p ro fit fo r th e p erio d Translation difference for the period, foreign branches Changes in financial assets valued at fair value via other comprehensive income

-599

Changes in fair value on financial assets available for sale Changes in fair value on cash flow hedges

-9 744

4 773

2 360

21 239

9 394

-1 050

-519

Tax related to changes in financial assets valued at fair value via other comprehensive income Tax related to changes in fair value of financial

132

assets available for sale Tax related to changes in fair value of cash flow hedges

2 144

-4 673

-2 067

O th er co mp reh en s iv e in co me fo r th e p erio d , n et o f ta x

181 602

11 049

42 477

To ta l co mp reh en s iv e in co me fo r th e p erio d , n et o f ta x

303 578

276 255

326 339

INTERIM REPORT JUNE 2018

5

IKANO BANK AB (publ), corporate ID no. 516406-0922

Balance sheet Note

SE K 000

30 J u n 2018 30 J u n 2017

31 D ec 2017

5 621 1 103 422 1 767 117 26 949 251 2 657 361 16 270

6 603 1 172 947 1 813 843 27 798 753 2 103 980 18 885

13 322 377 707 8 620 619 8 573 764 46 855 1 019 766 218 324 317 169 43 065 948

13 322 394 813 9 318 397 9 283 371 35 026 875 190 252 244 313 121 44 082 098

A s s ets Cash Treasury bills Loans to credit institutions Loans to the public

9

Bonds and other interest-bearing securities Shares and participations Shares and participations in group companies Intangible assets Tangible assets

403 341 9 997 762 9 970 022 27 740 976 540 129 151 304 037 45 107 940

- Leasing assets - Equipment Other assets Deferred tax assets Prepaid expenses and accrued income To ta l a s s ets L ia b il ities , p ro v is io n s a n d eq u ity Liabilities to credit institutions Deposits from the public

2 503 967 25 616 729

7 484 189 902 115 1 378 012

920 674 1 231 897

179 778 34 388 90 554

168 674

1 128 161 1 250 216 170 098

2 139 247 26 311 038 -

11

Accrued expenses and deferred income Provisions

- Provisions for pensions - Deferred tax liabilities - Provisions for unused credit limits - Other provisions Subordinated liabilities To ta l l ia b il ities a n d p ro v is io n s Un ta xed res erv es E q u ity Res tricted eq u ity Share capital Statutory reserve Fund for development expenses No n - res tricted eq u ity Fund for fair value Retained earnings To ta l eq u ity To ta l l ia b il ities , p ro v is io n s a n d eq u ity

33 468 122 573

32 306 22 530 860 294 39 254 673

809 602 37 347 566

38 313 631

698 157

698 157

698 157

545 949 78 994 193 655 273 300

484 105 78 994 193 655 211 456

515 670 78 994 193 655 243 021

4 609 161 334 218

4 536 121 134 708 4 136 207

4 554 640 166 137 4 104 642

265 206

283 861 5 070 310

5 155 110 45 107 940

INTERIM REPORT JUNE 2018

6 824 779

33 245 121 648 13 780

4 152 967 121 976

Net result for the period

6

2 279 167 25 284 986 12 6 652 554

10

Change in fair value on interest-rate hedged items in the portfolio Issued securities Other liabilities

2 013 1 132 105 2 139 134 27 650 741 2 349 522 23 594 -

5 020 226 43 065 948

14 058 819 680

44 082 098

IKANO BANK AB (publ), corporate ID no. 516406-0922

Statement of changes in equity Restricted equity

Non-restricted equity Fund for fair value Fund for

Share SE K 000

development

Statutory

capital 78 994

reserve 193 655

Appropriation of profits Change in fund for development expenses

-

Net result for the year Other comprehensive income for the year To ta l co mp reh en s iv e in co me fo r th e yea r

O p en in g b a l a n ce 2017 - 01- 01

Shareholders contribution

Fair value

expenses

Translation reserve 97 465

Cash flow hedge

Retained earnings or

Net result for the

To ta l

reserve 1 117

losses 3 919 047

period 278 848

eq u ity 4 743 972

149 768

reserve 25 078

-

-

-

-

-

278 848

-

93 253

-

-

-

-93 253

-278 848 -

-

-

-

-

-

-

-

-

1 841

33 309

7 327

-

283 861 -

283 861 42 477

-

-

-

1 841

33 309

7 327

-

283 861

326 339

-

-

-

-

-

-

-

-

-

-

Cl o s in g b a l a n ce 2017 - 12- 31

78 994

193 655

243 021

26 919

130 774

8 444

4 104 642

283 861

5 070 310

O p en in g b a l a n ce 2018- 01- 01 IFRS 9 transition effect

78 994 -

193 655 -

243 021 -

26 919

130 774 -

8 444 -

4 104 642

-13 522

-205 257

283 861 -

5 070 310 -218 779

A d ju s ted o p en in g b a l a n ce 2018- 01- 01

78 994

193 655

243 021

13 397

130 774

8 444

3 899 385

283 861

4 851 531

Appropriation of profits

-

-

-

-

-

-

283 861

-

-

30 279

-

-

-

-30 279

-283 861 -

-

Change in fund for development expenses Net result for the period Other comprehensive income for the period

-

-

-

-

-

-

-467

189 670

-7 600

-

121 976 -

121 976 181 603

To ta l co mp reh en s iv e in co me fo r th e p erio d Cl o s in g b a l a n ce 2018- 06 - 30

-

-

-

-

-467

189 670

-7 600

-

121 976

303 579

78 994

193 655

273 300

12 930

320 444

844

4 152 967

121 976

5 155 110

Cash flow statement Jan-Jun 2018

Jan-Jun 2017

J a n - D ec 2017

+235 422 +1 381 964

+360 728 +1 705 321

+434 764 +3 743 529

+1 617 386

+2 066 048

+4 178 293

-1 528 894 +88 492

-2 364 811 -298 763

-4 762 502 -584 209

Ca s h fl o w s fro m in v es tin g a ctiv ities

-46 397

-78 914

-130 868

Ca s h fl o w s fro m fin a n cin g a ctiv ities

+245 477

+397 328

+810 236

+287 572 +1 808 435 +32 043

+19 651 +1 707 836 -676

+95 159 +1 707 836 +5 441

+2 128 050

+1 726 811

+1 808 435

SE K 000 O p era tin g a ctiv ities Operating profit Adjustment for non-cash items Ca s h fl o w s fro m o p era tin g a ctiv ities b efo re ch a n g es in w o rkin g ca p ita l Cash flows from changes in working capital Ca s h fl o w s fro m o p era tin g a ctiv ities

Ca s h fl o w fo r th e p erio d Cash and cash equivalents at beginning of the year Exchange rate difference in cash and cash equivalents Ca s h a n d ca s h eq u iv a l en ts a t th e en d o f th e p erio d

The cash flow statement has been prepared using the indirect method. Reported cash flow includes only transactions that involve incoming or outgoing payments. Cash and cash equivalents are defined as cash and bank

balances with central banks and lending to credit institutions, of SEK 2,141 m (1,773) less deductions for current liabilities to credit institutions of SEK 13 m (46).

INTERIM REPORT JUNE 2018

7

IKANO BANK AB (publ), corporate ID no. 516406-0922

Notes 1 Accounting principles This Interim Report has been prepared in accordance with IAS 34 and also complies with the Swedish Annual Accounts Act for Credit Institutions and Securities Companies (ÅRKL), the Swedish Financial Supervisory Authority’s regulations and general guidelines regarding annual reporting for credit institutions and securities companies in accordance with the applicable transitional rules (FFFS 2008:25), as well as the Swedish Financial Reporting Board’s recommendation, RFR 2 Accounting for Legal Entities. Accordingly, the Bank applies statutory IFRS. Per 1 January 2018 IFRS 9 Financial Instruments entered into force, replacing IAS 39 Financial Instruments: Accounting and Measurement. For a more detailed description see the Annual Report 2017. Per 1 January 2018 also IFRS 15 entered into force. For Ikano Bank IFRS 15 comprises mainly payment brokerage commissions, lending commissions and other commissions. Ikano Bank has not identified any transitional effects following the implementation of IFRS 15. In other respects, the applied accounting policies and assessments in the Interim Report coincide with those applied in the Annual Report for 2017. This Interim Report is presented in Swedish kronor (SEK), rounded to the nearest thousand (SEK 000) unless otherwise stated.

Fin a n cia l a s s ets Cash Treasury bills Loans to credit institutions Loans to the public Bonds and other interest-bearing securities Shares and participations Other assets - derivatives Other assets - other

Financial instruments IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Accounting and Measurement as of 1 January 2018. The standard was approved by the end of 2016 for application within the EU. IFRS 9 contains no requirement to recalculate comparative figures in the Annual Report. Changes introduced with IFRS 9 consist mainly of three parts: classification and measurement, impairment and hedge accounting. Classification and measurement The transition to classification and measurement rules in IFRS 9 has not led to any significant changes in Ikano Bank's financial reports. The classification for existing equity instruments within the scope of IFRS 9 has changed as the Bank has chosen to follow the main rule for equity instruments and valuation will be made at fair value through profit or loss. Previously they were classified as financial assets available for sale measured at fair value with value changes reported in other comprehensive income. As a result of this change, SEK 13.5 m net of tax have been transferred between fund for fair value and retained earnings, as well as a deferred tax item of SEK 3.3 m transferred between other assets and retained earnings. The table below shows the Bank’s classification of financial assets and liabilities before and after the implementation of IFRS 9.

Cl a s s ifica tio n 31 D ec 2017 a cc. to IA S 39 Loans and receivables Financial assets available for sale Loans and receivables Loans and receivables Financial assets available for sale Financial assets available for sale Financial assets measured at fair value through profit and loss Loans and receivables

Cl a s s ifica tio n 1 J a n 2018 a cc. to IFRS 9 Amortised cost Fair value through other comprehensive income Amortised cost Amortised cost Fair value through other comprehensive income Fair value through profit and loss Fair value through profit and loss

Loans and receivables

Amortised cost Amortised cost

Other financial liabilities Other financial liabilities

Amortised cost Amortised cost Amortised cost Fair value through profit and loss

Other liabilities - other

Other financial liabilities Financial liabilities measured at fair value through profit and loss Other financial liabilities

Accrued expenses

Other financial liabilities

Amortised cost

Accrued income Fin a n cia l l ia b il ities Liabilities to credit institutions Deposit from the public Issued securities Other liabilities - derivatives

Financial assets measured at amortised cost in the table above are held in a business model aimed at holding financial assets and receiving contractual cash flows where these cash flows consist solely of payments of capital amount and interest on the outstanding principle amount. Financial assets measured at fair value through other comprehensive income are held in a hold to collect or sell business model with the 8

Amortised cost

purpose to hold financial assets to obtain contractual cash flows as well as to sell these financial assets. Cash flows consist solely of payments of capital amount and interest on the outstanding principle amount. Derivatives not subject to hedge accounting are mandatorily measured at fair value through profit and loss.

INTERIM REPORT JUNE 2018

IKANO BANK AB (publ), corporate ID no. 516406-0922

SEK 222 m in retained earnings. This results in a negative effect of 50 basis points on the Bank's capital adequacy at the time of transition. The EU has decided on the possibility of applying transitional rules for the introduction of IFRS 9. The Bank has notified the SFSA of its decision to apply the one-off transitional rules, which means a gradual phase-in in the capital adequacy over five years. The table below shows the effects of the reclassifications in connection with the transition to IFRS 9.

Impairment The part of IFRS 9 regarding impairment rules introduces a forward-looking model with expected loan losses from the origination of the asset, as opposed to the IAS 39 model built on incurred loan losses. IFRS 9 is more extensive than IAS 39 for impairment requirements, as all assets valued at amortised cost and fair value through other comprehensive income and irrevocable loan commitments and credit commitments are subject to the assessment of impairment requirements. In line with previously communicated expectations, the transition to IFRS 9 implies increased provisions for loan losses and a reduction of the Bank’s equity. The effect of the introduction of IFRS 9 is an increase in credit loss reserves by SEK 285 m and the net effect after tax of this one-off effect is a decrease of

Hedge accounting Ikano Bank will continue to apply IAS 39 for its portfolio hedges and applies IFRS 9 to other hedging conditions.

Effects of the transition to IFRS 9 on the statement of financial position One-off effect 31 Dec 2017 acc. to IAS 39

kSE K A s s ets Loans to the public Leasing assets Deferred tax

27 798 753

-174 352

9 283 371 252 244

-71 918

875 190

-7 989

170 098

30 492

5 070 310

-284 751

Other assets L ia b il ities a n d p ro v is io n s Provisions E q u ity Equity

loan loss provisons acc. to IFRS 9

1 Jan 2018 acc. to IFRS 9

Tax effect

27 624 401 9 211 453 3 327

255 571

62 645

929 846 200 590

65 972

4 851 531

2 Operating segments Jan-Jun 201 8 S EK m Interest income Interest expense T otal net interest inc om e Payment service commissions Lending commissions Compensation, mediated insurance Other commissions C om m ission inc om e Commission expenses C om m ission, net Leasing income Depreciation on leasing assets Leasing inc om e, net N et interest, fee and leasing inc om e

Other income Other direct expenses O perating m argin before net loan

United Sweden

Denmark

Norway

Finland

Kingdom

Germany

Poland

316

33

-42 274

-8 25

39 -17 22

6 9 23 0 39 -14 25

1 1 0 2 -2 0

119 -102 17 35

221

299

3 -7 137

2 -3 34

13 -12 223

-4 -42 253

-175 -6 39

-134 -3 0

-36 -1 -2

-244 -6 -27

60 575 -317

17 258 -67

-

-

28

213 -83

47 -15

-

-10 29

-

-

0

-2

377 -114 263

165 -41 124

111 -40 71

14 -6 9

5 85 51 12 154 -66 87

1 18 15 1 35 -8 27

30 16 6 52 -29 24

1 11 2 0 13 -4 9

907 -813 94 444

513 -449 64 214

301 -255 46 141

10 -24 430

11 -6 219

-432 -10 -13

285 -86 199

Shared

Total before

functions

eliminations

Eliminations

Total

230 -217 13

1 531 -553 978

-350 350 -

1 181 -203 978

0 0 0 0 0

13 194 108 19 334 -142 192

-

13 194 108 19 334 -142 192

25

13

1 839 -1 618 221 1 391

-

1 839 -1 618 221 1 391

3 -1 27

495 -5 503

534 -100 1 825

-470 -470

64 -100 1 355

-76 -5 171

-25 0 2

-437 0 66

-1 559 -31 235

454 16 -

-1 106 -14 235

16 340 -116

-

310 -122

38 -16

699 21 -84

819 1 801 -819

-819 -

-1 -28

-57 114

0 2

-46 20

-113 122

-

39 0 -

-

losses and operational expenses Other expenses Allocated overhead expenses O perating result Of which:

Total internal income Total external income Total internal expenses Tax expense Net res u l t fo r th e p erio d

-13

819 -

1 801 -113 122

For more information on segment reporting see note 2 Accounting principles in the Annual Report 2017.

INTERIM REPORT JUNE 2018

9

IKANO BANK AB (publ), corporate ID no. 516406-0922 United

Jan-Jun 201 7 S EK m Interest income Interest expense T otal net interest inc om e Payment service commissions Lending commissions Compensation, mediated insurance Other commissions C om m ission inc om e Commission expenses C om m ission, net Leasing income Depreciation on leasing assets Leasing inc om e, net N et interest, fee and leasing inc om e Other income Other direct expenses O perating m argin before net loan

Sweden

Denmark

Norway

Kingdom

Finland

Germany

Poland

Shared

Total before

functions

eliminations

Eliminations

Total

374 -104 270

161 -41 120

114 -39 75

13 -3 10

269 -72 197

329 -47 282

26 -6 20

215 -209 7

1 502 -520 982

-325 325 0

1 178 -196 982

5 85 39 15 143 -66 77

1 18 15 2 36 -5 30

-

1 10 1 0 12 -3 9

38 0 0 39 -17 21

5 18 31 0 54 -15 39

-

29 15 6 50 -25 24

1 0 0 2 -2 0

0 0 -6 -6

11 200 101 23 335 -140 195

-

11 200 101 23 335 -140 195

837 -756 80 427

462 -407 55 206

281 -243 37 137

56 -49 7 26

218

321

20

1

1 635 -1 455 180 1 357

-

1 635 -1 455 180 1 357

7 -24 410

195 -7 394

2 -7 133

0 -3 24

13 -10 221

0 -13 308

3 -1 22

536 -1 536

757 -66 2 047

-546 -546

211 -66 1 502

-354 -10 46

-172 -4 218

-116 -2 14

-28 0 -5

-217 -5 0

-222 -6 80

-28 0 -6

-521 -1 14

-1 659 -28 361

539 6 -

-1 120 -21 361

58 546 -271

14 433 -42

-

-

20

17

-

204 -79

32 -15

301 -122

366 -107

31 -18

760 -9 -217

870 1 903 -870

-870 -

1

-47 170

0 14

-

1 0

-27 53

-6

-23 -8

-96 265

losses and operational expenses Other expenses Allocated overhead expenses O perating result Of which:

Total internal income Total external income Total internal expenses Tax expense Net res u l t fo r th e p erio d

48

-5

Jan-Dec 201 7 S EK m Interest income Interest expense T otal net interest inc om e Payment service commissions Lending commissions Compensation, mediated insurance Other commissions C om m ission inc om e Commission expenses C om m ission, net Leasing income Depreciation on leasing assets Leasing inc om e, net N et interest, fee and leasing inc om e Other income Other direct expenses O perating m argin before net loan

United Sweden

Denmark

Norway

Finland

Kingdom

755 -221 535

324 -83 241

226 -76 150

27 -7 20

11 170 88 25 294 -148 146

2 36 25 1 64 -12 53

57 32 13 101 -55 47

1 20 3 0 24 -7 17

1 735 -1 564 171 852

941 -826 116 409

579 -494 84 281

17 -46 824

207 -13 604

-712 -21 91

Germany

Poland

Shared

Total before

functions

eliminations

870 -

Eliminations

1 903 -96 265

Total

529 -146 383

659 -93 566

60 -13 46

436 -416 20

3 016 -1 056 1 960

-661 661 -

2 355 -395 1 960

-

-

2 2 -2 0 20

25 377 203 43 648 -303 345 3 396 -3 005 391 2 696

-

25 377 203 43 648 -303 345

140 -121 20 57

2 0 1 3 -4 0 46

-

77 -47 30 413

12 15 54 0 82 -29 53 619

6 -13 274

1 -5 52

24 -21 416

6 -25 599

5 -2 50

971 -2 989

1 237 -126 3 808

-975

262 -126 2 833

-355 -7 242

-257 -4 13

-59 -1 -8

-455 -9 -48

-440 -12 148

-48 -1 1

-995 1 -5

-3 320 -54 435

963 12 -

-2 356 -42 435

118 1 111 -562

31 681 -91

-

-

44

71 -30

586 -253

35 712 -218

-

418 -154

69 -31

1 409 13 -299

1 637 3 662 -1 637

-1 637 -

1

-51 190

0 13

-

9 -39

-59 89

-51 -55

-151 284

77 0 -

-975 -

3 396 -3 005 391 2 696

losses and operational expenses Other expenses Allocated overhead expenses O perating result Of which:

Total internal income Total external income Total internal expenses Tax expense Net res u l t fo r th e yea r

92

-8

1

1 637 -

3 662 -151 284

External income SE K m

J a n - J u n 2018

J a n - J u n 2017

J a n - D ec 2017

376 917 499 9 1 801

319 1 036 548 1 903

686 1 938 968 70 3 662

Corporate Sales Finance Consumer Other To ta l extern a l in co me

Ikano Bank, or each segment individually, has no single customer representing 10 percent or more of total revenues.

10

INTERIM REPORT JUNE 2018

IKANO BANK AB (publ), corporate ID no. 516406-0922

Balance sheet 30 J u n 2018 SE K m

Sweden

Denmark

Norway

Finland

United Kingdom

Germany

Poland

Eliminations

Total

Fixed assets other than financial instruments Deferred tax assets Other assets To ta l a s s ets L ia b il ities a n d p ro v is io n s

409 99 32 885 33 394 30 574

13 5 657 5 670 4 392

0 1 187 1 187 1 261

1 3 648 3 648 3 331

2 8 6 077 6 086 5 965

1 657 658 767

6 22 7 719 7 747 6 247

-13 282 -13 282 -13 282

431 129 44 548 45 108 39 255

30 J u n 2017 SE K m

Sweden

Denmark

Norway

Finland

United Kingdom

Germany

Eliminations

Poland

Total

Fixed assets other than financial instruments Deferred tax assets Other assets To ta l a s s ets L ia b il ities a n d p ro v is io n s 31 D ec 2017 SE K m Fixed assets other than financial instruments Deferred tax assets Other assets To ta l a s s ets L ia b il ities a n d p ro v is io n s

381 208 31 981 32 570 29 672

Sweden

30 5 269 5 299 4 120

Denmark

400 220 32 435 33 055 30 173

19 5 474 5 493 4 272

1 3 540 3 541 3 222

Norway

0 673 674 715

Finland

1 3 480 3 481 3 166

4 4 5 594 5 602 5 421

United Kingdom

0 968 969 1 013

3 13 5 971 5 987 5 841

8 6 7 552 7 565 6 271

Germany

1 631 632 743

Poland

6 19 7 586 7 611 6 255

-12 817 -12 817 -12 817

Eliminations

1 831 832 940

-13 346 -13 346 -13 346

425 218 42 423 43 066 37 348

To ta l

430 252 43 400 44 082 38 314

3 Information about subsidiary Per 1 October 2015, all shares in the subsidiary Ikano Insight Ltd were acquired. The Bank does not prepare consolidated statements with reference to the Annual Accounts Act §7:3a. The

financial position and result of Ikano Insight Ltd have no material effect on the financial position and ratios for Ikano Bank AB. The subsidiary was liquidated as of 24 January 2018.

Financial position and result of Ikano Insight Ltd SE K 000

J a n - J u n 2018 J a n - D ec 2017

Net interest income

-

-

Net commission

-

-

Other income

-

-

To ta l in co me

-

-

General administrative expenses

-

-

Other expenses

-

-

Tax expense

-

-

Net res u l t fo r th e p erio d

-

-

30 J u n 2018

31 D ec 2017

Other assets

-

14 597

To ta l a s s ets

-

14 597

Other liabilities

-

-

Equity

-

14 597

To ta l l ia b il ities a n d eq u ity

-

14 597

SE K 000 A s s ets

L ia b il ities a n d eq u ity

INTERIM REPORT JUNE 2018

11

IKANO BANK AB (publ), corporate ID no. 516406-0922

4 Net interest SE K 000

Jan-Jun 2018

Jan-Jun 2017

J a n - D ec 2017

In teres t in co me Loans to credit institutions Loans to the public Interest bearing securities To ta l

750 1 179 117 723 1 180 590

1 232 1 175 291 1 012 1 177 536

1 558 2 351 624 1 763 2 354 945

Of which: interest income from financial assets not measured at fair value through profit or loss Interest income from non-performing loans

1 179 867 40 029

1 176 524 33 440

2 353 182 82 569

-20 197 -103 980 -19 448 -12 902 -42 627 -4 720 -37 907 -11 550 -11 380 -10 600 -202 636

-21 428 -96 275 -12 556 -11 778 -46 632 -6 491 -40 141 -10 768 -8 920 -7 151 -195 801

-41 044 -202 479 -33 877 -24 814 -87 517 -12 243 -75 274 -21 726 -17 189 -14 302 -394 770

-160 009 977 954

-149 169 981 734

-307 253 1 960 176

Jan-Jun 2018

Jan-Jun 2017

J a n - D ec 2017

In teres t exp en s e Liabilities to credit institutions Deposits from the public

Of which: deposit guarantee fee Issued securities Derivatives

- hedge accounting - not hedge accounting Subordinated liabilities Other interest expenses

Of which: resolution fee To ta l

Of which: interest income from financial assets not measured at fair value through profit or loss To ta l n et in teres t in co me

5 Leasing income SE K 000 Leasing income, gross Less: Depreciation according to plan

1 839 412

1 635 376

3 395 930

-1 618 115

-1 455 022

-3 004 753

221 297

180 354

391 177

1 839 412

1 635 376

3 395 930

-1 618 115

-1 455 022

-3 004 753

221 297

180 354

391 177

L ea s in g in co me, n et Leasing income from financial lease agreements Depreciation according to plan for assets that are financial lease agreements, but are recognised as operating leases L ea s in g in co me, n et fo r fin a n cia l l ea s e a g reemen ts Interest income

4 705

3 646

7 723

Interest expenses

-54 420

-46 269

-96 273

L ea s in g , n et

171 582

137 731

302 626

Jan-Jun 2018

Jan-Jun 2017

J a n - D ec 2017

12 829 194 236 127 341 334 406

11 008 199 973 123 779 334 760

25 484 376 996 245 149 647 629

-1 326 -150 300 -27 204 -178 830

-2 222 -125 256 -21 813 -149 291

-3 728 -265 455 -50 115 -319 298

155 576

185 469

328 331

6 Net commission SE K 000 Co mmis s io n in co me Payment service commissions Lending commissions Other commissions To ta l Co mmis s io n exp en s es Payment service commissions Lending commissions Other commissions To ta l Co mmis s io n , n et

12

INTERIM REPORT JUNE 2018

IKANO BANK AB (publ), corporate ID no. 516406-0922

7 Other operating income SE K 000 Realised gain arising from the disposal of tangible assets One-off revenue from loan portfolio sale Other operating income To ta l

Jan-Jun 2018 12 234 -

Jan-Jun 2017 8 279 180 864

J a n - D ec 2017 21 005 180 864

41 645 53 879

32 589 221 732

66 331 268 200

Jan-Jun 2017

J a n - D ec 2017

8 Loan losses, net Jan-Jun 2018

SE K 000 Sta g e 1 - A s s ets w ith o u t s ig n ifica n t in crea s e in cred it ris k s in ce in itia l reco g n itio n Change in provisions of receivables from stage 1 Write-off and removal of receivables from stage 1 Recoveries from previously determined loan losses for stage 1 Net co s t fo r th e p erio d fo r l o a n l o s s es - s ta g e 1

6 428 6 428

Sta g e 2 - A s s ets w ith s ig n ifica n t in crea s e in cred it ris k s in ce in itia l reco g n itio n b u t n o t cred it- imp a ired Change in provisions of receivables from stage 2 Write-off and removal of receivables from stage 2 Recoveries from previously determined loan losses for stage 2 Net co s t fo r th e p erio d fo r l o a n l o s s es - s ta g e 2

2 861 -92 407 27 380 -62 166

Sta g e 3 - Cred it- imp a ired a s s ets Change in provisions of receivables from stage 3 Write-off and removal of receivables from stage 3 Recoveries from previously determined loan losses for stage 3 Net co s t fo r th e p erio d fo r l o a n l o s s es - s ta g e 3

120 850 -469 857 242 192 -106 815

Net co s t fo r th e p erio d fo r l o a n l o s s es - To ta l

-162 553

SE K 000 Sp ecific p ro v is io n s fo r in d iv id u a l l y a s s es s ed l o a n receiv a b l es Provisions for the period Write-off for the period for determined loan losses Reversal of previous provisions for loan losses Recoveries from previously determined loan losses Net co s t fo r th e p erio d fo r in d iv id u a l l y a s s es s ed l o a n receiv a b l es

-36 223

-57 003

-85 668 22 083 8 035

-207 509 47 566 15 496

-91 773

-201 450

Sp ecific p ro v is io n s fo r co l l ectiv el y a s s es s ed l o a n receiv a b l es Provisions for the period Write-off for the period for determined loan losses Recoveries from previously determined loan losses

-28 788 -168 493 41 073

51 331 -607 453 201 984

Net co s t fo r th e p erio d fo r co l l ectiv el y a s s es s ed l o a n receiv a b l es Net co s ts fo r th e p erio d fo r l o a n l o s s es

-156 207 -247 980

-354 139 -555 588

INTERIM REPORT JUNE 2018

13

IKANO BANK AB (publ), corporate ID no. 516406-0922

9 Loans to the public SE K 000 O u ts ta n d in g receiv a b l es , g ro s s

30 J u n 2018

30 J u n 2017

31 D ec 2017

- Swedish currency - Foreign currency To ta l

9 585 270 19 053 310 28 638 580

9 459 678 18 258 837 27 718 514

9 846 847 18 854 370 28 701 216

O u ts ta n d in g receiv a b l es p er s ta g e, g ro s s - stage 1 - stage 2 - stage 3 To ta l o u ts ta n d in g receiv a b l es p er s ta g e, g ro s s

23 753 798 3 944 743 940 039 28 638 580 763 829

957 961

-25 733 -743 531

-26 276 -876 187

-135 522 -308 534 -543 783 -987 839

-769 264

-902 463

23 618 276 3 636 209 396 256 27 650 741

26 949 251

27 798 753

Of which: non-performing loans

940 039

P ro v is io n s Specific provision for individually assessed receivables Specific provision for collectively assessed receivables Provisions for assets in stage 1 Provisions for assets in stage 2 Provisions for assets in stage 3 To ta l p ro v is io n s Ca rryin g a mo u n t, n et - stage 1 - stage 2 - stage 3 To ta l ca rryin g a mo u n t, n et

10 Deposits from the public SE K 000

30 J u n 2018

30 J u n 2017

31 D ec 2017

P u b l ic - Swedish currency - Foreign currency To ta l

13 101 139 13 209 899 26 311 038

13 783 961 11 501 037 25 284 998

13 456 014 12 160 715 25 616 729

D ep o s its s p ecified b y ca teg o ry o f b o rro w er Corporate sector Household sector To ta l

1 039 897 25 271 141 26 311 038

639 973 24 645 025 25 284 998

927 174 24 689 555 25 616 729

30 J u n 2018

30 J u n 2017

2 184 981 5 299 208 7 484 189

2 104 282 4 548 272 6 652 554

31 D ec 2017 2 104 556 4 720 223 6 824 779

11 Issued securities SE K 000 Certificates of deposits Bonds To ta l

14

INTERIM REPORT JUNE 2018

IKANO BANK AB (publ), corporate ID no. 516406-0922

12 Related parties The Bank has related party relationships with companies within the Ikano Group. Transactions with these companies are stated below. Consolidated financial statements are prepared by Ikano S.A., Luxembourg.

SE K 000 Ikano S.A. Ikano S.A. Ikano S.A.

Period 30 J u n 2018 30 J u n 2017 31 D ec 2017

Other Group companies Other Group companies Other Group companies

30 J u n 2018 30 J u n 2017 31 D ec 2017

Transactions with related parties are priced on commercial market-based terms. No nonperforming loans are attributable to the outstanding receivables from related parties.

Income -

Expenses -14 460 -30 205 -34 685

8 714 9 293

-23 919 -22 259 -45 700

Liabilities Receivables with related with related parties parties 15 513 22 405 1 210 19 574 955 78 031 7 135 13 800 19 144

873 827 833 014 839 424

13 Memorandum items 30 J u n 2018 none 669 2 965 120 39 234 098

kSE K Pledged assets Contingent liabilities Loan commitments, irrevocable Unused credit limits

Unused credit limits means card limits and loan commitments arranged externally. Commitments consisting of granted unused credit can be terminated effective immediately to the extent

30 J u n 2017 none 656 2 550 171 37 385 537

31 D ec 2017 none 669 2 262 408 38 046 534

this is permitted under the Swedish Consumer Credit Act. The Bank has no pledged commitments.

14 Financial assets and liabilities The following table provides information on the measurement of fair value of the financial instruments that are measured at fair value in the balance sheet (excluding items included in hedge accounting). The breakdown of how fair value is determined is based on the following three levels:

-

Level 1: according to prices listed on an active market for the same instrument Level 2: based on directly or indirectly observable market data that is not included in level 1 Level 3: based on input that is not observable in the market

INTERIM REPORT JUNE 2018

15

IKANO BANK AB (publ), corporate ID no. 516406-0922

Financial assets and liabilities As described in the section Accounting principles, the transition to IFRS 9 has resulted in a number 30 J u n 2018 SE K 000 Fin a n cia l a s s ets a t fa ir v a l u e th ro u g h p ro fit o r loss

of changes in the classification of financial assets and liabilities.

L ev el 1

Interest rate derivatives Currency derivatives

-

Fin a n cia l a s s ets a t fa ir v a l u e th ro u g h o th er co mp reh en s iv e in co me Bonds and other interest-bearing securities Treasury bills Fin a n cia l l ia b il ities a t fa ir v a l u e th ro u g h p ro fit or loss

To ta l

-

-

-

22 059

14 702 1 535

-

14 702 23 594

1 388 866 1 132 105

960 656 -

-

2 349 522

-

1 132 105

-

7 581 91 734

-

7 581 91 734

-

Shares and participations

L ev el 3

L ev el 2

Interest rate derivatives Currency derivatives

30 J u n 2017 SE K 000

L ev el 1

L ev el 2

L ev el 3

To ta l

Fin a n cia l a s s ets a t fa ir v a l u e th ro u g h p ro fit o r loss Interest rate derivatives Currency derivatives

-

89 529

-

89 529

2 022 077 1 103 422

635 284 -

-

2 657 361

-

1 103 422

14 735

1 535

-

16 270

-

1 868 1 737

-

1 868

Fin a n cia l a s s ets a v a il a b l e fo r s a l e Bonds and other interest-bearing securities Treasury bills Shares and participations1) Fin a n cia l l ia b il ities a t fa ir v a l u e th ro u g h p ro fit or loss Interest rate derivatives Currency derivatives

1 737

31 D ec 2017 SE K 000 Fin a n cia l a s s ets a t fa ir v a l u e th ro u g h p ro fit o r

L ev el 1

L ev el 2

L ev el 3

To ta l

loss Interest rate derivatives

-

1 642

-

1 642

Currency derivatives

-

62 194

-

62 194

Bonds and other interest-bearing securities

1 393 768

-

2 103 980

Treasury bills

1 172 947

710 212 -

-

1 172 947

17 350

1 535

-

18 885

-

6 334 48 433

-

6 334 48 433

Fin a n cia l a s s ets a v a il a b l e fo r s a l e

Shares and participations1) Fin a n cia l l ia b il ities a t fa ir v a l u e th ro u g h p ro fit or loss Interest rate derivatives Currency derivatives 1)

16

The Bank owns unlisted shares, which until 31 December 2017 were included in Level 2 of the valuation category financial assets available for sale. As there are difficulties in being able to calculate a fair value reliably, this is reported at the cost of acquisition adjusted for potential provisions as an approximation of fair value. The Bank does not intend to sell these shares in the near future.

INTERIM REPORT JUNE 2018

IKANO BANK AB (publ), corporate ID no. 516406-0922

Financial instruments that have been offset in the balance sheet or are subject to netting agreements party’s inability to settle, and also where the intention to reach a net settlement exists. No amounts have been offset in the balance sheet in 2018. Ikano Bank receives and submits collateral for derivatives in the form of bank deposits in accordance with the standard terms in the ISDA Credit Support Annex.

Ikano Bank is party to derivative contracts under the International Swaps and Derivatives Association’s (ISDA) master agreement, which means that when a counterparty cannot fulfil its obligations, the agreement is cancelled and all outstanding dealings between the parties are settled with a net amount. ISDA agreements do not meet the criteria for offsetting in the balance sheet since offsetting is only permitted due to a

Amounts not offset in balance sheet

30 J u n 2018 SE K 000

Offsetting in the Net in balance Gross value

balance sheet

sheet

Netting

Issued/Received

agreements

collateral

Net value

Derivatives To ta l fin a n cia l a s s ets

14 702 14 702

-

14 702 14 702

-14 702 -14 702

-

-

Derivatives To ta l fin a n cia l l ia b il ities

99 315 99 315

-

99 315 99 315

-14 702 -14 702

-92 240 -92 240

-7 627 -7 627

-

Amounts not offset in balance sheet

30 J u n 2017 SE K 000 Derivatives To ta l fin a n cia l a s s ets

Derivatives To ta l fin a n cia l l ia b il ities

Gross value 92 909 92 909

Offsetting in the Net in balance sheet balance sheet 92 909

Netting agreements

-

92 909

-5 103 -5 103

13 656

-

13 656

-

13 656 13 656

-5 103 -5 103

Issued/Received Net value

collateral -80 517

7 289

-80 517

7 289

-

8 552 8 552

Amounts not offset in balance sheet

31 D ec 2017 SE K 000 Derivatives To ta l fin a n cia l a s s ets

Derivatives To ta l fin a n cia l l ia b il ities

Offsetting in the Net in balance balance sheet sheet 63 835 63 835 63 835 63 835

Gross value

Netting agreements -49 192

Issued/Received collateral

Net value

-49 192

-9 846 -9 846

4 798 4 798

54 767

-

54 767

-49 192

-6 840

-1 265

54 767

-

54 767

-49 192

-6 840

-1 265

15 Risks and uncertainty factors The Bank’s earnings are affected by external changes that the company has no control over. The Bank’s earnings performance is affected by factors including macroeconomic change such as unemployment, as well as fluctuations in interest and exchange rates. Risk management is an integrated component of the Bank’s daily operations. In its business operations, the Bank is exposed to several risks such as credit risk, operational risk and business risk, but it must also manage liquidity risk, foreign exchange risk and interest rate risk. The Board of Directors and Managing Director are ultimately responsible for risk management at Ikano Bank. Risk management is intended to ensure that the risks

do not exceed the risk mandates set by the Board. The Bank’s risks are controlled centrally, but the responsibility for risk management rests primarily with local business units. This means that operating businesses own and manage the risk in daily operations. The central risk control function is responsible for monitoring and evaluating risk management. Apart from what is stated in this Interim Report, there is more detail in Ikano Bank’s Annual Report for 2017 and Ikano Bank’s annual “Capital adequacy and risk management” report in accordance with Basel 3 regulations, available at www.ikanobank.se.

INTERIM REPORT JUNE 2018

17

IKANO BANK AB (publ), corporate ID no. 516406-0922

16 Capital management and capital adequacy The below information is provided regarding own funds and own funds requirements in accordance with among others regulation (EU) No 575/2013 and the Swedish Financial Supervisory Authority’s (SFSA) regulations regarding prudential requirements and capital buffers (2014:12). The capital requirements regulations help to strengthen resilience against financial losses and thereby protect the Bank's customers. The regulations state that the Bank's own funds shall cover the minimum statutory own funds requirements, referred to as Pillar 1 requirements, which for Ikano Bank include the requirements for credit risks, CVA risks, operational risks and foreign exchange risks. In addition, the own funds requirements include further identified risks in the operation in accordance with the Bank's internal capital adequacy assessment process and the requirements stipulated by the Board of Directors, also referred to as Pillar 2 requirements and statutory requirements for capital buffers. To ensure that Ikano Bank's capital situation is satisfactory to cover the risks that the Bank is or may be exposed to, an internal capital adequacy assessment (ICAAP) is conducted at least annually. The ICAAP is the Board's tool for assessing the need for changes in the own funds requirement in the event of changed circumstances. Strategic decisions or external events that affect the business and its development are taken into account and stress tests and scenario analyses are carried out to assess potential additional own funds requirements. The risk control function is responsible for monitoring the process of the Bank's capital adequacy assessment. This is done as an integrated part of the budget and strategy processes. The ICAAP outcome is reported to the SFSA. The own funds requirement of the ICAAP in addition to Pillar 1 requirements for 30 June 2018 totalled SEK 966 m. Ikano Bank has quantified tolerance levels for the CET 1 ratio and total capital ratio above regulatory requirements. The margins represent buffers adapted to the Bank's risk profile in order to cover identified risks based on probability and financial impact. To meet the anticipated expansion of loans, maintain strategic freedom of action and also handle external changes, the Board of Directors has also expressed target levels for the Bank’s capital ratios as part of the risk appetite framework.

18

As of 30 June 2018, the Bank had own funds of SEK 6.4 bn (6.0) compared with the statutory own funds requirement for Pillar 1-risk of SEK 3.0 bn (2.9). The total capital ratio was 16.7 percent with a Tier 1 capital ratio of 14.5 percent. Consequently, the Bank has a strong capital adequacy that meets both statutory and internal requirements. The Bank's common equity Tier 1 capital amounted to SEK 5.5 bn. After a statutory minimum for common equity Tier 1 capital has been allocated to cover 75 percent of the total own funds requirement calculated in accordance with Pillar 1, a further SEK 3.2 bn remain available as common equity Tier 1 capital. The combined buffer requirement for Ikano Bank consists of the capital conservation buffer and the countercyclical capital buffer. According to the law (2014:966) regarding capital buffers the capital conservation buffer shall consist of a common equity Tier 1 capital equivalent to 2.5 percent of the Bank´s total risk exposure amounts. For Ikano Bank, the capital conservation buffer totals SEK 952 m and is covered well by the available common equity Tier 1 capital. The countercyclical buffer is determined by multiplying the total risk exposure amount with the weighted average of the countercyclical buffer rates applicable in those countries where the relevant credit exposures of the institution are located. The institution-specific countercyclical buffer for the Bank has been determined at 1.1 percent or SEK 401 m after weighting the applicable geographic requirements, which for the Bank mainly means Sweden, Norway and the UK. Ikano Bank’s combined buffer requirement is SEK 1,353 m. Per 1 January 2018, the new accounting standards IFRS 9 Financial Instruments entered into force. As mentioned in the Annual Report 2017, Ikano Bank has notified the SFSA of its decision to apply the transition rules introduced with article 473a capital requirements regulation (EU) No 575/2013 regarding the one-off effect. For the Bank, this effect was SEK 222 m after tax that will be gradually phased in into the capital adequacy over five years. The table on page 20 includes a comparison of Ikano Bank’s own funds as well as capital and leverage ratios with and without the application of transitional arrangements for IFRS 9 as introduced by the EBA guidelines 2018/01.

INTERIM REPORT JUNE 2018

IKANO BANK AB (publ), corporate ID no. 516406-0922

Summary of own funds, risk exposure amount and own funds requirements 30 J u n 2018

30 J u n 2017

31 D ec 2017

Tier 1 capital

5 506 488

5 169 398

5 211 615

Tier 2 capital

860 294

809 602

819 680

O w n fu n d s

6 366 782

5 979 000

6 031 295

38 088 420

35 827 990

36 515 692

3 047 074

2 866 239

2 921 255

To ta l ca p ita l ra tio

16.7%

16.7%

16.5%

Tier 1 ca p ita l ra tio

14.5%

14.4%

14.3%

Co mmo n eq u ity Tier 1 ca p ita l ra tio

14.5%

14.4%

14.3%

3 221 183

3 019 718

3 020 673

SE K 000

To ta l ris k exp o s u re a mo u n t To ta l o w n fu n d s req u iremen ts

A v a il a b l e co mmo n eq u ity Tier 1 ca p ita l A v a il a b l e co mmo n eq u ity Tier 1 ca p ita l in rel a tio n to To ta l ris k exp o s u re a mo u n t Capital conservation buffer Counter-cyclical capital buffer

8.5%

8.4%

8.3%

952 211

895 700

912 892

401 248

351 656

367 680

1 353 459

1 247 356

1 280 572

30 J u n 2018

30 J u n 2017

31 D ec 2017

5 155 110

5 020 226

5 070 310

78 994

78 994

78 994

Statutory reserve

193 655

193 655

193 655

Fund for development expenses

273 300

211 456

243 021

334 218

134 708

166 137

4 152 967

4 136 207

4 104 642

121 976

265 206

283 861

Co mb in ed b u ffer req u iremen t

Specification of own funds SE K 000 O w n fu n d s Tier 1 ca p ita l E q u ity rep o rted in th e b a l a n ce s h eet Share capital

Fund for fair value Retained earnings Net result for the period Adjustment for IFRS 9 one-off effect according to transitional arrangements

211 001

Untaxed reserves (78% of which)

544 562

544 562

544 562

- Intangible assets

-403 341

-377 707

-394 813

- Cash flow hedge

-844

-17 683

-8 444

To ta l Tier 1 ca p ita l

5 506 488

5 169 398

5 211 615

To ta l co mmo n eq u ity Tier 1 ca p ita l

5 506 488

5 169 398

5 211 615

Subordinated liabilities

860 294

809 602

819 680

To ta l Tier 2 ca p ita l

860 294

809 602

819 680

6 366 782

5 979 000

6 031 295

Less:

Tier 2 ca p ita l

To ta l o w n fu n d s

INTERIM REPORT JUNE 2018

19

IKANO BANK AB (publ), corporate ID no. 516406-0922

Specification of risk exposure amount and own funds requirements 30 J u n 2018 SE K 000

Risk exposure amount

30 J u n 2017

Own funds requirements

Risk exposure amount

31 D ec 2017

Own funds requirements

Risk exposure amount

Own funds requirements

Cred it ris k a cco rd in g to th e s ta n d a rd is ed a p p ro a ch Exposures to states and central banks Regional governments or local authorities Exposures to public sector entities Institutional exposure Corporate exposure Retail exposure Equity exposure Past due items

-

-

55

4

32 571

2 606

11 221 -

898 -

-

-

10 632

851

4

0

26

2

510 692

40 855

408 028

32 642

416 933

33 355

4 234 101

338 728

1 982 937

158 635

1 833 137

146 651

23 296 194

1 863 696

24 023 664

1 921 893

24 884 944

1 990 796

23 594

1 888

29 592

2 367

32 207

2 577

1 274 134

101 931

871 962

69 757

773 689

61 895

Covered bond exposure

111 136

8 891

130 769

10 462

113 016

9 041

Other items

514 494

41 160

615 767

49 261

620 242

49 617

To ta l cred it ris k

29 975 566

2 398 046

28 062 779

2 245 022

28 717 397

2 297 391

O p era tio n a l ris k a cco rd in g to th e b a s ic in d ica to r a p p ro a ch

5 056 084

404 487

4 840 640

387 251

4 840 640

387 251

Fo reig n exch a n g e ris k a cco rd in g to th e s ta n d a rd is ed a p p ro a ch

3 043 256

243 460

2 915 552

233 244

2 949 096

235 928

CV A a cco rd in g to th e s ta n d a rd is ed meth o d To ta l

13 514

1 081

9 020

722

8 559

685

38 088 420

3 047 074

35 827 990

2 866 239

36 515 692

2 921 255

Leverage ratio The Leverage ratio is a measure that provides an alternative to the risk-based capital requirement. The purpose is that it should be a clear and simple measure of capital strength. The measurement shows capital as a percentage of asset size, without considering the actual risk level of the assets. To date there is no legal minimum level of the Leverage ratio. The EU commission has proposed a Leverage ratio of 3

percent to be introduced in connection with the proposed revised Capital Requirements Regulation. The Leverage ratio is calculated using the Tier 1 capital as a percentage of total assets. For the Bank, the leverage ratio by 30 June 2018 is 11.4 percent (10.5) and thus well above the proposed binding measure.

Comparison of own funds and capital and leverage ratios with and without the application of transitional arrangements for IFRS 9 SE K m

3 0 Jun 2 0 1 8

3 1 M ar 2 0 1 8

Avai lable c api t al Common Equity Tier 1 (CET1) capital

5 506

5 329

Common Equity Tier 1 (CET1) capital as if IFRS 9 transitional arrangements had not been applied

5 295

5 118

Tier 1 capital

5 506

5 329

Tier 1 capital as if IFRS 9 transitional arrangements had not been applied

5 295

5 118

Total capital

6 367

6 178

Total capital as if IFRS 9 transitional arrangements had not been applied

6 156

5 967

Ri sk-w e i ght e d asse t s Total risk-weighted assets Inphasing

38 088 164

37 365 254

Total risk-weighted assets as if IFRS 9 transitional arrangements had not been applied

37 925

37 112

Capi t al rat i os Common Equity Tier 1 (as a percentage of risk exposure amount)

14.5%

14.3%

arrangements had not been applied

14.0%

13.8%

Tier 1 (as a percentage of risk exposure amount)

14.5%

14.3%

Tier 1 (as a percentage of risk exposure amount) as if IFRS 9 transitional arrangements had not been applied

14.0%

13.8%

Total capital (as a percentage of risk exposure amount)

16.7%

16.5%

had not been applied

16.2%

16.1%

Le ve rage rat i o Leverage ratio total exposure measure Leverage ratio

48 402 11.4%

49 006 10.9%

Leverage ratio as if IFRS 9 transitional arrangements had not been applied

11.0%

10.5%

Common Equity Tier 1 (as a percentage of risk exposure amount) as if IFRS 9 transitional

Total capital (as a percentage of risk exposure amount) as if IFRS 9 transitional arrangements

20

INTERIM REPORT JUNE 2018

IKANO BANK AB (publ), corporate ID no. 516406-0922

17 Liquidity Ikano Bank's liquidity is managed within the framework of the Bank's liquidity portfolio. The liquidity portfolio consists of deposits with banks, short-term lending to credit institutions and also investments in liquid interest-bearing securities, which can be sold and converted into cash on short notice. The Bank also has other liquidity creating measures at its disposal, such as immediately accessible overdraft facilities as well as committed credit facilities. The composition and size of the Bank's liquidity portfolio and liquidity reserve is regulated in the Bank’s steering documents, which are adopted by the Bank's Board of Directors. To ensure that the liquidity of Ikano Bank is adequate, an internal liquidity adequacy assessment (ILAAP) is performed at least annually. This process is a tool used by the Board of Directors to assess the need for changes in the liquidity requirement in the event of changed circumstances. The liquidity portfolio is divided into three categories: Intra-day liquidity, liquidity reserve and an operational portfolio. The Bank's liquidity reserve and operational portfolio shall always total at least 10 percent of deposits from the public. In addition to the liquidity reserve, the Bank shall maintain an intraday liquidity of at least 4 percent of deposits from the public. Consequently the liquidity portfolio shall always amount to at least 14 percent of deposits from the public. The liquidity reserve, together with other operating liquidity, is invested in interest-bearing securities in the markets where the Bank operates. Steering documents define that quality levels of securities included in the Bank's liquidity reserve are in line with the LCR Delegated Act. Intra-day liquidity manages the Bank’s daily payment commitments. The liquidity in this portfolio shall be available within one day, and

shall consist of funds in bank accounts, investments available the next banking day (overnight) and committed bank overdraft facilities in the Bank’s cash pool. The liquidity reserve shall constitute a separate reserve of high-quality liquid assets, which are to be quickly convertible in case of market stress situations that affect the Bank’s funding options. The liquidity reserve is invested in interest-bearing securities with a high credit rating in the Swedish market. The assets are to be available for realisation and conversion into cash at short notice. Unused bank overdraft facilities are not included in the liquidity portfolio. The Bank’s operating liquidity is managed in the investment portfolio. The assets in the portfolio consist of interest-bearing securities in the Swedish market. Investments in this portfolio are to have a minimum rating of BBB+ (rating according to Standard and Poor’s). The Bank's liquidity reserve amounts to SEK 2.4 bn and consists of high quality assets, liquid in private markets and eligible as collateral with the Swedish Central Bank. The liquidity portfolio as of 30 June 2018 totalled SEK 5.6 bn excluding overdraft facilities and constitutes 21 percent of deposits from the public. It includes cash and balances with banks, the liquidity reserve and other interest-bearing securities with a value of SEK 1.1 bn. None of the assets are being utilised as collateral and no non-performing loans exist. In addition to the liquidity portfolio, committed credit facilities for a total of SEK 3.1 bn are available. As of 30 June 2018, the Bank's liquidity coverage ratio (LCR) totalled 220 percent. This measure shows how the Bank's highly liquid assets relate to net outflows over a thirty-day period under strained market conditions. A statutory limit for the liquidity coverage ratio of 100 percent is applied since 1 January 2018.

Summary of liquidity reserve SE K 000 Securities issued by regional governments and governments

30 J u n 2018

30 J u n 2017

31 D ec 2017

Securities issued by financial companies Covered bonds L iq u id ity res erv e

1 134 499 158 458 1 111 364 2 404 321

1 103 775 145 807 1 307 690 2 557 272

1 172 947 148 967 1 123 514 2 445 428

Operating liquidity invested in securities

1 077 307

1 203 511

831 499

Cash and balances with central banks and other banks

2 101 176

1 745 648

1 780 779

To ta l l iq u id ity p o rtfo l io

5 582 804

5 506 431

5 057 706

O th er l iq u id ity crea tin g mea s u res Unused committed credit facilities

3 096 140

3 403 031

2 954 402

The Bank’s long-term funding plan aims at a welldiversified funding, taking into account the allocation of risks and financing costs. Deposits from the public are regarded as the main funding source and the Bank aims to maintain a minimum ratio of deposits to total assets of 50 percent. Additional information

about the Bank's capital adequacy and liquidity risk management can be found in the Annual Report for 2017 and the information on capital adequacy and risk management for 2017. The documents are published on the Bank's website www.ikanobank.se.

INTERIM REPORT JUNE 2018

21

IKANO BANK AB (publ), corporate ID no. 516406-0922

Malmö, Sweden, 29 August 2018 The Board of Directors and the Managing Director certify that this Interim Report gives a true and fair view of the Bank’s operations, financial position and results of operations, and describes significant risks and uncertainties faced by the Bank.

Mats Håkansson Chairman

Diederick van Thiel Board member

Lars Thorsén Board member

Olle Claeson Board member

Heather Jackson Board member

Yohann Adolphe Board member

Håkan Nyberg Managing Director

22

INTERIM REPORT JUNE 2018