Svenska Handelsbanken : Handelsbanken (plc) Annual Report 2023

Annual report

and financial statements

2023

Handelsbanken plc

Company No. 11305395

Year ended 31 December 2023

handelsbanken.co.uk

Directors and advisors

DIRECTORS

Mikael Hallåker (Chairman)

Maureen Laurie (Senior Independent Director)

John Ellacott

Patricia Jackson

Agneta Lilja

Arja Taaveniku

Margaret Willis

Martin Björnberg (Chief Financial Officer)

Mikael Sørensen (Chief Executive Officer)

COMPANY SECRETARY

Kevin Taylor

REGISTERED OFFICE

3 Thomas More Square

London

E1W 1WY

AUDITOR

PricewaterhouseCoopers LLP

7 More London Riverside

London

SE1 2RT

Contents

Directors and advisors			1
Chairman's statement			3-4
Chief Executive Officer's statement			5-6
Strategic report			7-57
		Non-Financial and Sustainability Information (NFSI) Statement	13-21
		Climate-related Financial Disclosures	22-33
		Corporate Governance report	34-37
		Wates Principles	38-44
		Stakeholder engagement	45-51
		Committee reports	52-56
		Directors' duty to promote the success of the company	57
Directors' report			58-59
Directors' responsibilities		Statement of directors' responsibilites in respect of the financial statements	60
Risk and Capital Management		Risk and Capital Management	61-77
Auditors report		Independent auditors' report to the members of Handelsbanken plc	78-83
Financial statements		Consolidated statement of profit or loss and comprehensive income, UK Group	84
		Balance sheet, UK Group	85
		Statement of changes in equity, UK Group	86
		Cash flow statement, UK Group	87
		Notes to the financial statements, UK Group	88-129
		Primary financial statements and notes to the financial statements, Bank only	130-154

Handelsbanken plc is a public limited company incorporated and domiciled in the UK. The registered office is 3 Thomas More Square, London E1W 1WY.

HANDELSBANKEN PLC ANNUAL REPORT 2023 2

CHAIRMAN'S STATEMENT

Chairman's statement

The importance of a high quality customer experience,

as evidenced by the Bank topping the Competition and Markets Authority survey for relationship and account management, would not be possible without our colleagues, who remain at the heart of the Bank's success and I thank them all for their efforts.

It is with pleasure that I introduce the 2023 consolidated financial statements for Handelsbanken plc and its subsidiaries ('UK Group'), which was a year of record financial performance and profitability despite the backdrop of geopolitical and macroeconomic volatility.

In times like these the Bank's business model provides the stability required to navigate these uncertainties. Our strong corporate culture and decentralised business model complement the financial strength provided by a strong capital and liquidity position. This in turn supports a market-leading service proposition, due to our proximity to customers and our focus on long-term relationships. The customer-driven model, with skilled staff serving customers in local branches, is becoming increasingly rare as many peers scale back their local presence. This provides opportunities for the Bank to grow as we continue to see strong demand for personalised service and the opportunity to meet a knowledgeable local banker, coupled with the ability to manage day-to-day transactions through digital channels.

The Board remains informed of strategic, regulatory and change matters and is fully supportive of the progress made this year towards long-term sustainable growth. There is continued focus on increasing lending within the Bank's targeted customer segments and growing our wealth management offering by exploring further synergies with the wider UK Bank.

Healthy progress has been made on our strategic journey which includes our ambitious sustainability programme, that aims to establish the Bank as a leader in green and sustainable finance. Our ambition is to reach net zero emissions by 2040 across both our business operations and our investment and financing activities.

It is also encouraging to report that investments in our technology infrastructure in the past year allow us to face the future with confidence. The professional and personal service that customers experience through our branches, will be further complemented by the ease and efficiency of the enhanced digital services that our customers have requested.

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CHAIRMAN'S STATEMENT

Handelsbanken Group supports this investment plan and recognises the value it offers. It is a large, multifaceted project, designed to provide incremental improvements to systems and processes that in turn drive efficiencies and reduce risks across the organisation. Delivering improved resilience and financial performance will ultimately deliver a better banking experience for our customers.

The importance of a high quality customer experience, as evidenced by the Bank topping the Competition and Markets Authority survey for relationship and account management, would not be possible without our colleagues, who remain at the heart of the Bank's success and

I thank them all for their efforts. To acknowledge this, we addressed the cost of living pressures through our annual pay review process, focusing our support on those colleagues in lower-paid roles. We also endeavoured to recognise the importance of having an effective work life balance, by improving our well-being offerings and family-friendly policies, which included enhancing maternity and paternity leave on a gender neutral basis and introducing grandparent leave. To attract a talented and diverse workforce, we initiated a 'Return to Work' programme aiming to encourage those out of the workforce for an extended period of time to return with their wealth of expertise and experience. We also supported the 10,000 Black Interns initiative.

As this report shows, a lot has been achieved in the past year and whilst the outlook for 2024 remains challenging, we are well-placed to succeed and grow in the coming years given our strong foundations, financial strength and strategic clarity. Thanks again to our colleagues for their hard work and to our customers for trusting us with their business.

Mikael Hallåker

Chairman

14 March 2024

HANDELSBANKEN PLC ANNUAL REPORT 2023 4

CHIEF EXECUTIVE OFFICER'S STATEMENT

Chief Executive Officer's statement

Ensuring we deliver first class service, as well as providing good customer outcomes, is in Handelsbanken's DNA.

2023 was a record year for Handelsbanken's financial performance in the UK. We posted our highest ever income and best ever operating result, and return on equity reached its highest level to date.

Our compelling customer proposition means that we have built up a substantial deposit book over time. For this reason, we were able to benefit from that position in 2023 when margins improved throughout the year due to the Bank of England (BoE) base rate moving from its long-term, historic low. Whilst interest margins peaked in the middle of the year, the Bank continued to grow its deposit volumes on the corporate side, contributing to our income and profitability achievements.

Lending volumes predictably proved more challenging. Understandably, customer appetite for lending was significantly dampened through a combination of incremental successive interest rate rises, and a lack of overall confidence in the UK macro-economic environment. Given the high credit quality of our customers, we saw their preference to de-leverage come to the fore during this period - a trend we tend to see in Handelsbanken during a high interest rate environment, when the cost of servicing debt means some customers prefer to use their existing deposits to pay that down. If we had not seen this increase in repayments due to our customers' financial strength, an uptick in new corporate lending would most likely have led to overall growth in our corporate lending book in 2023 - a positive trend compared to elsewhere in the market.

It is impossible to reflect on the past year without mentioning continuing geopolitical crises. The war in Ukraine shows no signs of ending, and the terrible events in the Middle East have produced both a humanitarian crisis and international instability. Such global events have local ramifications, and the impact has no doubt been felt across both society and our economy - the latter of which has continued to struggle through the year. These events, together with high inflation and the subsequent central bank response

of hiking interest rates, have markedly affected investor expectations for the future, and the behaviour and performance of financial markets. Unsurprisingly, in Handelsbanken Wealth & Asset Management Limited, customers remained cautious amidst this prolonged uncertainty. However, our UK government bond investment offering has proved attractive to customers and provided a timely boost to our assets under management, with gross new business inflows of £60 million, assets under management and administration rose to £4.263 billion.

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CHIEF EXECUTIVE OFFICER'S STATEMENT

As our customers continued to navigate market volatility, economic instability and the implications of a sharp increase in the cost of living, our relationship banking model delivered what it does best. Namely, every day, in communities across the country, providing highly personalised service through teams of empowered bankers who are accessible to our customers and ready to assist. Understanding each customer's financial requirements is paramount to our service proposition, and it also means we can, at an early stage, identify, discuss and help remedy signs of financial stress,

or potential issues further down the line. This gives us, and crucially our customers, additional comfort at this stage in the economic cycle, and I pay tribute to the hard work of our branch teams delivering this industry-leading service. Handelsbanken was ranked top for satisfaction for 15 years in a row, for both personal and business banking, in an independent survey of British bank customers; and in February 2024 we were again named the most- recommended provider for relationship/ account management for small and medium sized enterprises (SMEs), as well as for SME overdrafts and loans by the Competition and Markets Authority. This is particularly satisfying as this survey polls our customers.

Beyond the benefits derived from the strength and depth of our customer relationships, it was important

that Handelsbanken responded to developments in its external environment in order to provide additional, appropriate support for our customers where required. For example, whilst many aspects of the Mortgage Charter were simply business as usual for Handelsbanken, we worked to ensure we were aligned with other elements as closely as possible, providing customers with increased flexibility and repayment breathing space if their circumstances meant they could benefit from that assistance. We also developed new savings products so that customers could take advantage of the higher interest rate environment, and we continue to ensure that the interest rate provided to customers on their instant access savings account remains competitive with our peers.

Ensuring we deliver first class service, as well as providing good customer outcomes, is in Handelsbanken's DNA. It is something we have focused on for decades, and in fact, it is through this lens that our business model has consistently proven itself, delivering on our only corporate goal - to be more profitable than the average of our peers

• year after year. Handelsbanken is successful because of our values, our culture and our unwavering commitment to delivering the best advice, service and customer outcomes possible.
  This is why, when the Consumer Duty rules came into force midway through 2023, we believed our truly customer- centric business model would be well positioned to embrace them. We always start with the needs of our customers when designing products and services, which are ultimately always driven
  by customer demand. As with all regulation, we have examined our processes and found ways to improve them; we continuously seek ways to make banking with Handelsbanken even easier, through listening to our customers' feedback and enhancing the channels available to them.

As part of our business transformation focus through 2023, the Bank conducted a significant amount of work bringing in new skills and capabilities, and in starting to establish new ways of working. Bringing colleagues together from across the breadth of the Bank to work effectively in multi-disciplinary delivery teams, the transformation work will facilitate further business growth through creating capacity

in our branches and operations, whilst reducing IT-related risks. Early successes for our customers saw include continued enhancement of our online banking and mobile app channels, including the launch of ApplePay and Confirmation of Payee. We have also rolled out digital signing capability across our branches and developed the ability to use data, via Open Banking, for on-boarding and credit assessment purposes.

Amongst the wealth of exciting developments earmarked for 2024, we plan to launch a new mortgage origination platform, explore new digital

on-boarding capability, pilot a new Customer Relationship Management (CRM) platform, and roll out digital collaboration tools for our colleagues. These initiatives will collectively cut the time and resource spent on more manual and administrative processes, enabling our branch colleagues to focus more on deepening relationships with their customers and prospects.

I want to draw my reflections on 2023 to a close by addressing an increasingly important area for Handelsbanken and our customer base, as well as our sector and society at large, this

is of course climate change and the transition to a net zero carbon economy. Handelsbanken remains steadfast in its commitment to reaching net zero by 2040 - a stretching and ambitious target that rightly spans carbon emissions from our own operations as well as those that we finance through our lending and investments. Over the past year, we have made solid advances in providing customers with the tools they need

to support their own journey to net zero - from green features built into some of our mortgage products e.g. our buy-to-let loans, to electric vehicle finance and sustainability-linked large corporate lending. There is much more support to come for our customers as we focus on implementing our own net zero transition plan. Whilst the political momentum behind this transition may ebb and flow, our commitment is unwavering: morally it is the right thing to do and it aligns closely with our, our customers', and many of our other stakeholders' expectations.

As ever, as we close the books on a successful year, I want to thank the hard work of my colleagues right across the organisation who have all played

a fundamental role in delivering record results for Handelsbanken in the UK. And to our customers, we are delighted you continue to choose Handelsbanken and I wish to extend my thanks to each of you for your on-going business and loyalty.

Mikael Sørensen

CEO

14 March 2024

HANDELSBANKEN PLC ANNUAL REPORT 2023 6

STRATEGIC REPORT

Strategic report

Our Goal

Svenska Handelsbanken AB (publ). ('Svenska Handelsbanken'), and its group of subsidiaries ('Handelsbanken Group'), which includes Handelsbanken plc, has one corporate goal: attaining a higher return on equity than the average of its competitors in its home markets, of which the UK is one. This goal is achieved through focusing on two fundamental means within the Handelsbanken Group - having more satisfied customers and lower costs (including credit losses) than our competitors.

The Bank is managed on an entity basis and not by business segment, therefore no segmental information is provided. Consolidated financial statements were prepared for the first time for the year ended 31 December 2022 for Handelsbanken plc and its subsidiaries ('UK Group').

OUR BUSINESS MODEL - LOCAL RELATIONSHIP BANKING

Handelsbanken is a relationship bank, built around satisfied customers, financial strength and sustainable values. We believe banking should be local and personal, and that the interests of our customers should always come first.

The Bank has a long-term approach to customer relationships, a decentralised way of working and a strong local presence, through a nationwide branch network. This means that in communities across the UK, experienced bankers have the autonomy to take swift, sensible decisions and to provide customers with the best possible service. This distinctive approach, where decisions are devolved to employees throughout the organisation, is based on trust and respect for the individual and an unshakeable belief in people and their ability and will to do good things well. It is also an approach that has demonstrated, since we first began operating in the UK, that those closest to their customers take the best decisions and provide the best advice. As a result, branches build broad, strong and lasting relationships throughout the communities they serve.

We have found our bespoke, high-touch relationship banking service to be particularly well-suited to certain types of customer. These include family-owned and owner-managed businesses, business owners themselves, property investors, corporate executives and professionals. As we refine our business strategy, we are using our knowledge of these groups' particular needs to shape our product and service offering.

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CHANGES TO OUR ORGANISATION

Since reorganising into one UK structure, the Bank has been focussed on continuing to optimise the organisational structure, whilst improving collaboration across functions. This has resulted in really good progress being made against the main activities in last year's business plan. The level of collaboration is expected to step up further over

the coming years in order to deliver on business transformation and IT modernisation goals.

The Bank's strategy, to offer a limited number of core products across lending, deposits and wealth management to core private individual, property and trading business customers, remains unchanged. The branch-based distribution model focusses on providing a proactive, high-quality advisory service, enabling continued high income and margins per customer. Digital channels are being enhanced to create a more seamless customer experience. Customer Connect offers a value-add, proactive advisory service.

STRATEGIC REPORT

Over the years, we have continuously reviewed our branch network, making adjustments to configure it appropriately and position it to deliver the best possible service experience for our customers. Via this business as usual approach, our branch network is routinely kept under review.

REVIEW OF FINANCIAL PERFORMANCE

The UK Group's performance is presented on a statutory basis, as explained under the basis of preparation on page 88, and structured in a manner consistent with the key elements of the Bank's business model as explained on page 7.

	2023	2022
	£'000	£'000	Movement
Income statement
Total income	1,006,356	733,894	37.1%
Total expenses	(427,739)	(386,381)	10.7%
Net credit (losses) and net gains on disposal of property, equipment and intangible assets	(3,853)	(3,597)	7.1%
Profit before tax	574,764	343,916	67.1%

KEY PERFORMANCE INDICATORS

Key figures for the UK Group are as follows:

Financial and Non-financial KPIs	2023	2022	Movement
Liquidity Coverage Ratio (See Funding and Liquidity section)	147.2%	147.0%	0.2%
Net Stable Funding Ratio (NSFR)	131.0%	130.0%	1.0%
CET1 ratio (See Funding and Liquidity section)	20.0%	21.3%	-1.3%
Return on equity (See Chief Financial Officer commentary section)	15.1%	9.6%	5.5%
Cost / income ratio (See Chief Financial Officer commentary section)	42.5%	52.6%	-10.1%
Credit loss ratio	0.02%	0.01%	0.01%
Loan to deposit ratio	88.5%	92.9%	-4.4%
Average deposits from the public	£20.4bn	£20.1bn	1.4%
Average loans to the public	£18.6bn	£19.9bn	-6.4%
Assets Under Management and Administration (AUMA)	£4,263m	£4,073m	4.7%
Sustainable fund assets as a percentage of overall AUM of our multi asset funds	11.6%	11.7%	-0.2%
Corporate customer satisfaction (See Customer Outcomes section)	79.4	78.8	0.8%
Personal customer satisfaction (See Customer Outcomes section)	82.0	81.5	0.6%

HANDELSBANKEN PLC ANNUAL REPORT 2023 8

STRATEGIC REPORT

Chief Financial Officer commentary

JANUARY - DECEMBER 2023 COMPARED WITH JANUARY -

DECEMBER 2022

2023 was another record year for the Bank, with total income passing the £1 billion milestone (up 37%). Total expenses increased by 11% largely driven by investment in IT modernisation to support business transformation, together with inflationary pressure. Profit before tax increased by 67% to £575 million, supported by very low levels of loan losses and strong growth in income. The cost / income ratio fell by a further 10.1% units to 42.5% and return on equity (RoE) rose to 15.1, 5.5% units higher than 2022.

Total income rose by £272.5 million driven entirely by an increase in net interest income of £274 million, with other income lines falling by -£1.5 million. The growth in net interest income was driven by higher net interest margins, following Bank of England (BoE) rate increases. The income growth also reflects the structure of the balance sheet, where deposit balances have been growing at a faster pace than lending over a number of years positively impacting funding cost.

Expenses reached £427.74 million, increasing by £41 million, primarily driven by growth in staff costs and other expenses for business transformation. The growth in staff costs reflected both an increase in headcount to deliver future growth, together with higher levels of inflation built into annual salary increases. The rise in staff cost was partly offset by a lower provision for allocation to the profit share scheme Oktogonen as well as the one-off cost of living support payment made in 2022. The investment in business transformation was reflected across a number of other cost areas including staff, professional fees, charges from Group IT, and computer costs.

The net expected credit losses were £3.8 million in the year which compares to a net loss of £4.4 million in 2022. The net expected credit losses remain low due to write-backs in stage 3 provisions, offset by higher levels of stage 1 & 2 provisions. The driver for the increase in stage 1 & 2 provisions was largely attributable to movements in customer ratings. This reflects the Bank's dynamic rating approach, where customer positions are adjusted to reflect the increased economic uncertainty caused by the macroeconomic environment.

FUNDING AND LIQUIDITY

Capital and liquidity positions remain strong, with significant surplus to both regulatory requirements and risk tolerance. Given the strong capital position and considering our capital and liquidity plans, the Board has recommended a dividend of £625 million for the year. The recommended dividend reduces the CET1 ratio from 25.7% to 20.0% (2022 21.3%). The Bank reports a Liquidity Coverage Ratio (LCR) of 147% (2022: unchanged at 147%) as of 31 December 2023. The LCR has remained broadly consistent throughout 2023. As at 31 December 2023, the NSFR was 131%. The NSFR has remained relatively stable over the previous 12 months.

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