Swedish banks poised for 25% net interest income growth by 2024 as rates rise

Come 2024, Sweden's largest banks are set to grow net interest income by an average of 25% from 2021 levels, according to S&P Capital IQ analyst consensus estimates, as central bank rate hikes bolster margins.

Svenska Handelsbanken AB (publ), Skandinaviska Enskilda Banken AB (publ) and Swedbank AB (publ) have already seen improved deposit margins after the Swedish central bank brought its key interest rate into positive territory earlier this year for the first time since 2014.

"For quite some time we've lost money on the large inflow of deposits. Now it turns into earnings," said Swedbank CEO Jens Henriksson, presenting the bank's second-quarter earnings July 19.

NII increase

The Riksbank raised its benchmark rate by 25 basis points to 0.25% in late April and by a further 50 bps to 0.75% in late June. It has signaled further hikes this year as it seeks to curb inflation, and expects the rate to be "close to 2%" at the start of 2023.

Net interest income, or NII, for the three banks is on track to rise 11% in 2022, according to the analyst estimates. NII is the difference between interest revenues and interest expenses.

SEB is poised for the strongest NII growth over the next three years, with analysts predicting it will increase to 30.40 billion Swedish kronor in 2022, a 16% year-over-year increase, and to 34.00 billion kronor in 2024.

For Swedbank, analysts expect NII to land at 29.00 billion kronor this year, up 10% from 2021, and reach 33.15 billion kronor in 2024. Handelsbanken's NII is set to reach 34.23 billion kronor in 2022, a 7% rise year over year, and 38.07 billion kronor in 2024.

Pandemic-led deposit boom

Positive rates across Europe are expected to boost income across the entire banking sector, especially at lenders with large deposit franchises as they will be able to make money from their deposits for the first time in years.

Swedish banks have recorded significant deposit inflows since the outbreak of the coronavirus pandemic. Customer deposit volumes are now 48% higher on average at the three Swedish banks than they were at the end of 2019. Most significantly, customer deposits at SEB have increased 78% in that time.

NII tailwinds were already visible in Swedish banks' results for the first half of 2022. SEB's NII was up 16% compared to the same period last year, while it grew for Handelsbanken and Swedbank by 9% and 3%, respectively.

Stronger NII will contribute positively to the bottom line of Swedish lenders, although expected higher loan loss provisions at all three banks, among other things, will limit net profit in the short term. Analysts expect the combined net profit of Handelsbanken, SEB and Swedbank to drop by 5% in 2022, but rebound in 2023 and 2024.

* Access key financial highlights for Sweden's banks. * Access more S&P Cap IQ consensus estimates for Handelsbanken, SEB and Swedbank.

As of Aug. 1, US$1 was equivalent to 10.10 Swedish kronor.