Nordic banks' lending income growth set to taper off in Q4

Recent strong lending income growth at Nordic banks is set to slow in the final quarter of 2023.

The region's six largest banks will experience, on average, quarter-over-quarter growth in net interest income (NII) of 1.2% in the last three months of the year, according to S&P Capital IQ consensus estimates. This compares to an average quarterly NII increase of 4.6% in both the second and third quarters as higher central bank rates bolstered income. NII is the difference between interest revenues and interest expenses.

Sweden, Denmark and Norway continued a long trend of increasing policy rates into September to tackle inflation.

Net interest income

In Sweden, Skandinaviska Enskilda Banken AB (publ) (SEB) and Svenska Handelsbanken AB (publ) are expected to achieve the largest percentage increase of the group in the fourth quarter. SEB is set to record about €1.06 billion in NII and Handelsbanken roughly €1.05 billion — quarter-over-quarter growth of 1.95% and 1.75%, respectively. Handelsbanken is getting "closer and closer to the peak" of NII, CFO Carl Cederschiold said on a recent earnings call.

Swedbank AB (publ), forecast to generate 1.61% growth, is bracing for the effect of almost half its lending book in the Baltic region repricing in the coming quarter, which could influence its income, CEO Anders Karlsson said during the bank's third-quarter earnings call. The bank has no plans to begin paying interest rates on current account transactions in the region, unlike some of its competitors, Karlsson said.

– Access the Peer Analysis template on S&P Capital IQ Pro. – Access profile pages for Handelsbanken, SEB, Swedbank, Danske Bank and Nordea on S&P Capital IQ Pro.

Denmark-based Danske Bank A/S is projected to see minimal NII growth in the fourth quarter, according to consensus estimates. The bank, however, stressed during its third-quarter earnings call that its NII peak had not yet been reached and that it was experiencing "continually improved" deposit margins despite lower lending volumes.

The prime contributor to sustained NII at Nordic banks has been interest margins that benefited from the interest rate hikes. This could be set to change, Maria Parra, vice president of the European financial institutions team at DBRS Morningstar, said in a note.

"We believe NII might have already reached its peak as future interest rate rises are less likely, lending volumes remain flat or even decreasing, overall deposit volumes are decreasing, and betas increasing," Parra said.

However, some positive impact could still materialize in the fourth quarter, as interest margins have yet to benefit fully from the interest rate hikes in September, Parra said.

Analyst expectations

Handelsbanken, Finland-based Nordea Bank Abp and Danske Bank reported the largest NII surprises among the big Nordic banks in the third quarter. Their actual NII was between 1.34% and 1.95% above the consensus estimate.

Swedbank reported lower-than-expected NII, and its shares fell as much as 8.3% the day earnings were announced, as the lender also reported a dip in customer deposits. Norway's DNB Bank ASA's NII was also below consensus estimates. The bank's loan and personal customers' deposit volumes also fell in the quarter, and its shares slid as much as 6.7% on the day of the announcement.

Investor concerns that NII may have peaked is what contributed to Nordic banks underperforming the wider European banking sector when they reported third-quarter earnings, according to a Nov. 13 note from investment bank Berenberg.