Sweden's top 2 banks expect lower lending income as rate cuts bite

The two biggest banks in Sweden — Skandinaviska Enskilda Banken AB (publ) and Svenska Handelsbanken AB (publ) — are expected to post lower lending income in 2024 as the country's central bank eases monetary policy more aggressively than its Nordic neighbors.

SEB's 2024 net interest income (NII) — the difference between interest earned on loans and that paid out on deposits — is projected to decline to the equivalent of €4.02 billion from €4.14 billion in 2023, according to S&P Global Market Intelligence estimates. Handelsbanken's is expected at €4.04 billion, down from €4.15 billion.

Their three other large Nordic peers — Finland-based Nordea Bank Abp, Denmark's Danske Bank A/S and DNB Bank ASA in Norway — are projected to book higher NII.

The Swedish central bank maintained its policy rate at 3.75% in June. The month before it lowered the rate by 25 basis points and forecast just two cuts in the second half. In late June, however, Sveriges Riksbank Governor Erik Thedéen told CNBC that there could be as many as three cuts.

More cuts by the Riksbank are likely to add more margin pressure on banks, which hold a significant level of variable-rate loans, Morningstar DBRS said in a note. Higher market funding and continued shifts by clients to higher-yielding deposits pushed down Swedish banks' second-quarter net interest margin (NIM), or the money earned from interest on loans versus money paid in interest on deposits.

Of the five largest Nordic banks, SEB experienced the steepest decline in second-quarter NIM to 1.30% from 1.40% in the first quarter and 1.36% a year ago. Handelsbanken's also slipped to 1.45%, as did DNB's to 1.80%. Meanwhile, Nordea and Danske Bank saw year-over-year increases in NIM.

But while Swedish banks' margins are likely to be pressured by rate cuts, these are expected to spur economic growth, loan demand and economic activity, Morningstar DBRS said.

"[A]t least the hypothesis of NII having some headwind, and that should come from lower rates, which also means higher activity in the economy, which should benefit to the [commission] line," SEB CEO Johan Torgeby said during the bank's earnings call.

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SEB and Handelsbanken are also expected to report lower 2024 net income, according to Market Intelligence estimates.

Nordic banks have demonstrated "clear signs of decelerating growth" in pretax profits despite their second-quarter earnings coming ahead of expectations, according to UBS Global Research. Earnings headwinds beckon in the second half of the year, particularly due to lower interest rates, and noninterest income is unlikely able to compensate, analysts said in a recent note.