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Deposits at Sweden's top banks jump as clients off-load assets, draw down loans

Customer deposits at Sweden's largest banks increased sharply in the first quarter, which their finance chiefs said was attributable to financial asset sell-offs, risk reduction and drawdowns on liquidity facilities amid the coronavirus crisis.

Svenska Handelsbanken AB (publ) and Skandinaviska Enskilda Banken AB both saw double-digit increases in deposits over the three-month period — 23.72% and 15.10%, respectively — according to an S&P Global Market Intelligence analysis of European banks with assets of more than €200 billion. Handelsbanken and SEB recorded the highest increases, with Swedbank AB (publ) in fourth, with a 9.60% increase.

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Sharp increase

Handelsbanken's deposits and borrowing from households increased sharply in March, to about 550 billion Swedish kronor. At its first-quarter results presentation, CFO Carl Cederschiöld said there has been a positive trend in terms of private customers' deposit inflows "for a long time," with a rise in the first quarter spurred by clients selling financial assets, the proceeds of which were kept in deposit accounts. For corporate customers, it was largely related to short U.S. dollar deposits in New York, a pattern he said was similar to what happened during the financial crisis.

Meanwhile, SEB CFO Masih Yazdi said in April that deposit growth in the first quarter outdid lending growth, with customer deposits amounting to 1.337 trillion kronor as of March 31, compared with 1.161 trillion kronor at the end of 2019. Amid the pandemic, Yazdi said SEB has been "more than self-funded through deposits."

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Swedbank recorded year-over-year deposit inflows of more than 55 billion kronor in the first quarter, 25 billion kronor of which was from private customers and 30 billion kronor from corporate clients. CFO Anders Karlsson said this was "strongly correlated" to clients bolstering liquidity buffers by lowering risk in savings and drawing down on liquidity facilities.

Amid low rates

French banks also saw a sharp uptick in deposits, which analysts said was caused mainly by corporate customers' desire to easily access cash in light of the disruption caused by the COVID-19 pandemic and retail clients conserving money. But, with negative interest rates, this could further depress net interest income and earnings.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

The Swedish central bank on July 1 held its repo rate at zero percent and projected that the rate would remain there until the third quarter of 2023. The Sveriges Riksbank did not rule out taking the rate to negative territory.

Following the central bank's forecast, Moody's warned that Swedish banks' profitability and margins would be more vulnerable to low interest rates.

As of July 13, US$1 was equivalent to 9.14 Swedish kronor.