Svenska Handelsbanken AB (publ) has resumed payments into its employee profit-sharing plan Oktogonen after cost developments have shown "clear signs of a positive and sustainable trend," according to CEO Carina Åkerström.
Åkerström, presenting the Swedish bank's 2020 annual results to analysts, said cost initiatives launched in 2019 and 2020 are moving "according to plan," and that the 213 million kronor provision for Oktogonen was "one way of showing that we feel good about the progress." She added that the bank remains committed to its annual cost target of 20 billion kroner by the end of 2022.
Handelsbanken operates a scheme in which parts of its profits is paid into a foundation called Oktogonen, through which employees are paid a share after retirement, based on the years of employment at the bank. However, the bank suspended payments into the scheme in early 2019 after recording a significant increase in costs for the full year of 2018.
The bank typically pays into Oktogonen if it meets certain goals, including beating other listed Swedish banks on metrics such as return on equity. Handelsbanken can contribute a maximum of 850 million kronor annually to the scheme if it records more than 2 percentage points return on equity above peers, CFO Carl Cederschiöld told analysts.
As such the provision made for Oktogonen in the fourth quarter of 2020 is 100% of the maximum allocation possible for a quarter, he said.
If cost developments continue to move in the right direction and Handelsbanken's return on equity remains above its peers, it will be in "a good position" to accrue the full amount on a yearly basis going forward, he added.
The cost reduction plan of 2019 included closing operations in Asia and Germany and cutting 800 jobs. This was followed by a major branch cutting plan, unveiled in September 2020, which will see the bank reduce its branch network in Sweden from 380 at present to roughly 200 by the end of 2021.
Return to dividends
Handelsbanken proposed a dividend of 4.10 kronor per share in light of eased guidance on capital distribution from the Swedish financial regulator. The dividend corresponds to 25% of total net profit for 2019 and 2020, in line with the regulatory recommendation.
The Swedish lender recorded a 20.3% CET1 ratio at the end of 2020, which is 6.5 percentage points above regulatory requirement, and 3.5 percentage points above the bank's own target range.
Cederschiöld did not wish to comment on any potential dividend payments later in the year, but said that "obviously, when we're back in normal times, we will target our target range again of 1 to 3 percentage points [above regulatory requirement]."
He said the bank has not yet addressed whether this will be done through dividends or share buybacks, but both options are on the table. The bank will accrue 40% of its profits for dividends going forward.
Handelsbanken reported a profit attributable to shareholders of 4.37 billion kronor for the fourth quarter of 2020, compared to the year-ago 4.38 billion kronor. Total costs for the period landed at 5.62 billion kronor, from 5.55 billion kronor a year earlier.
As of Feb. 2, US$1 was equivalent to 8.42 Swedish kronor.
