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Swedish bank SEB eyes further rate hike gains as Q2 results beat estimates

Higher central bank interest rates boosted Skandinaviska Enskilda Banken AB (publ)'s second-quarter results beyond analyst expectations, with further margin improvements in store for the Swedish lender as more rate hikes kick in.

SEB, Sweden's second-largest bank by assets, recorded net interest income, or NII, of 7.74 billion kronor in the second quarter, up 20% from the same period last year and a 10% rise from the previous quarter. It beat the S&P Capital IQ consensus estimate of 7.17 billion kronor for the period.

The increase was driven by corporate lending volume growth and, more recently, improvements to deposit margins thanks to central bank rate hikes, said CFO Masih Yazdi, speaking to analysts July 14.

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The Swedish central bank, responding to high inflation, raised its key interest rate by 25 basis points to 0.25% in late April, and by a further 50 bps to 0.75% in late June. The latter increase is not yet reflected in SEB's NII.

The bank expects a further positive impact from the latest rate hike on its deposit margins. It also sees prospects for improved corporate lending margins amid widening credit spreads, Yazdi said.

"Given how fast the market is moving, it's very difficult to predict or give any guidance on what's going to happen," he said. "But the general trend is that rates are going up, which is positive for deposit margins, and credit spreads are going up, which typically is good for lending margins in the longer term."

The Swedish central bank has signaled further rate increases this year, expecting the policy rate to be "close to 2% at the start of next year."

The CFO reiterated that SEB's NII sensitivity to a 25-bps interest rate hike in Sweden is about 1 billion kronor within its deposit business. Yazdi emphasized that this figure is an estimate of the gross effect over time and that the impact may not be linear in the short term.

About 200 million kronor to 300 million kronor of SEB's NII this quarter is "short term in nature," Yazdi said, as it is based on bridge facilities and a temporarily higher NII within its fixed income business.

While this short-term impact will fade out in the coming quarters, it may be offset by improvements in deposit and lending margins, and NII may, as such, still go up, according to Yazdi.

SEB's net profit amounted to 5.84 billion kronor for the quarter, down from 6.57 billion kronor a year earlier, but better than the S&P Capital IQ consensus estimate of 5.51 billion kronor. The decline was caused by lower asset values and slower capital markets activity, driving net financial income 44% lower to 1.15 billion kronor.

As of July 13, US$1 was equivalent to 10.51 Swedish kronor.