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Swedish big 4 banks increase profits in Q2, despite rate pain

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Swedish big 4 banks increase profits in Q2, despite rate pain

Sweden'sbanks continue to boost profits despite intense topline pressure.

Allfour of the country's biggest lenders — Nordea, SEB, Handelsbankenand Swedbank —managed to increase their second-quarter net attributable profit from a yearago. Their combined net income, aided by gains from the sale of Visa Europe, reached€2.61 billion, up from €2.22 billion, although fees and commissions fell, assetwrite-downs were up and net interest income was lower.

"Marginsremain under pressure with all Nordic banks light on net interest incomedespite volume growth," Societe Generale analysts wrote in a July survey,but added that fee and trading income "bounced back" from a weakfirst quarter.

Nordeasaw the sharpest year-over-year decline in net interest income, followed byHandelsbanken, while SEB and Swedbank managed marginal improvements.The current repo rate of Sweden's central bank stands at -0.5% and is widelyexpected to be cut further in September.

Netinterest margins worsened at three of the four banks. SEB was the onlyexception, yet the SocGen analysts said its revenues still remain underpressure from the low-rate environment and weak market activity levels. Givennegative rates, the key challenge is to pass the pain on to customers, chargingcommercial customers for their deposits while raising lending margins generally.

Abank analyst, preferring to remain unnamed, said in an interview that hethought the Swedish banks are doing well by managing to protect margins byrepricing mortgage loans. Rather strikingly, returns on average ordinary equitywere 13% and higher at all four Swedish banks.

"It is rather on the lending side that we hope that wecan show that margins will slowly but steadily improve in the future. But it'sbeen highly competitive also at the moment," said Annika Falkengren, SEB'sCEO, stating thatprivate clients would not face charges for their deposits like corporateclients. Mortgage margins at SEB improved by five basis points in each of the lasttwo quarters and this should continue. The mortgage market, while cooling, isstill growing, Falkengren said.

UlfRiese, the CFO of Handelsbanken, told analysts that the Swedish banks were repricing notleast because of new capital rules and associated costs.

Asset qualityremains high, so provisions are generally relatively low. Concerns aboutoil-related loans have not so far translated into a severe negative reality atSwedish banks. Cost-to-income ratios rose to around 50% at Nordea and SEB; theywere significantly lower at Handelsbanken and Swedbank. Theanalyst said oil lending did not appear to be a problem, although Swedbank hadmade "somewhat cautious statements" and there was a at the bankbecause of the oil sector.

SwedbankCEO Birgitte Bonnesen said the bank "will continue to see volatility inmarkets, a certain cautiousness and low interest rates." However, she addedthat Sweden and the Baltic countries stand very strong.

"Wesee healthy growth rates," she said. "The strong NII andprovision income reflects a broad-based increased customer activity.

Click here to view country level banking aggregates for Sweden.

Click here to access the SNL worldwide bank ranking template and view key balance sheet figures, performance and capital adequacy ratios for individual European banks.

Click here to view SNL's profile of individual European banks and view key information in both tabular and graphical format for your selected company.