Sweden’s biggest banks by market value, SEB AB and Swedbank AB, brushed off concerns about the country’s real estate market as they continued to benefit from rising interest rates in the second quarter.
(Bloomberg) — Sweden’s biggest banks by market value, SEB AB and Swedbank AB, brushed off concerns about the country’s real estate market as they continued to benefit from rising interest rates in the second quarter.
Income from lending at SEB rose to 11.88 billion kronor ($1.16 billion), exceeding the 11.56 billion kronor forecast by analysts, while Swedbank reported 12.77 billion kronor, compared with estimates for 12.19 billion kronor. Both banks also saw net income rise more than estimated.
Lenders across Europe have profited from central banks’ rate increases, which allow them to charge more for loans while rates on checking accounts have been kept at zero until very recently. The Swedish banks joined Nordic peers such as Nordea Bank Abp, which reported better-than-expected earnings on Monday, and forecast it would reach the strongest return on equity in 15 years this year.
Norway’s DNB Bank ASA last week delivered strong results underpinned by revenues from corporate clients.
What Bloomberg Intelligence Says:
Raised net-interest-income guidance from JPMorgan and Wells Fargo and revenue beats from DNB and Nordea set a positive tone into European banks’ 2Q, which begin in earnest with Deutsche Bank, UniCredit and others on July 26. Earnings are likely to hold firm, though the market will watch for signs on when the much-anticipated revenue slowdown is likely to commence.
— Philip Richards, BI senior industry analyst, and Ilia Shchupko, BI associate analyst
Some signs are emerging of increasing competition for deposits between the banks, which may start to drive up funding costs and erode some of the benefit of higher rates. A more local challenge is investors’ worry over Sweden’s troubled landlords, which could hit banks with a large exposure to the sector.
Still, all three of the big Nordic lender to have reported earnings so far posted loan loss provisions that were much lower than anticipated.
In the second quarter, Swedbank’s provisions for souring loans amounted to 188 million kronor, compared with the expected about 720 million kronor. At SEB, the provision amounted to 43 million kronor, compared with the average analyst estimate for 594 million kronor.
While SEB’s underlying asset quality of the credit portfolio remained robust, indicators started to marginally weaken, Maria Semikhatova, an analyst at Citigroup, said in a note to clients. The market is also focusing on asset quality in Swedbank’s property management portfolio, she said.
SEB Chief Financial Officer Masih Yazdi said in a recent interview that the country’s banks are strong enough to support clients seeking to replace maturing bonds with bank loans. Still, credit rating company Moody’s Investors Service recently cut Svenska Handelsbanken AB’s credit rating outlook to negative from stable owing to its relatively high real estate exposure.
“Our credit quality is solid and we feel secure with our conservative and thorough lending process,” Swedbank Chief Executive Officer Jens Henriksson said. “Our property-related exposure is aligned with the bank’s strategy and risk appetite.”
It would take a deep recession putting pressure on vacancy rates and rents, and also for unemployment rates to increase to “cause a disruption that would start to impact on asset quality, especially on the property management side,” Swedbank Chief Risk Officer Rolf Marquardt said.
Handelsbanken is scheduled to report its second-quarter earnings on Wednesday.
–With assistance from Dani Burger.
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