Swedbank second quarter profit tops estimates on rates tailwind

BLOOMBERG 

Swedbank AB delivered better-than-expected income from lending activities in the second quarter, joining peer Nordea Bank Abp in enjoying the benefits of rising interest rates.
Net interest income at Sweden’s second biggest bank rose 7% to 12.77 billion kronor ($1.2 billion) in the three months through June, compared to the first quarter, according to a statement on Tuesday. Analysts surveyed by Bloomberg had on average had penciled in 12.19 billion kronor. A key driver was higher deposit margins due to rising market rates primarily in Baltic Banking, the bank said.
Lenders across Europe have benefited from central banks’ rate increases, which allowed them to charge more for loans while rates on checking accounts have been kept at zero until very recently, pocketing profit. There are however signs of increasing competition between the banks, indicating the period of strong net interest income growth over past year maybe starting to wind down.
Net income increased to 9.12 billion kronor in the period, the Stockholm-based lender said, 14% more than projected by analysts on average.
A more local challenge is investors’ worry over Sweden’s troubled landlords, which has spilled over on the share prices of the region’s banks as they have a large exposure to the sector.
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. Swedbank’s stable outlook and debt rating were affirmed by the same agency, which cited the bank’s “strong credit quality, with a focus on low risk Swedish mortgages, and solid capitalisation, which Moody’s expects will remain broadly resilient despite the challenges in the real estate sector.”
In the second quarter, Swedbank’s loan loss provisions amounted to 188 million kronor, compared with the expected about 720 million kronor. Return on equity rose to 20.4%. Analysts had forecast 18.6%.
“Our credit quality is solid and we feel secure with our conservative and thorough lending process,” Chief Executive Officer Jens Henriksson said. “Our property-related exposure is aligned with the bank’s strategy and risk appetite.”
Nordea forecast it would reach the strongest return on equity in 15 years this year, at more than 15%, and posted NII growth of 40% from a year ago.
Among Swedish peers, SEB AB is also scheduled to report its second-quarter earnings on Tuesday and Handelsbanken on Wednesday.