Swedish banks expect net interest income growth of 25% by 2024 as rates rise

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By 2024, Sweden’s largest banks are expected to increase their net interest income by an average of 25% from 2021 levels, according to consensus estimates from analysts at S&P Capital IQ, as central bank rate hikes bolster margins.

Svenska Handelsbanken AB (pub), Skandinaviska Enskilda Banken AB (pub) and Swedbank AB (pub) hhave already seen improved margins on deposits after the Swedish central bank brought its key interest rate back into positive territory at the start of the year for the first time since 2014.

“For a while we lost money on the large inflow of deposits. Now it’s turning into profits,” Swedbank CEO Jens Henriksson said as he presented the bank’s second-quarter results. July 19.

Increase in NII

The Riksbank raised its policy rate by 25 basis points to 0.25% at the end of April and by another 50 basis points to 0.75% at the end of June. It has signaled further rises this year as it seeks to rein in inflation and expects the rate to be “close to 2%” at the start of 2023.

Net interest income, or NII, for the three banks is on track to grow 11% in 2022, analysts estimate. NII is the difference between interest income and interest expense.

SEB is set to experience the strongest NII growth over the next three years, with analysts predicting it will increase to SEK 30.40 billion in 2022, a 16% year-on-year increase, and to SEK 34.00 billion in 2024.

For Swedbank, analysts expect the NII to land at 29.00 billion crowns this year, up 10% from 2021, and reach 33.15 billion crowns in 2024. Handelsbanken’s NII is expected to reach 34.23 billion crowns in 2022, an increase of 7% year-on-year 38.07 billion crowns in 2024.

Pandemic-induced deposit boom

Positive rates across Europe should boost earnings across the banking sector, especially among lenders with large deposit allowances, as they will be able to earn money from their deposits for the first time since years.

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Swedish banks have seen large deposit inflows since the outbreak of the coronavirus pandemic. Customer deposit volumes are now 48% higher on average across the three Swedish banks than they were at the end of 2019. More importantly, customer deposits at SEB are up 78% this year. period.

NII tailwinds were already visible in Swedish banks’ results for the first half of 2022. SEB’s NII increased by 16% compared to the same period last year, while it increased for Handelsbanken and Swedbank 9% and 3%, respectively.

A stronger NII will contribute positively to Swedish lenders’ bottom line, although expected higher loan loss provisions at the three banks, among others, will limit short-term net profit. Analysts expect the combined net profit of Handelsbanken, SEB and Swedbank to fall 5% in 2022, but rebound in 2023 and 2024.

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As of August 1, US$1 was equivalent to 10.10 Swedish crowns.

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