Swedish banks face significant revenue boost thanks to central bank rate hike plans


Sweden’s biggest lenders recorded a rise in net interest income in the first quarter of 2022 and can expect a further rise after the country’s central bank pushed interest rates back into positive territory for the first time since 2014.

The Riksbank, reacting to high inflation, raised its key rate to 0.25% from 0% on April 28 and plans to raise it another two or three times this year, predicting that it will reach 1.8% in three years. .

Swedbank AB (publ), as Sweden’s leading retail bank, stands to be the biggest beneficiary among the big banks of rising interest rates, UBS analysts said in a May 3 research note. As rates rise, banks generate more net interest income, or NII — income from loans minus expenses on deposits — as they pass on higher rates to borrowers.

Swedbank said on April 28 that a rate hike of 50 basis points would increase its NII by 3.07 billion crowns per year. An increase of 100 basis points would generate an increase of 6.86 billion crowns, which would represent an increase of 26% compared to NII for the year 2021 of 26.26 billion crowns.

Skandinaviska Enskilda Banken AB (publ), or SEB, estimated that the NII’s sensitivity to a 25 basis point interest rate hike is “slightly north of 1 billion crowns”, chief financial officer Masih Yazdi said. during a conference call on April 27. Svenska Handelsbanken AB (publ), which released its first-quarter results on the same day, did not provide a sensitivity figure, but it would likely fall between those of Swedbank and SEB, UBS analysts said.

SEB’s NII for the year 2021 was 26.10 billion crowns, while that of Handelsbanken was 30.32 billion crowns.

Sweden’s three largest banks by assets saw the NII improve in the first quarter of 2022, with SEB recording the highest year-on-year growth of 12.1%. Handelsbanken and Swedbank posted increases of 7.9% and 3.4% respectively.

According to CFO Carl Cederschiold, Handelsbanken’s NII benefited from central bank rate hikes in Norway and the UK. At Swedbank, higher mortgage and corporate lending volumes led to a slight increase in the NII. SEB’s NII was supported by lending volumes related to the bridge finance business, which is expected to come off the books over the next two quarters, Yazdi said.

SNL picture

Swedish banks generally have limited direct exposure to Russia and Ukraine and have therefore been insulated from the worst impacts of the war. Handelsbanken and SEB posted year-over-year net profit increases of 29.0% and 6.4%, respectively, in the first quarter. Only Swedbank’s net profit declined by 7.2% as market turbulence negatively impacted net commission income and caused losses in financial items.

The deteriorating macroeconomic outlook in light of the conflict also impacted provisioning levels. SEB recorded the highest loan loss charges in the quarter, corresponding to a cost of risk of 8 basis points, which it said was due to less favorable macroeconomic scenarios, uncertainty related to the rising energy prices and the war in Ukraine.

SNL picture

As of May 4, US$1 was equivalent to 9.85 Swedish crowns.


About Author

Comments are closed.