Swedbank Expects Improved Credit Rating After Profit Increases

Swedbank AB (SWEDA), the second-best capitalized major lender in the European Union, said it expects its credit rating to improve as it reported a 3.4 percent increase in first-quarter profit after cutting expenses.

Net income in the three months through March rose to 3.53 billion kronor ($539 million) from 3.41 billion kronor a year earlier, the Stockholm-based lender said in a statement today. The average profit estimate in a survey of 13 analysts surveyed by Bloomberg was for a profit of 3.49 billion kronor.

Swedbank suffered soaring loan losses in the Baltic countries of Estonia, Latvia and Lithuania in 2009 after a credit-fuelled housing boom turned bust and has since reduced risks, boosted its capital buffers and worked to improve investor confidence. The bank, which has a long-term debt rating of A+ at Standard & Poor’s and A2 at Moody’s, said today that it expects its credit rating to be “harmonized” with that of its peers this year after funding costs dropped.

“A positive trend with lower absolute and relative funding costs has continued as more investors recognize Swedbank’s low risks and robust results,” Chief Executive Officer Michael Wolf said in the statement. “We expect to improve our credit rating during the year and are working actively with ratings agencies to ensure they have an updated view of the bank.”

Payout Ratio

Swedbank on Jan. 30 raised its dividend payout ratio to 75 percent of profit, saying that low demand for credit in the Nordic and Baltic countries and a capital base that already fulfills Sweden’s stricter capital requirements gives it more scope to hand out capital to its shareholders. The bank this month said it’s also selling its Ukraine unit and winding down its Russia operations to focus on its Nordic and Baltic markets.

First-quarter net interest income advanced 9.4 percent to 5.35 billion kronor while costs dropped 6.6 percent to 4.04 billion kronor. Swedbank said today that it expects its expenses in 2013 to be at the same level as last year.

The bank reported a common equity Tier 1 ratio of 17.3 percent under Basel II regulation in the first quarter and a ratio of 16.4 percent under Basel III rules. Sweden requires its biggest lenders to hold at least 10 percent in core Tier 1 capital of risk-weighted assets this year, and a minimum of 12 percent from 2015, some of the strictest rules in Europe.

To contact the reporter on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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