Banks in Sweden will outperform their European competitors in revenue growth this year as a faster economic expansion and higher central bank borrowing rates boost interest income, analysts said.
Sweden’s biggest banks will see a 10 percent average increase this year in net interest income -- the difference between what a bank makes from lending and what it pays on deposits -- according to data compiled by MF Global UK Ltd. That compares with a 5 percent average gain among competing European banks, it estimates. Next year, net interest income in Sweden will jump 11 percent, while rivals may grow 6.5 percent.
“The economic cycle in Sweden is running at least 12 months ahead of what it is elsewhere,” said Simon Maughan, co-head of European equities at MF Global. “The higher interest rates should be better for margins.”
Stockholm-based Nordea Bank AB, the largest Nordic lender, and SEB AB, the country’s third-largest bank by market value, will benefit most from Sweden’s loan growth and rising interest rates, Maughan said. Sweden’s Riksbank has said rates must rise further through the year as it steers Europe’s strongest economic rebound.
“Of course that will have a positive effect on net interest income,” Swedbank AB Chief Executive Officer Michael Wolf said in a Jan. 13 interview. “General interest increases in rates are helpful to net interest income.”
Sweden, home to four of the Nordic region’s largest banks, last year delivered the biggest economic rebound in the 27-member European Union, expanding 5.5 percent, the central bank estimates. The Riksbank has raised borrowing costs four times since July, bringing the benchmark repo rate to 1.25 percent in December. The government has the smallest budget deficit in the EU, estimated at 0.1 percent of gross domestic product this year, the European Commission said Nov. 29.
Sweden’s banks have recovered from losses at their Baltic units caused by a property collapse in Latvia, Lithuania and Estonia in 2009 and are now in “much better shape compared to their European rivals, who are still struggling with sovereign debt exposure,” said Ben Hauzenberger, a Zurich-based fund manager at Swisscanto Asset Management AG, which oversees $53 billion. “With Sweden’s strong fiscal situation, the banks may likely outpace rivals this year.”
Nordea, which reports fourth-quarter earnings tomorrow, will post a 49 percent increase in net income to 704.8 million euros ($996.1 million), according to the average estimate of 10 analysts surveyed by Bloomberg.
Svenska Handelsbanken AB, which reports 2010 results on Feb. 9, probably saw net income rise 23 percent to 2.82 billion kronor ($438.6 million), according to the average estimate of eight analysts. The bank will be this year’s biggest beneficiary in the Nordic region of higher rates, said Maths Liljedahl, an analyst at Nordea.
A one percentage point increase in Sweden’s benchmark repo rate would boost Handelsbanken’s 2011 net interest income by 9 percent, Liljedahl said in a Jan. 26 note. Net income would jump 17 percent, he said.
Sweden’s central bank is tightening policy as the U.S. and the euro area keep their borrowing costs at crisis lows. The Frankfurt-based European Central Bank has left its main rate at 1 percent since May 2009, a level President Jean-Claude Trichet said Jan. 13 he still deems “appropriate.” The Federal Reserve has left its main rate between zero and 0.25 percent since December 2008 and last month repeated a pledge to keep it “exceptionally low” for an “extended period.”
Swedbank and SEB were among the five best performers last year on the Bloomberg Europe Banks and Financial Services Index, climbing 56 percent and 32 percent, compared to the index’s 0.6 percent decline. The benchmark Stoxx Europe 600 Index rose 8.6 percent in 2010. Swedbank has advanced 7.9 percent this year, SEB 4.4 percent, and Nordea 7 percent, trailing the banking index’s 8.6 percent gain.
Sweden’s government wants to curtail risk-taking at the country’s banks, Finance Minister Anders Borg said in a Jan. 28 interview.
“We will not accept that the banks take the same risks in the future as they have done in the past,” Borg said. The comments follow remarks earlier in the month that Sweden is watching Swiss efforts to rein in risk taking there.
“We’ve seen that other countries, such as Switzerland, have raised capital adequacy requirements notably and that is something we have reason to look at,” he said in a Jan. 19 speech. “A more risky international environment, big Swedish banks with large foreign exposure, indebted households and rising house prices all together become a worry.”