Svenska Handelsbanken AB, Sweden’s second-largest bank by market value, said profit in the three months through September was the highest on record of any third quarter after lending income grew and costs declined.
Net income, including discontinued operations, rose to 3.25 billion kronor ($495 million) last quarter, from 3.21 billion kronor a year earlier, the Stockholm-based bank said in a statement today. The average estimate of 13 analysts surveyed by Bloomberg was for profit of 3.24 billion kronor. Net interest income jumped 7 percent to 6.46 billion kronor, while total costs fell 1 percent to 3.78 billion kronor.
The result “was the highest ever achieved in a single third quarter,” the lender said in the statement. Net interest income in the first nine months of 2012 increased “due to rising business volumes and interest margins,” the bank said.
Sweden’s banks have largely steered clear of Europe’s economic crisis and their balance sheets aren’t weighed down by assets linked to the region’s most indebted nations, giving them better access to funding than many peers. Handelsbanken is Europe’s safest lender and ranks No. 10 globally, according to a May Bloomberg Markets overview that looked at measures such as capital and deposit-to-funding ratios. It’s also the European Union’s best capitalized major bank, Bloomberg data show.
Still, Handelsbanken like most of its European peers is struggling to increase income as central banks lower interest rates to stimulate their economies. Lower demand for stocks is also pushing down equity brokerage and advisory commissions.
From the second quarter, net interest income fell 2 percent, “which is attracting focus today,” Mads Thinggaard, an analyst at Nykredit Markets in Copenhagen, said in a note. Net fee income was also “a big disappointment,” he said.
Sweden’s central bank lowered its benchmark repo rate a quarter of a percentage point last month to 1.25 percent as policy makers seek to protect the largest Nordic economy from the fallout of Europe’s debt crisis.
“The key takeaway from the third-quarter results is the weaker-than-expected core revenue performance,” Bank of America Merrill Lynch said in a note. “Net interest income missed consensus forecast by 1.7 percent and fees by 4.1 percent. While the fee income is at least in part driven by seasonality, net interest income is largely the result of lower short-term interest rates and more pre-funding.”
Handelsbanken had a core Tier 1 capital ratio according to Basel II rules of 17.9 percent at the end of the third quarter, up from 16.8 percent at the end of June and 14.7 percent at the end of the first nine months of 2011, the lender said. The bank’s core Tier 1 capital increased by 2 billion kronor in the third quarter from the second to 87.6 billion kronor after profit in the period boosted reserves.
Handelsbanken declined as much as 2.1 percent, before trading 0.1 percent higher at 233 kronor as of 9:48 a.m. in Stockholm. The stock has gained 29 percent this year, compared with a 17 percent increase in the 38-member Bloomberg index of European financial companies.
Sweden, whose banking industry is four times the size of the economy, is pushing through tougher capital rules than those set elsewhere, requiring its lenders to target 10 percent core Tier 1 buffers of their risk-weighted assets next year and 12 percent from 2015. That compares with the Basel Committee on Banking Supervision’s core capital target of at least 7 percent, while the European Banking Authority has set a temporary 9 percent target for some banks.
“Handelsbanken’s balance sheet remains solid,” BofA said. The increase in capital ratios means Handelsbanken would have a fully phased in Basel III core equity Tier 1 capital ratio of 15.8 percent, according to BofA. If Sweden goes ahead with plans to raise the risk-weights on mortgage loans, Handelsbanken would still have a core Tier 1 capital ratio of about 14 percent, BofA said.
Handelsbanken’s household deposits rose 5 percent to 266.2 billion kronor in the third quarter, compared with the same period a year earlier, while loans to the public increased 1 percent to 1.62 trillion kronor, driven by a 4 percent increase in mortgage loans, Handelsbanken said.