Handelsbanken Exports ‘Vintage Banking’ to Win European Business

Svenska Handelsbanken AB is exporting its Swedish banking model to crisis-hit Europe to exploit a gap in the market left by job cuts and branch closures at other lenders.

Handelsbanken will add to its 15 branches in the Netherlands and introduce card services and Internet banking for private customers as the Stockholm-based lender builds a sixth “home market,” Magnus Uggla, head of the Stockholm-based lender’s international operations, said in a Feb. 13 interview.

“That we have a business model that we can export is very exciting,” Uggla said from his unit’s headquarters. “We’ve exported it to Denmark, Finland and Norway, we have done it to the U.K., and now we’re doing it to Holland.”

While bailed-out Dutch lenders including ING Groep NV and ABN Amro Group NV have scaled back, Handelsbanken is using its position as the best-capitalized major bank in the European Union to expand outside Sweden. The bank’s aversion to risk and de-centralized business model, where branch managers make most credit decisions, have won praise from politicians including U.K. Chancellor of the Exchequer George Osborne.

“Handelsbanken is basing the expansion on their local business model, which is based on the church-tower principle and which has proven very successful in Sweden,” Mads Thinggaard, an analyst at Nykredit Markets in Copenhagen, said in an e-mailed response to questions. “In contrast to many European banks, Handelsbanken has capital strength to grow the bank.”

U.K. Expansion

The lender opened five new branches in the Netherlands last year, winning the company an export award from the Swedish Chamber of Commerce and the Swedish Trade Council at a time when shipments of Volvo AB trucks and SKF AB bearings were dented by by the European debt crisis.

Handelsbanken, which had a core Tier 1 capital ratio of

18.4 percent at the end of December, opens a new branch every 10 working days in the U.K. and this year acquired U.K. investment bank Heartwood Wealth Group Ltd. Deposits at its 133 U.K. branches rose 53 percent last year, while lending increased 27 percent to 10.5 billion pounds ($16.3 billion).

The Dutch business, where lending climbed to 14 billion kronor ($2.2 billion) by the end of last year, will end up somewhere in size between the U.K. unit and its operations in Norway, Finland and Denmark, where the number of branches ranged from 45 to 54, said Uggla.

Generating Risks

The international expansion, which includes offices in Sydney and Sao Paolo to cater for Nordic and British corporate clients with operations in Australia and Brazil, is boosting earnings at Handelsbanken, which reported an 18 percent increase in profit to 14.5 billion kronor last year. Operating profit at the lender’s businesses outside Sweden rose 47 percent, compared with a 2 percent gain at home.

“Their local business model helps them attract high-value local customers because centralization and branch closures have left a hole in the market space for local banks,” Thinggaard of Nykredit said. “But when you play this contrary growth strategy -- doing the opposite of everybody else -- it is often in a shaky market environment, which may in itself generate risks.”

Swedish banks have been hurt by overseas expansion in the past, with Swedbank AB and SEB AB suffering soaring loan losses in Estonia, Latvia and Lithuania in 2009 after the region’s credit-fuelled housing boom turned to bust. At the height of the Baltic crisis in 2009, Swedbank had a net loss of 10.5 billion kronor after a jump in credit impairments.

Exploiting Opportunity

While Handelsbanken didn’t join the Baltic expansion that started in the late 1990s after the fall of communism, Sweden’s third-largest lender by market value will look to exploit the opportunities left by the closure of branches by European and U.K. banks, said Uggla. Some banks have lost a local presence and a relying more on call centers, he said.

ING Groep, the largest Dutch financial-services company, on Feb. 13 announced a further 2,400 job reductions as the bank seeks to reduce annual costs by 1 billion euros ($1.34 billion) by 2015. The Dutch government took control of SNS Reaal NV on Feb. 1 after real-estate losses brought the lender to the brink of collapse.

In Germany, where Handelsbanken has seven branches, rivals such as Commerzbank AG are also cutting jobs and exiting businesses, including shipping and real estate funding.

“We have a business model that is based on us being close to the customers and that is very appreciated, although it may seem old-fashioned,” said Uggla. “In the Netherlands, it is known as ‘vintage banking,’ meaning it’s the way banking was some 30 years ago.”

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