Banking Ikea Style Dodges Too-Big-to-Fail Noose in Sweden

As Sweden’s biggest banks wait for regulators to tighten Europe’s toughest capital rules, a less fettered form of credit is gaining traction.

Swedes in search of basic banking can these days turn to names like Nordnet AB and Avanza Bank AB. There’s also Ikano, the banking arm of billionaire Ingvar Kamprad’s Ikea, or a credit line offered by supermarket chain ICA. That’s taking business from the biggest banks, whose share of local deposits dropped 1.7 points to 64.9 percent at the end of 2013 from 2012, according to data from Statistics Sweden.

“There is a slowness in large organizations in general; a slowness to react and an inability to do something about the rivals that emerge, so they should absolutely be concerned,” Haakan Nyberg, chief executive officer of Nordnet, said in a Feb. 20 interview in Stockholm. “Not to be classified as a systemically important bank is of course an advantage.”

Nordnet, which offers savings accounts, pensions and trading in stocks, is thriving in part because the biggest banks are buried under complex new requirements, according to Nyberg. Nordea Bank AB, Svenska Handelsbanken AB, Swedbank AB and SEB AB are subject to some of the world’s strictest capital rules and Finance Minister Anders Borg has told the industry to brace itself for further tightening.

Complexity Noose

“There are new rules all the time, which creates an increasing complexity,” Nyberg said. “In terms of capital requirements, the complexity is even greater for systemically important banks.”

Sweden isn’t the only place where consumers are finding alternatives to traditional banking. In the U.K., Lloyds Banking Group Plc and Barclays Plc are fighting competition on several fronts after the country’s biggest retail chains Marks & Spencer Group Plc and Tesco Plc started offering financial services.

In Sweden, smaller financial institutions saw their share of the total loan market rise 1.8 points to 10.3 percent at the end of 2012, according to the latest data from the Swedish Bankers’ Association.

Nordnet controls about 1 percent of Sweden’s deposit market, and 2 percent of new deposits. Savings under management grew 31 percent last year to 136 billion kronor, while deposits grew 26 percent to 14.4 billion kronor. The company’s customer base grew 7.7 percent to 395,000 last year, a level from which Nyberg says it will continue growing.

Ikano Growth

Ikano, Ikea’s banking arm, said in a report today that lending soared 25 percent to 19.8 billion kronor last year while deposits increased 1.7 percent to 14.1 billion kronor. The bank’s core Tier 1 capital ratio increased to 14 percent under Basel II rules, from 13.5 percent at the end of 2012.

“We’re a bank with a strong capital base and good liquidity, which makes us well-equipped to grow,” Ikano said. “As part of our growth plan we will introduce new products in many of our markets in 2014, such as private loans in Norway and the U.K., deposits in Denmark and leasing in Finland.”

Sweden’s smaller banks have been winning deposits by offering higher interest rates than the four biggest banks.

Ikano offers rates from 1.2 percent on regular savings accounts to 3.1 percent on fixed deposits. Klarna, a payments solutions provider that takes deposits, offers 1.5 percent on three-month deposits. Nordnet and ICA offer 0.75 percent. At Handelsbanken, the rate on six-month deposits is 0.55 percent while the deposit rate on a general savings account at SEB is 0.3 percent.

Declining Confidence

Meanwhile, customer satisfaction surveys suggest Swedes are growing increasingly impatient with their banks. Branch closures and the removal of manual cash handling from more than 65 percent of Nordea’s, Swedbank’s and SEB’s Swedish outlets have alienated some clients.

Only about 30 percent of Swedish bank customers said they had a high level of confidence in the industry, according to Svenskt Kvalitetsindex’s latest report based on surveys of households and businesses. That’s the worst outcome for private banking since 2004. Corporate client satisfaction is at its lowest since 2001, the survey showed.

While Sweden’s four biggest banks suffered a drop in their survey scores, smaller niche banks fared better. ICA Banken, operated by supermarket chain ICA, topped satisfaction rankings.

Sweden’s biggest banks must hold at least 10 percent core Tier 1 capital relative to their risk-weighted assets, a number that will rise to 12 percent from next year. While the four banks already exceed the 2015 requirement, the government has said it plans to increase capital requirements further this year and has called on the banks to continue to build capital.

Too Complex?

Smaller lenders have been allowed to make do with 8 percent, though further capital buffers are expected to be implemented for all banks by June 30, according to Nordnet.

The issue of whether higher capital requirements puts big banks at a competitive disadvantage “is a complex one,” Uldis Cerps, executive director for banking at Sweden’s financial regulator and a member of the Basel Committee on Banking Supervision, said Feb. 24 in an e-mailed reply to questions.

While “it is true that large banks are required to hold more capital,” Cerps said “they are also able to use more complex models that often result in a lesser capital charge than required by standardized models.”

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