Swedbank Becomes Europe’s Best Capitalized Bank as Profit Rises

Swedbank AB became the best capitalized major bank in Europe, overtaking Swedish competitor Svenska Handelsbanken AB, as the lender more than doubled its profit last quarter and said it held fewer risky assets.

Common equity Tier 1 under Basel III rules climbed to 20.9 percent of risk-weighted assets at the end of June, from 18.3 percent at the end of March, Stockholm-based Swedbank said in a statement today. Handelsbanken had a ratio of 20.1 percent compared with 19.5 percent at the end of March.

Banks in Sweden, which has imposed some of the world’s strictest capital rules to protect taxpayers from industry losses, have retained earnings and cut costs to help pad their regulatory buffers. Swedbank, which as Sweden’s biggest mortgage lender carries the country’s highest reserve requirement, said today it finds that demand unfair.

“It seems contradictory that Swedbank, which according to the Swedish Financial Supervisory Authority’s and the Riksbank’s own stress tests has the lowest aggregate risks of any major Swedish bank, should have the highest capital requirement,” Chief Executive Officer Michael Wolf said.

Sweden’s regulator earlier this year raised risk weights on mortgage assets to 25 percent from 15 percent and proposed a counter-cyclical buffer of 1 percent for banks. It also said the biggest banks must set aside 3 percent of CET1 capital as a systemic-risk buffer and another 2 percent within Pillar 2.

Seeking Clarification

That means the country’s four biggest banks will need to hold 14 percent to 19 percent in capital, with the lowest ratio applying to Nordea Bank AB and the highest to Swedbank. The bank said today that it will set a new capital target once it has received further clarification on Sweden’s rulebook.

Swedbank last month won approval to use an advanced internal ratings-based approach for corporate loans in Sweden and Norway, which reduced its risk exposure and increased its capital ratio by 3.8 percentage points. Its acquisition of Sparbanken Oeresund cut the ratio by 0.8 percentage point.

Net income at Swedbank soared to 4.14 billion kronor ($606 million) in the second quarter from 1.59 billion kronor a year earlier, beating the average estimate of 4.10 billion kronor. Net commission income jumped 11 percent to 2.81 billion kronor and net interest income rose 2.1 percent to 5.52 billion kronor.

“Higher commission income from asset management due to a favorable stock market climate and net inflows contributed the most to the increase,” Swedbank said of the increase in commissions. “Corporate finance and loan-related income within Large Corporates and Institutions increased as well.”