Bank Clients Will Absorb Planned Financial Tax, Swedbank Says

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The chief executive officer of Sweden’s biggest mortgage lender says it’s inevitable that clients will end up absorbing the cost of a proposed bank tax.

Michael Wolf, who has led Swedbank since 2009, says the government’s proposal to impose an additional levy on Sweden’s financial industry is a “paradox” given its hope of making lending more competitive.

“This would add costs for banking clients,” he said in an interview on Thursday at the bank’s headquarters outside Stockholm. “It would make lending more expensive.”

The comments come from a CEO who has supported steps to tighten regulation in Sweden, where banks carry some of the world’s heaviest capital requirements. Banks that are less risky get better access to funding, it’s a simple as that, Wolf says.

But the proposed tax, which Wolf says the industry has to accept will come after a review is completed by the end of next year, risks being counterproductive, he said.

“I think politicians need to think about the tax in the context of what they want to happen in Sweden,” he said.

Finance Minister Magdalena Andersson says it’s reasonable to target an industry she describes as “under-taxed” while it makes “big money.” The government of Prime Minister Stefan Loefven says it wants to generate about 4 billion kronor ($486 million) a year from Sweden’s banks to help pay for improved welfare services.

Paying 75%

But from the perspective of the 51-year-old running one of Europe’s best-capitalized banks, the challenge is reviving demand for loans among businesses, which have traditionally been Sweden’s economic backbone.

For now, he says Swedish industry is performing “way under capacity.” Instead of lending, banks like Swedbank have stored up their excess capital and now have little choice but to dish most of it out to shareholders. Swedbank’s dividend payout ratio is 75 percent of profits, the highest target among Sweden’s biggest banks, matched only by Nordea Bank AB.

That level will probably be unsustainable once the economy normalizes and demand for loans from businesses returns, Wolf said.

Swedbank’s current payout ratio is just “a reflection of where we are in the economy,” he said. Most profits are funneled to investors because “there is no demand broadly in society for lending, apart from the mortgage sector.”

Though record-low interest rates have driven up demand for home loans, businesses aren’t really following, Wolf said. Firms in Sweden “have room to expand without investing in new capacity,” he said.

Not Normal

Swedbank has been “very clear that we can cater to 5 to 6 percent risk-weighted-asset growth with this dividend policy,” Wolf said. “So if the growth were higher, we would focus on growth and not the dividend.” Swedbank’s board gets the final say on the bank’s payout ratio.

Karl Morris, an analyst at Keefe, Bruyette & Woods Ltd. in London, said growth in risk-weighted assets of more than 10 percent “could wipe out the dividend” while at 7.5 percent, Swedbank could still potentially distribute 50 percent of its net income to shareholders. Still, “it is very difficult to see how risk-weighted-asset growth could exceed 6 percent,” he said.

In a more normal economic climate, the dividend will “absolutely” come down, Wolf said.