Most Efficient Swedish Bank Must Get Leaner as Tax, Rules Looms

  • Swedbank CEO says internal automation is key to cut costs
  • Says bank confident it has large enough capital buffers

Swedbank AB, the most cost-efficient bank in one of Europe’s most virtuous banking landscapes, says it needs to become even leaner to cope with higher financial taxes and stricter capital requirements being introduced in Sweden.

“Of course I think every new tax that is levied is challenging,” acting Chief Executive Officer Birgitte Bonnesen said in an interview after the bank’s annual general meeting in Stockholm on Tuesday. “What it does is challenge us to become even more efficient.”

Sweden’s banks have already spent the last few years cutting costs to cope with higher capital requirements by closing branches, improving their digital offering or ceasing the manual handling of cash in many branches.

Now, as the Social Democrats-led coalition of Prime Minister Stefan Loefven seeks to honor its election pledge of financing additional welfare spending by raising bank taxation, Bonnesen says saving time and money is as crucial as ever.

In its latest push, Swedbank will primarily focus on the automation of internal processes, Bonnesen said. One area with margins for improvement is mortgage-loans meetings with customers, where employees at the branch can handle applications directly via Internet banking or the customer’s mobile phone app rather than through "old legacy IT systems in the bank," she said.

But internal automation is only part of a much broader challenge to raise efficiency.

Baltic model

While Swedbank is already the most cost-effective Swedish bank, the performance at its even leaner Baltic unit shows that more can be done. In 2015, costs at Swedbank as a group stood at 43 percent of income, compared with 45 percent at Svenska Handelsbanken AB and 50 percent at SEB AB. At Nordea Bank AB it was 47 percent, based on continuing operations and excluding non-recurring items. Swedbank’s Baltic unit had an even lower cost-to-income ratio of 39 percent, compared with 44 percent in Sweden.

“We’re already very efficient, but when you look at our Baltic entity, it’s one of the most efficient players in Europe,” Bonnesen said. “There is a big difference between the Baltics and Sweden, but I still think we have efficiencies that we can work on."

Her search for efficiency gains comes after the government on March 30 proposed abolishing tax deductions on interest on subordinated loans. The plan is to raise some 1.4 billion kronor ($172 million), in addition to a tax on “financial activity” that was proposed last year and which could raise some 4 billion kronor. Sweden’s banks also face higher capital requirements, adding to one of the highest regulatory demands in Europe.

Bonnesen’s approach to the tightening differs from that of some other banking executives. When the government first proposed the “financial activity” tax last year, Nordea Chairman Bjoern Wahlroos warned that lenders could move some operations abroad if the government went ahead.

Bonnesen says Swedbank is “very” confident it has large enough capital buffers and is “well prepared” to handle higher capital requirements and other new regulation. Asked if she sees any risk the bank may have to lower its 75 percent dividend payout goal, the highest among major Nordic banks, Bonnesen said “not at the moment.”

“When you look at the capital we have today, you see that we are prepared for what will come,” she said.

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