Negative Rates and the Nordic Banks That Survived the Experiment

  • SEB CEO says she sees ‘light at end of tunnel’ after 2 years
  • Swedbank saw an 8% jump in net interest income last quarter

After years of negative rates, Nordic bank executives are starting to sniff the sunlight as they get closer to life above zero.

Annika Falkengren, the chief executive officer of SEB AB, says we’ve reached a turning point as lending income again starts to grow. A week ago, the CEO of Nordea Bank AB, Casper von Koskull, said he’s no longer that concerned about negative rates after unveiling a 30 percent increase in profit. Swedbank AB, Sweden’s biggest mortgage lender, said on Thursday its net interest income rose 8 percent, after both mortgage volumes and lending margins increased.

When it comes to net interest income, Chief Executive Officer Annika Falkengren says “we think we’re growing again.”

After almost two years of negative rates in Sweden, SEB’s management is “starting to see light at the end of the tunnel,” Falkengren said in an interview in Stockholm after the results were published.

SEB on Wednesday reported net interest income that rose 3 percent in the fourth quarter from a year earlier, beating analyst estimates. Revenue was also helped by a 5 percent increase in net fees and commissions as well as a 26 percent jump in net financial income.

“I think the big difference in the fourth quarter was that corporates were growing again,” Falkengren said. “We could see a broader corporate demand, and that supported the net interest income.”

Falkengren, who after running the biggest foreign-currency trading bank in the Nordic region for 11 years will step down by July at the latest to join Swiss wealth and asset manager Lombard Odier Group, says a return to positive rates will feed through to the “overall sentiment” in the economy.

“If rates rise it means inflation rises and hopefully the wheels start to turn a bit quicker,” she said.

After years of negative interest rates, Scandinavian banks have adapted their business models to cope with the monetary policy regime, relying more on handling clients’ wealth and less on traditional lending. The industry has avoided passing the cost of negative rates on to retail clients, though large corporate customers haven’t been spared.

Five of the region’s six biggest banks have already reported fourth-quarter earnings. Danske Bank A/S, Denmark’s largest lender and the financial conglomerate to have endured negative rates longer than any of its competitors, said on Thursday it will use excess capital to buy back about $1.5 billion in its own shares. The bank says it expects net interest income to grow this year.

DNB ASA also plans to buy back shares this year. Though Norway’s biggest bank doesn’t operate in the same negative-rate environment as its Nordic peers, it has weathered an oil-price slump and earned more per share in the fourth quarter than analysts had expected. At Swedbank, net interest income reached a record in the fourth quarter.

Danske Bank has said it will probably be able to get through the entire cycle of negative rates without charging retail clients. Most analysts predict rates won’t go positive in Sweden and Denmark until the end of next year.

The experience of Nordic banks seems to indicate that negative rates won’t flatten an economy’s financial plumbing. Though banks in the region have shifted focus to adapt, the industry has shown it’s possible to survive, and even thrive, below zero.

— With assistance by Niklas Magnusson

    Before it's here, it's on the Bloomberg Terminal.