RPT-UPDATE 2-Nordea, Handelsbanken in good shape to weather headwinds

Wed Apr 24, 2013 7:48am EDT

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* Nordea op profit 1.06 bln euros vs 1.02 bln forecast

* Handelsbanken op profit 4.3 bln vs forecast 4.2 bln

* Loan losses at both banks smaller than expected

* Nordea sees improvement in Denmark, shipping

By Mia Shanley and Oskar von Bahr

STOCKHOLM, April 24 (Reuters) - Sweden's Nordea and Handelsbanken said smaller loan losses helped profits top forecasts and boosted capital buffers, strengthening their position as some of Europe's strongest lenders.

Handelsbanken posted another quarter of robust revenue in Britain, where it has opened a new branch every eight working days. Nordea, the Nordic region's biggest bank by value, saw an improvement in trouble spots in Denmark and shipping.

Swedish banks have largely escaped the financial turmoil plaguing the rest of Europe, although slowing growth in Sweden is expected to squeeze lending margins.

Sweden, the Nordic region's largest economy and one of the few European countries to retain a top notch credit rating, has seen growth weakening.

Nordea joined rivals Swedbank and SEB, which reported solid earnings a day earlier, in saying that customers were treading carefully.

"Demand for credit remains subdued, especially in the corporate sector," Nordea CEO Christian Clausen said.

Credit losses at both banks were smaller than expected.

"The key positive was related to loan loss performance, given the situation in terms of shipping and Denmark," said Kimmo Rama, an analyst at Evli, referring to Nordea.

Nordea's operating profit for the period rose to 1.06 billion euros ($1.38 billion), topping a mean forecast for 1.02 billion in a Reuters poll. Handelsbanken posted a 4.34 billion crown profit, above the 4.20 billion seen in a poll.

CASHPILE

Swedish banks have had to meet tough regulatory demands on capital and have continued to build up their buffers in case of a new crisis. Swedish banking assets are around four times the size of the country's gross domestic product.

Handelsbanken posted a core tier one capital ratio of 17.5 percent, according to Basel III capital rules, up from 14.6 percent in the same period a year ago.

Nordea said its core tier one capital ratio, excluding transitional rules, rose to 13.2 percent from 11.6 percent.

Investors hope that some of that extra cash will be returned through special dividends or buybacks.

But until regulations are settled and concerns over another downturn diminish, banks are likely to keep their cashpiles and wait out Europe's storm.

Swedish banks have worked hard in the past few years to get down their risk-weighted assets and investors have rewarded them with low funding costs - some of the cheapest in Europe.

Nordea said it expects to deliver capital efficiency gains of 35 billion euros in 2013-2015, of which 25 billion will be as early as this year, helping to keep its risk-weighted assets largely unchanged during the period.

In an already strong domestic bank sector, Handelsbanken has stood out. As one of Europe's most conservative lenders, it pulled through the euro zone crisis relatively unscathed and outperformed rivals, which were hit by a sharp downturn in the Baltic states.

It had a return on equity of 14.4 percent for the last twelve months, beating the peer median of 11.5 percent, according to Thomson Reuters StarMine data.

Many European banks have struggled with single-digit profitability.

The Nordic banking index has risen roughly 15 percent so far this year compared with a European banking index which is down marginally. ($1 = 6.5285 Swedish crowns) ($1 = 0.7683 euros) (Reporting by Mia Shanley and Oskar von Bahr, editing by Alistair Scrutton and Louise Heavens)

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