UPDATE 2-SEB warns on impact of tough capital rules, new tax plans
* Q2 operating profit 5.3 bln SEK vs forecast 5.0 bln
* Commission income up 10 pct from a year ago
* SEB benefited from increased corporate activity (Adds CEO quotes, share)
By Mia Shanley and Johan Ahlander
STOCKHOLM, July 14 (Reuters) - Swedish bank SEB, which reported a 10 percent rise in second-quarter profit on Monday, warned that tough capital rules are likely to make it more challenging for Nordic lenders to produce solid returns in future.
The region's banks face tougher capital demands from regulators in the wake of the financial crisis than the rest of Europe. And Sweden's Social Democrats - tipped to win elections in September - look set to make life more difficult with plans for a tax on the banks to fund childcare reforms.
CEO Annika Falkengren said SEB would set new financial targets towards the end of the year when banks are expected to have better clarity on regulations.
"Of course, even more capital will make it more challenging to make decent returns," she told Reuters. "All banks are pretty worried about the non-level playing field (versus the rest of Europe)."
On the tax plan, Falkengren said all companies needed to be treated the same. "Is it going to be the energy sector next time, is it going to be the retail sector?" she said. "It's very difficult for companies to predict how to work when you don't have a stable way of knowing things. You need a predictable tax system with a lot of trust."
The region's major banks - Nordea, Handelsbanken , SEB and Swedbank - were relatively unscathed by the financial crisis and are some of Europe's most profitable lenders, thanks in part to strong public finances and a healthy corporate sector.
The four made a combined net profit of more than 19 billion Swedish crowns ($2.84 billion) in the first quarter this year.
But in Sweden, politicians across the spectrum have been increasingly critical of banks and told them to put more money aside to cover for potential risks.
Sweden's government is also worried about increasing levels of household debt and there has been discussion of forcing Swedes to pay off mortgages, putting the banks on edge.
Most banks, including SEB, are already forcing new borrowers to pay down mortgage loans to 70 percent of the value of a property, but many older mortgages are still interest-only.
A Swedish central bank report earlier this year showed it would take an average 99 years for those who are paying off the principal to clear their mortgage debt. Four out of 10 borrowers were not paying off their debt at all, the report showed.
Falkengren said banks were still discussing how to handle the older mortgages but that her bank had noticed more people were starting to pay back debt. She said loose monetary policy was causing a sharp increase in asset prices which banks needed to watch carefully. Swedish house prices have soared, nearly tripling over the last 20 years.
COMMISSION INCOME JUMPS
SEB, the first of the Swedish banks to report earnings for the quarter, said the global economy was on firmer ground in the first half even though European growth was hampered by high sovereign debt and unemployment.
Business sentiment had also turned more positive with commission income in the quarter swelling 10 percent from a year ago and above forecasts.
Buoyant equity markets and a return of corporate confidence led many firms to go public or do deals. SEB, the Nordic region's biggest corporate bank, is expected to benefit in the months ahead.
According to Thomson Reuters data, SEB mopped up the biggest corporate finance fees in the first half of the year followed by Goldman Sachs and Swedish rival Nordea as it clinched advisory roles on deals such as Volkswagen's acquisition of truckmaker Scania.
Nick Davey, an analyst at UBS, said the second quarter marked another solid set of earnings, but added: "Perhaps the bulls were hoping first thing this morning there would be something really juicy in there."
Operating profit in the quarter rose to 5.3 billion Swedish crowns ($780 million), beating a mean forecast for 5.0 billion in a Reuters poll and compared with 4.8 billion last year.
SEB's earnings contrast with results from Norway's biggest bank DNB which last week reported earnings below forecast for the second quarter due to loan losses in its shipping portfolio.
Shares in SEB were up 0.5 percent by 1101 GMT compared with a 1.0 percent rise in the Stockholm blue-chip bourse.
The shares are up about 30 percent from a year ago and have outperformed a near 12 percent rise in the STOXX Europe 600 banks index.
($1 = 6.7950 Swedish Crowns) (Reporting by Mia Shanley and Johan Ahlander; editing by Niklas Pollard and Jane Merriman)