* Nordea profit rises 7 pct, tops analysts' forecasts
* Handelsbanken profit stronger-than-forecast
* Stronger business activity, smaller loan losses
* Nordic banks outperform European peers (Wraps with Handelsbanken, adds CEO and analyst quotes, shares)
By Mia Shanley and Johan Ahlander
STOCKHOLM, July 17 (Reuters) - Nordea, the Nordic region's biggest bank, on Thursday pointed to low economic growth, tougher regulation and falling interest rates in Sweden as potential challenges to its long-term profitability target.
The bank, which reported a 7 percent increase in second quarter profit on Thursday, is cutting costs to adjust to this climate, but is sticking to a goal to raise its dividend payout ratio for 2014 and 2015. It is also keeping a long-term aim of achieving a 15 percent return on equity - a measure of profitability.
"We think we are generating a lot of capital and have built the base we need. We still expect the dividend ratio to come up," CEO Christian Clausen told Reuters on Thursday.
Nordea paid out 56 percent of its earnings in dividends last year and its chairman has said it could match rival Swedbank's 75 percent payout ratio over the long term.
Banks in the Nordic region weathered the financial crisis well relative to some European rivals and are still some of Europe's most profitable lenders.
But Nordea's Chief Financial Officer Torsten Hagen Jorgensen said there were "certain headwinds" to reaching the bank's 15 percent profitability target, especially due to falling rates.
Nordea's return on equity was 12 percent in the second quarter, excluding restructuring costs.
Nordea is the fourth major bank in the region to report second-quarter earnings that have included shrinking loan-losses and rising commission income as Nordic firms have the confidence to splash out to list on the stock market and do deals.
But despite stronger business activity, lending growth has remained weak. ""We expect a low-growth environment ... going forward," Clausen said.
Against this sluggish backdrop, Nordea in January doubled a target for cost savings. The bank's aim is to save 900 million euros from 2013 to 2015.
"It's very interesting that the CEO is reiterating their view that they are operating in a world of very low growth, hence their focus on cost cutting which is very important," Nick Anderson, an analyst at Berenberg, said.
Nordea's operating profit for the period was 1.1 billion euros ($1.5 billion) excluding restructuring costs of 190 million euros. That compared with a mean forecast for 963 million seen in a Reuters poll of analysts and a year-ago 1.0 billion.
Rival Handelsbanken also reported a healthy increase in second-quarter profit on Thursday. Its operating profit of 5.1 billion Swedish crowns ($747 million) was above forecasts and up seven percent from a year ago.
Loan losses at both banks fell more than expected, down 27 percent for Nordea from a year ago and 11 percent for Handelsbanken.
Shares in Nordea and Handelsbanken were down one percent and 0.4 percent, respectively, by 0948 GMT, erasing some of the gains made this week after rival SEB reported healthy earnings on Monday. Stockholm's wider blue-chip bourse was down 0.4 percent.
Nordic bank shares remain a bright spot in Europe. European banking shares are down this year, but Nordea's share price is up 11 percent and Handelsbanken shares are 3.4 percent higher.
Swedbank, the last of the major Swedish banks to unveil quarterly earnings, is forecast to report a 15 percent increase in profits, according to the average forecast in a Reuters poll of analysts.