* Swedbank Q1 op profit 4.9 bln crowns vs f‘cast 4.7 bln
* SEB profit 3.72 bln vs f‘cast 3.91 bln
* Net interest income beats forecasts at both banks
* Capital buffers rise, costs stay down
* Swedbank shares up 2.9 pct, SEB down 1.7 pct (Recasts, adds background, details, shares)
By Mia Shanley and Oskar von Bahr
STOCKHOLM, April 23 (Reuters) - Swedish banks Swedbank and SEB said they expect demand for loans to stay weak for some time yet with customers remaining constrained by global economic instability.
Still, the Swedish banks topped analyst forecasts for income from core lending activities, boosted capital buffers and had healthy profitability in the quarter, showing they remain in good shape to weather tough market conditions.
SEB and Swedbank were hit hard by the credit crisis due to their exposure to the troubled Baltic region, but took early measures to boost capital and cut costs, restoring investors’ faith.
Swedish banks, whose assets are about four times the size of the country’s GDP, are now some of Europe’s most well-capitalised lenders, with core Tier One ratios well above regulatory demands.
Swedbank, Sweden’s third-largest lender by stock market value, said it expected rating agencies to reward its strength with an upgrade this year, helping its shares rise 2.9 percent to 147.1 crowns by 0841 GMT.
“The year has begun with cautiously positive expectations regarding global economic development,” said Michael Wolf, Swedbank CEO.
Yet Wolf did not expect an upturn in demand for loans any time soon. “We continue to plan for an environment with low interest rates and weak credit demand in the foreseeable future,” he said, noting a stable and economically secure Europe was a long way off.
“The Swedish and Baltic economies are strong, but are not unaffected by the turbulence,” Wolf said.
SEB Chief Executive Annika Falkengren was similarly cautious, saying large corporates had been affected by the subdued economic climate and that while they had strong balance sheets, they operated in a restrained investment mode.
“I think demand is pretty low ... Corporate confidence has gone down. They are worried about the future and they might not do the investments or the acquisitions right now,” Falkengren told Reuters.
SEB said fees from both new lending arrangements and corporate finance activities had fallen while equity capital market activity was low. Its shares were down 1.7 percent at 62.75 crowns.
Sweden’s triple-A-rated economy has outperformed most major European peers, but fears about a spillover of Europe’s problems have put consumers and companies in wait-and-see mode.
Sweden’s central bank last week delayed plans for tighter monetary policy, a factor which will weigh on bank lending margins.
Still, the financial strength of Sweden’s banks has helped lower their funding costs, while hopes of extra dividends or buybacks have supported shares as investor seek shelter from rocky markets in other parts of Europe.
As of Monday’s close, Nordic banks had risen more than 12 percent this year compared with a 3.7 percent fall in the broader European sector.
But Swedish banks continue to work to keep costs down.
“Costs are under control and that bodes well for the year,” said Mats Anderson, an analyst at brokerage Cheuvreux.
The country’s regulator has taken a tough line on capital and liquidity targets to ensure lenders don’t get overstretched.
Swedbank said it had a core capital ratio of 16.4 percent and SEB 13.4 percent under new Basel 3 rules which stipulate a minimum capital buffer of 7 percent of risk-weighted assets.
Sweden has set a minimum of 10 percent, rising to 12 percent by 2015.
While Swedbank raised its dividend payout ratio to 75 percent from 50 percent, it is unlikely to revive its share buyback plans until regulations are finalised.
Swedbank has a long-term A2 rating from Moody‘s, one notch below SEB‘s, while S&P has A+ ratings on both banks.
In spite of weak credit demand in the quarter, Swedbank and SEB both posted robust results with net interest income at both banks higher than expected.
Core lending income at SEB grew to 4.5 billion crowns from a year earlier 4.2 billion and a forecast of 4.4 billion. Swedbank posted net interest income of 5.4 against a forecast of 5.2 billion and up from last year’s 5.2 billion.
Swedbank’s operating profit of 4.9 billion crowns ($751 million) beat a mean forecast for 4.7 billion seen in a Reuters poll of analysts.
SEB’s profit rose to 3.72 billion crowns, just missing a mean forecast for 3.91 billion after commissions missed expectations.
$1 = 6.5285 Swedish crowns Additional reporting by Simon Johnson; Editing by David Holmes