STOCKHOLM/OSLO Swedish banking group SEB (SEBa.ST) and Norwegian lender DNB (DNB.OL) announced robust third-quarter profits on Thursday, blowing past analysts' forecasts on stronger income from corporate clients and better credit quality.
Nordic banks have been some of Europe's best performers as they escaped the worst of the financial downturn, building up capital early on and benefiting from relatively sound economic backdrops in Sweden and Norway.
SEB, Sweden's fourth-biggest lender by market capitalization and a bellwether for corporate lending in Scandinavia, announced a 20 percent rise in operating profit in the quarter through September to 4.87 billion Swedish crowns ($763 million). That topped a Reuters consensus expectation for 4.20 billion and easily beat the highest forecast.
"During the third quarter, we saw increasing activity on the corporate side and despite a continued high level of economic uncertainty globally, the corporate community showed emerging optimism," SEB Chief Executive Annika Falkengren said in the results statement.
Net fee and commission income jumped 17 percent with stronger corporate activity in the debt and syndication markets and investment banking activity lifting income.
"It was a very strong set of results this time around and in fact it was the best Q3 SEB has ever reported," said Kimmo Rama, an analyst at Evli. "The key positive was that we saw a continuation of higher customer activity."
At Norway's largest lender DNB, pretax profit jumped 32 percent to 6.34 billion Norwegian crowns ($1.07 billion) in the quarter, topping expectations for 5.27 billion on wider lending margins and as loan losses were nearly half expectations.
SEB and DNB's solid earnings followed strong third-quarter results this week from rivals Nordea (NDA.ST), Swedbank (SWEDa.ST) and Handelsbanken (SHBa.ST).
SEB shares, which have rallied 39 percent this year, were up 2.1 percent after the results, while DNB's share price, up 46 percent in 2013, jumped 5.4 percent. Both outperformed a 1 percent gain in European banking shares .SX7P.
While Nordic banks look relatively healthy they are, however, facing pressure from stricter regulatory requirements, particularly in Norway, which is forcing them to keep building up capital.
Authorities in Norway want the banks to raise the risk assigned to their mortgage portfolios to as high as 35 percent - more than twice that of Sweden - to curb risks in the Norwegian property market.
DNB has reduced its dividend for the past two years and plans to reduce it next year. On Thursday, it said it might have to review its dividend policy to meet new capital requirements as it will not raise new equity.
"We will not get new equity. This is not a theme. We will grow organically. But we must use all means to achieve the capital requirements demanded by the authorities. We must adjust costs, revenues and assess our dividend policy," Chief Executive Rune Bjerke told a new conference after the results.
New regulations on banks' mortgage books in Norway would make DNB appear more weakly capitalized than its international competitors, the bank said.
"The estimated capital requirements of 40 to 60 billion Norwegian crowns by year-end 2016 will require higher earnings than the achieved results," it said.
SEB's Falkengren said that "more regulation may not be the right regulation", and that while the ambition of regulation was admirable it remained difficult to assess the impact on the real economy.
Nordic banks have nonetheless benefited from the region's safe-haven status, while much of Europe was affected by the euro zone debt crisis, and have shown they can maintain profitability by keeping operating and funding costs down.
Swedish banks in particular, which have capital that exceeds requirements, are widely expected to pay higher dividends this year as loan demand remains weak.
SEB's Basel III common equity tier 1 capital ratio, based on its interpretation of future regulation, reached 15 percent in the quarter, up from 13.1 percent a year ago. That is higher than the 12 percent that Sweden's financial regulator will require it to have by 2015.
(Writing by Mia Shanley, additional reporting by Alister Doyle in Oslo; Editing by Alistair Scrutton and Susan Fenton)