STOCKHOLM Growth in core lending activities at Swedbank (SWEDa.ST) eased worries about profitability at Nordic banks in the third quarter, sending shares across the sector higher on Tuesday.
Nordic banks have weathered the crisis of the last five years well. Growth is outpacing the rest of Europe, low rates have kept credit losses muted - outside Denmark and the shipping sector - and strong capital buffers mean low funding costs relative to other lenders.
But shares have underperformed European peers in recent months on worries that lending margins were being squeezed and that regulators will demand banks set even more capital aside to protect against future problems.
Swedbank's results relieved some of the pressure as growing income from core lending activities, particularly mortgages, helped it to beat earnings forecasts.
Operating profit for the period was up 6 percent year-on-year to 5.2 billion Swedish crowns ($812.2 million, above a mean forecast for 4.9 billion in a Reuters poll of analysts.
Net interest income came in at 5.6 billion Swedish crowns ($874.71 million) in the quarter against a Reuters poll forecast of 5.4 billion.
"The margins have been better than expected," Chief Financial Officer Goran Bronner said. "I don't think that margins are on the way up ... but I don't think that there is a risk for intensified price pressure at this point in time."
Swedbank, already among the best capitalized banks in Europe, said its core Tier 1 capital was 18 percent under incoming Basel III rules, much higher than the current requirement in Sweden and the 15 percent Swedbank reckons it will need in future.
The bank would not say how much cash it could return to owners, pending clarity on new capital rules, but said there was no risk to its goal of paying out 75 percent of net profit.
PAYOUT POLICY UNCHANGED
"There would have to be lots more regulation and significantly higher capital requirements to impact Swedbank's current payout policy," Bronner said.
Sweden's banks are already required to hold capital equivalent to 10 percent of their risk-weighted assets, rising to 12 percent by 2015. Sweden will also introduce additional so-called counter-cyclical buffers.
The Basel Committee on Banking Supervision requires banks to have a core Tier 1 capital ratio of 7 percent by 2019.
Swedbank is the first of the Nordic banks to report. Rivals Nordea (NDA.ST) and Handelsbanken (SHBa.ST) publish their results on October 23, followed by Norway's DNB (DNB.OL) and SEB (SEBa.ST) the next day.
Shares in Swedbank were up 4.4 percent at 1013 GMT at 170 crowns. Other Nordic banks also got a lift, sending the regional banking index up around 2.1 percent .TBNKF.
The European banking index .SX7P was flat.
Over the last three months, shares in Nordic banks .TBNKF have risen only around 3 percent against a 13 percent increase for European lenders. .SX7P
"With net interest margin at 181 basis points, from 174 basis points at Q2, we think market concerns about declining margins in Sweden are overplayed," UBS analyst Nick Davey said in a note.
Sweden's second largest bank by value said conditions in its home markets in the Nordic and Baltic region had been mixed.
While tax cuts and low interest rates were helping consumers in Sweden, the bank's biggest market by far, there were signs that it would take time before business investment picked up.
"We continue to plan for an environment with low interest rates and relatively weak credit demand at the same time that we see a brighter outlook," the company said.
Swedbank repeated its goal of keeping full-year costs at the 17 billion crowns recorded in 2012.
(Reporting by Simon Johnson and Oskar von Bahr; Editing by Kevin Liffey)