UPDATE 3-Swedbank fails to keep up with hot mortgage market even as profit leaps

* Costs remain in line with plan

* Bank hopes to pay additional dividends when regulators allow

* Low loan losses of SEK 246 mln

* Mortgage business increased but lagged market growth

* Shares down 3% (Share price reaction, analyst comment)

STOCKHOLM, April 27 (Reuters) - Swedbank’s mortgage growth failed to keep pace with a booming Swedish market in the first quarter, driving down its shares even as it reported better-than-expected net profit and improved resilience to bad debt in the face of the pandemic.

Demand for mortgages has been so high in Sweden, particularly in large cities, that the bank is hiring more staff in an attempt to keep up with sales, CEO Jens Henriksson said.

“During the quarter, we increased our lending by 3.8%, but the market increased by 6%, so we did not keep up,” he said, adding that improved staffing would stop the bank from missing out on business in the second quarter.

Interest income, which includes income from mortgages, fell 2% to 6.54 billion crowns in the first quarter from 6.69 billion a year ago, as growth in mortgages was countered by lower corporate lending during the pandemic.

Shares in the lender were down 3% at 0920 GMT.

However Henriksson said Swedbank was well-positioned for growth when the pandemic eases and the economy improved.

Over the last year Sweden’s banks, some of the best capitalised in the world, have defied expectations of rising loan losses as the spread of COVID-19 shut businesses and reduced employment around the world.

Swedbank’s first-quarter net profit rose to 4.98 billion Swedish crowns ($593.56 million) from a loss of 1.69 billion a year before, beating the 4.44 billion analysts had expected according to Refinitiv data.

Provisions for potential loan losses, a figure closely watched due to the slump in the pandemic-hit economy, were 246 million crowns, up from 2.16 billion a year before and the 571 million loss expected by analysts.

“The overall result was solid but shares are down because the bank isn’t achieving its market share in a fast-growing mortgage market,” said Robin Rane, an analyst at Kepler Cheuvreux.

Fee and commission income rose to 3.36 billion crowns from 3.22 billion a year ago amid a strong asset management performance.

The bank said it hoped to pay additional dividends for 2019 and 2020 when market conditions and Sweden’s financial watchdog allowed it to do so.

Total expenses were 4.97 billion compared with 9.37 billion a year ago, when the bank was hit with a record fine for poor anti-money laundering controls. That was below the 5.16 billion expected by analysts.

$1 = 8.3900 Swedish crowns Reporting by Colm Fulton, additional reporting by Johan Ahlander; Editing by Niklas Pollard, Carmel Crimmins and Pravin Char