Key Takeaways
- Nordic banks have reported strong profitability during the first quarter of 2024, despite fading tailwinds from the high interest rate environment.
- While net interest income (NII) has receded on average, seasonal factors as well as cost consciousness have led to a decline in operating expenses for most banks.
- Despite a challenging macroeconomic environment, asset quality has also remained stable across the sample of banks, with only modest deteriorations in challenging market segments--such as commercial real estate and construction.
- Ongoing or new share buyback programs partly drive capital distributions, which are likely to remain elevated in 2024.
Strong Efficiency Helps Nordic Banks Sustain High Profitability
The continual repricing of customer deposits and muted loan growth drives top-tier Nordic banks' NII decline since the start of 2024. Banks' NII receded across the board, with an average decline of 2.8% during the first quarter of 2024--except for Danske Bank A/S and Nordea Bank Abp that benefit from deposit repricing action and deposit hedge. Lower net interest margins have not translated into weaker profitability, with banks' net profit rising on average quarter on quarter. In most cases, this is attributable to ongoing cost consciousness or seasonal factors, which led to an average quarter-on-quarter decline in operating expenses of 4.2%. Nordea and OP Financial Group benefitted from no contributions to the Single Resolution Fund, which are usually paid during the first quarter, being due in 2024. Therefore, even though NII is likely to decline further over the coming quarters, we expect top-tier Nordic banks to outperform their European peers in profitability and efficiency metrics.
Chart 1
Chart 2
Loan growth remains sluggish, only picking up sporadically across the sample. In fact, only the three Swedish banks registered modest credit growth, in part driven by their operations in the Baltics. Tight corporate financing conditions as well as an uncertain macroeconomic and geopolitical outlook are likely to keep credit demand somewhat muted over 2024. We anticipate an easing in monetary policy over the course of 2024--including Sveriges Riksbank's rate cuts by 25 basis points to 3.75% three weeks ago--and a gradual pickup in real GDP growth will add some upside potential to credit growth.
Capital Buffers and Asset Quality Will Remain Key Rating Strengths
Given strong profitability, top-tier Nordic banks have built up solid capital buffers above regulatory minimum requirements. Banks' common equity Tier 1 exceeds the minimum requirements by 4.4 percentage points on average. Therefore, we consider banks' capital levels as one of their key rating strengths. Despite a somewhat challenging macroeconomic environment, asset quality has similarly held up well, both among corporate and retail clients. Stage 2 and stage 3 loan ratios have remained largely stable, with no substantive overall increases in problem loans. Within the more challenging commercial real estate and construction sectors, most banks witnessed moderate upticks in stage 3 exposures and credit loss provisions. However, these were not out of line with historical standards.
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Capital Optimization Is Likely To Keep Capital Distributions Elevated
Nordic banks continue to optimize their capital position. Strong profitability and solid capital buffers have enabled top-tier Nordic banks to conduct several share buyback programs over 2023. During the first quarter of 2024, several top-tier banks delivered on earlier decisions to optimize their capital base. Nordea, for instance, completed its latest share buyback program of €1 billion, while DNB Bank ASA successfully concluded its most recent program announced in December 2023. After initiating a further buyback program of Danish krone (DKK) 5.5 billion (€740 million) in February 2024, Danske similarly bought back shares worth almost DKK800 million (€107 million) by the end of March 2024. Finally, in March 2024 Skandinaviska Enskilda Banken AB's board of directors decided on a new share buyback program totaling SEK2 billion (€171 million), which the bank aims to conclude by July 12, 2024.
Table 1
| Nordic banks--Earnings | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Selected indicators (as of March 31, 2024) | CET1 ratio (%) | Cost-to-income ratio (year to date, %) | Return on average common equity (year to date, %) | Cost of risk (year to date, bps) | NII growth (quarter on quarter, %) | Net profit growth (quarter on quarter, %) | ||||||||
| Danske Bank | 18.5 | 45.5 | 12.9 | 2.0 | 0.2 | -2.4 | ||||||||
| DNB Bank | 19.0 | 35.7 | 16.2 | 7.0 | -2.9 | 8.5 | ||||||||
| Nordea Bank | 17.2 | 41.8 | 18.6 | 4.0 | 0.4 | 23.1 | ||||||||
| OP | 19.6 | 47.8 | 12.1 | 16.0 | -3.7 | 28.4 | ||||||||
| SEB | 18.9 | 34.6 | 17.7 | 2.0 | -2.8 | 13.5 | ||||||||
| SHB | 18.8 | 42.2 | 13.4 | -2.0 | -5.2 | -8.9 | ||||||||
| Swedbank | 19.3 | 34.2 | 17.3 | 3.0 | -5.5 | 1.2 | ||||||||
| CET1--Common equity tier 1. Bps--Basis points. NII--Net interest income. OP--OP Financial Group. SEB--Skandinaviska Enskilda Banken. SHB--Svenska Handelsbanken. Source: S&P Global Ratings. | ||||||||||||||
Related Research
- Handelsbanken 'AA-/A-1+' Ratings Affirmed On Solid Performance Despite Ongoing Macroeconomic Challenges; Outlook Stable, March 8, 2024
- Swedish Real Estate: The End Of The Slump Could Soon Be In Sight, Feb. 29, 2024
- Top Nordic Banks Cut Costs As Revenue Growth Flattens, Feb. 19, 2024
- SLIDES: Nordic Banks In 2024: Ploughing Through Tough Terrain, Feb. 7, 2024
- Credit Conditions Europe Q1 2024: Adapting To New Realities, Nov. 28, 2023
This report does not constitute a rating action.
| Primary Credit Analysts: | Alexander Maichel, Frankfurt +491724529304; alexander.maichel@spglobal.com |
| Salla von Steinaecker, Frankfurt + 49 693 399 9164; salla.vonsteinaecker@spglobal.com | |
| Secondary Contacts: | Niklas Dahlstrom, Stockholm +46 84405358; niklas.dahlstrom@spglobal.com |
| Olivia K Grant, Dubai +971 56 680 1008; olivia.grant@spglobal.com | |
| Harm Semder, Frankfurt + 49 693 399 9158; harm.semder@spglobal.com | |
| Kristian Pal, Stockholm +46 84405352; kristian.pal@spglobal.com |
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