July 13, 2010 10:38 pm

SEB results highlight its haven status

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SEB, the Swedish bank, on Tuesday said it had “turned the page” in the crisis-hit Baltic region after announcing better-than-expected second-quarter results that highlighted the emergence of Nordic lenders as a haven among European banking stocks.

Annika Falkengren, chief executive, said SEB was set to pass the European Union’s stress test designed for big banks “with flying colours” after overcoming a surge of bad loans in the Baltic states of Latvia, Lithuania and Estonia over the course of the past two years.

“We have turned a page in the Baltics,” she told the Financial Times. “Yes, there are still a lot of issues to work through but the drip feed of new bad loans has stopped, so we do not have to add extra provisioning.”

Shares in SEB rose 5 per cent in response to the forecast-beating results and upbeat outlook, with Ms Falkengren reporting “cautiously growing optimism” in the Nordic economies and stabilisation in the Baltic countries.

The positive mood reflected the broader transformation in Nordic banks over the past year, from a point when they were considered among the riskiest in Europe because of their Baltic exposure, to their current status among the best-capitalised and best-performing.

Anders Borg, Swedish finance minister, told the Financial Times recently that Swedish banks “were very close” to the “abyss” in 2008 and 2009 after years of heavy lending in the Baltic states turned sour.

But the banks survived the scare by raising fresh capital and setting aside massive loan loss provisions.

SEB said provisions were now in decline – down 83 per cent from the second quarter of last year at SKr619m ($84m) – as the Baltic economies show signs of recovery from last year’s deep recessions.

The bank’s core tier one capital ratio was 12.1 per cent at the end of June, among the highest in Europe.

Nordic banks have also been helped by the relative strength of their domestic economies and public finances compared with the economies of much of Europe, and also by their limited exposure to risky assets based in southern Europe.

These factors have allowed Nordic lenders to largely escape the renewed uncertainty swirling around European banks as sovereign debt concerns continue to roil the continent.

Nordic bank shares have climbed 3 per cent in the past six months, according to the FTSE Nordic banks index, while, in contrast, the FTSE Eurofirst 300 banking index has fallen 8 per cent.

SEB reported net profits of SKr1.99bn in the three months to June 30, compared with a loss of Skr193m last year, surpassing analysts’ consensus forecast for about SKr1bn.

Total net interest income was also better than anticipated at SKr4.1bn, down 24 per cent from last year but an improvement on the previous quarter.

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