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Tucked away in a leafy side street of St Albans, a prosperous commuter town north of London, is a red-brick house with little to identify it as a branch of one of the fastest-growing banks in Britain.
When you climb the stairs to the first floor, it feels more like entering a quiet doctor’s surgery than a buzzing outpost for one of Europe’s 30 biggest banks by assets. What is happening in this and dozens of other branches of Sweden’s Handelsbanken turns many conventional ideas about modern banking on their head.
Most western banks face a toxic mixture of public unpopularity – stemming from a backlash over the financial crisis, mis-selling scandals and lavish bonuses – and investor dissatisfaction over zero growth and low profitability.
Handelsbanken is different in many ways. It has developed a model that provides a blueprint for other banks emerging from the financial crisis and seeking ways to regain customers’ trust and profitable growth.
Its first point of difference is that it has embraced the Swedish “church-spire principle” – meaning each branch manager is given total autonomy to decide how to deal with clients in the vicinity. Most of these managers, such as Anthony Fogden in St Albans, are bankers with decades of experience in a local area. Unlike other UK lenders – where decisions are handed down from head office to branch managers whom customers rarely see – Handelsbanken allows its bosses to decide on loans and interest rates.
There are no call centres. Customers in St Albans are given Mr Fogden’s mobile phone number and call it when they have questions – even at weekends. The bank does not advertise in the UK – relying on word of mouth to win clients – and has no national offers. The terms of all products are tailored to suit each customer. Anders Bouvin, UK chief executive, says his role is not to tell Mr Fogden what to do but “to support him by providing the infrastructure he needs”.
Second, while most banks are closing UK branches because customers are visiting them less, Handelsbanken is opening more than 20 a year. Its first British branch was opened in 1982 for Swedes living in London. But in the late 1990s it began winning UK clients and so opened more. Today it has 177 outlets from Aberdeen in northern Scotland to Cornwall in southwest England.
At a time when British politicians are convinced the banking market is an unbreakable oligopoly, and the competition regulator is launching an inquiry into current accounts and small business lending, Handelsbanken is gobbling up market share.
In the six months to June its UK household and corporate loan book grew 13 per cent year on year, while its UK deposits more than doubled. It achieved this growth without taking part in the government’s Funding for Lending Scheme or Help To Buy. And it seems to have done so without taking excessive risks, having lost money on only 0.08 per cent of UK loans in the first half.
At group level the Swedish lender is one of the best capitalised in Europe, with a common equity tier one ratio – a crucial measure of financial strength – of 20 per cent. It is also one of the most profitable, with a return on equity of 14 per cent.
If there is a flaw in this growth model, it may be Handelsbanken’s dependence on wholesale funding from its Swedish parent. As one British banking boss warns, this could dry up if the Nordic country suffers a financial crisis. Nevertheless, Handelsbanken’s progress continues to attract admiring glances.
A third difference is that the bank has no sales targets and does not pay bonuses in the UK. All staff are awarded an equal share of profits in every year that the bank’s return on equity outperforms its rivals. This sum is paid into Oktogonen – a foundation that invests mostly in Handelsbanken shares and owns a 10 per cent stake in the bank.
Nobody can withdraw their holding until turning 60, and each employee is allocated the same amount regardless of seniority. The shares have done so well that many staff who have worked at the bank for more than a decade are set to receive £1m or more on retirement.
Fourth, while most British banks have had to pay costly fines and compensation for mis-selling payment protection insurance and interest rate swaps, Handelsbanken remains unscathed. This may explain why it outstrips its bigger UK rivals in the customer satisfaction and loyalty ratings compiled by European research body EPSI.
Given this appreciation of its quiet effectiveness, certain UK banking rivals might be advised to pay attention.
Martin Arnold is the Financial Times’s banking editor
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