Release Date: July 16, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Svenska Handelsbanken AB (SVNLF, Financial) reported a robust capital position with a CET1 ratio of 18.4%, which is 50 basis points above the long-term range target.
- The bank achieved net credit loss reversals for the sixth consecutive quarter, highlighting its low credit risk management.
- Expenses were down 4% year-on-year, demonstrating effective cost management despite general inflation and salary revisions.
- The bank's liquidity position is strong, with a liquidity reserve amounting to around one-fourth of the total balance sheet.
- In Sweden, which accounts for almost 80% of the group's earnings, the cost-to-income ratio was 32% in Q2, and profitability was above 16%.
Negative Points
- Net interest income (NII) declined by 6% compared to the previous quarter, primarily due to Central Bank rate cuts and FX impacts.
- Total income dropped by 8% in the second quarter, affected by temporary effects and market volatility.
- The cost-to-income ratio increased slightly to 44% in the quarter, up from the previous year.
- The bank's return on equity (ROE) remained unchanged at 13%, which some analysts consider low compared to peers.
- In the UK, the cost-to-income ratio is approaching levels seen when rates were near zero, indicating potential inefficiencies.
Q & A Highlights
Q: When calculating your return on equity, it seems that Sweden is performing well, but other markets are dragging. With rates expected to fall, how do you plan to address profitability issues?
A: Michael Green, CEO: We are focused on improving our income mix, particularly in fee business, and are determined to enhance our commission impact. We acknowledge the need for better utilization of past acquisitions like Heartwood and Optimix. Carl Cederschioeld, CFO: We've restructured in Norway, improving ROE by focusing on assets under management and deposits. We aim to replicate this success in the UK and Netherlands by enhancing IT structures and branch productivity.
Q: Regarding the UK, with a high cost-to-income ratio, are there plans to reduce branches or make structural changes?
A: Michael Green, CEO: No plans to change the number of branches in the UK. We are focusing on efficiency improvements at the head office. Carl Cederschioeld, CFO: The reduction in allocated capital is due to dividends and a reduction in CET1, not a change in strategy.
Q: Your capital levels are above the upper end of your target range. Do you plan to maintain this buffer, and how does it relate to Basel IV?
A: Carl Cederschioeld, CFO: We aim to operate within our target range of 100-300 basis points. We see a neutral impact from Basel IV and do not plan to maintain an additional buffer for it.
Q: Your USD deposits have halved, and cash balances at the Central Bank in the US declined. Does this impact your NII?
A: Carl Cederschioeld, CFO: The decline in USD deposits does not have a major impact on NII. We are pleased with deposit developments, especially in Sweden, and the USD deposits are volatile, not indicating a strategic change.
Q: On lending growth, competitors show better numbers. Why hasn't this translated to your business, and do you see improvement?
A: Michael Green, CEO: We are back to positive growth numbers, though not at desired levels. We see good inflows in mortgages and are picking up market share. Corporate lending shows signs of strength, but real economic growth is needed for consistent improvement.
Q: With timing differences reversing due to flat rates, do you expect positive timing differences with recent rate cuts?
A: Carl Cederschioeld, CFO: Yes, the recent Riksbank rate cut will likely result in positive timing differences as deposits reprice quicker than lending. However, the effect is shrinking as more deposits are at zero rates.
Q: FTE staffing declined significantly, especially in the UK. What is the outlook for staffing in the second half of 2025?
A: Carl Cederschioeld, CFO: We are pleased with the reduction of 1,200 staff over the past year. While major reductions are complete, we continue to focus on efficiency gains, but do not expect the same trend to continue.
Q: Over a long-term view, is the goal to have a higher ROE, and what will drive this?
A: Carl Cederschioeld, CFO: Yes, we aim for higher ROE by increasing capital-light components, especially outside Sweden. We focus on building long-term client relationships to balance lending, deposits, and savings, which supports superior ROE over time.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
