Nordic Credit Rating (NCR) expects Sweden's banks to continue to outperform most European peers on profitability and capitalisation. Swedish banks have experienced only modest impacts from the ongoing pandemic in terms of credit losses, but face declining margins due to competition for commercial and retail mortgages. Despite margin pressure, the banks maintain relatively strong risk-adjusted earnings and efficiency due to high levels of automation. Strong savings rates and capital market access supports the banks' balanced funding models.
We apply a score of 'a-' for the Swedish banking market and expects continued economic growth in Sweden throughout 2022. This is likely to be led by consumer spending on goods, along with an expected rebound in spending on services in late spring and summer, by which time reimposed COVID-19 pandemic restrictions are likely to have been lifted. We believe the Omicron variant of the virus is unlikely to have a material impact on the economy, as Swedes have adapted to the ongoing pandemic and are better able to deal with the virus following the vaccine roll-out.
"We are less concerned about the Swedish banking market now than we were at the onset of 2020" said NCR credit analyst Gustav Nilsson. "Swedish banks have demonstrated resilience with improving pre-provision profit margins and reversed loan losses over 2021. We believe that Swedish banks will continue to see increased pre-provision profits despite margin pressure in some segments. We also note that Swedish banks are generally well-capitalised with good access to stable funding sources."
Contacts:
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com