Indeed, profits are falling compared to the same period last year. But they have already turned upwards again, at least for the time being, as shown by the major banks' quarterly reports, which exceeded all stock professionals' expectations. Both Swedbank's and Handelsbanken's profits for the third quarter were higher than for the second quarter, while SEB's remained unchanged.
However, the trend is that the income from the net interest margin, which banks earn from the difference between lending and borrowing rates, is decreasing as the Swedish Central Bank lowers interest rates, according to SEB CEO Johan Torgeby. And it will get even worse from the banks' perspective. But banks are compensating themselves with, among other things, higher fees on payments and fund management fees.
The banks' mortgage rates have been lowered by as much as the Swedish Central Bank has lowered them. But savings rates have also been lowered, so the net interest margin can be kept relatively intact. At the beginning of September, the three major Swedish banks (Nordea is counted as Finnish) lowered the interest rate on salary accounts to zero, almost simultaneously.
Move the money to savings accounts, say the bank CEOs.
Many Billions
But still, customers have a very large number of billions collectively on these transaction accounts.
It becomes a lot of money for the large collective that you don't earn any interest on. I guess you can make a pretty good profit on that?
I think it's a very small proportion (of individuals' total deposits). I have the figure 12 percent in my head. But it's probably even lower than that today. And these are transaction accounts. It's just a matter of switching. We have so many investment opportunities if you want returns, says Torgeby.
But even if the banks' earning capacity is now being squeezed by expected even lower interest rates, banks can hope that households and companies will start borrowing more, and then bank revenues will increase.
But that's not the case yet.
Right now, it's wait and see. Transactions on the housing market, investments among large companies, acquisitions, IPOs, all that is currently absent, says Johan Torgeby.
Historically High
This picture is confirmed in a recent analysis by the Financial Supervisory Authority (FI) of the banking sector's results for the first half of the year.
"Profitability was still high from a historical perspective," writes FI.
And compared to the second quarter, the major banks' results have not deteriorated, rather the opposite, with even higher profitability.