MOODY'S REPORTS: STABLE RATING OUTLOOK OF SWEDISH BANKING SYSTEM REFLECTS RESILIENT EARNINGS AND GOOD COST MANAGEMENT
Despite the difficult and uncertain operating environment, the Swedish banking groups rated by Moody's benefit from a stable rating outlook owing to their continued ability to generate a fairly recurrent level of earnings as well as manage costs downwards, reports Moody's Investors Service in its annual Banking System Outlook on Sweden. Moody's does not therefore anticipate more than a cyclical deterioration in Swedish banks' credit quality.
"Although the considerable decline in the Stockholm stock exchange has negatively affected banks' fee and commission income, Moody's continues to see structural upside in wealth management and life insurance in view of secular trends with respect to demographics and pension deregulation," says Alexandra Sleator, a Senior Vice President at Moody's and author of this report.
Moreover, the poor performance of wealth management activities is also being mitigated by the otherwise solid performance of retail networks and mortgage lending. Indeed, mortgage lending remains of key importance to Swedish banking groups as about half of total loans originated are in the form of mortgage loans. Moody's believes that this business should continue to offer relatively good growth opportunities.
Sweden continues to have one of the most consolidated banking sectors in Europe, with its four largest banking groups - Svenska Handelsbanken, SEB, Swedbank and the Nordea Group - holding almost 80% of total customer deposits. These four banks' revenue-generating capacity is solidly underpinned by entrenched customer franchises and the growing diversification in the retail financial services on offer. With the exception of SEB, most banks' wholesale activities remain focused on debt underwriting relative to equities business - a positive in the current environment.
Nevertheless, the maturity of the Swedish banking market and the intense competition there may place a cap on domestic earnings over the longer run. "In a difficult environment, domestic revenue origination hinges on banks' ability to develop cross-selling with a view to increasing the number of products per customer, and Swedish banks' refined customer segmentation will be an important factor in achieving this goal," adds Sleator.
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