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Sweden's Handelsbanken first-quarter profits stand up to coronavirus shock

Published 22/04/2020, 10:50
Updated 22/04/2020, 10:56
© Reuters. A branch of Handelsbanken is seen in Wilmslow

© Reuters. A branch of Handelsbanken is seen in Wilmslow

By Colm Fulton and Johan Ahlander

STOCKHOLM (Reuters) - Sweden's Handelsbanken (ST:SHBa) reported a smaller-than-expected fall in first-quarter net earnings as loan loss provisions caused by the financial strain of the coronavirus pandemic grew less than many analysts had estimated.

The bank's shares were up 4.7% 0845 GMT, outperforming the European banking index (SX7P), which gained 1.78%.

"The quarter started very strong and we entered the crisis in a strong position," new CFO Carl Cederschiold, in office since the start of the month, said on a conference call. "We are of course very humble about the way forward and the ongoing crisis."

Net profit fell 17% to 3.94 billion Swedish crowns ($389.8 million) from a year-ago 4.76 billion, beating a mean analysts' forecast of 3.31 billion, Refinitiv data showed.

Loan losses increased to 538 million crowns, compared to 288 million in the year-ago-period, as the novel coronavirus outbreak and measures to contain it shut businesses, leaving companies and workers struggling to pay their bills.

Even though Sweden's restrictions have been lighter than in other countries, the financial strain has been felt and a record number of hotels and restaurants went bankrupt in March.

Handelsbanken is well-known for its low-risk credit model and its losses have been lower than those of peers for many decades.

Its loan losses were much less than expected, with a Refinitiv poll of five analysts estimating a loss of 1.48 billion crowns.

"They quite substantially beat expectations on a net profit basis, but it's important to remember that this was driven by better-than-expected loan losses and the rest of the result was very much in line with consensus estimates," Andreas Hakansson, a senior analyst at Danske Bank, said.

"Their underlying asset quality seems to be very, very strong, particularly in Sweden."

On April 8, rival lender Swedbank said it would report its first quarterly loss since 2009, as it braced for coronavirus-related credit losses and a fine for poor anti-money laundering controls.

A European accounting rule, IFRS 9, introduced in response to the 2007-2008 financial crisis, requires banks to take expected losses from a crisis upfront, rather than at a later stage.

It obliges banks to apply macroeconomic forecasts to their projected losses. However, Hakansson said regulators have given banks discretion in how to apply this, making it difficult to predict each bank's figures.

Total expenses, a line that worried investors in recent years, rose 25% to 5.51 billion crowns from 4.4 billion a year ago.

Net interest income, which includes income from mortgages, rose to 8.23 billion crowns from 7.94 billion a year ago, but less than the Refinitiv estimate of 8.27 billion.

"I think we are still going to be very careful extrapolating this low-level for loan losses for coming quarters," Hakansson said. "We can't be too optimistic because the coronavirus crisis is ongoing."

© Reuters. A branch of Handelsbanken is seen in Wilmslow

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