Svenska Handelsbanken AB (publ) is seeing "clear momentum" in its U.K. business after years of work to address shortcomings, according to CEO Carina Åkerström.
Sweden's largest bank by assets recorded an operating profit from its U.K. operations of 847 million Swedish kronor in the second quarter, up 89% from the same period in 2021. Return on allocated capital for this segment rose to 14.0% from 7.1% a year earlier.
"The tide appears to have turned," Åkerström said about the bank's U.K. activities during the presentation of the bank's results.
Handelsbanken said in October 2021 that it would divest its operations in both Denmark and Finland to become a "more focused bank." Executives remained optimistic about the U.K. business at the time despite a downward trend in return on allocated capital and growing costs relative to income for this segment.
Higher second-quarter income in Handelsbanken's U.K. operations was driven by improvements in net interest income, which rose to 1.73 billion kronor in the quarter from 1.36 billion kronor a year earlier. Rising central bank interest rates had a positive impact on deposit margins and the return on the liquidity deposited with the Bank of England, Handelsbanken said.
The central bank, responding to high inflation, has increased its key interest rate to 1.25% — after five successive rises this year — from 0.1% in December 2021. These moves are expected to have a positive impact on earnings across the British banking sector in 2022.
CFO Carl Cederschiöld said Handelsbanken has exited some corporate business in the U.K. due to anti-money laundering concerns, but that the bank is otherwise starting to see growth in corporate lending volumes. Foreign exchange effects also contributed positively to Handelsbanken's U.K. results.
The U.K. is Handelsbanken's second-largest income generator after Sweden. The market made up close to 12% of the group's total operating profit in the first half. The bank also has operations in Norway and the Netherlands.
Higher central bank interest rates in Sweden also drove an increase in net interest income in Handelsbanken's Swedish business to 5.05 billion kronor from 4.72 billion kronor, but this was not enough to lift earnings of the group as a whole. Handelsbanken recorded a net profit of 4.18 billion kronor for the quarter, down from 4.73 billion kronor a year earlier. This was caused by, among other things, the introduction of a new Swedish risk tax that cost Handelsbanken 329 million kronor in the period.
Handelsbanken had entered into a binding agreement with Jyske Bank A/S, Denmark's third-largest bank by assets, over the sale of its Danish business activities. The Swedish bank has not yet found a buyer in Finland.
As of July 14, US$1 was equivalent to 10.59 Swedish kronor.