Large Nordic banks are set for strong net interest income growth in 2023 as they capitalize on the current rate-hike cycle, before levels stabilize in the coming years.
Net interest income, or NII, at the region's six largest banks improved 20.4% on average in 2022 and is projected to expand another 22.9% in 2023, according to S&P Capital IQ consensus estimates, as lenders benefit from higher central bank interest rates. NII will then stabilize in 2024 and 2025, the estimates suggest.
Swedish lender Swedbank AB (publ) will see the strongest growth in 2023, with analysts forecasting NII to jump 28.5% year over year, having risen 26.3% in 2022. Denmark's Danske Bank A/S follows next, with NII expected to increase 25.2% in 2023, up from a 14.2% growth rate in 2022.
For Finland-based Nordea Bank Abp and Sweden's Svenska Handelsbanken AB (publ), analysts anticipate NII to improve 23.0% and 20.9%, respectively, in 2023. Both banks recorded a 15.0% rise in 2022.
Sweden's Skandinaviska Enskilda Banken AB (publ) and Norway's DNB Bank ASA will be the only of the six largest Nordic lenders to register slower NII growth in 2023, albeit on the back of exceptional rates in 2022. SEB is projected to expand NII by 18.5% this year against 27.1% last year, while DNB will see NII grow 21.2% in 2023 from 24.8% in 2022, according to analyst consensus.
Nordic banks still provide an "attractive gearing" to higher interest rates, UBS analysts said in a Feb. 15 note. Their short-duration balance sheets mean higher central bank rates feed into the income statement quickly but also leave banks potentially vulnerable once rates peak, it said. UBS anticipates net interest margins at Nordic banks to peak in the second half of 2023.
UBS analysts also expect another quarter of "decent" NII growth in the first three months of 2023, but they noted the pace of rate hikes is slowing, and they "remain mindful that peak rates are likely near."
Forecast-beating quarters
Commercial lenders across the region have benefited from higher deposit margins after central banks in Sweden, Denmark, Norway and the eurozone hiked their policy rates several times throughout 2022 and into 2023. On average, the six largest Nordic banks recorded sequential NII growth of 11.6% in the third quarter of 2022 and 16.7% in the fourth quarter, beating analyst consensus by 5.0% and 4.6%, respectively.
Most significantly, Swedbank's NII was 14.6% higher, at 10.92 billion Swedish kronor, than projected by analysts in the fourth quarter. This is up 30.6% from the previous quarter and 66.6% from the year-earlier period.
While central banks have indicated that interest rate hikes will come in 2023, bank executives warned that the benefits from future raises are more uncertain and will depend on competition and customer behavior.
Swedbank's full-year NII is expected to be 62.3% higher in 2023 than 2021 levels, according to consensus — the strongest growth among Nordic peers. For DNB and SEB, NII is forecast to increase 51.3% and 50.6%, respectively, over the two-year period. Analysts project that NII growth rates for Nordic banks will land at negative 0.4% in 2024 and at positive 0.8% in 2025, on average.
As of Feb. 27, US$1 was equivalent to 10.43 Swedish kronor.