Nordic banks are undergoing significant transformations. Some major players are divesting operations to focus on core markets and achieve cost synergies. S&P Global Ratings considers this shift is being driven by efforts to enhance profitability, improve digitalization, and increase scale. Danske Bank's exit from the Norwegian retail market and Handelsbanken's divestment of retail and small and midsize enterprise (SME) operations in Finland are notable examples of this trend.
What's Happening
Banks are focusing on core markets and prioritizing investment in operations with solid market positions. Danske Bank completed the divestment of its Norwegian retail operations in mid-November 2024, while Handelsbanken exited its retail and SME operations in Finland in the second half of 2024 following a similar transaction in Denmark in 2023.
At the same time, the strategic decisions provide important growth opportunities for other players. Nordea Bank strengthened its retail market share to 15% in Norway by acquiring 235,000 new personal and private banking customers from Danske. In Finland, midsize Oma Savings Bank and S-Bank are growing selectively by taking over Handelsbanken's Finnish operations. More recently Nykredit announced its intention to acquire SparNord, a second-tier bank in Denmark, to strengthen its market share to 13% in bank lending and diversify its presence in rural Denmark. These transactions are expected to provide positive scale effects and improve the acquiring banks' market positions.
Why It Matters
Nordic top-tier banks are already best-in-class in terms of profitability, operating efficiency (with an average cost-to-income ratio of 42%), and digitalization. The latest strategic moves aim to:
- Enhance profitability through cost synergies and improved efficiency. Streamlining will allow the banks to direct investments toward core operations and cut spending on operations that lack scale.
- Boost operational focus. Increased scale will enhance banks' focus on core customer segments in their highly competitive home markets.
- Focus on digitalization and innovation. By concentrating on their primary markets, banks can improve digital customer services, leading to better market positioning and competitive advantages in core regions.
- Improve capital allocation. Divesting non-core assets allows banks to reallocate capital more efficiently. This can improve their capital ratios and overall financial health. Divestment proceeds can be used to strengthen balance sheets, invest in more profitable core operations, or distributed to shareholders.
- Reduce complexity and simplify operations. Operating in multiple jurisdictions increases the complexity of regulatory compliance. By reducing their geographic footprint, banks can streamline compliance processes and reduce the regulatory burden.
- Mitigate risk. Although less relevant in the Nordics, given the low-risk operating environment across the region, banks can reduce their exposure to risks associated with foreign markets by divesting non-core operations.
Strategic shifts carry risks and challenges that need to be managed. They include integration risks, potential disruption to customers and employees, a potential fall in client satisfaction that leads to customer churn, a reduced international footprint leading to less diversified operations, and increased competition in home markets.
What Comes Next
It seems likely that Nordic banks' strategic streamlining will continue. They will focus on enhancing core operations and maintaining robust financial health. A gradual decline in interest rates, and a resultant abatement of net interest income, should focus management attention on cost optimization and franchise strength. We therefore believe that the major Nordic banks are likely to look for further bolt-on acquisitions, opportunities to strengthen ancillary business lines such as asset management and insurance, and strategic partnerships.
We expect the integration risks to acquirors to be manageable in the near term. This should allow them to swiftly incorporate new operations and boost earnings. In the medium term, we expect Nordic banks will continue to prioritize digitalization and investment in innovations that best support the customer experience, cross-selling, and cost synergies.
Related Research
- Denmark-Based Nykredit Realkredit 'A+/A-1' Ratings Affirmed On Contemplated Acquisition Of Spar Nord; Outlook Stable, Dec. 18, 2024
- Nordic Banks: Resilient Profitability And Ample Capitalization Continue To Support Financial Performance, Nov. 27, 2024
- European Banks Will Pull Multiple Levers To Protect Operating Performance In 2025-2026, Nov. 25, 2024
- DNB Bank Asa Looks To Boost Non-Interest Income Sources By Carnegie Group Acquisition Ahead Of Strong Q3 Results, Oct. 23, 2024
- Nordea Bank Improves Norwegian Retail Franchise With Danske Deal, July 19, 2023
- S-Bank Gains Scale With Acquisition Of Handelsbanken's Finnish Retail Portfolio, June 1, 2023
- Svenska Handelsbanken's Denmark Exit Will Reduce Its Nordic Footprint But Not Impair The Customer Franchise Or Earnings, June 21, 2022
- Jyske Bank A/S And Jyske Realkredit A/S Ratings Affirmed On Acquisition Of Svenska Handelsbanken Unit; Outlook Stable, June 21, 2022
This report does not constitute a rating action.
| Primary Credit Analyst: | Salla von Steinaecker, Frankfurt +49 69 33999 164; salla.vonsteinaecker@spglobal.com |
| Secondary Contacts: | Niklas Dahlstrom, Stockholm +46 84405358; niklas.dahlstrom@spglobal.com |
| Olivia K Grant, Dubai +971 56 680 1008; olivia.grant@spglobal.com | |
| Harm Semder, Frankfurt +49 69 33999 158; harm.semder@spglobal.com | |
| Markus W Schmaus, Frankfurt +49 69 33999 155; markus.schmaus@spglobal.com |
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