Swedbank profit beats forecast as real estate slump leaves scant mark

STOCKHOLM (Reuters) -Swedish banking group Swedbank reported a bigger-than-expected rise in net profit on Tuesday on the back of higher interest income, and said its credit quality was solid as loan loss provisions fell sequentially in the second quarter.

Swedbank, Sweden's biggest mortgage lender, said its net profit more than doubled to 9.12 billion Swedish crowns ($892 million) from a year-ago 4.51 billion crowns to come in ahead of a mean forecast of 8.06 billion crowns in a Refinitiv poll of analyst estimates.

Nordic banks such as Swedbank have seen a dramatic run of central bank rate hikes aimed at tackling soaring inflation lift interest income and profit over the past year.

Swedbank, a rival to lenders Handelsbanken and Nordea, said its interest income - which includes revenue from mortgages - rose to 12.77 billion crowns from 7.11 billion last year, ahead of the 12.32 billion crowns seen by analysts.

Loan losses from sectors hit by ballooning costs of servicing vast piles of debt amassed during the years of zero rates - above all by commercial real estate firms in Sweden - have so far been very modest for banks.

That may change in the quarters to come if Sweden's commercial property bust worsens at a time when households are feeling an increasingly painful pinch from rising mortgage costs, although many have savings to dip into if needed.

"Our credit quality is solid and we feel secure with our conservative and thorough lending process. We see that our customers are continuing to adapt to the prevailing economic conditions," Swedbank CEO Jens Henriksson said in a statement.

Swedbank booked loan loss provisions of 188 million crowns, up from 40 million crowns in the year-ago quarter, but well below analysts' expectations for provisions to remain around the 777 million crowns recorded in the first quarter of this year.

Some players in the real estate sector were facing difficulties as business models based on low interest rates took a hit, prompting them to raise more capital, sell assets and build up liquidity, efforts he expected to continue.

"We have added a bit more money precisely for credit losses in this sector, but we don't feel especially worried as far as the bank is concerned. We're sitting on a lot of securities here," Henriksson told reporters in a conference call.

($1 = 10.2187 Swedish crowns)

(Reporting by Niklas Pollard; Editing by Kim Coghill, Jamie Freed and Sherry Jacob-Phillips)

By Niklas Pollard