Svenska Handelsbanken AB (publ) (SHBA) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this presentation of Handelsbanken's results for the second quarter and the first half of 2026. The second quarter was yet another solid quarter for the bank. Operating profit was SEK 6.7 billion and the ROE, almost 13%. We saw business growth with lending, deposits and assets under management growing in the quarter. Both NII and expenses were stable and fee and commission grew to close to all-time high. mainly thanks to continued strong progress in our savings business. Income reached SEK 13.5 billion and with expenses of SEK 6 billion, the cost income ratio was 44%. Asset quality remains solid, and the credit loss ratio was 0. And as always, the financial position of the bank was robust. After deducting -- deduction of anticipated dividends for the first half year of SEK 4.77 per share, equivalent to 82% of the profits for the period, the CET1 ratio was 250 basis points above the regulatory minimum. In other words, within the target range of 100 to 300 basis points above the regulatory minimum. We see over and over again in customer satisfaction surveys that customers attribute a great value to our way of supporting them. As long as there is a clear customer demand for our relationship-driven model, we will continue to strive at further strengthening our capacities in the branches even more. Just like we always have done over the -- our 155-year old year history. Handelsbanken operates with a business model that some might consider quite unique today. We believe in being close to customers and in long-term relationships with strong creditworthy customers. But Handelsbanken's model is not only customer relationship oriented. It's also run with a prudent risk appetite and always with a long-term focus. This model has generated very stable shareholder value over time regardless of external factors such as financial crisis or different types of macro or geopolitical disruptions. The shareholders' equity per share plus dividends has over time grown by, on average, 14% to 15% per year and the stability in this growth is equally as important as the growth itself. The stability is also related to where we have chosen to operate. Our home markets are situated in the Northwest part of Europe, in democratic countries with stable political systems and where rule of law applies. Countries which also have trails of cultural similarities and shared values. These are also countries where we have recognized a very large scope of potential customers for a bank with our model. and where we can stand out in our offering and services. And importantly, the cash flow from our customers are also stemming from stable Western European economies. Simply put markets where the bank can grow profitability with stability over time. Now if we'll take a closer look at the recent business development in our 4 home markets. All the home markets recorded improved numbers and overall business growth. Starting with Sweden, accounting for 75% of the operating profits in the home markets. In Sweden, we are the biggest lender combined in the market. Loan volumes have been relatively flat over the past year. Household mortgage lending has grown, but the corporate lending volumes have been slightly down. When we look at the corporate business in Sweden, we would have been more happy if we had seen a pickup on the lending side. But at the same time, there are a few reasons why we remain optimistic about the corporate business going forward. First, as part of the banks every day managing of risk in housekeeping of the loan portfolios, some corporate customers are not on our books anymore. This means that the inflow of new customers, corporate customers were not visible in the aggregate volume development. Secondly, the interaction and dialogue with corporate customers have picked up materially over the spring. Increased customer activity has many times been a leading indicator of forthcoming customer demands for loans and other services from the bank. Thirdly, other business volumes with corporates, namely deposits and assets under management have shown a positive development. Deposits overall are up in Sweden. But the key outlier when it comes to growth is seen in the savings business, which I'll come back to you more on that shortly. Operating profits in Sweden grew by 4% in the quarter. The cost to income ratio improved to 34% and the profitability increased to 16.3%. Now in the U.K., which accounts for 13% of the profits in the home -- of our markets, we have, for the past 1.5 years, seen a constant consistent growth in both our household and corporate lending. Deposits have been fairly stable, while the asset under management are increasing, as you can see in the slide. U.K. is the market where we stand out the most in customer satisfaction, which forms a solid base to build profitable growth from over time. Operating profit grew by 11% in the quarter. The cost-to-income ratio improved to 61% and the profitability increased to 12%. In Norway, which accounts for 9% of the profits in our home markets, we stated 2 years ago that we needed to see a better balance between deposits, savings and lending. Over the past year, the lending volumes have dropped, mainly due to increased low-margin competition, while deposits have increased. But the key improvement in Norway is seen in the savings business. Over the past 2 years, the market share of the net inflows into mutual funds in Norway has been materially above the market share of the outstanding volumes. The operating profit increased in the quarter by 18%. The cost-to-income ratio dropped to 45% and the profitability improved to 11%. And finally, the Netherlands, which accounts for 3% of the profits in the home markets. And just like in the U.K., the distance to peers in terms of customer satisfaction is particularly large. Lending growth has been very strong, up 10% compared to last year. Deposit volumes are slightly up. And also here, we have a trend now for numerous quarters with strong growth in asset under management. Operating profit increased by 13% in the quarter, the cost-to-income ratio dropped to 54% and the profitability increased to 11%. I'm having a bit of a trouble with the slides here. So now if we look at the group financials of Q2 compared to Q1, the ROE amounted to 13% and the cost-to-income ratio was 14 -- 44%, sorry. NII was largely unchanged and down 1% adjusted for the currency effects. Fee and commission grew by 2%, mainly driven by increased assets under management. The customer-driven FT continued to be stable, amounting to around SEK 500 million in the quarter. But in the NFT occasionally, there can be some swings relating to market valuation effects on instruments used to hedge, risk in the funding and liquidity management. However, the market values of these derivative contracts pulled apart over time, meaning that the NFT swings are temporary. In this quarter, we saw such negative valuation effects leading to NFT dropping to SEK 116 million in the quarter. Other income dropped, but there was -- that was entirely explained by the one-off VAT regain of SEK 1.1 billion in the previous quarter. Adjusted for the currency effects and the VAT regain total income dropped by 2%. Expenses were unchanged adjusted for Oktogonen and currency effects. Credit losses amounted to SEK 30 million, which was equal to a credit loss ratio of 0%. Regulatory fees increased by 11% due to a booking in Q2 for mandatory interest-free deposits at the Central Bank, covering the next 12 months. All in all, the underlying operating profits decreased by 6%, primarily due to the NFT line. Adjusted for the temporary drop in NFT, the underlying operating profit was actually up a touch. Now if we switch over and look at the first half of the year to the same period last year. ROE again amounted to 13% and the cost-to-income ratio was 42%. NII declined by 10% and 9% adjusted for currency effects. The decline was related to lower margins in the wake of lower short-term market rates. Net fee and commission income, on the other hand, increased by 8% adjusted for FX effects. The key driver was, again, the savings business and the strong inflows and positive market developments. And all in all, total income dropped by 4% on an underlying basis. The expenses were up by 1% despite the annual salary revision that comes into force on January 1 each year, general cost inflation and increased spend in IT development. The credit loss ratio was 1 basis point compared to net credit loss reversals last year. And the regulatory fees were up this year due to the aforementioned mandatory interest-free deposit at the Central Bank. So underlying operating profit was down 10%, explained by the drop in NII. All the other income lines were -- and expenses developed very positively. Now if we move over to and take a closer look at the NII development for this quarter compared to the previous quarter. As I mentioned earlier, the NII was flat over the quarter. It's a positive note that volume growth is now again starting to filter through into the sequential NII development. Increased lending and deposit volume contributed with SEK 90 million or 1% to the NII in this quarter. The net of margin and funding, however, affected negatively by SEK 249 million. And the main reasons for the decline is dividend -- sorry, the main reason for decline is divided into 3 parts. In Norway, there is a mandatory notice period of 8 weeks before customer rates can be raised. This lag effect affected NII by around SEK 40 million to NII in the quarter. This effect reverses when there is a quarter with flat rates. The remainder of the decline around SEK 200 million can roughly be explained by 2 relatively equal parts. First, market rates increased and resulted in funding costs increasing more than interest rates on certain assets such as central bank deposits. There was also an element of lag effect in the sense that repricing of some customer rates come later than the increase of the funding cost for the bank. Secondly, the bank paid out a record high dividend to shareholders of SEK 35 billion at the end of the previous quarter. This means less interest rate generating liquid assets for the second quarter for the bank. Moving on, the day count effect due to 1 more day in the quarter and the currency effects due to a weaker krona on average, contributed together with SEK 156 million. Other effects were minor. Now the next slide shows the net fee and commission income reached -- how it reached the second quarter with the highest level so far in the quarter and was up 9% compared to last year. The bulk of fee and commission relates to the savings business, especially in the mutual funds business. The positive effects from the strong net inflows into AUM as well as positive market developments, increased the savings related fees by 14% compared to last year. Other fees were stable. Again, we would like to highlight the consistency in the organic growth of the savings business in this bank. The bank's market share of outstanding mutual funds volumes in Sweden is 12%. But over the past decade, the bank has attracted 27% of all net inflows into the market. And for the first 6 months of 2026, 46% of the net inflows into the Swedish mutual funds market went into Handelsbanken's funds. Over time, these strong net inflows have added significant number -- a customer -- sorry, AUM. Over the past decade, the bank has seen accumulated net inflows of almost SEK 320 billion, significantly outpacing peers. The success comes not only from an appreciated offering and strong performance in the funds over the years, but also the bank's distribution capacity where advisers are close to and have a deep relationship with the customers, parallel to an appreciated offering and distribution in our digital channels. Now over to the expenses. As mentioned previously, costs are down compared to last year. While staff costs are down marginally and other expenses are down more despite the pickup in the IT development spend. As new technology emerge, such as in the field of AI, it's essential for the bank to embrace the opportunities as we do. The bank invests roughly SEK 3.3 billion to SEK 3.5 billion per year in IT development. In Q2, the IT development spend was 6% higher compared to last quarter -- same quarter or last year. As we continuously invest in new IT development, we also continuously roll out new tools in the bank, supporting our advisers in creating business opportunities, enhancing customer experience and to be able to work more efficiently. Within the very broad space of AI, there is no doubt that there is an abundance opportunities arising. Today, the bank has several AI initiatives in play, spanning from facilitating simple tasks relating to administration to more advanced fields such as AML and transaction monitoring and of course, code assistance. At current, the investments in AI tech fits within the current run rate of our IT spending. Next slide shows our asset quality and credit losses. And over the past decades, credit losses have been very low, which they should be in a bank with Handelsbanken's risk appetite. And the difference compared to peers really shows in the volatile times when there is an economic downturn. The average quarterly credit losses since 2019 has been SEK 3 million per year, equal to 0%. And that includes not only the outbreak of the panemic, but also sharp swings in policy rates and inflation, the disruptions of the supply chain following geopolitical uncertainties, with the wars in Ukraine and the Middle East, et cetera, et cetera, still more or less no credit losses, underlying the strength of the bank's asset quality. The bank is in a very solid financial position, credit risks, funding risks, liquidity risks and market-related risks are prudently managed and the capital position is very strong. After an anticipated dividend for the first 6 months of the year of SEK 9.4 billion corresponding to SEK 4.77 per share and the 82% of the earnings generated, the CET1 ratio was 250 basis points above the regulatory requirement. The bank is thereby within the range -- target range of 100 to 300 basis points above the regulatory requirement. The strong financial position creates trust and confidence as well as a prerequisite for continued stable and profitable growth. The bank's exceptional position as one of the world's most stable banks was again confirmed by the leading rating agencies during this -- the first half of this year. In Q2, Moody's also raised their baseline credit assessment rating of the bank to the highest level A1. This is a level shared with only a handful of banks globally. No other privately owned bank in the world has a higher combined corporate rating by Fitch, Moody's and Standard & Poor's. This is achieved by our long-term connected, long-term customer-oriented business model, combined with the low risk tolerance and a very strong financial position. Finally, to wrap up. Q2 was yet another solid quarter for the bank with an ROE of 13%. Business volumes are growing overall, NII was stable and fee and commission grew driven by continued strong development in the savings business. Costs are under control and asset quality remains very strong. The capital position is solid, enabling the bank to anticipate healthy dividends equaling 82% of the earnings in the first half of this year. We have satisfied customers in the bank this quarter confirmed by our first position on the savings side in the Kantar Prospera annual survey among institutional asset managers. With those final remarks, we now take a short break before moving into the Q&A session. Thank you so much. [Break]

Hello, everyone, and welcome back. This is Peter Grabe, Head of Investor Relations speaking. And with me for this Q&A session are Michael Green, CEO; and Marten Bjurman, CFO. As always, we would like -- we would appreciate if you would ask one question at a time in order to make sure that everyone has a chance to ask their questions. Follow-up questions are, of course, warmly welcomed afterwards. With that said, operator, could we have the first question, please?

[Operator Instructions] And your first question comes from the line of Gulnara Saitkulova from Morgan Stanley.

Could you remind us of your strategy for driving growth and profitability in the market outside Sweden. Because looking at your returns on allocated capital across your geographic footprint. Sweden delivered return on capital of 16.3% in Q2, while returns on capital in the U.K. were below 12% and in Norway and Netherlands at 10.9%. What are the key levers to improve profitability in this lower return markets while maintaining competitive positioning? And more broadly, how do these differences in returns on capital influence your capital allocation decisions across the group and are comfortable continuing to allocate capital to markets that are generating materially lower returns than Sweden?

Yes. This is Marten speaking. Thank you for the question. I think I want to start with U.K. And obviously, we have a quarter where we are really happy with the outcome. We see growing volumes both in the mortgage space and also in the corporate space with the pace that we are super happy with. And overall speaking, generally speaking, in the U.K., we have a huge potential. As Michael said earlier on, we have a second to none customer satisfaction level in the U.K. and we are slowly but surely growing into our portfolio in terms of costs, i.e., as volumes grow, you will see key figures in that market, and hence, only by that. Not only that, we are also deploying multiple solutions to the branch office network in the U.K. to provide efficiency gains that are needed. So you should look at U.K. as we are growing into the cost costume over time as volume will increase, and they do. So for U.K., we are super happy for the moment. The Netherlands is -- we are even more happy with that if you look at the Netherlands stand-alone in terms of growth pace, albeit they are super small in the group, of course. We see -- if you look at them stand-alone again, we are relatively -- I couldn't be more happy with the pace. I think if you zoom in on the corporate lending book, we have doubled that in 6 or so years, which is fantastic, of course, but still they are relatively small. Also, they need to work on their efficiencies in terms of reducing manual processes in the branch office network and so on. Norway is a different matter, as you know. We have a significant pressure in terms of competition in the Norwegian market and we've had so for some time. We are not alone in this, of course, and we see margins in our book decreasing, and we see that amongst our peers as well. But that being said, if you look around a little bit in the Norwegian business, not only looking at the lending and you look at the other parts, we are really happy with what we have accomplished in Norway as well in terms of the growth of assets under management, what they are doing, keeping their costs under control, and also now we see the deposits are increasing a bit, and we need that quota to be a little bit better going forward. All in all, I would say, remember that we are super long term in what we do. And in all these 3 markets, we see potential for our model working with our decentralized model. So all in all, we are happy even though at some point in time, 1 country might lag behind a little bit. But over time, we are happy.

[Operator Instructions] the question comes from the line of Jacob Hesslevik from SEB.

My question is on the margin headwind of SEK 122 million on the NII in Sweden. You mentioned some repricing lag. So is it on the corporate you see the margin pressure? Or is it on retail? And how confident are you given the competitive dynamics we currently see in Sweden that you will be able to pass through the high funding cost and regain those margins? .

We -- thank you for the question. We see margin pressure, both on the mortgage side and also on the corporate side in Sweden. So it's both. And I don't want to guide any further, as you know in terms of what we see ahead for the coming periods. We can just conclude that in Sweden as of now, we see the competition, obviously, that has an impact on the margins.

We will now take the next question. And the question comes from the line of Andreas Hakansson form Nordea.

So coming back to Gulnara's question on the International division, it's in 2 parts, but it's the same topic, really. I just wonder why have you reduced your capital allocation to the division so much in the quarter? I see that what's left in the several units used to be SEK 19 billion in Q1 and it's now SEK 55 billion in Q2. And then, of course, that helped the ROE on the divisional basis. But then also, I struggle to understand why now said that you do 12% return on equity in the U.K., but that's, of course, with a fictional tax rate of around 20%, while you actually paid 28%. So why don't you report your division with the tax rate that actually pay there, those both related to the same topic?

Yes. Thank you, Andreas, for the question. And you should bear in mind that we had a dividend paid out in Q1. So in terms of allocated capital, that obviously had an effect first and foremost. And on the tax question that you had, yes, you can always debate on how we allocate internal costs, for example, taxes, for example. And if you want to have in your calculation in profitability measures for the U.K., another tax rate, please go ahead, but then you need to deduct that from somewhere else in the group because otherwise, the figures won't add up group-wise, I guess. So all in all, I guess, again, bear in mind that U.K. is a market where we are super confident that our model is really fit for purpose in terms of growth. And bear in mind also that we are super long term in what we do.

But just to understand, I don't need to deduct it on a group level because the taxes you pay in the U.K., of course, paid on a group level.

No, I'd say that if you have the group figures in front of you, then -- and you allocate more taxes to the U.K., then you need to deduct it somewhere else.

Yes, but not on a group level. I can deduct it from other.

In Sweden?

Yes, in Sweden, but that's in that division, I just right to understand the U.K. compared to the group level. Okay. let's leave it at that.

Your next question comes from the line of Magnus Andersson from ABG Sundal Collier.

Just following up there on Norway. I mean, it hasn't really changed that much since the autumn of '21 when you announced the divestments of Denmark and Finland. I think even Denmark, if I remember correctly, was even more profitable than you are in Norway right now. And it is, as you said, a super competitive environment with DMB supported by the state. Nordea will probably tell us tomorrow that it looks awful and you have the Norwegian savings bank being super strong in the regional areas. . So I mean, perhaps this change is probably asset management in the savings business to some extent, but it's not nearly enough. And yes, your long term, you've been there for, I think, 40 years or so at the beginning of the '90s. But is any time now, Michael? I mean, since you became the CEO, you addressed the cost base to start with. Secondly, you reduced the capital position, manage it down to within the range. Is it time for a strategic view of your geographical footprint? And the same, I mean, on the U.K. yes, you want to grow into the current cost base, but are we seeing volumes are growing and you tapped into the broker channel, but it's not much happening to NII really despite the recent rate trajectory. So looking forward, if -- I mean, you might continue to grow, but if rates in the U.K. progress in line with expectations, I guess, is going to be quite tough for a number of years also going forward. But primarily, Norway seems like you should basically sell it and distribute cash to our shareholders. Why shouldn't you? You've been waiting for a very long time for that business to turn around?

Yes. So -- thank you, Magnus, for your questions and remarks. When it comes to the strategic kind of footprint in the bank, that's always a topic that we debate and discuss. And you're quite -- of course, quite right with the -- given the history now from my 2, 2.5 years that we've managed to take -- bring down cost and efficiency, and we've also bring down -- with that, also been able to pay out and take -- bring down the equity in the bank, which is [Audio Gap] of course, we're looking to which markets we are in and which -- where we should be. I think we are in a good place within these 4 home markets. In Norway, if you compare it to Denmark, I was not involved in the Danish decision. But I -- there were so many things, both in Denmark and Finland I needed to invest in, so the decision was to divest. In this case, Norway has a very strong offering to the market. We are -- we have already invested in technology and digital solution for customers, and we have also taken down cost there. So I think -- and we now manage to swing a bit on the P&L when it comes to where we get the cash flow from customers to more asset management and capital light in all that. So I think actually, for now, absolutely, we will stay in Norway. And I think we will continue to strive hard in the U.K. and the Netherlands is there as well, and they're growing quite good. You can always debate whether you look short term or long term, I think -- my view is that we have a strong business case in all of these countries long term, and we will absolutely work very hard to make that happen. And to be able to grow with scale and do that without increasing cost in these countries, and I'm very hopeful that we will do that over time, Magnus.

Yes. Okay. It will be interesting to follow.

And just to add, sorry, you could also argue, if we don't have anything right now, of course, on the table, obviously not. But we look into also, can we increase the growth in these countries by other things like buying and purchasing thing. We haven't any discussion about that right now, but we think about that too as well.

But that's very interesting because then it sounds like you have a different view than the previous at least recent management teams, as you missed opportunities, recent opportunities in Norway, for example, where you want to grow, you missed YES bank, and I don't think you even looked at it and you missed the Danske's business, although you were you were actually been for Focus Bank back in the beginning of 2000, but now I don't think you were even looking for it. So would you say that you have a different view that something has changed here compared to previously. You also got numerous questions in the past about why you haven't pursued any inorganic growth measures in the U.K.

I don't think I have a different view and I would not actually review on my predecessors. I just say that the opposite of selling, as you did mentioned is, of course, to grow. And there, we always look into if there is something that we could add on. But we don't have anything at the table right now. And my main focus is, of course, to grow organically. That's how we run the bank. But if we have an opportunity that fits us, we'll look into that. That's -- it's nothing new actually.

Your next question today comes from the line of Sofie Caroline Peterzens from Goldman Sachs.

Sofie from Goldman Sachs. So my question would be on net interest income. You got to flag that there was around SEK 250 million kind of drag in net interest income this quarter, which was partly from the funding cost and partly on less income on the cash positions and then you had -- it also included the Norway now this period impact. Just wondering if any of those impacts or if we should expect any of those impacts to kind of reverse in coming quarters? Or it was really more that you had this drug and then it's kind of steady state going forward. So if you could just elaborate a little bit if there is anything that will reverse in coming quarters? And similarly, on the SEK 350 million hit that you saw in the trading line from your hedging in the ALM book. Should we expect any reversal in coming quarters?