By Anna Molin
STOCKHOLM--Swedish banks are straining to cope with the nation's
exotic monetary policy, made of ever-lower negative interest
rates.
Second-quarter earnings reports by three large Swedish banks
this week showed the lenders have succeeded in improving margins on
loans but continued to struggle with deposits.
Skandinaviska Enskilda Banken AB and Nordea Bank AB said net
interest income fell 6% and 4%, respectively, both partly blaming
the negative rate environment. Swedbank AB's net interest income
rose 3% on increased lending volumes and higher margins on mortgage
loans, but the bank also said negative rates are hurting.
Logically, in the upside-down environment of negative interest
rates, instead of paying interest on deposits, banks would charge
customers to hold their money.
Swedish lenders are cautiously applying the rationale to large
corporate and institutional clients, billing them for money they
leave at the bank, but are reluctant to take their household
customers into negative territory.
"They would not understand what's going on," says Christian
Clausen, chief executive of Nordea Bank AB, Scandinavia's biggest
lender.
Sweden has been living in an unorthodox monetary landscape since
February, when the country's central bank, known as Riksbank,
emulated Denmark and Switzerland in slashing its main policy rate
below zero. The goal is to prevent the Swedish krona from gaining
value against the euro, which has been losing ground since the
European Central Bank launched a massive stimulus program. A
stronger krona would inevitably hit exports.
Although the Swedish economy is in good health, the central bank
tested new lows earlier this month, bringing its leading rate to
minus 0.35%.
For banks, the new world of negative rates poses a series of
headaches.
Besides redrawing legal contracts and tweaking computer systems
unfit to handle the situation, the banks are now forced to pay the
central bank, at a rate of 0.45%, when they park their cash there
overnight.
For Sweden's four biggest banks, this overnight storage cost is
expected to exceed 5 billion Swedish kronor this year, or nearly
$600 million, according to a tally of forecast compiled by The Wall
Street Journal.
None of the banks said they plan on passing that cost onto their
retail customers amid fears that making them pay would damage
hard-earned relationships.
"No one wants to be the first to start charging for deposits,"
Keefe, Bruyette & Woods analyst Karl Morris said. "They would
lose all of their deposits so they can't change that, it's just
something they have to bear."
Introducing negative rates on deposit accounts would be a
logistical nightmare for bank clerks, involving many complicated
conversations with customers and taking up a lot of time, said
Barclays analyst Christoffer Rosquist. "The banks have a focus on
promoting certain products and negative rates could become an
unhelpful distraction," he said.
Instead, banks said they are trying to get a higher share of the
customer's total business, thereby compensating for what they lose
on deposits by selling more products such as stock market funds and
fixed income investments.
The lenders said they also lowered mortgage rates less than the
main reference rate in the second quarter, thus improving margins
on loans to households and compensating for some of the pressure on
deposits.
Swedish banks, however, may have to consider sharing the news
about negative rates with their retail customers, said Andreas
Håkansson, an analyst at Exane BNP Paribas.
"If rates were to drop even further, I think the banks need to
look at it but I think that's at least 50 basis points away," he
said.
Write to Anna Molin at anna.molin@wsj.com
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