Large Nordic banks’ robust earnings offset by asset quality concerns

Moody's expects the largest banks in the Nordic area to retain their solid franchises in their respective home countries and also, where applicable, their good franchises in
neighbouring Nordic countries. However, those banks with substantial lending outside the region (such as Danske Bank, SEB and Swedbank) will continue to suffer losses from their non-Nordic exposures.
"In the first nine months of 2009, the core earnings of the large Nordic banks were supported by improved net interest income, reflecting higher lending margins and the still high loan growth in 2008. However, we expect net interest margins to remain under pressure due to the increased funding costs and the banks' dependence on market funding. There might also be less room for margin increases after the significant repricing of corporate loans, which has been most visible in Denmark," said Janne Thomsen, a Moody's Senior Vice President and lead analyst for Nordic banks.
Moody's cautioned that it will be important for the banks to maintain solid core earnings to mitigate the volatile trading income and increasing levels of impaired loans. Although several Nordic countries have seen some improvement in their key macroeconomic indicators, it remains to be seen whether these developments will prove sustainable. Furthermore, it is important to bear in mind that bank losses typically lag behind macroeconomic trends.
"Most of the large Nordic banks have improved their capital levels since the beginning of the year. There is space for further impairments under Moody's stress scenarios and, therefore, capital levels are likely to remain adequate at the current rating levels," added Thomsen.