Swedbank AB (publ) (SWDBF) Q2 2025 Earnings Call Transcript

Swedbank reported a strong Q2 2025, achieving a 15.4% return on equity and a 36% cost-to-income ratio, with EPS of SEK 6.99 and a robust 4.5 percentage point capital buffer. Despite a decrease in net interest income due to falling rates and lower net commission income from stock market performance, the bank saw significant loan growth across its home markets and increased deposits. Strategic actions included the acquisition of digital mortgage firm Stabelo to expand reach and continued focus on its "Swedbank 15/27" plan, aiming for sustained profitability and efficiency, while benefiting from substantial VAT recoveries and strict cost control.

Analysis

Swedbank delivered a strong second quarter, achieving a return on equity of 15.4% and earnings per share of SEK 6.99, underscoring its ability to sustain high profitability despite a mixed economic backdrop. The bank's capital position remains robust, with a CET1 buffer of 4.5 percentage points above regulatory requirements, supported by solid credit quality evidenced by low credit impairments of SEK 150 million. While net interest income (NII) declined by SEK 572 million due to central bank rate cuts, this was partially offset by strong volume growth, with the loan portfolio increasing by SEK 21 billion and deposits by SEK 27 billion. Notably, the bank's NII sensitivity to further rate cuts has increased, with a 50 basis point reduction now expected to impact NII by SEK 4.1 billion, a larger figure than previously guided, primarily because a larger portion of the deposit base is now near the zero-rate floor. Strict cost discipline resulted in a favorable cost-to-income ratio of 0.36, significantly aided by a SEK 174 million VAT recovery, with another SEK 197 million expected in Q3 and pending requests for five additional years, suggesting that a full-year cost undershoot of approximately SEK 1 billion against the SEK 26.5 billion guidance is likely. Strategically, the acquisition of digital mortgage lender Stabelo signals a clear intent to grow market share, particularly among younger, digital-native customers, in a competitive mortgage market.

Key Decisions for Investors

• Investors should model for continued net interest margin pressure due to the lagged impact of rate cuts and the bank's increased NII sensitivity, while closely monitoring whether strong loan volume growth can sufficiently offset this headwind.
• The recurring nature of significant VAT recoveries requires a downward revision of the medium-term cost base, as this is becoming a structural benefit rather than a one-off gain, with the pending claims for 2019-2023 representing a material unquantified upside.
• The acquisition of Stabelo should be viewed as a strategic pivot to defend and grow mortgage market share; its success in capturing volume without significant margin sacrifice will be a key performance indicator to watch.
• Given the robust 4.5 percentage point capital buffer and management's stated intention not to hold excess capital, investors should anticipate continued strong capital returns via the 60-70% dividend payout ratio, with potential for buybacks or special dividends post-IRB model approvals.