Swedbank Expects to Generate Excess Returns as Income Grows Faster Than Costs

By Dominic Chopping

STOCKHOLM--Swedbank AB said Tuesday that it expects to generate excess returns for shareholders going forward as it sees income growth outpacing costs amid normalizing interest rates and growing lending volumes.

As part of an investor day, the Sweden-based bank said it assumes average annual income growth of 3 percentage points higher than annual average cost growth, driven by its pricing strategy and gearing toward a normalized rate environment, growing lending volumes, commissions and other income.

The bank's annual dividend policy of 50% payout ratio is maintained, and in addition to ordinary dividends, by 2025 Swedbank expects to have generated around 300 basis points of capital in excess of its target management buffer of 200 basis points.

Any excess capital will be distributed to shareholders, it said.

Swedbank is aiming for a 15% return on equity in 2025 and a cost/income ratio of 0.40 which it said will be supported by efficiency gains from automating internal processes and structural cost reductions.

"We will reach that [return on equity] target by growing income faster than costs, maintaining a low-risk profile and reaching a CET1 capital buffer of 200 basis points in 2025 and onwards," Chief Executive Jens Henriksson said.

The bank said its business priorities going forward include leveraging its business model and pricing strategy, prioritizing midsized corporates while growing corporate lending in Latvia and Lithuania, and introducing a new communication and advisory platform as well as further automating onboarding and lending processes.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

December 06, 2022 05:19 ET (10:19 GMT)

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