Nordic Banks Thrive Despite Negative Outlook

Doing business close to home brings low default risk

Banks in Scandinavia, in the wake of the 1990s financial crisis that led to substantial changes, are now among the healthiest in Europe, with access to capital markets that are shut to many other institutions. The reason? The majority of their business is local, accompanied by large capital reserves and the lowest default risks in Europe.

A Bloomberg report Tuesday said that such banks are not only doing considerably more corporate lending than other banks, they are outperforming bigger competitors. As a result, investors are flocking to them as well—all this despite the fact that Moody’s has rated the outlook negative for the banks of Norway and Sweden, because of a “challenging operating environment.”

But with so many favorable factors, most of the individual banks are rated stable. In a Monday report, Moody’s Senior Vice President Janne Thomsen said of the ranking, “These stable outlooks reflect most banks’ solid fundamentals throughout the relatively mild 2009 recession and subsequent recovery. The negative system outlook captures the worsening global economic conditions.”

The six largest Scandinavian banks have increased their share of European lending from 4.2% a year ago to 6.4%; demand has also increased, with loans to Nordic companies up a startling 82% compared with only a 13% growth rate in Europe. Price-to-tangible-book value is up as well for the Nordics, with Nordea coming in at 1.15 and DnB Nor 0.99. European lenders come in at a median 0.79, with Deutsche Bank only garnering a rating of 0.68 and Citigroup 0.61.

Nordic bank share prices are rising as well. Of the banks’ performance, Espen Furnes, an Oslo-based fund manager at Storebrand Asset Management, which oversees $74 billion, said in the report, “They’ve avoided all the big black holes so far and are largely supported by the robust Norwegian and Swedish economies. Investors have come to view them as a relative haven during the sovereign-debt crisis.”

Reprints Discuss this story
This is where the comments go.