Financial sector analysis 2024
FINANCE, February 12, 2024
The savings bank sector in Sweden faces significant challenges and opportunities as we enter 2024. Recent years have been marked by rising interest rates and robust growth , but now the sector faces potential obstacles such as increased competition and higher loan losses.
Financial sector analysis: Key challenges and forecasts
Savings banks have experienced a period of increased net interest margins, driven by rising interest rates over the past two years. This trend, together with solid lending growth, has contributed to the sector’s overall revenue growth. However, as we look ahead to 2024, we see the outlines of a possible slowdown in core revenues. Increased competition, falling interest rates and expected higher loan losses could all combine to bring the sector’s previous growth to a halt.
For savings banks, a marginal decline in core income is expected in the coming year. However, this may be partly offset by an expected increase of 8% in taxable profit, especially in connection with the normalization of non-core income. While higher interest rates are intended to slow the Swedish economy, there is also the potential for increased loan losses in the coming year. However, the variable provisions among some savings banks reflect their solid capitalization and strong profitability before provisions, which gives them some resilience to increased loan losses.
Mergers and structural proposals
Although merger activity has been moderate in recent years, recent announcements of potential mergers have led to increased speculation about restructuring of the sector. The merger between SpareBank 1 SR-Bank and SpareBank 1 Sydöstra Sverige has attracted interest and there is speculation about further restructuring. Although a limited change in merger activity is expected in 2024, savings banks may feel the pressure of increasing reporting requirements and profitability challenges. However, a broad consolidation of the sector seems unlikely in the short term.
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Looking at broader economic indicators, the annual growth rate of the Swedish banking sector has slowed to 4.9% in the third quarter. This is mainly due to the decline in loans to companies and commercial real estate, which were affected by higher interest rates and caution among lenders. Swedish banks have significant exposure to residential and commercial real estate, which increases the risk associated with fluctuations in property prices. Despite the strengthening of collateral over the past decade, there are concerns about property impairments in 2024.
Potential challenges and loan portfolios
A decline in property values in 2024 could lead to concerns related to the reduction of collateral in savings banks’ loan portfolios. However , short-term inflation-linked leases could help mitigate the decline in income, while improved rental income could reduce the need for significant provisions. Net non-performing loans in a sample of 20 savings banks increased moderately in the third quarter, but with low unemployment and robust welfare benefits in Sweden, limited mortgage losses are expected.
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Conclusion: Analysis of the Financial Sector 2024
Forecasts for savings banks
For savings banks, a decrease in core profits of 2 percent is expected in 2024. The normalization of ancillary income, driven by securities investments and partially owned companies, is expected to contribute to an increase in taxable profits of 8 percent. While 2023 saw a weak development for ancillary income, the normalization is expected to contribute to an increase in taxable profits.
Loan perspectives and opportunities
When we look at the keywords for loan perspective, we can clearly see that the need for loans remains a key factor in the dynamics of the sector. The growing demand for small loans and easy loan comparisons reflects consumers’ need for flexible and accessible financing options. It is crucial for savings banks to offer competitive loan terms, including cheap bank loans and simple loan offers.
Conclusion on the analysis of the financial sector
The savings bank sector in Sweden faces a complex mix of challenges and opportunities in 2024. Increased competition, potential mergers and increased risks related to property values will require careful management by savings banks. Navigating this dynamic economic reality will be crucial to ensuring sustainable growth and stability.
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