STOCKHOLM, July 18 (Reuters) - Swedish bank SEB reported a second-quarter operating profit above market expectations on Tuesday driven by high interest income and low loan losses.
Sweden's biggest corporate bank said operating profit rose to 12.1 billion Swedish crowns ($1.18 billion) from 7.23 billion a year ago, beating a mean forecast of 11.8 billion in a Refinitiv poll of analysts.
SEB said the negative sentiment surrounding the Swedish economy remained, driven by concerns over higher interest rates.
"At the same time, the Swedish economy demonstrated unexpected strength," it said in a statement. "Companies remained resilient, and the export industry and service sector held up well."
Sweden's central bank has raised interest rates to 3.75% from zero in the past 18 months and with inflation still well above the 2% target the Riksbank is widely believed to hike at least one more time this year.
Higher rates have boosted Swedish banks' income but there are worries it will result in higher loan losses as companies and households are struggling to cope with higher funding costs
SEB said its net interest income, which includes revenues from mortgages, rose to 11.88 billion crowns from 7.74 billion crowns, above the 11.62 billion crowns expected by analysts.
Loan losses on a larger scale are yet to materialize and only amounted to 43 million crowns in the quarter, down from 399 million a year ago, but SEB said it had set aside 300 million crowns to build reserves.
"Despite most companies being able to navigate the current interest rate environment, we continued to build reserves mainly for the challenges in the real estate sector," it said.
Several of Sweden's commercial property companies has been cut to junk by rating agencies and the property sector has become a worry for the government. Commercial real estate makes up 18% of Swedish bank loans, according to the OECD, one of the highest levels in Europe.
Swedish rival Swedbank also reported a bigger-than-expected profit on Tuesday and said its credit quality was solid.
($1 = 10.2200 Swedish crowns)
Reporting by Johan Ahlander, editing by Anna Ringstrom and Tomasz Janowski
Source: Reuters