Nordea Bank AB (NDA) will probably raise its dividend to match the 75 percent of profit paid out by Swedbank AB, the Nordic lender that returns the most to its shareholders.

Scandinavia’s largest bank is targeting bigger cash rewards for its owners to prevent capital buffers growing too big, Chairman Bjoern Wahlroossaid yesterday in an interview in Stockholm.

The 56 percent of profit Nordea delivered shareholders in 2013 “will not be sufficient to prevent an excessive increase in core Tier 1 capital,” Wahlroos said. Referring to the three-quarters of profit that Swedbank returned to its owners, Wahlroos said that “in the long term, it certainly now seems that we will be pushing towards those kinds of numbers.”

Sweden’s four biggest banks all increased their dividends for 2013 after topping capitalization rates in Europe. The payouts prompted criticism from Finance Minister Anders Borg, who accused the lenders of eroding buffers he says are needed to protect taxpayers. Borg warned banks last month that they face a gradual tightening of capital rules over several years.

Sweden, whose bank industry has assets at home and abroad that are four times the size of its $550 billion economy, imposes some of the world’s strictest capital requirements. Nordea, Swedbank, Svenska Handelsbanken AB and SEB AB already exceed a 12 percent core Tier 1 ratio of risk-weighted assets set for 2015 and argue they should be free to use the excess capital to reward their owners.

‘Great Confidence’

“What I can say with great confidence is that in a year out we will be north of 56 percent,” Wahlroos said.

Nordea advanced as much as 0.7 percent to 92.8 kronor in Stockholm trading, the most since April 2, and rose 0.6 percent to 92.7 kronor as of 9:19 a.m. local time. The stock has gained 6.8 percent this year, compared with a 3.9 percent increase in the Bloomberg Europe Banks and Financial Services Index.

Swedbank said in January its common equity Tier 1 ratio rose to 18.3 percent of risk-weighted assets under Basel III rules in the fourth quarter, from 18 percent in the third. Handelsbanken had a ratio of 18.9 percent. Nordea reported a 14.9 percent ratio, excluding so-called transition rules.

Even taking the government’s pledge to continue raising capital requirements into account, Wahlroos said Sweden’s banks will stay over-capitalized. He also questioned whether Sweden can exceed standards set under the European Union’s Capital Requirements Directive.

“Under CRD it is not really clear how you can come up with a core Tier 1 ratio that is higher than 12 percent,” said Wahlroos, who is also chairman of Nordea’s largest shareholder, Sampo Oyj. “There are Pillar II requirement details still to be worked out and there are some technicalities, but one thing is clear — we already have more capital in all of the Swedish banks than any conceivable CRD compliance structure can require. This is no problem for us whatsoever.”

Clear Rules

Nordea Chief Executive Officer Christian Clausen, who in January doubled a planned cost-cutting target to 900 million euros ($1.24 billion) through 2015, raised the bank’s core Tier 1 ratio to 14.9 percent at the end of December from 13.1 percent at the end of 2012. He has said Nordea plans to increase its dividend payout ratio to exceed the 56 percent of net income paid for 2013, versus a current goal of more than 40 percent.

“The difference between 56 percent and 75 percent is not that big, so if Nordea wants to increase it further, it can,” Kari Stadigh, Sampo’s CEO and a Nordea board member, said March 18. “The board’s ambition is to raise the payout ratio and the board will be more precise once regulation is clarified.”

On average, Sweden’s four biggest banks paid out 66 percent of their profits to shareholders for 2013. Nordea raised its 2013 dividend by 26 percent to 0.43 euro a share. Handelsbanken paid 53 percent more than in 2012, SEB raised its shareholder payout by 45 percent and Swedbank (SWEDA) increased its by 2 percent.

Credit Growth

“We already have significantly more capital” than required under Swedish rules, Wahlroos said. “In our accounts for December 2013 our core Tier 1 ratio was 14.9 percent and under any foreseeable plan we have for the future, this can only go up.”

If accelerating economic growth creates a “significant change in credit demand,” there would be a “moderation” in terms of the dividend payout increase, Wahlroos said. Still, it would “not change much,” he said.

“We stand prepared to offer credit in greater volume if we see the demand,” Wahlroos said. “The fact that we have such a strong capital base in combination with reasonable profitability means we very much aim to extend more credit if the demand is there and if that is the case, then the growth rate of dividends will be somewhat lower. Still, there is no way I can see a lower payout ratio than we had this year.”

(Source: Bloomberg)