By Gerren Bethel, Deputy Editor of Finance Publishing
As recent economic data has indicated, the Swedish economy is currently experiencing a phase of rebounding—albeit a little less robustly than economic advisers were expecting. These experts are noting that domestic consumption has been offset by the lacklustre overseas demand for Swedish goods and services, which has resulted in the lower-than-expected performance. Growth was significant in the second quarter of 2014—in particular being bolstered by an increase in exports combined with rises in household consumption. However, growth fell short of expectations for the period, and the Swedish krona has subsequently experienced weakening— for example, against the euro, which reached 9.24 kronor from 9.19 kronor after the announced economic data. Sweden’s statistics agency has stated that gross domestic product increased 0.2 percent in the three months to the end of June compared to the first quarter of 2014, which fell short of the 0.6 percent expected by analysts surveyed by The Wall Street Journal. Further to this the statistics indicate the Swedish economy grew 1.9 percent annually with household consumption rising 2.9 percent and exports up 1.7 percent year-on-year. The data indicates that the Swedish economy is likely to experience a somewhat uneven recovery, much like the wider European region. In addition forward-looking indicators point to a steady-paced improvement in the Swedish economic outlook, with examples such as purchasing-manager indexes and confidence surveys supporting this sentiment. Economic analysts are forecasting that the published low level of growth will likely lead to the central bank maintaining interest rates at the current low level and that the likelihood of a rate increase on the horizon is minimal. Currently, central-bank forecasts have suggested rate increases will certainly not occur before the end of next year as the central bank, the Riksbank, continues to seek to boost inflation towards a two-percent target level. The Riksbank recently lowered the interest rate to 0.25 percent, and loose monetary policy is likely to continue until a stronger upswing in growth is experienced by the Swedish economy.
Over the past decade, there has been a rapid phase of development of the banking sector in Sweden. Numerous established banking companies that managed to weather the storm of the global credit crisis have expanded their operations both in terms of service provision and geographic presence. Meanwhile, many new companies have also entered the Swedish banking market. Sweden’s banking and financial-services companies have grown ever more competitive on a global scale and have expanded activities at a brisk pace abroad. Further to this there has been a shift in banking activity when it comes to insurance and banking operations—with considerable consolidation occurring between the two financial-services areas. The larger banks within Sweden are now all operational within the life-insurance sector, whilst many larger insurance companies have branched out further towards offering services typical of those in the banking sector.
The financial-services sector is a fundamental, vital component of the Swedish economy. The sector is key to the nation’s economic wellbeing and acts as the central backbone to both business and personal life across the country. The Swedish banking sector has long been established as efficient and reliable and serves as a well-working system for savings and loans, payment mechanisms, risk management and many other financial services for clients of all types. Furthermore, the financial-services sector currently constitutes a major proportion of employment and welfare within Sweden. Additionally, the sector is a key growth industry for the Scandinavian nation and is a vital employer across the country—accounting for more than four percent of total production output, when considering the Gross National Product (GNP) of Sweden.
The majority of banking customers in Sweden have now switched to predominantly using telephone and Internet banking services for their transactions and methods of communication. The sector has developed technological innovations across a wide spectrum of services and has allowed the offering of new, innovative service solutions. The increase in competition within the sector has improved efficiency across the board as new banks have entered the market operating under more efficient, restructured models of functionality.
Within the Swedish financial market, banks, mortgage and insurance companies play the biggest role. Mutual funds are also large and important players in the market. From the 1990s onwards, the number of Swedish commercial and foreign banks has grown rapidly—in December 2012, Sweden had 117 banks operating in total. The reason for the substantial increase has been the emergence of niche banks into the market, combined with a transformation of established savings banks and building societies into larger banking companies as well as the establishment of foreign banks. Currently the four largest banks in Sweden—Handelsbanken, Swedbank, Nordea and SEB—account for approximately three-quarters of the total market.
In particular, Handelsbanken is renowned for its exceptionally high level of customer satisfaction. It is one of the standout performers amongst its peers when it comes to meeting customer needs in successful and efficient ways. Recognised as one of the superior universal-service banks within Europe, Handelsbanken has moved from strength to strength whilst maintaining operations at cost-effective levels. In particular, year-on-year over the last 42 consecutive years, Handelsbanken has delivered a return on equity that exceeds that of the average of its peers.
Handelsbanken (officially named Svenska Handelsbanken AB) is a Swedish-founded bank that provides universal banking services that include corporate transactions, investment banking and trading as well as consumer-banking and life-insurance products and services. Founded in 1871, Handelsbanken employs more than 11,500 people—working across a network with more than 800 branches spanning 24 countries across the globe. Handelsbanken is one of the dominant banks in Sweden with more than 460 branches, and as of the mid-1990s Handelsbanken has been substantially expanding outside of Sweden and into the wider Nordic region and beyond. With a strong presence across the Nordic banking market, Handelsbanken has built up a wide network of branches and offices over the years to cover a growing market share. The bank has also expanded operationally into a wider range of countries since this time. It has established new markets for domestic banking in the United Kingdom and the Netherlands. The largest presence of Handelsbanken outside of Sweden has been in the UK to date; it now has more than 170 branches across the UK. Most recently Handelsbanken has announced that a fifth UK regional bank for the North East of England will open at the start of 2015. As a full-service Swedish bank with a nationwide reach, Handelsbanken has gone from strength to strength; the bank also operates successful branch networks in Denmark, the Netherlands, Finland and Norway.
Handelsbanken’s organisational style has been strongly decentralised since the 1970s. The bank focusses its operational activities primarily around customer needs and requirements. Client relationship is a top priority at Handelsbanken, with banking decisions being made with the client’s best interest in mind at all times. With the onset of a severe financial downturn in Sweden in 1990, many Swedish banks were hard hit and left with little choice but to accept rescue packages from the government, with several becoming partly nationalised on a temporary basis. The crisis was a severe turn in the market, leading to a “burst bubble” depression in real-estate prices, stemming from the credit-expansion boom that occurred in the 1980s. Handelsbanken was able to weather this financial storm from a strong standpoint compared to its peers and was not only the least affected of the major Swedish banks but was even able to go on to grow further and expand its market share through the following decade. In line with this expansion, in 1991, Handelsbanken offered telephone-banking services to its customers, with online-banking services later being introduced in 1997. The same year, Handelsbanken purchased a large mortgage firm, Stadshypotek, from the Swedish government. During 1998, Handelsbanken’s operations in Denmark, Norway and Finland were organised into regional banks, and it began operating with a more substantial presence in the same way as Handelsbanken has been operating in Sweden since the 1970s. It was early in the new millennium, after nearly two decades of growth in the UK, that Handelsbanken designated the country as a home market offering banking services to British corporations and individuals. The bank began its organic expansion in the UK with four branches operational by 2000—continuing with a rapid pace of growth in the British nation over the following decade.
Handelsbanken is currently Sweden’s largest bank in terms of deposits and is a leader in performance in the banking industry. For the second quarter of 2014, Handelsbanken announced an increase in profits of 9 percent year-on-year, reaching 4.034 billion kronor (equivalent to 590 million USD). Further to this the bank has posted an increase in revenues year-on-year in the second quarter of 2014, reaching 6.704 billion kronor against the 6.653 billion kronor in revenue that was earned over the same period of last year. The bank’s loan-loss ratio has been maintained at a low level of 0.07 percent, while liquidity reserves have been maintained above a level of 800 billion kronor. These results have partly been the product of the bank’s continued expansion across the British market during the months of April, May and June of this year. The establishment of a fifth regional bank within the UK, with its head office based in Leeds, illustrates that Handelsbanken has become a significant player in the UK banking sector and is forecast to increase its market share further through 2015.
The Swedish bank operates with a solid set of underlying principles that underpin its workings across all areas of the bank. First and foremost, meeting customer needs in the most efficient and customer-friendly way possible is the goal at all levels of the bank. The bank has steadfastly maintained its corporate goal of achieving higher profitability than the average of its competitors. The bank is focussed on satisfying customer needs and minimising costs as much as possible and capitalising on its core strengths towards achieving the bank’s targets. The Swedish bank has subsequently achieved higher profitability than the average of its competitors for the past 42 years. Further to this outstanding performance, since appropriate surveying began in 1989, Handelsbanken has ranked as the number one bank for customer satisfaction in Sweden. The bank’s corporate philosophy has driven its success year-on-year—a philosophy and corporate culture organised in a decentralised manner that keeps the customer in focus at all levels. The bank functions from the point of view of providing services and products that directly provide solutions to address customer needs and with a long-term, sustainable perspective in mind.
Under the leadership of Pär Boman, the bank has further moved to a stronger, more successful position within the banking-services market. Working for the bank since 1991 in various departments and capacities has given Mr. Boman the all-round insight to successfully take the helm of Handelsbanken and move the bank into the future. In 2006, Boman was appointed CEO of Handelsbanken, and the bank has grown significantly and stably since this time. He has noted on many occasions that what really sets Handelsbanken apart from its peers is its laser focus on the customer experience. By addressing the changing landscape of interfacing with clients through technological solutions head-on, the bank has been able to keep pace with evolving client needs— such as through the bank’s website, through online banking, smart-phone applications or even through technological and face-to-face solutions in the branch.
Undeniably it has been difficult for banks across the globe to boost, or even maintain, profit margins since the 2007-2008 financial crisis. Given the increase in regulation and the depressed market and economic conditions across Europe, as well as across the globe, the banking sector as a whole has suffered—with major declines in returns for banks of all sizes and scope. Handelsbanken, however, has been bucking the trend. Most recently, the bank has announced performance figures indicating a first-half-year return on equity exceeding 14 percent, a level of which even the largest banks across the globe are falling short—with Goldman Sachs delivering only a 10.9-percent return on equity over the same period, gaining 0.12 percent year-on-year. Additionally Handelsbanken has managed to achieve such performance whilst comfortably meeting capital-ratio targets – its common-equity Tier 1 ratio most recently recorded as 20.1 percent and again outpacing many of its international banking peers.
Banking-sector analysts are especially optimistic about Handelsbanken performance over the coming years because of the Swedish bank’s unique strategy. The bank has devised goals that are not centred on growth targets, but instead the bank is focussed on small-scale elements of business, such as corporate lending, developing long-term client relationships and developing services and presence outside Swedish borders and across the globe. This strategy is proving especially successful this year with first-half profits in 2014 growing 11 percent after tax with a falling cost-to-income ratio and whilst maintaining a stable and low loan-to-loss ratio of 0.07 percent. This kind of superb performance has led industry experts to believe that there are indeed still good margins and profits to be made in the banking sector, despite the wider trend of a squeeze across the industry over the last few years.
Based on his decades of experience, CEO Pär Boman has cited the success of banking to be predominantly about the details of interaction with customers. Mr. Boman has served as Handelsbanken’s group chief executive and president since April 2006, and with a wealth of experience and completion of both engineering and business degrees he possesses a close attention to detail and an analytical approach to improving and growing the business. He takes a keen interest in optimising the bank’s operations at every level—going so far as to work as a customer-service desk clerk for a day or two on an annual basis to understand the customer level of interaction more thoroughly and develop insight into what the bank’s customers really want. As an example of this customer-service optimisation, Handelsbanken still allows clients to pay in and take out cash at all of its Swedish branches despite the related costs, whilst most other Swedish banks no longer handle cash in most branches. Boman’s approach is one based on simplicity and fundamentals and sets him apart significantly from his peers at the top. His methods have been so effective to date that his style is attracting substantial attention from overseas regulators and investors who have noticed the bank’s outstanding performance and returns under his leadership.
Mr. Boman’s approach has made Handelsbanken a stand-out success. His mixture of traditional finance and modern, innovative solutions has been at the heart of the bank’s growth. He ensures that leaders across the bank keep in mind the principles of the theory of 15-to-20 year business cycles that has historically repeated itself. He does this so as to keep managers across the bank aware that being a robust bank must be made a priority of operational activity. Consequently, being prepared to survive and succeed through unfavourable economic conditions is part of the working attitude for leaders at the bank. For example, senior managers analyse the bank’s entire loan portfolio four times a year and assess documentation annually to identify loans exceeding one million kronor (153,000 USD). Further to this, credit losses greater than five million kronor are also flagged by senior management. As part of the decentralised culture, a large burden of responsibility is placed with branch managers—who are charged with managing toxic loans and bad assets themselves, enforcing their own cost controls and budgets and encouraging a sense of pride in managing their accounts and in thorough bookkeeping.
In July of this year, Handelsbanken was rated as one of the world’s strongest banks for the fourth year running by financial-information provider Bloomberg. The 143-year-old Swedish banking institution was also recently ranked as number one for customer satisfaction and loyalty for the fifth year in a row, in an independent survey of British banks’ personal and business customers— demonstrating the consistency and ability of the bank to perform at a high level both within and outside of the Swedish border.
Certain industry peers find Pär Boman’s fundamentals-based approach somewhat old-fashioned; however, the success of Handelsbanken has hinged on combining this traditional approach with modern, innovative customer solutions. As an example, the bank set up a dedicated video channel on its website that has become a huge success and was originally brought about by collective customer suggestions of incorporating video clips into the bank’s online presence. Boman looks outside of the realms of traditional banking when seeking inspiration for growing the Handelsbanken business—in particular, looking closely at the fast-paced expansion techniques of clothing retailers and those of trend-setting enterprises such as Hennes & Mauritz and Ikea. It is this balance between cutting-edge innovation and long-term planning for stability that has led to the success of Handelsbanken. This unique balance will provide the foundation for continued growth over the coming years.