Nordea , the Nordic region's biggest lender, is primed to return excess cash to shareholders as loan demand stays weak for one or two years, the head of the bank said on Wednesday.
Nordea and its Swedish peers wrapped up 2012 with good profitability, high levels of capital and promises to divvy out more cash to shareholders after several years of building buffers to meet regulatory demands in case of a new crisis.
Swedish banks are now some of the most well-capitalised lenders in Europe with core tier one capital in the teens.
But slower economic growth at home in Sweden means that most Swedish banks will prioritise capital returns over new growth.
"We have low loan demand, so we don't need to grow our capital very much which suggests we will probably repatriate quite a lot of our income to our shareholders," Chief Executive Christian Clausen told reporters at a seminar organised by the Royal Swedish Academy of Engineering Sciences.
"Right now, the demand is extremely low, therefore the capital we build can be repaid," he said.
After generating a net profit of 3.1 billion euros in 2012, Nordea retained 1.3 billion to build up core capital and plans to return some 1.4 billion to shareholders through dividends.
Clausen said there would be cash for shareholders this year.
"In the previous four to five years a lot of the earnings have been to build capital, and the rest have been dividends," he said. "But if you don't have to build capital anymore because you are there, then of course a substantial amount is available."
Nordea will ask for a buyback mandate at its annual general meeting in March.
After a strong start to 2012, Sweden's economy may have contracted in the fourth quarter and Nordea expects loan demand to remain sluggish.
"Our estimate in the next year or two is that loan demand will be very low because households are not borrowing a lot and businesses are not investing because they are waiting for consumer demand to come back," he said.
Nordea, which wants to keep its core tier one capital level above 13 percent, reported a level of 13.1 percent at the end of the fourth quarter.
Swedish banks offer a stark contrast to banks in other parts of Europe which are still struggling to boost their balance sheets and raise core capital.
Clausen said he thought European regulators would move towards core tier one capital requirements of 10 to 11 percent. Sweden's watchdog wants its banks to hold 12 percent from 2015.
(Reporting by Mia Shanley and Oskar von Bahr; Editing by Alistair Scrutton)