Key Takeaways
- Swedbank has been the best-performing Swedish bank stock this year after a 24% rally and is now considered overvalued.
- Higher interest-rate expectations remain supportive for Nordic banks, but increasing funding costs, tougher competition for deposits and weaker loan demand could limit further earnings upside.
- Morningstar views Nordea as the best positioned for the current environment thanks to its diversified earnings base and broad Nordic footprint.
Swedish bank stocks have enjoyed a strong start to 2026 as resilient earnings and renewed expectations for higher interest rates have lifted investor sentiment. Swedbank SWED A has led the sector with a 23.8% gain since the start of the year, closely followed by Handelsbanken SHB A, while Nordea NDA SE and SEB SEB A have also delivered positive returns.
The rally, however, has left valuations looking more stretched. While Nordea, SEB, and Handelsbanken are all viewed as fairly valued, Morningstar’s senior equity analyst Niklas Kammer says the market has become too optimistic about Swedbank’s earnings potential with the stock now trading above its
Higher Interest Rates Don’t Automatically Translate to Higher Profits
While renewed expectations for structurally higher interest rates have improved the outlook for Nordic banks, Kammer says the picture is more complex than simply assuming higher rates translate into higher bank profits.
“The interest-rate outlook creates a complex picture which requires nuance. Higher structural interest rates are beneficial to banks, while volatile rates are not,” he says.
Over the longer term, Kammer expects structurally higher interest rates to support Nordic banks. In the near term, however, funding costs are likely to reprice faster than loans, temporarily weighing on margins before banks with strong competitive positions benefit from wider deposit spreads.
At the same time, banks are likely to face tougher competition for deposits, while higher borrowing costs and weaker economic activity could dampen loan demand and offset some of the benefits from wider margins.
“Lower economic activity and higher energy prices, which are driving the higher interest-rate outlook, are weighing on loan demand, which could offset some of the margin gains,” he adds.
Why Swedbank Is Overvalued
According to Kammer, Swedbank is the most sensitive of the four banks to changing rate expectations because of its heavy exposure to retail banking and mortgages in Sweden and the Baltics.
“The mortgage market is highly competitive as well, squeezing margins. This is impacting Swedbank more, relatively speaking, because of its large exposure to this market.”
With its stock trading at a 17% premium to its fair value estimate of SEK 307, the equity analyst believes investors have become too optimistic.
“We think Swedbank’s stock is pricing in too much of the benefits of rising interest-rate expectations and too little of the second-order effects such as increasing competition for deposits, lower economic activity suppressing loan demand, and households and corporations experiencing greater financial strain.”
Despite these concerns, Kammer notes that Nordic banks remain fundamentally healthy with “very solid credit quality and Nordic banks across the board show robust balance sheets and underwriting control. We don’t expect a material deterioration on this front, although households and corporations will start to feel greater strain as rates move up.”
How the Other Swedish Banks Compare
While Swedbank is the only overvalued of Sweden’s major banks, Kammer sees meaningful differences in how its peers are positioned as central banks adopt a more hawkish stance and interest rates are expected to remain higher for longer.
Among the four, Nordea is believed to be best positioned thanks to its diversified business model and broader geographic footprint.
“Nordea is well positioned as their growth strategy has many avenues that are less directly tied to the rate environment through multiple fee-based revenue channels. Its broad geographic diversification also helps in the current environment.”
SEB, by contrast, is more leveraged to a recovery in business activity than to the interest-rate outlook alone.
“SEB could be well positioned if economic activity picks up again, uncertainty levels decrease and corporations are seeking loans more actively again to invest. SEB is more scenario dependent than Nordea, in our view.”
Meanwhile, Handelsbanken continues to stand out for different reasons. Kammer views it as one of the best-run banks in Europe, supported by its decentralized lending model and historically strong credit quality. It is currently the only bank out of the four with a Low Fair Value Uncertainty Rating.
