Swedbank's Q2 Results: Riding Rate Hikes and Baltic Resilience

Swedbank's second-quarter results highlight a compelling story of resilience amid shifting Nordic economic winds. While net interest income dipped slightly year-on-year, the bank's strategy to capitalize on rising interest rates and its dominant position in Baltic markets positions it as a strategic buy for long-term investors. Let's unpack why this Nordic giant could outperform peers in the coming quarters.

Interest Rate Sensitivity: A Tailwind for Swedbank's NII

Swedbank's net interest income (NII) for Q2 2025 was SEK 10.9 billion, narrowly missing consensus estimates but still reflecting strength in a challenging environment. The key here is rate sensitivity. The Swedish Riksbank hiked rates by 50 basis points in June (to 0.75%), building on April's 25-basis-point increase. These moves are fueling deposit margin growth, as Swedbank's massive retail deposit base—up 11% year-on-year—now benefits from higher rates.

While NII dipped 5% quarter-over-quarter, the sensitivity to rate hikes is improving. Swedbank now estimates that a 100-basis-point rate increase would boost annual NII by SEK 6.8 billion, up from prior expectations. This is a critical edge over peers like Nordea, which saw NII decline 6% in Q2 due to flattening yield curves. Swedbank's asset-liability management is clearly paying off.

Regional Resilience: Baltic Growth and Swedish Stability

Swedbank's exposure to Baltic markets—Estonia, Latvia, and Lithuania—remains a hidden gem. While Sweden's economy faces headwinds, Estonia's Q1 GDP grew 2.3%, and Baltic corporate lending is robust. Swedbank's loan books in these regions grew 3.3% internationally (Q2 2025), outpacing Norway's 1.8% growth.

Meanwhile, in Sweden, Swedbank's retail loan portfolio expanded 3.2%, driven by strong mortgage demand. The bank also improved telephone service availability, reducing operational risks and boosting customer retention.

Critics will cite risks tied to Swedish commercial real estate (CRE), but Swedbank's credit impairment ratio of 0.03%—among the lowest in Europe—suggests minimal exposure to bad loans. Unlike U.S. banks, Nordic CRE is tightly regulated, and Swedbank's conservative underwriting keeps defaults low.

Valuation: A Discounted Gem in a Crowded Field

Swedbank trades at a 1.55x P/B ratio, lagging Nordea's 1.8x and Danske Bank's 1.3x. This discount is irrational. Swedbank's 19.7% CET1 ratio and 15.4% ROE outperform most peers, and its cost-to-income ratio of 35% is enviable.

Compare this to Atea ASA, the IT giant, which saw Finnish sales plummet 6% while Baltic growth surged. Swedbank's diversified Nordic-Baltic footprint mirrors this resilience. Investors should snap up Swedbank shares at current levels—especially as rate hikes favor its deposit-heavy model.

Investment Advice: Buy and Hold for the Long Game

Swedbank is a buy at current prices. The stock offers:
1. Rate sensitivity: Benefits from further Riksbank hikes (another 50 bps expected by year-end).
2. Baltic growth: A region with stronger demographics than aging Sweden.
3. Strong capital: CET1 and ROE metrics leave room for dividends and buybacks.

Risks: Elevated CRE valuations in Sweden and a potential Baltic slowdown. Monitor Estonia's corporate loan defaults, but don't overreact—Swedbank's credit metrics are bulletproof.

In a world of macroeconomic uncertainty, Swedbank's blend of rate-driven income growth and regional diversification makes it a defensive play with upside. This isn't a get-rich-quick stock—this is a buy-and-hold for the next five years.

Final Call: Buy Swedbank at current levels. The Baltic boom and rate tailwinds will make skeptics regret missing the train.