Nordic Banks: 1Q26 Performance and 2026 Outlook

Corporate & Commercial Banks

Nordic Banks: 1Q26 Performance and 2026 Outlook

Prashant Gupta & Ayush Raj Kapoor

The performance of Nordic banks and their commercial banking services remains better than many European peers, but it is now characterised by softer growth momentum, renewed energy-price risk, and still-elevated geopolitical uncertainty.

Current Macroeconomic Snapshot & 2026 Outlook

GDP Growth:

In Denmark, real GDP expanded strongly in 1Q26 (+1.5% q/q), accelerating from 4Q25 (+0.5% q/q). Growth was largely export‑driven (notably in pharma), supported by private consumption, while investment and government spending contracted. For 2026, GDP growth is projected to slow to 1.9% y/y (vs. 2.9% y/y) but will be largely driven by private and public consumption, and investment, on account of low interest rates, replacing net exports as the main driver.

In Sweden, GDP contracted slightly in 1Q26 (-0.2% q/q vs. +0.8% q/q in 4Q25), marking the first sequential decline in a year. The decline was driven by weaker public consumption and fixed investment. For 2026, GDP growth is expected to recover to 1.8% y/y (vs. 1.5% y/y), supported by a recovery in domestic demand (though tempered by the Middle East crisis) and housing activity.

In Finland, GDP expanded +0.9% q/q in 1Q26 (vs. +0.3% q/q in 4Q25), signaling a cyclical rebound. Growth reflected improving domestic demand and industrial activity. For 2026, economic activity is expected to recover gradually, with GDP growth reaching around 0.8% y/y (vs. 0.2% y/y), supported by a surge in domestic consumption and manufacturing.

In Norway, GDP expanded 0.4% in 1Q26, rebounding from a 0.6% contraction in 4Q25. An acceleration in petroleum activities and ocean transport mainly drove the recovery. For 2026, GDP will grow by 1.4% y/y (vs. 1.1% y/y), supported by a resilient domestic economy, reflecting robust growth in private consumption (real wages and employment) and public consumption (healthcare and defense spending).

Inflation:

Across the Nordic region, the annual inflation rate has increased month after month, primarily due to higher energy prices driven by the Middle East conflict.

In May 2026, the annual inflation in Denmark increased to 1.9%, up from 1.4% in April 2026, the highest level since December 2025. The increase was primarily due to higher transportation costs, largely due to a surge in fuel prices. The European Commission (EC) expects inflation to remain at 1.8% in 2026, due to temporary reductions in electricity taxes.

In Sweden, inflation increased to 0.8% in May 2026, up from -0.10% in April 2026. It was the highest inflation rate since October 2025, mainly driven by higher energy and services prices. EC forecasts inflation at 1.5% for 2026, the lowest inflation among the Nordic countries, on account of reduction in taxes on food and fuel.

In Finland, the annual inflation rate climbed to 2.1% in May 2026 from 1.5% in April, driven largely by higher housing, utilities, and transport costs due to rising fuel prices. EC forecasts inflation at 2.4% for 2026, mainly reflecting the impact of higher oil prices and electricity prices.

However, in Norway, the inflation rate eased to 3.1% in May 2026 from 3.4% in April, the lowest reading since February 2026. The lower inflation rate reflected lower prices for food, non-alcoholic beverages, and housing and utilities. EC forecasts inflation to remain stable at 3.1% in 2026, but inflationary pressures could intensify if the Krone depreciates in response to developments in oil prices.

Net Interest Income (NII) and Net Interest Margin (NIM): 1Q26

In 1Q26, the Nordic banking sector continued to transition from a period of rate-driven earnings growth to an environment of declining effective interest rates across the portfolio. As a result, NII was generally softer on a y/y basis across the peer group as the lower policy rates exerted downward pressure on lending income. Despite banks' efforts to minimize this margin compression through volume-driven strategies, such as expanding commercial lending services, increasing lending volumes, or growing deposit bases, the NII trajectory for many remained negative on a y/y basis. Meanwhile, the Nordic banks benefited from market volatility induced by the escalation in the Middle East, which helped them capitalize on opportunities in customer hedging, trading, and fee activity.

Handelsbanken was the worst performer, with a 12.9% y/y decline in NII in 1Q26, as lower market rates weighed on margins. DNB followed distantly, with a 6.8% y/y decline in NII due to margin compression, despite strong loan and deposit growth. Nordea, Swedbank and SEB NIIs were down 3.8%, 3.0% and 2.2%, respectively, reflecting pressure from lower policy rates and overall weaker market conditions. Danske Bank stood out as an outperformer, driven by volume-driven NII growth (+3.5% y/y), although it was still impacted by underlying margin compression from product mix changes and competitive pricing.

All six major Nordic banks saw mixed but generally softer NIMs in 1Q26, with declines ranging from -4bps to -24bps. Reduced policy rates and deposit re-pricing reduced margins across the board. Danske Bank’s NIM drop was the smallest (-4 bps, from 1.28% to 1.24%), indicating the strongest resilience as strong lending growth and effective interest rate risk management shielded deposit margins. SEB and Nordea NIMs dropped 13bps and 16bps, respectively, due to softer lending margins on account of reduced interest rates. The impact of rate cuts was also evident in the declining NIMs of DNB Bank and Swedbank, which were down 21bps and 22bps, respectively. Handelsbanken’s NIM contracted the most (-24bps, from 1.71% to 1.47%), reflecting the greatest margin pressure, as lending volumes remained flat and could not offset declines in lending margins.

Outlook for 2026

For the remainder of 2026, NII and NIM across Nordic banks are expected to stabilize, as the high-interest-rate environment that previously boosted NII and NIM has largely subsided. However, margin erosion is expected to be gradual, reflecting resilient credit quality, stable loan growth, and favorable commercial lending trends. Higher energy prices and renewed inflationary pressures due to the war in the Middle East could encourage central banks to delay rate cuts, which could provide some support to banks' lending income and moderate the decline in NII and NIMs.

Capital Adequacy Ratios: 1Q26

In 1Q26, the Common Equity Tier 1 (CET1) ratios of major Nordic banks declined modestly compared to 4Q25, due to the continued return of excess capital to shareholders. However, it remained robust across the peer group (~15–18% range) and was significantly above their respective regulatory requirements. As a result, most Nordic banks are lowering their CET1 buffers towards internal target levels and returning excess capital by increasing payout ratios.

DNB reported the highest CET1 ratio at 18.1% in 1Q26, slightly rising from 17.9% in 4Q25. Danske Bank had the second-highest ratio at 17.7%, up from 17.3% in 4Q25. These two currently lead the Nordic peers in capital strength, reflecting continued strong capital generation and relatively conservative payout policies. SEB and Swedbank CET1 ratios each stood at 17.5% in 1Q26, with both registering a small reduction from 4Q25 (-2bps and -3bps, respectively). Svenska Handelsbanken’s CET1 ratio edged down to 17.2% (vs. 17.6% in 4Q25), partly reflecting significant shareholder distributions, although it remained comfortably within its target buffer of 1%–3% above requirements. Nordea’s CET1 ratio held steady at 15.7% in both periods despite the launch of a €500 Mn buyback program in late 2025.

Classification from step 2 should be reflected in design. For each in-scope system, enterprises must implement the appropriate disclosure mechanism.

Outlook for 2026

CET1 ratios of Nordic banks will remain strong (mid‑teens) through end-2026, with modest normalization toward management targets reflecting continued capital returns and RWA growth. While there is limited direct exposure to the impact of the war in the Middle East, a prolonged conflict could result in sustained higher energy prices, weaker economic growth, and potentially higher loan-loss provisions, which could reduce future capital generation. Nevertheless, Nordic banks remain well-capitalized and resilient, as evidenced by the recent stress test results.

Asset Quality Performance: 1Q26

Top Nordic banks maintained low non-performing loan (NPL) ratios in 1Q26, all under ~1.3%, reflecting robust asset quality and strong credit underwriting standards. Handelsbanken led the pack with the lowest NPL ratio of 0.26%, highlighting its long-standing conservative risk strategy and focus on high-quality lending. On the other hand, Danske Bank had the highest NPL ratio at 1.20%, though extremely low by international standards. Notably, Nordea, Handelsbanken, and Swedbank recorded marginal improvements in asset quality (NPL ratios declined by 1 bps to 11 bps). In contrast, SEB and DNB experienced slight upticks in NPL ratios (+2 bps and +9 bps, respectively) from very low levels. Danske Bank’s NPL ratio remained flat, reflecting a steady credit environment. Most banks reported only slight q/q changes, suggesting that Nordic banks continue to enjoy a benign credit environment, supported by their prudent credit underwriting and credit risk monitoring standards.

Outlook for 2026

The ongoing war in the Middle East is expected to have a negative impact on the NPL ratio outlook. A prolonged conflict could lead to higher energy prices, weaker economic growth, and inflationary pressures, which may adversely affect the borrowers’ repayment capacity, particularly among energy-intensive corporates and trade-exposed sectors. However, given Nordic banks’ strong capitalization, prudent risk management, robust credit risk monitoring, and currently low NPL levels, any deterioration in NPL ratios during 2026 is expected to be manageable.

Cost/Income Efficiency Remains Better Than European Peers

The top Nordic banks continued to post industry-leading efficiency metrics in 1Q26, ranging from 38% to 46%. These levels reflect the structural cost-efficiency of Nordic banks, which has historically been bolstered by disciplined cost control and advanced digitalization initiatives. Compared to this, European peers’ cost/income ratio averaged around 55.5%. While inflation and IT investments have modestly increased costs, the cost-efficiency gap persists vis-à-vis European peers, owing to Nordic banks’ lean operations and high digital adoption.