Sweden's Riksbank has published a Staff Memo assessing whether the profitability of Handelsbanken, SEB and Swedbank has exceeded the equity market's required return. Using both the Capital Asset Pricing Model, or CAPM, and a forward-looking implicit method based on share prices and analysts' expectations, the analysis finds that the banks' return on equity has on average been higher than the estimated market-based cost of equity. The memo links that gap to strong earnings capacity relative to the risk investors assign to the banks' operations, supporting their ability to absorb losses, maintain capital buffers and continue lending in periods of stress. The memo estimates the major banks' average cost of equity at just under 8 per cent under CAPM, while the alternative implicit approach produces a somewhat higher required return but the same broad conclusion. It says residual profits remained positive in every year of the 2000 to 2025 period studied and averaged just over 40 per cent of aggregate profit under CAPM and about 35 per cent under the implicit estimate, although profitability weakened around the financial crisis and the COVID-19 pandemic and has eased somewhat as interest rates have fallen. The publication also notes that the results are sensitive to model choice and assumptions, and that Staff Memos are staff analyses without policy conclusions and do not represent the Riksbank's official position.
Riksbank2026-06-11
Sweden's Riksbank staff memo puts major banks' cost of equity at around 8 per cent and finds returns exceeded it
Sweden's Riksbank published a Staff Memo finding that Handelsbanken, SEB and Swedbank have on average earned return on equity above the market-based return investors require. Using CAPM and a forward-looking implicit model, the analysis puts cost of equity at about 8 per cent and says the profitability gap has supported capital buffers and lending capacity. The memo notes that the results are model-sensitive and are not a policy position.