Swedbank says Ukraine concerns may hurt loan demand after in-line first-quarter results

STOCKHOLM (Reuters) - Swedish banking group Swedbank said on Monday events in Ukraine could curb an expected increase in credit demand after posting first-quarter earnings largely in line with forecasts. The Swedish bank, which pulled out of Russia and Ukraine just last year to focus on its home markets, said it had seen good customer activity in the quarter while a favourable stock market climate had impacted business positively. Swedish banks have been busy shrinking their balance sheets since the financial crisis, pulling out of higher risk areas and slashing costs. Their capital levels have swelled and they have benefited from cheap financing relative to peers. But the Baltic-exposed bank, like its peer SEB last week, sounded a warning over uncertainties related to the conflict between Ukraine and Russia."We have seen an increasing tension in our world, especially the geopolitical events in Eastern Europe," CEO Michael Wolf said on a call with journalists. "We are very glad that we left Russia and Ukraine and we have a very limited exposure left. The Baltic countries are exposed to sanctions to and from Russia, and of course we are following developments closely." "This probably pushes credit demand further out in time. Short-term credit demand is negatively affected by this turmoil," he said. Net profit for continuing operations rose to 3.98 billion Swedish crowns (361.14 million pounds), just beating a mean forecast for 3.96 billion seen in a Reuters poll of analysts and compared with 3.66 billion in the year-ago period. It reported unexpected net recoveries of 100 million crowns in the quarter compared with analyst expectations for credit impairments of 110 million crowns. Gains in Swedbank shares, one of Europe's best-performing stocks after the financial crisis, have slowed in recent quarters as focus has turned from capital and costs back to underlying income. Swedbank, one of Sweden's biggest mortgage lenders, faces a squeeze from tougher bank regulations with Sweden's financial watchdog aiming to raise risk weights on mortgages to 25 percent from a current 15 percent this summer. Swedish authorities, worried about excessively high levels of household debt, have sought out ways to let steam out of the country's red-hot property market. In a sign of the bank's underperformance, Swedbank shares are down about five percent year-to-date. Shares in its Swedish rival, corporate-banking focused SEB , are up more than four percent. SEB reported a bigger-than-expected rise in first quarter operating profits, helped by strong commission income as it raked in fees from services to help companies list and do deals. [ID:nL6N0NH0X6] European banks, which struggled throughout the crisis in the face of high public debt and high unemployment, have also been playing catch-up. The STOXX Europe 600 banks index <.SX7P> is up 3.5 percent year-to-date on recovery hopes. (Reporting by Mia Shanley and Johan Ahlander; Editing by Michael Perry)