The Nordic region’s largest lender hit by financial turmoil.

• SEB profit beats forecasts as loan losses shrink

Nordea, the Nordic region’s largest lender, said second-quarter profit dropped 13 percent to 537 million euros ($692 million) mainly due to the financial turmoil in the quarter and lower lending income (the difference between what the bank makes from lending and what it pays for deposits).

However, the drop was smaller than expected and the bank said its likely to pass the European Union stress tests of lenders.

“The outlook is improved regarding the Nordic macroeconomic development,” Stockholm-based Nordea said. “Net loan losses in 2010 are now expected to be lower than in 2009. Credit quality continues to stabilize, in line with the economic recovery.”

"Nordea’s capital position is strong and constantly tested by our own as well as authorities’ stress tests".

The previous day Sweden's second-biggest bank by market capitalisation Handelsbanken -- which outperformed Nordic peers during the downturn thanks to its limited risk exposure abroad -- said that its second-quarter net profit rose 1.7 percent to 2.57 billion kronor ($349.6 million) as weaker-than-expected core income more than offsetting a reduction in bad loans.

SEB, Sweden's third-biggest bank in terms of market capitalization, said last week its net profit amounted to 1.99 billion kronor, after a 193 million kronor net loss a year earlier. The result was better than expected and the bank was upbeat about falling loan loss provisions.

"The cautiously growing optimism in the Nordic countries translates into higher income levels during the quarter”, says Annika Falkengren, SEB's CEO. “With non-performing loan formation substantially lower, SEB has turned the page in the Baltic countries.”

Norway’s largest lender DnB NOR said profit almost tripled to 3.3 billion Norwegian kroner ($520 million) as loan write-downs shrank.