Swedish banks have turned the page in the recession-hit Baltics and lower loan-loss provisions lift their results. Highlights from Q2.

• Swedbank wings to profit as loan losses drop
• Nordea likely to pass EU stress tests
• SEB profit beats forecasts as loan losses shrink
• Banks in spotlight ahead of stress test release

Finance Minister Anders Borg said two weeks ago that Swedish banks are likely to pass the EU stress tests that are being conducted across Europe. On Friday, the London-based Committee of European Banking Supervisors is to publish the results of tests done by national regulators on 91 institutions that represent 65 percent of the EU banking sector.

Swedish banks including Nordea, SEB and Swedbank have been troubled by the recession-hit Baltic region and suffered soaring loan losses. But looking at the second quarter reports that have been posted, the minister may be right.

However, ministers in several European countries and European Central Bank president Jean-Claude Trichet have said most banks should pass the check-up, leading some analysts to wonder if the tests are really tough enough.

Sweden’s forth largest bank Swedbank, the Baltic region's largest lender, swung to a net profit well above analysts forecast and said that credit quality has improved more rapidly than expected in the Baltic countries and the macroeconomic developments in its home markets have been favorable. The bank expects to fare well in the stress tests.

"In general, I think it's not that severe and for us, even in the most severe scenario, we still come out with a profitable number this year which I think shows our resilience," Chief Risk Officer Göran Bronner told journalist in a conference call.

Also Nordea, the Nordic region’s largest lender, said its likely to pass the tests.

"Nordea’s capital position is strong and constantly tested by our own as well as authorities’ stress tests", the Stockholm-based bank said in a statement.

Annika Falkengren, chief executive of the country’s third biggest bank SEB, also said the bank was set to pass the European Union’s stress test.

“We have turned a page in the Baltics,” she told the Financial Times. “Yes, there are still a lot of issues to work through but the drip feed of new bad loans has stopped, so we do not have to add extra provisioning.”

Handelsbanken, the second-biggest Swedish bank by capitalization, has been less affected by the credit crisis, mainly because of few operations in the Baltic states.

The purpose of the stress test is to ensure that financial markets have a trustworthy overview of the banking sector, and European governnments decided to publish the results especially to combat potentially fatal uncertainty and scepticism.

"The stress tests ... need to give us two crucial indications: first, how much more will banks suffer if GDP growth is significantly lower and sovereign bonds come under more pressure, and second, how many ailing banks are hiding behind the veil of ... reassuring eurozone numbers," UniCredit analyst Loredana Federico told AFP.

Highlights from Q2 reports:

• 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).

• Handelsbanken, Sweden's second-biggest bank by market capitalisation, -- 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, said 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.

• Swedbank, Sweden's fourth biggest bank, said that it swung to a second-quarter net profit of 1.57 billion kronor ($212 million) from a loss of 2.01 billion kronor a year earlier. The result was more than double analyst expectations as loan losses came in well below forecasts.