* Nordea Q4 op profit 1.06 bln euros vs forecast 985 mln
* Swedbank op profit 4.98 bln crowns vs forecast 4.40 bln
* Swedbank aims for higher payouts in future
* Nordea aims to return excess capital to shareholders
* Swedbank shares up 8 percent, Nordea up 2 percent (Adds Nordea quotes, details)
By Mia Shanley and Oskar von Bahr
STOCKHOLM, Jan 30 Swedbank and larger rival Nordea offered higher shareholder returns on Wednesday, underscoring the strength of the Nordic banking sector and revitalising its investor appeal.
Announcing fourth-quarter results, Swedbank raised its dividend payout ratio to 75 percent of net profit from 50 percent, while Nordea said it aimed to return any excess capital to shareholders, possibly through share buybacks.
Nordic banks have served as safe havens during the euro zone crisis, thanks to high capital levels and good profitability, but their shares have underperformed Europe since the fourth quarter as investor appetite returned for more risky plays.
Some analysts said Wednesday's solid earnings put the spotlight back on Nordic banks as having sound economic fundamentals with the added benefit of potentially higher future payouts.
"Both were good, both beat expectations. But ... Swedbank stole the scene with a sharply raised dividend and a raised dividend policy," analyst Mats Anderson at brokerage Chevreux said.
Swedbank shares were up 8 percent at 1122 GMT, while Nordea gained 2.1 percent, following a near 40 percent rise for Swedbank in 2012 and a 14 percent increase for Nordea.
Swedbank's raised 9.90 crown dividend for 2012 compared with a forecast 6.1 crowns in a Reuters poll and came despite dividends having become a sensitive issue in Sweden, where the government wants banks to put more capital aside.
Finance Minister Anders Borg criticised Swedbank in the past and the bank later cancelled a share buyback.
But analyst Nick Davey at UBS said higher yield expectations would underpin the investment case for Swedish banks. "That's a very compelling story," he said about Swedbank's payout plan. "It's putting the Swedish banks back to the forefront of people's thinking."
Nordic banks outperform European rivals on many measures, including capital and return on equity (RoE), a measure of how much profit they squeeze out of shareholder equity.
While European bank profitability is expected in the single digits in 2012, Nordea and Swedbank reported 11.6 percent and 14.4 percent RoEs, respectively, for the year.
Berenberg Bank said in a note Swedbank's earnings should be required reading for all European bank CEOs. "Anyone wanting exposure to European banking must own this stock," it said.
Other banks also gained, with SEB and Handelsbanken up about 3 percent. The European bank index rose 0.2 percent.
There may be some reason for caution, however.
Sweden - the region's biggest economy - may have contracted in the fourth quarter of 2012 and the central bank is expected to ease interest rates further this year.
"With a slowing economy and rising unemployment, we are humble in our forecast about the future and are planning for an environment with low interest rates and weak credit demand," Swedbank Chief Executive Michael Wolf said.
Wolf said on a call with journalists that credit losses in Sweden this year may rise while recoveries in the Baltics would likely slow.
Swedbank's operating profit reached 4.98 billion crowns - almost three times the 2011 period and beating a forecast for 4.40 billion due, in large part, to lower credit losses.
Nordea, the region's biggest bank by stock market value, also beat expectations, with operating profit up 3 percent to 1.06 billion euros against a forecast 985 million.
Both banks will try to keep costs flat this year, with Nordea aiming to increase cost efficiency by 3 percent.
Nordea stuck to a 15 percent return on equity target and said it would keep its core Tier One ratio above 13 percent, hoping to return excess capital to shareholders. It will ask for a share buyback mandate at the annual general meeting in March.
While Swedbank has enjoyed a strong recovery after suffering major losses in the Baltics where it is the biggest player, Nordea has had to deal with bad loans in the shipping sector and a Danish economy on the brink of recession for several quarters.
Analysts had been looking for signs Nordea's loan losses could be improving in the quarter, but impairments were roughly unchanged on the quarter and in line with expectations. (Additional reporting by Steve Slater in London and Sven Nordenstam in Stockholm; Editing by Dan Lalor and David Holmes)
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