Operating profit in January through March rose to 6.11 billion Swedish crowns (£507 million) from 5.16 billion crowns in the previous year, beating a mean forecast for 5.19 billion crowns as seen in a poll of analysts.

Profit was boosted by the provision reversal to the lender's profit-sharing plan called Oktagonen, amounting to 827 million crowns, a gain not included in analysts' estimate.

"Adjusted for this reversal, one-off effects and exchange rate effects, operating profit was more or less unchanged," Handelsbanken said in a statement.

Sweden's top bank by market value since the headquarters move of Nordea to Finland has for years pursued a subtly different strategy than many of its Nordic rivals, keeping a large network of independent branch offices and expanding in the West rather than East.

While Swedbank and Danske Bank have seen their stocks tumble amid mounting allegations of money laundering, Handelsbanken's choice to set up shop in markets such as Britain rather than the Baltics has so far sheltered its shareholders from similar hits.

Handelsbanken, which too has faced criticism over its rising spending due to IT system improvements and overseas growth, said quarterly costs dropped 12 percent to 4.40 billion crowns, way below the forecast of 5.36 billion crowns, though largely due to the provision reversal.

On the revenue side, interest income, which includes income from mortgages, rose 4 percent to 7.93 billion crowns, just shy of average expectations of 8.07 billion, while commission income rose marginally and by a below-forecast 2 percent.

(Reporting by Niklas Pollard and Esha Vaish, Editing by Johannes Hellstrom and Sherry Jacob-Phillips)