Handelsbanken, one of Sweden's oldest banks and a major mortgage lender, said new regulatory frameworks meant the bank needed central staff functions and infrastructure in each market and that the synergies had decreased for small markets.

"Despite a lasting presence in these markets, the bank's market position remains small and the bank sees little opportunity to scale up its offering without significant investment," Handelsbanken said in a statement, adding that the process to divest the operations had been initiated.

Together, Denmark and Finland account for 10% of the income, 13% of the costs, and 8% of Handelsbanken's operating profit.

Handelsbanken's main markets are Sweden, Norway and the United Kingdom, and these markets account for 91% of its profits. Handelsbanken also has small operations in the Netherlands and in Luxemburg.

Handelsbanken reported better-than-expected third-quarter net profit which rose to 5.19 billion Swedish crowns ($602 million) from 3.32 billion in the previous year, beating the mean forecast of 4.65 billion by analysts, according to Refinitiv data.

Handelsbanken, with a low-risk, decentralised business model, has proven resilient in the face of COVID-19 and its shares, up 30% this year, are very close to pre-pandemic levels.

"Handelsbanken's transformation is bearing fruit," Chief Executive Carina Akerstrom said in an e-mailed statement. "The cost reducing measures are going ahead with undiminished vigour."

However, the bank said underlying total expenses, which worried investors in recent years, was up 3% in the first nine months of this year compared with the same period last year.

($1 = 8.6135 Swedish crowns)

(Reporting by Johan Ahlander; Editing by Edmund Blair, Bernadette Baum and Emelia Sithole-Matarise)

By Johan Ahlander