Swedish Regulators Propose Tripling Safety Net reports Lanidag

(EstateNewsWire.com, December 13, 2012 ) Stockholm, Sweden -- A financial watchdog group in Sweden has proposed that the money banks set aside for protection against housing loan losses should be tripled in light of the growing burdens of the largest Nordic economy.

Lenders such as Nordea Bank AB, Svenska Handelsbanken AB, SwedBank, and SEB AB are in need of maintaining a mortgage risk-weight of 15% minimum, according to the Financial Supervisory Authority. The banks currently have risk-weight on mortgages at a low of 5%, according to the FSA. The move does not come without warning, as the regulator had previously indicated it would increase the weights between 10-20%.

“The requirements bring about slightly higher costs for the banks, which in turn affects interest rates for non- financial corporations and households,” the FSA said. “At the same time, the stricter requirements will lead to the banks being viewed as stable and resilient, which gives cheaper funding and partly counteracts the effect of higher costs.”

The new requirements are open and subject to public review. The move would mean the largest banks in the region must set aside $3 billion, including $1.08 billion by Swedbank, and $800 million by Handelsbanken.

Risk weight had previously dropped drastically since 2007 when banks were able to use internal models to base their numbers, said the FSA. Those rates are among the lowest in Europe. Germany currently holds an average above 15%, according to the central bank.

Sweden's own central bank has warned against rising consumer levels, which has grown over 150% of the disposable income of the average holder. Household debt cannot exceed 200%, Governor Stefan Ingves stated early in the month.

While household lending growth slowed since 2010, mortgage lending growth still stands at a 4.6% in the third quarter.

Swedish regulators are also tightening Tier 1capital ratio requirements, and banks are already looking at ratios that exceed the 12% Tier 1 capital they need to hold up by 2012. Handelsbanken and Swedbank had a Tier 1 capital ratio just under 18% and 17.3% respectively. SEB stood at 16.5% for their Tier 1 score, while Nordea was at 12.2%.

Speaking of the risk-weight rise, Peter Borsos, a spokesman for Swedbank, stated, “This is approximately what we had expected.” He continued by stating “We have the capital we need, as we had set this aside already. Setting aside more capital will marginally lead to higher costs for the banks, which affects the rates for households.”

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