Swedish Banks Told to Meet Tougher Capital Rules From 2013

Sweden’s biggest banks will need to target tougher capital standards than those set by international regulators in a move the government says will protect taxpayers in the largest Nordic economy from future losses.

Sweden’s four biggest banks, Nordea Bank AB (NDA), SEB AB, Swedbank AB (SWEDA) and Svenska Handelsbanken AB (SHBA) will be required to target common equity Tier 1 capital of at least 10 percent of their risk-weighted assets from January 2013, according to a joint statement today by the Stockholm-based Riksbank, Financial Supervisory Authority and Finance Ministry. The required ratio will rise to 12 percent in 2015, they said.

The stricter rules will “create more stable banks, prevent future crises and thus reduce the risk of costs for taxpayers,” according to the statement. “Sweden is a pioneer in the international process to set higher standards for systemically- important banks.”

Finance Minister Anders Borg has advocated tougher regulatory standards for Swedish lenders since the beginning of the year to ensure the country doesn’t suffer a rerun of its 1990s bank crisis. Sweden’s biggest banks have combined assets more than four times the size of the economy, underlining the need for more rigorous capital rules, Financial Markets Minister Peter Norman said last month.

Staying Profitable

Shares in Nordea, the Nordic region’s biggest lender, lost 3 percent to 47.22 kronor as of 10:27 a.m. in Stockholm. Swedbank shares fell 1.2 percent, Svenska Handelsbanken shares slipped 0.1 percent and SEB fell 1.7 percent. The 46-member Bloomberg index of European financials (BEBANKS) lost 1 percent.

“The Swedish banks involved are already strongly capitalized and should have no problems in reaching these targets,” Prateek Datta, a London-based analyst at Royal Bank of Scotland Plc, said in a note to clients. “They still remain a comparative safe haven to the ongoing European banking system problems.”

Swedbank won’t have any problems reaching the tougher targets because the lender already has a core Tier 1 capital ratio of 15.1 percent, Thomas Backteman, head of corporate affairs, said in a phone interview.

“We have actually said that with 13 percent core Tier 1, our aim is to return 15 percent on equity,” Backteman said. “We still see that we are able to handle these magnitudes and still be a profitable bank.”

Level Playing Field

At Nordea, the bank says tougher rules in single countries may hamper competitiveness.

“We want a level playing field,” said Nordea spokesman Erik Durhan. The bank is still “analyzing” today’s announcement, he said.

The Basel Committee for Banking Supervision’s minimum requirement for common equity Tier 1 capital is 7 percent of banks’ risk-weighted assets. The Basel standards will be phased in from 2013 and apply in full from the beginning of 2019.

Sweden’s “requirements follow the definitions given in the Basel III Accord,” according to the joint statement. “These levels include, like Basel III, a capital conservation buffer of 2.5 percent, but no counter-cyclical buffer.”

European leaders are forcing their lenders to reach a core Tier 1 capital ratio of 9 percent by mid-2012, which Nordea surpassed in the third quarter with 9.2 percent.

Austria, Switzerland

Austria’s central bank on Nov. 21 also said it will require the country’s three biggest banks to hold more capital than set by Basel III and capped their potential lending growth in eastern Europe. Erste Group Bank AG, Raiffeisen Bank International AG and UniCredit SpA’s Bank Austria are the three biggest lenders in Austria and in eastern Europe.

Under Austria’s new rules, the banks must hold as much as 10 percent of capital from 2016, the exact amount tied to “the risk inherent in the respective business model,” while most Basel rules will be brought forward to 2013.

Regulators in the U.K. and Switzerland have also signaled they will require their banks to target more rigorous capital standards.

“We have seen some suggestions from the U.K. for example being in the same magnitude,” Backteman said. “We have seen the Swiss being in the same magnitude. So all in all I expect that most of the European countries will, in the end, end up in this bracket, so hopefully we will see a level playing field evolving in these magnitudes.”

Sweden’s biggest banks are all well-capitalized and already close to fulfilling the tougher rules, according to the joint statement. “Thus banks have good chances of attaining the proposed common equity Tier 1 capital ratios,” the government, central bank and regulator said.

To contact the reporter on this story: Kim McLaughlin in Stockholm at kmclaughlin6@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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