Sweden Opens Door to Rules Forcing Banks to Curb Mortgage Rates

Sweden may be looking into new bank legislation that would prevent lenders from charging home owners too much on their mortgages.

The plans don’t alter Sweden’s opposition to a European Union financial transaction tax, which the government in Stockholm argues would encroach on its fiscal sovereignty, Finance Minister Anders Borg said.

“There could be other solutions,” Borg said in an interview in Stockholm yesterday. “We would have to think about it but there are obviously national solutions.”

Borg revealed yesterday growing irritation over bank reluctance to pass lower interest rates on to borrowers. The finance minister, whose government in November told lenders to meet stricter capital requirements than those set by the Basel Committee on Banking Supervision, criticized Sweden’s biggest banks for being “under-taxed” and for failing to share profits with customers.

Banks have benefited from lower policy rates. Sweden’s central bank lowered its benchmark rate a quarter of a percentage point to 1.75 percent in December and signaled more cuts may follow to protect the economy from the fallout of Europe’s debt crisis.

Any bank levy would need to benefit households, Borg said. That would be in contrast to a Europe-wide financial transaction tax, which “would have a damaging effect on gross domestic product,” he said. “It would increase interest margins, particularly for households.”

‘Disturbing’

Nordea Bank AB (NDA), SEB (SEBA) AB, Swedbank AB (SWEDA) and Svenska Handelsbanken AB (SHBA) will be required to have common equity Tier 1 capital of at least 10 percent of their risk-weighted assets from January 2013 and 12 percent in 2015, the government said on Nov. 25. The Basel Committee’s equivalent requirement is a 7 percent ratio by 2019. European regulators have set a 9 percent target for this year.

Nordea, the Nordic region’s largest lender, last month said fourth-quarter profit rose 2.1 percent as higher income from lending offset rising loan losses. The bank’s net interest income, the difference between what the bank earns from lending and what it pays on deposits, increased to 1.43 billion euros ($1.9 billion) in the quarter, from 1.37 billion euros, it said.

Sweden in 2008 created a stability fund obliging its banks to contribute an annual fee equal to 0.036 percent of the value of their liabilities, excluding some subordinated debt. The government estimates the fund will swell to about 2.5 percent of gross domestic product by 2023.

Borg yesterday told reporters he found it “disturbing” that banks are able to generate high interest margins at the expense of households.

“It’s time to put pressure on the banks,” he said.

To contact the reporter on this story: Adam Ewing in Stockholm at aewing5@bloomberg.net

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

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