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Swedish Bank Outlook Now Stable on Capital Boost, Moody’s Says

The outlook for Sweden’s banks has stabilized amid rising capital levels and “strong” overall asset quality, Moody’s Investors Service said.

The rating company raised its outlook for the Nordic country’s banks to stable from negative, according to an e-mailed statement today.

“Asset quality will continue to be one of the main credit strengths of Swedish banks,” Moody’s said. “Problem loan levels remain well below those of other systems and we expect loan-repayment capabilities will continue to be supported by low interest rates and households’ resilient financial profiles.”

Sweden’s financial watchdog today proposed tripling the money that banks have to set aside to protect against mortgage loan losses as household debt has risen to 170 percent of disposable incomes from 90 percent in 1996. The government is also mandating that banks in the largest Nordic economy hold more capital than most of its rivals abroad, requiring 10 percent core Tier 1 capital by the middle of next year and 12 percent by 2015.

Swedish banks’ current capital levels are “adequate,” Moody’s said. Further capital improvements will occur following the regulator’s requirement for higher capital ratios for the four largest banks, including Nordea Bank AB, Svenska Handelsbanken AB, Swedbank AB and SEB AB, the agency said.

Slowing Swedish economic growth probably won’t “materially” impair asset quality and “profitability metrics” since the Nordic economy will outperform most euro-area economies, Moody’s said.

Growth in Sweden’s $500 billion economy will slow to 0.9 percent this year from 3.9 percent in 2011 before picking up to 1.8 percent in 2013, the Riksbank estimated last month.

“Swedish banks’ earnings are primarily driven by net interest income which, while subject to pressure on margins, continues to provide a stable source of income,” Moody’s said. Still “Swedish financial institutions are reliant on market funding a Moody’s says that this reliance continues to represent a key system vulnerability.”

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