Swedish November Household Lending Accelerates After Rate Cuts

Swedish household borrowing growth accelerated in November after the central bank cut benchmark rates to support economic growth.

Lending to households rose an annual 4.6 percent in November, compared with growth of 4.5 percent in both October and September, Statistics Sweden said today in a statement. That surpassed the average 4.5 percent growth estimate of six economists surveyed by Bloomberg and represents the fastest growth since August, Statistics Sweden data show.

“In November, household lending rates continued to decrease,” Statistics Sweden said, adding that the average interest rate from banks for new agreements with households was 3.29 percent in November, compared to 3.38 percent in October. “The falling lending rates can be explained by decreases in both short-term and long-term interest rates.”

The central bank last month delivered its fourth rate cut in 12 months to boost growth as Europe’s sovereign debt crisis hurts Swedish exports. At the same time, the bank is trying to stem an increase in household debt, which has risen to 170 percent of disposable incomes compared with 90 percent in 1996, driven by mortgage growth. Household debt by that measure mustn’t exceed 200 percent, Riksbank Governor Stefan Ingves said in November.

Record Levels

Record indebtedness has prompted the Riksbank to discuss the possibility of introducing loan limits relative to household incomes, or forcing amortization of mortgages to ease imbalances. While an 85 percent cap on loans relative to property values that was introduced in October 2010 has slowed household borrowing growth from levels above 10 percent between 2004 and 2008, more measures could be needed to curb debt levels further, the central bank has said.

Sweden should target annual household borrowing growth of no more than 4 percent, Finance Minister Anders Borg has said.

Swedbank AB, Sweden’s biggest mortgage lender, has been deliberately losing market share in an effort to protect itself from impairments, Michael Wolf, the bank’s chief executive officer, said in an interview on Dec. 4. Sweden’s housing market probably faces “some sort of adjustment,” Wolf said. The CEO is “not concerned about a house bubble -- I am more concerned about the debt level,” he said.

Other Nordic lenders have also indicated they’re wary of developments. Danske Bank A/S, which is cutting 3,000 jobs after enduring housing busts in Denmark and Ireland, said in November that it’s bracing for a possible adjustment in Sweden’s housing market. SEB AB will require new mortgage clients to amortize on their housing loans in order to reduce risk and ensure they have buffers in case times get tough.

Sweden’s central bank on Dec. 18 reduced its benchmark interest rate for a fourth time in a year to revive growth, cutting the repo rate by a quarter of a percentage point to 1 percent. The bank also signaled it will probably keep the benchmark rate unchanged until the end of next year.

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