Moody’s Says Swedish Bank Capital Buffers Mitigate Housing Risks

Sweden’s measures to address record consumer debt levels and soaring property prices have mitigated housing markets risks, Moody’s Investors Service said.

“While Sweden’s elevated housing prices and the significant levels of household debt are a source of vulnerability for banks’ balance sheets, these risks are mitigated by Swedish banks’ adequate capital levels and policymakers’ track record of providing liquidity support to the banks when needed,” Moody’s said in a report today.

Regulators have taken a number of steps to try to stem growth in household borrowing and to cool house prices amid concern a bubble is developing. Measures have included capping mortgages at 85 percent of home values and tripling risk weights on mortgage loans. The government has also imposed some of the strictest capital rules in the world for Swedish banks to protect taxpayers from financial industry losses.

Nordea Bank AB, Svenska Handelsbanken AB, Swedbank AB and SEB AB are required to have core Tier 1 ratios of at least 12 percent of their risk-weighted assets by 2015 and all already exceed that level. Handelsbanken’s and Swedbank’s ratios stood at 19.3 percent and 18.8 percent, respectively, at the end of September -- the highest among all major European banks. Nordea was at 14.4 percent and SEB was at 17.4 percent.

Swedish apartment prices, which more than doubled since 2000, increased 16 percent in the 12 months through September, according to Svensk Maeklarstatistik, which publishes monthly data. The price of single-family houses rose 4 percent since September last year, it said. State-owned mortgage bank SBAB warned on Oct. 18 that prices are likely to continue rising and that there is a risk of overheating.

Apart from the banks’ capital buffers and state liquidity support, there are also other factors that mitigate risks from household debt levels and house price increases, Moody’s said.

“These risks are also offset by Sweden’s relative economic stability, its low interest-rate environment, the generous Swedish benefits system and the household sector’s significant financial assets,” the credit rating company said.

Moody’s said Sweden’s Aaa government bond rating and stable outlook “are predominantly supported by the country’s high wealth levels and the healthy growth prospects of its resilient and diversified economy in 2013-2014.” These “are bolstered by the anticipated recovery in domestic demand and continued growth in merchandise and services exports,” it said.

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