Europe’s Best-Capitalized Bank Lashes Out at Sweden Buffer Rules

Svenska Handelsbanken AB Chairman Anders Nyren said Sweden’s latest bank capital requirements are too strict and risk distorting competition for Europe’s best-capitalized major bank as well as harming economic growth.

It’s “not satisfactory that Sweden should have capital requirements that are significantly higher than in the rest of Europe as it distorts competition,” Nyren said in an interview in Stockholm yesterday. He added that the rules risk making it costlier for major Swedish banks to lend than for smaller rivals and foreign competitors.

Sweden already had some of Europe’s strictest capital standards when the watchdog tightened them on May 8 with measures such as raising mortgage risk weights to 25 percent and adding systemic risk buffers. While policy makers argue such measures are needed to protect taxpayers from any losses in a financial industry that has grown to four times the size of the economy, Nyren said Sweden is taking things too far.

“Since the European Union aims for free movement of capital, it is unfortunate that the capital requirements are crafted in each country, so that the possibility for a level playing field disappears,” said Nyren, who is also the chief executive officer of Swedish investment firm Industrivaerden AB.

Apart from being the largest shareholder in Handelsbanken, Industrivaerden also holds major stakes in Swedish companies such as Ericsson AB, Volvo AB, Sandvik AB, Svenska Cellulosa AB, SSAB and Skanska AB. Industrivaerden’s net asset value stood at 67 billion kronor ($10.1 billion) at the end of March.

Exceeds Requirement

For Handelsbanken, Sweden’s second-biggest mortgage lender, the new capital rules mean it needs a common equity Tier 1 capital ratio of 17.4 percent, the second-highest requirement among Sweden’s four biggest banks because of the lender’s large mortgage assets. Sweden’s four largest banks had previously been asked to hold core Tier 1 capital equivalent to 12 percent of their risk-weighted assets by 2015.

With a common equity Tier 1 ratio of 19.5 percent at the end of March, Handelsbanken already exceeds the new requirement, enabling it to raise its dividend for 2013 by 53 percent to 16.5 kronor per share, including an ordinary dividend of 11.5 kronor. The Stockholm-based lender reported a return on equity of 14.1 percent in the first quarter.

Still, Nyren, whose Industrivaerden held 10.3 percent of the votes in Handelsbanken at the end of April, said that the new rules risks limiting the supply of credit. That could hamper economic growth, which would be “unfortunate in a situation when we need better growth in Sweden and Europe.”

With the major part of its business in the Nordic region, Handelsbanken has sought to expand its presence in the U.K. in recent years, taking its total number of branches to 166 at the end of March compared with 133 branches at the end of 2012. It has also grown in the Netherlands. The new capital rules could slow the pace of that international expansion, Nyren said.

“All other things being equal, it will become more expensive in comparison with local peers,” he said. “Still, it remains to be seen if it will have a hampering effect.”

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