Bank Retreat From Sweden's Mortgage Market Adds to Risk Picture

One of Sweden’s biggest banks appears to be backing away from the country’s housing market.

SEB AB reduced its share of the Swedish mortgage market to 15.5 percent at the end of last year, from 16.2 percent at the end of 2014, according to Bloomberg calculations based on data from Statistics Sweden and SEB.

And with the Swedish central bank making clear it’s not afraid to drive rates even further below zero, the risk of continued imbalances in the housing market is hard to overlook. The Riksbank on Thursday lowered its main rate to minus 0.5 percent to revive inflation. It also warned that a failure on the part of the regulator to balance monetary easing with tougher macro-prudential measures “will further increase the risks” and “could ultimately be very costly for the national economy.”

At Fitch Ratings, the view is that “a house-price correction cannot be ruled out and we think that the trend of ever-rising house prices in Sweden, partly financed by increasing household indebtedness, could eventually create difficulties for households when interest rates rise or should unemployment increase,” according to a report on Thursday.

The latest central bank rate cut “risks fueling household indebtedness unless the banks maintain their underwriting standards and require households to at least partly amortize the loans,” the rating company said.

This month, SEB Chief Executive Officer Annika Falkengren said the bank’s mortgage sales have slowed down since the summer, with growth at roughly half the pace of the market. In the third quarter, she reassured investors by revealing that SEB had less exposure to residential mortgages and real estate than Swedish peers.

Every 10th customer applying for a mortgage at SEB in Sweden’s biggest cities exceeds the bank’s loan-to-income cap of 5 times annual income, Falkengren said last week. With banks introducing stricter amortization rules ahead of new requirements this summer, more people are paying down their loans. At SEB, 98 percent of clients with new loans exceeding 70 percent of their property’s value now amortize, fourth-quarter results show.

Other Swedish banks’ market shares in the country’s housing market have also declined. Swedbank AB, Sweden’s largest mortgage lender, saw its share drop 0.7 point to 25 percent last year, according to Bloomberg’s calculations, while Nordea Bank AB’s fell 0.1 point to 15.4 percent. Svenska Handelsbanken AB was alone among Sweden’s biggest banks in keeping its share steady at 24.3 percent.

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