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Sweden’s FSA Says Banks Can Lend More Amid Tougher Rules

August 29, 2012

Swedish FSA Says Banks Can Lend More as Tougher Rules Adopted

Nordea Bank AB, SEB AB, Swedbank AB and Svenska Handelsbanken AB need to set aside 10 percent of their risk-weighted assets in core Tier 1 capital from January, with the ratio rising to 12 percent two years later. Photographer: Ville Mannikko/Bloomberg

Sweden’s financial regulator said the country’s banks can increase lending to households and businesses even as the industry adopts some of the world’s strictest regulatory standards.

“Swedish banks have adapted well to the new regulation, they are well-capitalized and have access to funding, which means they have the ability to continue increasing their lending to households and companies,” Magnus Karlsson, an analyst at the Swedish Financial Supervisory Authority in Stockholm, said in a phone interview yesterday. The pace of “household lending growth is likely to remain on current levels, also in coming quarters,” he said.

Nordea Bank AB (NDA), SEB AB (SEBA), Swedbank AB (SWEDA) and Svenska Handelsbanken AB (SHBA) need to set aside 10 percent of their risk- weighted assets in core Tier 1 capital from January, with the ratio rising to 12 percent two years later. That compares with Basel’s 7 percent goal for 2019. Sweden’s banks, which credit default swaps show are among Europe’s safest, are able to fund themselves at better rates than many of their peers, lowering the cost of passing on credit to borrowers.

Household credit in Sweden grew 4.5 percent in the second quarter as corporate lending rose 3.9 percent, the FSA said yesterday. Mortgage lending in the largest Nordic economy increased an annual 4.8 percent.

Riksbank Ranking

That compares with the euro area’s 0.6 percent decline in loans to non-financial companies in June, according to the FSA. Mortgage lending rose only 0.8 percent in the bloc, it said.

In Sweden, credit growth has stabilized from rates as high as 13 percent before the crisis, after stricter mortgage lending rules capping loans at 85 percent of a property’s value were introduced in 2010, the FSA said. Banks should stick to current lending rates to avoid imbalances, Karlsson said.

Swedish bank shares outperformed a European benchmark index for financial stocks today. Nordea rose 0.6 percent to 61.70 kronor as of 10:38 a.m. in Stockholm. SEB gained 0.9 percent, Handelsbanken and Swedbank rose about 0.1 percent, compared with a 0.5 percent loss in the 38-member Bloomberg index of European financial companies.

At the end of last year, Swedbank and Handelsbanken were the two best-capitalized lenders in Europe under Basel II in a Riksbank ranking of 24 of the region’s largest banks, including Deutsche Bank AG (DBK), BNP Paribas SA (BNP) and Barclays Plc. (BARC) SEB was No. 4 and Nordea was seventh.

Profit Boost

Lending growth is helping boost profits at Swedish banks, whose average net margin on mortgages rose to a 10-year high of 0.46 percentage point last quarter from 0.4 percentage point in the first, according to the FSA. The regulator said margins widened after funding costs declined more steeply than the rates on mortgages.

At Swedbank, Sweden’s largest mortgage lender, net interest income rose 11 percent to 5.25 billion kronor ($798 million) in the second quarter. Net interest income at Handelsbanken, the No. 2 mortgage lender in the Nordic country, jumped 16 percent to 6.58 billion kronor in the period.

“It is good for the banks to be able to have growth,” Karlsson said.

To contact the reporter on this story: Niklas Magnusson in Hamburg at nmagnusson1@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net.


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