Sweden’s growing capital requirements are helping the nation’s banks fund themselves at more competitive rates than some of their European peers, Riksbank Governor Stefan Ingves said.
“There are other banks in Europe that have all sorts of issues and that can’t really fund themselves in the same way, so it’s hard to argue that raising capital on Swedish banks has hurt them,” Ingves, who also heads the Basel Committee on Banking Supervision, said yesterday in an interview in Stockholm. “It’s actually, I think, the other way around.”
The comments signal that global regulators won’t be swayed by bank industry complaints that stricter capital requirements are hurting their ability to do business. Sweden sets tougher regulatory standards than most other nations in an effort to rein in an industry that has grown to about four times the size of the $540 billion economy.
Swedish lenders, including Svenska Handelsbanken AB (SHBA) and Swedbank AB (SWEDA), are now the best-capitalized major banks in Europe. Handelsbanken boasts the lowest credit-default swaps in Europe among major banks, at about 59 basis points, according to data compiled by Bloomberg. Swaps on Nordea Bank AB (NDA) trade at 68, while SEB AB is at 90 and Swedbank at 95. By comparison, HSBC Bank Plc and JPMorgan Chase & Co. (JPM:US) trade at 85 basis points and 82 basis points, respectively.
Sweden’s four biggest banks need to hold at least 12 percent core Tier 1 capital of their risk-weighted assets by 2015, a ratio they already all exceed. Handelsbanken’s capital ratio was 19.3 percent at the end of September, the bank said this week.
Sweden’s efforts to ensure its banks are well-capitalized go beyond setting reserve requirements. Other measures include a cap on mortgage lending, while risk weights on mortgage assets were tripled this year. Though the steps initially helped slow loan growth, borrowing has again accelerated and house prices are still climbing. That’s left Swedes with a record debt load equivalent to more than 170 percent of their disposable incomes.
Swedish credit growth held at a 2013-high of 4.8 percent for a third consecutive month in September, Statistics Sweden said today. Swedish apartment prices rose 14 percent in the 12 months through August after having more than doubled since 2000.
The Riksbank said yesterday Sweden’s private debt ratio will rise to 177 percent in the fourth quarter of 2015. The bank left its main lending rate unchanged at 1 percent, and said it’s still monitoring household debt levels.
Banks including Nordea, the largest Nordic lender, and Swedbank, Sweden’s biggest mortgage bank, have argued that addressing supply imbalances in the property market is a better way to cool house prices than raising buffer requirements.
“Just to increase capital ratios is the wrong tool,” Nordea Chief Executive Officer Christian Clausen said this week in an interview in Stockholm. “If you have too little construction of new homes and you have too much demand, then there is an imbalance, and that has nothing to do with credit supply.”
Swedish Finance Minister Anders Borg, who last month told banks to prepare for years of regulatory tightening, in August handed authority for safeguarding financial stability to the Financial Supervisory Authority instead of the Riksbank.
Ingves, who has argued for risk weights of 35 percent on mortgage assets compared with the regulator’s decision to set them at 15 percent, said he would have liked to be in charge of financial stability in Sweden.
While the biggest risk to the Nordic nation stems from global markets, another issue “is of course household debt and finding ways to ensure that household debt doesn’t go up,” Ingves said. “We would be better off if we had a better handle on that issue, but given now that the FSA will take on the macro-prudential issues, I assume that measures will be taken in such a way that we get a good grip on what happens on the household debt side.”
If that happens, the bank will have more “degrees of freedom” in setting rates, he said.
Sweden has signaled it will next year add a countercyclical buffer to its capital requirements. The FSA has also threatened to impose rules that force banks to require home owners to amortize their loans.
Most of the macro-prudential tools haven’t been incorporated into the Riksbank’s rate forecast, Ingves said.
“We’re working hard on actually including these types of things in the models, but in the end, we’re talking about six individuals who decide,” he said, referring to the Riksbank’s board. “Monetary policy is sometimes less model-dependent than maybe some people think.”
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