Financial stability is satisfactory but the risks have increased

Date 03/06/2008

The Swedish banks remain financially strong and their resilience to shocks is good. However, the contingent risks have increased. ”These risks have most tangibly increased in the international financial markets. Sweden has been affected by the financial turmoil but to a much lesser extent than many other countries,” says Riksbank Governor Stefan Ingves. The Riksbank’s Financial Stability Report analyses financial stability in Sweden and the risks that could disrupt this stability in a negative situation.

 

”During the entire period of global financial turbulence the Swedish banks have had good access to funding and the financial system has worked well. There has thus been no reason as yet for the Riksbank to intervene,” commented Governor Stefan Ingves.

 

The crisis has continued and spread to new assets, markets and players. Although there are some indications that the situation in the credit market is easing slightly, the uncertainty in the financial markets will probably persist for a long time to come. The possibility that the problems will worsen further cannot be ruled out.

 

Although the Swedish banks have so far succeeded in resisting the financial turmoil relatively well, it nevertheless means that their vulnerability to other risks has increased. The banks’ lending to companies and households in the Baltic countries is still a source of concern.

 

Growth in the Baltic countries is now slackening more quickly than expected, just as the Riksbank warned earlier.

 

”If these events should lead to a more pronounced economic dip, borrowers in the Baltic countries may experience problems paying their loans. This would lead to a greater risk of loan losses for the Swedish banks with substantial activities in these countries. However, the Riksbank’s stress tests show that the banks currently have sufficient buffers to cope with this type of development,” says Governor Stefan Ingves.

 

Developments in the property market present another risk for the Swedish banks. Property prices have risen sharply in recent years. Unless the price increase is compensated by increased rent income, it may lead to substantial falls in property prices. This would affect the property companies first and foremost, and they are a large borrower group for the banks. In addition, property is often used as collateral for a loan. 

 

A new feature in this year’s Financial Stability Report is the Riksbank’s survey of participants in the Swedish money and bond and foreign exchange markets. The survey provides a picture of the view of risk and an assessment of the functioning of the Swedish market. The results of the survey are published in a box in the Financial Stability Report.

 

A press conference with Riksbank Governor Stefan Ingves, Deputy Governor Lars Nyberg and Mattias Persson, Head of the Financial Stability Department, will be held today at 11 a.m. in the Riksbank. Entry via the bank's main entrance, Brunkebergstorg 11. Press cards must be shown. The press conference will be broadcast live on the Riksbank’s website, www.riksbank.se.

 

The Report can be downloaded from the Riksbank’s website, or ordered via e-mail: kontorsservicecenter@riksbank.se, fax +46-8-787 0526 or telephone +46-8-787 0000. It may also be collected from the Riksbank’s main entrance, Brunkebergstorg 11.