Swedish banks weaker than previously thought and this is privately worrying
Sunday, 09 October 2011
Swedish banks are not as strong as they - and the Swedish financial services authority, Finansinspektionen (FI) portray. The effect of this is that mortgage rates become too expensive and that is worrying.
This is the view of Peter Werleus, interest rate analysts and manager at Carnegie Fond and he also hold that the consequences could be very great. This is because mortgage loans will become more expensive, according to him.
This comes at a time when in Europe, the ongoing banking crisis continues to drag on with credit rating agencies down grading European banks here and there. We also see banks failing at random, most recent yesterday in neighbouring Denmark and then the question emerge as to whether Swedish banks really have what it takes to resist the shaking financial foundation.
Credit rating agencies last week lowered the rating of nine Portuguese and twelve British banks. The Portuguese banks were hit as they had lent large sums to the Portuguese government which is having difficulties with its own financial situation. Moody's believes that these loans have become less safe.
AdvertisementIn the United Kingdom, the banking group made up of the likes of giants such as Lloyds TSB and RBS also went down with down grades based of the banks’ weakening positions and the view that the British government will not be as willing to support them if their crisis deepened.
Back home in Sweden, the general convention is that Swedish banks are seen as strong. But the fear now is that they might not be as strong as they are perceived to be. This is based on the so-called risk weighting that has tended to show aspects of weakness of the banks that previously thought.
Put simply, a bank should be able to weigh the risks of various loans. Mortgage loans are safer than car loans. Therefore bank will not call itself ‘safe’ if less of its money is given out as mortgage than for car loan. For the customer, therefore the interest rate on the mortgage is less than for car loan.
But Sweden currently has Europe's lowest-risk weighting in mortgages. Skr5 of each Skr100 loaned out is secured. One argument is that the loans given out are low on mortgage, but also the rising house prices, with the risk of a property bubble makes the position of Swedish banks really weak.
As such as this is made known Swedish banks are coming under pressure from their Finance Minister, Anders Borg and FI to raise the risk weighting on their mortgages. If this happens, Swedish banks will be seen as less wealthy than they do today.
One of the effects will be that it will be more expensive for the banks to offer mortgages. The price for such money will rise and mortgages become more expensive, according to Peter Werleus at Carnegie, in a chat with Swedish daily Dagens Nyheter.
If the Swedish central bank, Riksbank lowers its repo rate, it does not necessarily mean that borrowers will get the same traction as before.
Therefore the situation of the Swedish banks is not as strong as one would have thought.
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