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Swedish giant banks are stable and can withstand any shocks and stresses thrown at them now - Riksbank

Friday, 01 June 2012
As the Danish banking sector continues to bleed from as their main banks have seen recently their credit rating down graded, the banking disease is also feared in Sweden where some of its banks have already seen their ratings down graded. The question has been where do they go from here and how do they withstand stresses in the market to strengthen their stance?

The Swedish financial stability officials say that Swedish banks are at the moment financially strong and have a good resistance to a worse case scenario.

The reason for this is that it has been determined that the Swedish banking system has weaknesses of a more structural nature that could affect the financial stability adversely in the long run, according to a press release from the Riksbank's Financial Stability Report released today.

"When combined with the turmoil in international financial markets it justifies this as seen in the current situation and requires an extra safety margins. This is why the Riksbank recommends that major banks ensure that they have adequate capital and liquidity buffers,” writes the Riksbank (Swedish central bank).

“The major Swedish banks are financially strong at present and have good resilience to deterioration in economic prospects. The sovereign debt crisis in the euro area is the largest single risk to financial stability in Sweden in the short term,” writes the bank on a report relating to financial stability.

The Riksbank therefore recommends that the major banks ensure that they have sufficient capital and liquidity buffers.

The Riksbank concludes that developments in the euro area pose the greatest risk to financial stability in Sweden. Although Swedish banks resilience is currently good a worsening situation in the euro area would affect their access to finance.

"This is because the big banks largely make use of market financing during periods of financial stress  and this could proved to be elusive. But the Riksbank's stress tests shows that banks are capable of a much worse economic performance in the future, "writes the Riksbank, which also notes that Swedish banks are well-capitalized by international standards and have only small exposures to the indebted countries in the euro area.

The Riksbank stressed that the major Swedish banks (Handelsbanken, Nordea, SEB and Swedbank) are financially strong at present, despite the financial unease. The banks' earnings are expected to increase and loan losses are expected to be limited in the coming period.

The above factors have contributed to boosting market confidence in the major banks and to the banks thus having good access to wholesale funding.
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