Swedish banks to do well in EU tests-watchdog

STOCKHOLM, July 6 (Reuters) - Sweden's top four lenders will do well in European-wide financial health tests and are strong enough to weather a tougher economic climate, the country's banking watchdog said on Tuesday.

In a bid to reassure markets about the resilience of the European banking system, national regulators are conducting stress tests to see how lenders would cope with shocks and how a sharp downturn could affect their balance sheets.

"Swedish banks are among at least the top 10 of the most well capitalised banks in Europe," said Lars Frisell, chief economist at the FSA.

"They have extremely small amounts of Greek and southern European debt so I can't see how Swedish banks would not come out looking good. They will."

According to Sweden's Financial Supervisory Authority (FSA), Nordea (NDA.ST), the Nordic region's biggest bank by value, and SEB (SEBa.ST) were included in the original probe, meant to test at least 50 percent of a nation's banking assets, or a minimum of 25 banks across the region.

The FSA recently added Handelsbanken (SHBa.ST) and Swedbank (SWEDa.ST), saying it was logical they were included.

Martin Noreus, head of the FSA unit carrying out the tests in Sweden, told Reuters the results would likely be handed over to the Committee of European Banking Supervisors in mid-July.

He declined to provide details about the criteria used in the test but said there was a baseline scenario and several different "adverse scenarios".

CONFIDENCE

The latest tests are seen as key to breaking a crisis of confidence about solvency, funding, sovereign debt exposure and other worries that have hurt European banks including Spain's Santander (SAN.MC) and BBVA (BBVA.MC). [ID:nLDE65M0ZX]

Publication of the stress tests is due on July 23.

Swedish banks have little exposure to southern Europe but Swedbank, SEB and Nordea lent heavily to the crisis-hit Baltic region.

Swedbank -- the worst hit -- and SEB have been forced to write down billions of dollars as loans in the region turned sour.

However, Nordea, Swedbank and SEB have already raised new capital and analysts do not believe they will need to tap investors for further funds.

"Swedbank had a 12.3 percent core Tier 1 capital ratio in the first quarter, which is the highest of the Nordic banks," said one analyst, adding that the bank reported a healthy-looking profit in the first quarter following a full-year loss in 2009. "Even if you were to stress the bank heavily, it would come down a fair bit, but really there is quite a cushion there."

The FSA conducted its own stress test last November, which showed that banks had good capabilities to cope with extreme negative scenarios while the country's central bank conducted its own test and concluded in June that banks' finances were robust. [ID:nLDE6500MC]

The Riksbank in June slashed its forecast for loan losses this year to 28 billion Swedish crowns ($3.66 billion), down from 65 billion previously.

For a factbox on European banks facing a first round of stress tests double-click on [ID:nLDE6600HB]