UPDATE 1-S&P cuts outlook for top Swedish banks on economic risks
* S&P cuts outlook on top Swedish banks
* Cites rising economic risks
* Worsening could lead to ratings downgrade (Adds details)
STOCKHOLM, Nov 20 (Reuters) - Standard & Poor's on Tuesday cut its outlook for Sweden's four biggest banks to negative from stable due to rising economic risks and said it could downgrade them if the picture got gloomier.
The ratings agency said in a statement that it had revised its outlook on eight Swedish banks to negative, including the region's biggest bank Nordea, Handelsbanken, SEB and Swedbank.
It warned that Sweden's economic slowdown could turn into a recession, leading to greater risks for a bank sector which is one of Europe's biggest relative to the size of its economy.
"We are looking at potential layoffs, corporate bankruptcies, more negative news indicating the slowdown in the economy is happening more sharply than previously indicated as well as the impact from growth in indebtedness in the household sector," S&P analyst Per Tornqvist told Reuters.
A worsening of economic risks could lead to a one notch ratings downgrade, S&P added.
Moody's Investor Service has the four on a stable outlook.
Tornqvist said he did not believe the banks were over capitalised given factors such as currently low risk weights on mortgages. A sharp fall in property prices could also prove problematic for the banks.
"The focus for now should not be on a household's ability to repay their mortgage but much more on their reaction to a fall in property prices," he said. "People will feel less wealthy and may reduce their spending as a means to compensate."
Nordic banks have flagged challenges ahead due to the eurozone debt crisis, rising losses from the shipping industry, possible recession in Denmark and slower growth in Sweden.
S&P also reduced its outlook on non-quoted state-owned mortgage bank SBAB and farm sector bank Landshypotek. (Reporting by Mia Shanley in Stockholm, Bangalore ratings team, editing by Patrick Lannin)