UPDATE 1-Swedish FSA expects Swedish lenders to pass stress tests

Tue Apr 29, 2014 12:59pm EDT

Related Topics

* Swedish domestic benchmarks tougher than EBA's

* No reason Swedish lenders won't pass (Adds quotes, background, details)

By Johan Ahlander

STOCKHOLM, April 29 (Reuters) - Swedish lenders should pass the latest European Banking Authority (EBA) stress test as they have already been subjected to tougher domestic benchmarks, the head of banking at Sweden's Financial Supervisory Authority said on Tuesday.

The European Banking Authority (EBA) said on Tuesday it would gauge the resilience of 124 banks from the 28-country European Union to see if they would still have enough capital after facing a range of theoretical shocks.

The stress test includes variations for different countries. Swedish banks Handelsbanken, SEB, Nordea and Swedbank face some of the toughest tests in Europe, with an adverse scenario including house price falls of almost 30 percent - much higher than the European Union average scenario of 21 percent.

Uldis Cerps, executive director for banking at the Swedish Financial Supervisory Authority, told Reuters he welcomed the tough parameters for Swedish banks and that he saw no reason that Swedish banks should not pass.

"The stressed scenario used in this year's EU stress test is broadly comparable with ours, but the pass/fail threshold that we have used in our stress tests used to be higher.

"We have been doing that for many years and we have been very public with the outcomes."

The Slovenian central bank has also said it expects its country's banks to pass the tests, and Poland's representative to the European Banking Authority said Polish banks will not have to increase their provisions for bad loans after a review of their assets this year .

House prices and household debt are hot topics in Sweden. Swedish property prices have continued to rise throughout the financial crisis and have almost tripled in the last 20 years.

Swedish households are also among the most indebted in Europe with debts of around 174 percent of disposable income, prompting the central bank to keep monetary policy relatively tight, despite low inflation pressure.

Sweden has taken several measures to cool the housing market. The financial watchdog introduced a cap on mortgage borrowing of 85 percent of the value of a home in 2010.

Mortgage risk weights - which determine how much capital a bank must set aside for mortgages - have been raised to 25 percent from around five percent of risk-weighted assets.

The average loan to value ratio for the entire mortgage loan portfolio in Sweden is 65 percent. (Editing by Keiron Henderson)

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