November 27, 2019 / 5:58 PM / 17 days ago

UPDATE 1-Swedish FSA proposes higher capital buffers for banks' exposure to commercial real estate

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STOCKHOLM, Nov 27 (Reuters) - Sweden’s financial watchdog proposed on Wednesday higher capital buffers for banks to cover increased risks from lending to the commercial real estate sector.

The real estate market is widely seen as the biggest risk to Sweden’s otherwise stable economy, with more than 75% of all bank lending going to the sector through both lending to property companies and mortgage lending to households.

The watchdog proposed risk weights - the amount of capital banks have to set aside in proportion to the loan - at between 25% and 35% for exposure to different kinds of commercial real estate, compared with banks’ present average of 18 percent.

“The FSA judges that there is increased risk in banks’ lending with commercial real estate as collateral,” the FSA said in a statement.

“The FSA’s analysis indicates that the banks’ own internal risk models underestimate the risk in lending. The FSA judges that the banks need more capital against these exposures to create sufficient resilience.”

It added the additional capital would amount to about 5 billion Swedish crowns ($519.42 million) for each of the three big banks.

Swedbank, SEB and Handelsbanken are Sweden’s top banks with Nordea, which recently moved its headquarters to neighbouring Finland, the other large player in the market.

Banks and other actors in the financial sector will be able to comment on the proposal up to the end of December.

The commercial real estate sector was the cause of a financial crash in Sweden in the early 1990s which caused two banks to go bust and sent the economy into a deep recession.

$1 = 9.6261 Swedish crowns Reporting by Helena Soderpalm and Simon Johnson Editing by Alexandra Hudson

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