May 20, 2020 / 8:22 AM / 2 months ago

UPDATE 2-Swedish banks may face large loan losses if pandemic drags on -

* Credit losses could reach 3% of lending if economy

* Says more economic policy measures may be needed

* Says financial system working “satisfactorily” for now (Adds Riksbank Governor Ingves comments)

STOCKHOLM, May 20 (Reuters) - Swedish banks could see credit losses of up to 3% of lending if the central bank’s scenario of a near 10% drop in GDP this year happens, Riksbank Governor Stefan Ingves said on Wednesday.

The Riksbank has forecast the economy will shrink between 6.9% and 9.7% this year as a result of the new coronavirus and measures to counter it, though the figures are very uncertain.

“If there are economic worries in the global economy and in the Swedish economy, it seems likely that will lead to credit losses sooner or later,” Ingves told reporters after the Riksbank published a regular Financial Stability report.

“The big question is how long is this is going to go on and how deep is it going to be.”

In the more negative scenario - a near 10% fall in GDP - credit losses could reach around 3% of bank lending, according to the Riksbank’s stress tests. In the scenario of a less severe downturn, credit losses could be around 1% of lending.

Ingves said much of the hit would come from real estate.

“We have said ... many times before that Swedish banks have become ... kind of real estate or property banks because a very, very large proportion of lending by the banks has property -commercial property or in the main, homes - as collateral,” he said.

The Riksbank said the financial system was stable for now, but that risks to would grow the longer the pandemic lasted.

The central bank, while it has not cut rates, has launched a raft of measures, including loans in dollars and crowns and an expanded programme of asset purchases to support credit supply and liquidity in the banking system. ($1 = 9.6719 Swedish crowns)

Reporting by Simon Johnson; editing by Johannes Hellstrom, William Maclean

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