09 August 2013

Bloomberg: Banks face tougher risk weights as Borg seeks Swedish probe

Swedish Finance Minister Anders Borg said the financial regulator needs to look into raising risk weights on banks' mortgage assets, as he suggested levels may still be too low after being tripled this year.

Borg, who says he’ll only back a European banking union if Sweden is free to pursue its own regulatory targets, has championed the nation’s drive to impose some of the world’s strictest capital rules. Though Sweden’s four biggest banks already exceed national reserve requirements, Borg argues lenders may need to do more to guard against property market risks and record household indebtedness.

Nordea Bank AB (NDA), Svenska Handelsbanken AB (SHBA), Swedbank AB (SWEDA) and SEB AB have spent the past few years building bigger reserves than their competitors elsewhere. Handelsbanken is now the best-capitalised major bank in the European Union under Basel III rules, with a core Tier 1 capital ratio of risk-weighted assets of 17.8 percent at the end of June.

Sweden’s four biggest banks need to hold at least 10 percent core Tier 1 capital of their risk-weighted assets this year, with the minimum requirement rising to 12 percent in 2015. That compares with a Basel Committee on Banking Supervision minimum target of 7 percent effective from 2019.

Central bank Governor Stefan Ingves, who is also the Basel committee chairman, has backed Borg in his call for higher risk weights. The Basel committee, which sets global banking standards, is taking a closer look at risk weights after finding wide variations in a study of 32 lenders, Ingves said in July.

Borg argues Sweden needs stricter rules for its banks than those set by Basel because a financial industry that’s four times the size of the economy makes taxpayers vulnerable to banking system shocks. Swedes owe their banks almost twice their disposable incomes, the central bank estimates. That’s the most on record.

 “The indebtedness from the household side in Sweden is on the high side and we also have, on a relative basis, a large banking system, so the financial stability issues are very important”, Borg said. “We’ve seen an easing of house prices and think we should expect that to continue in the years to come. House prices should not increase very much in Sweden moving ahead.”

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