By Gustav Sandstrom
STOCKHOLM--Sweden's Financial Supervisory Authority on Monday
said it plans to force banks to set aside a minimum amount of money
for mortgage loans in order to better cope with potential losses on
mortgage customers.
"Swedish banks are substantially exposed to risks in Swedish
mortgages," the financial regulator said. "The forthcoming
requirements will bring about a more stable financial system which
will in turn generate positive effects on the economy," it
added.
House prices in Sweden have so far remained stable at high
levels, even as house prices in many other countries have slumped
in the wake of the financial crisis. The FSA's planned new
requirements will mean slightly higher costs for banks but it will
also make them more resilient, and this means the banks will be
able to fund themselves on more favorable terms and make the wider
financial system more stable, it said.
The FSA intends to introduce a risk weight floor of 15% for
Swedish mortgages, which means banks will have to set aside an
estimated 20 billion Swedish kronor ($3.02 billion) of additional
common equity Tier 1 capital, which can be used to absorb potential
losses.
Banks need to hold a certain amount of equity on their balance
sheets for all the loans they issue. Different borrowers are given
varying risk weightings depending on the likelihood of default
which are then applied to the banks' overall capital requirement to
determine how much money is needed to be set aside. The higher the
risk weight, the more capital is needed for the bank to be allowed
to issue that loan.
Sweden's major banks have so far applied much lower mortgage
risk weights than other European banks, of around 5%-10% compared
with an EU average of around 20%-25% because banks there have
historically suffered very small credit losses on mortgages.
Before the FSA implements the new measures, it will give
affected parties the opportunity to submit opinions on the
proposal, it said.
Write to Gustav Sandstrom at gustav.sandstrom@dowjones.com
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