Sweden's Riksbank worried over commercial real estate, but risk of banking crash low
Adds central bank governor comment
STOCKHOLM, June 1 (Reuters) -Soaring rates and falling property values are squeezing commercial real estate firms in Sweden, but the risk of a banking crisis is low, the head of the central bank said on Thursday.
Rock-bottom interest rates in recent years encouraged property firms to pile on debt and some have been caught out as central banks have tightened policy at a record pace to fightinflation.
With Sweden's banks heavily exposed to the real estate sector, worries have been growing that problems in a few individual firms could spread more widely and trip up the financial system.
"I judge that the risk of a banking crisis in Sweden is low," Riksbank Governor Erik Thedeen told reporters after the central bank published its regular report on financial stability.
"But there are risks."
Concernshave centred on real estate group SBB SBBb.ST, which is looking for a buyer after its debt was cut to "junk" status and has been forced to restructure.
But SBB is not alone and Moody's said this week it had taken negative rating action on about 50% of the real estate firms it covers in Sweden.
Property companies have started to deleverage and Thedeen said there was still time for them to restore balance sheet health.
"Basically it's not difficult to say what's this about - it's about debt. It has to come down, otherwise it is going to be very tough for some companies," he said.
Thedeen called on banks not to cut credit to the sector as a whole.
"If they (banks) squeeze too much, they risk setting off something that is going to rebound on them and definitely the system as a whole," he said.
He also cautioned lenders to be "restrained in paying dividends and making share buy-backs" and build up their financial buffers.
Worries about the property sector - which triggered Sweden's last domestic crisis in the early 1990s - have hit the crown currency, which is trading at its weakest level against the euro for well over a decade. EURSEK=
Regulators say banks are better equipped to deal with turbulence in the sector, having beefed up their capital after the global financial crisis in 2008-2009. Bank resolution regulations have also been improved.
But the end of the long period of cheap money has exposed faults lines in the financial system, hitting niche lenders in the United States and forcing authorities to arrange a shot-gun wedding for Credit Suisse.
"I think .. the low rate environment exposed the system to risks and maybe the debate was a bit naive about what kind of risk we were building up during that period," Thedeen said.
Reporting by Simon Johnson, editing by Terje Solsvik, Sharon Singleton and Chizu Nomiyama
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.