Oct 04, 2013
London, september 30th 2013 - The outlook for Sweden's banking system remains stable, unchanged since November 2012, says Moody's Investors Service in a new report published today. The stable outlook primarily reflects the supportive operating environment, with strong economic growth relative to peers over the next 12-18 months, and Moody's expectation that asset quality will remain strong in the low interest rate environment.
The new report, entitled "Banking System Outlook: Sweden", is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.
Over the 12-18 month outlook period, asset quality will continue to be strong, benefitting from the low interest rate environment and a strengthening economy. Moody's expects strong GDP growth, relative to peer countries, of around 1.4% in 2013 and 2.3% in 2014, driven by rising consumer confidence, higher wages, and a continued low interest rate environment.
These factors and developments are expected to counter pressures from household indebtedness -- which the authorities and regulator are in the process of addressing -- and exposures to export companies, strained by weakened export markets. Moody's says that Swedish banks will likely retain more capital to cover for the 15% mortgage risk-weight floor introduced under Pillar 2 in May 2013 by the Swedish FSA.
Swedish banks' short-term funding continues to show a reliance on foreign currency, which renders the banks vulnerable to global investor sentiment. However, this vulnerability is currently mitigated by the banks' good access to international markets in recent years, which Moody's expects will continue over the outlook period, and the banks' covered bond funding that benefits from a liquid and stable domestic market.
Reduced provisions and exposure to volatile economies, as well as a reduced corporate tax rate, will keep profitability high relative to European peers, but Moody's does not expect margins to return to pre-crisis levels. The lack of a significant improvement will stem from stable household and corporate margins over the outlook period, following a period of decreasing funding costs in 2012 which improved margins.
Re-disseminated by The Asian Banker