Featured Product

    IMF Publishes Report on 2019 Article IV Consultation with Sweden

    March 26, 2019

    IMF published its staff report under the 2019 Article IV consultation with Sweden. Directors welcomed the adoption of stricter mortgage amortization requirements, while calling for financial sector risks to remain under close watch, including by collecting household-level balance-sheet data. They supported continued review of the adequacy of banks’ commercial property risk management and the health of commercial property borrowers.

    The report reveals that the macro-prudential framework was strengthened and a well-targeted tightening of macro-prudential measures was adopted. Addressing a key recommendation of the 2016 Financial Sector Assessment Program (FSAP) to enable timely and effective macro-prudential action, the Swedish Financial Supervisory Authority's macro-prudential mandate was expanded from February 2018, giving it the authority to apply measures subject to government approval but no longer requiring parliamentary approval. A stricter amortization requirement became effective in March 2018, raising the minimum amortization on new mortgages with a loan-to-income (LTI) over 450%.

    Noting increased risk-taking in the financial sector, the Swedish Financial Supervisory Authority announced, in September, increased (by 0.5 percentage point) the countercyclical capital buffer (CCyB) to 2.5% from September 2019; this CCyB is the highest in Europe. Macro-prudential policy should remain on alert and household-level data collection enhanced to help evaluate its effectiveness. The recent decline in housing prices and the subsequent stability have been associated with some slowing in the household credit growth. As the stricter amortization requirements take hold, the Swedish Financial Supervisory Authority expects the share of new high LTI mortgages to decline substantially, helping to contain vulnerabilities over time.

    The banking system is robust, yet it faces challenges from financial innovation, requiring steps to contain prudential risks without preventing competition. Swedish banks maintain high profitability and capital levels, along with sound loan books. However, new entrants into the mortgage market are capitalizing on innovations in the financial services technology, relatively high profit margins on mortgages, and the ready availability of market funding from institutional investors. These nonbank entities provide low-cost mortgages to high-quality borrowers (with less than 60% loan-to-value for instance) and transfer the credit risk to end-investors such as life insurers. Although these nonbanks are a small share of the mortgage market, it is important that they meet the same macro-prudential and consumer protection requirements, while ensuring compliance costs are manageable. Commercial real estate is another area where nonbank financing is playing a growing role, but bank exposure remains material.

    The IMF staff recommends that Swedish Financial Supervisory Authority should continue to closely review the adequacy of risk management by banks, along with the financial health of commercial property borrowers. The Swedish Financial Supervisory Authority should also assess the adequacy of measures adopted to contain default risks and improve the efficiency of default management procedures.

     

    Related Link: Staff Report

     

    Keywords: Europe, Sweden, Banking, Insurance, Macro-Prudential Framework, Credit Risk, FSAP, Mortgage, Article IV, CCyB, IMF

    Featured Experts
    Related Articles
    News

    BCBS Amends Capital Treatment of Non-Performing Loan Securitizations

    BCBS published a technical amendment to the capital treatment of securitizations of non-performing loans by banks.

    November 26, 2020 WebPage Regulatory News
    News

    BoE to Move Statistical Data Collection to BEEDs Portal

    BoE announced that the Data and Statistics Division is planning to move collection of statistical data to the BoE Electronic Data Submission (BEEDS) portal.

    November 25, 2020 WebPage Regulatory News
    News

    APRA Updates Reporting Standards and Guidance for EFS Data Collection

    APRA published the updated reporting standards and guidance for the collection of Economic and Financial Statistics (EFS), following a consultation process. Also published was a response letter to the feedback received on the proposal for amending the EFS reporting standards and guidance.

    November 24, 2020 WebPage Regulatory News
    News

    EC Consults on Criteria for Environmentally Sustainable Activities

    EC is consulting on a draft delegated regulation to supplement the Taxonomy Regulation (2020/852) by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as environmentally sustainable.

    November 20, 2020 WebPage Regulatory News
    News

    IFRS Examines Incorporation of Climate Risk Issues into IFRS Standards

    The IFRS Foundation published material highlighting the ways in which existing requirements in IFRS standards require companies to consider climate-related matters when their effect is material to the financial statements.

    November 20, 2020 WebPage Regulatory News
    News

    EBA Analyzes Impact of Unwind Mechanism of Liquidity Coverage Ratio

    EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.

    November 19, 2020 WebPage Regulatory News
    News

    ECB Outlines Views on Possible Changes to AnaCredit Rule and TLTROs

    In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.

    November 19, 2020 WebPage Regulatory News
    News

    IASB Begins First Phase of Post-Implementation Review of IFRS 9

    IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.

    November 18, 2020 WebPage Regulatory News
    News

    FSB Report Examines Progress in Resolvability of Systemic Institutions

    FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.

    November 18, 2020 WebPage Regulatory News
    News

    EBA Benchmarks National Insolvency Frameworks Across EU

    EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.

    November 18, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6162