October 1, 2023

Obtain free European banks updates

Scandinavia is understood for its saunas. Property homeowners in Sweden are scorching and bothered for different causes. Rising debt prices are bursting an actual property bubble. Owners and industrial landlords are feeling the warmth. However Swedish lenders Swedbank and SEB supplied a cooler evaluation of situations on Tuesday.

Lex chart showing Actions related to SEB’s lowest credit real estate clients

Industrial actual property danger has been in focus since regional banks collapsed within the US earlier this yr. Lenders in Sweden have an outsized publicity to the sector. A big inventory of variable-rate mortgages is an extra concern.

Lex chart showing Sweden household sensitivity to interest rates

But the nation’s largest mortgage lender Swedbank stated internet earnings doubled thanks to raised curiosity margins. Johan Torgeby, chief government of SEB, echoed that sentiment, pointing to minimal new provisions for unhealthy loans.

That doesn’t stack up with the expertise of previous property crashes. Banks merely don’t anticipate to lose some huge cash on property lending, nevertheless.

SEB has added simply 2 foundation factors of its excellent mortgage e book to anticipated losses to this point this yr. Through the pandemic it added 26 foundation factors, or 13 instances extra. Swedbank has elevated anticipated losses by 10 foundation factors this yr.

Losses are firstly a perform of default danger and secondly the chance of restoration. Default danger is but to peak. Some property homeowners are barely coping. SEB outlined what its lowest quintile of actual property credit are doing; most are reducing capex, round half are promoting property and a couple of third are elevating fairness. Renegotiation of lending phrases, largely curiosity cowl agreements, was a brand new characteristic of the second quarter. 

Lex chart showing expected provision and property exposure for Scandinavian banks between; Swedbank, SEB and Handelsbanken

Even when defaults do rise, potential recoveries at the moment seem wholesome. Mortgage-to-value ratios at SEB stay beneath half for industrial actual property and residential. An additional 25 per cent fall in property values is required to breach regulatory danger limits, SEB thinks.

That might solely take costs again to the place they had been in 2016. With greater rates of interest anticipated, Swedish financial institution buyers ought to proceed to sweat.