February 11, 2020 / 2:23 PM / 14 days ago

Swedish watchdog warns banks they may have to boost capital

STOCKHOLM, Feb 11 (Reuters) - Sweden’s financial watchdog on Tuesday said the country’s banks could face higher capital requirements under new global bank rules, but it will also review some national capital requirements to find a good balance.

Sweden’s top banks, which are some of the most strongly capitalised in the world, said on Monday that the new capital rules, known as Basel III, will hit Swedish lenders and corporations harder than their global counterparts.

The Swedish watchdog said it would review the national requirements and would not simply add the new Basel capital rules “mechanically” on top of those already existing in Sweden.

“However, it cannot be ruled out that the capital requirements may need to increase when the new rules have been implemented ...[as its] important to maintain a buffer function in the capital requirement,” Karin Lundberg, the watchdog’s acting head of banking, told Reuters.

The Basel rules, which aim to stop a repeat of the 2008 financial crisis, will force banks to hold more capital so they are better prepared for future market downturns. Most of the accord is in force, but final elements, agreed in December 2017, included such significant additions so that bankers dubbed it Basel IV.

The Swedish Bankers’ Association said the rules unfairly penalise countries with lower default rates on loans and better capitalised banks.

“Sweden is a low-risk economy with low-risk banks ... but the ‘one size fits all’ Basel IV framework rules include countries with a higher risk profile like Mexico, India, Italy and Spain,” SBA CEO Hans Lindberg told Reuters.

The new Basel rules will also restrict internal risk models currently used by most Swedish banks, which give them discretion in allocating risk and capital buffers. This is something the SBA also opposes.

But the Swedish watchdog has welcomed this, saying internal bank models can “result in too low capital requirements...[which can] give banks incentives to take higher risks.”

“A consequence of more standardised rules for capital requirements is therefore that it becomes even more important that the banks have good credit risk management,” Lundberg said.

The SBA, citing a report it commissioned from consultancy Copenhagen Economics, said the rules would mostly hurt corporate borrowers, with banks forced to charge 1-1.2% more interest on business loans.

Costlier borrowing for companies could shrink Swedish GDP by 0.75%, the SBA said in its statement.

“High-risk lending should have high capital requirements and low-risk lending should have lower requirements,” the SBA’s statement said. (Reporting by Colm Fulton, additional reporting by Johan Ahlander. Editing by Jane Merriman)

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