A stable, well-functioning financial market for allA stable, well-functioning financial market for allMarket turmoil and the Swedish banks
The Swedish banks have managed relatively well in the international turbulence prevailing on the financial markets. The four major banks made record profits in 2007 and they all have good financial strength. There are, however, risks in the near future as well as in the long-term. Although these risks are relatively serious, no individual risk is considered to pose a threat to the stability. FI continues to closely monitor the development.
The four big Swedish banks' losses due to the turbulence on the financial markets have been limited. The losses have mainly occurred due to the declining prices in the bond portfolios. Through the turn of the year, the big banks reported losses of SEK 4 billion as a result of unrealised changes in value of interest-bearing securities. The price drop of bonds with credit risk has continued during Q1 2008, but from a stability perspective, the big banks' exposure to these securities does not constitute a problem.
The big banks, however, have not seen increased credit losses that can be tied to the financial market turmoil. In 2007, the credit losses before recoveries declined by SEK 186 million compared with the previous year, which applied during Q4 as well.
Despite the price drop of interest-bearing securities, the big banks reported a record profit for 2007. Their total profit before tax amounted to SEK 83 billion. The banks' profit levels constitute an adequate first buffer if credit losses or losses in other operations would begin to increase. Several years of high profits have also resulted in the banks' capital being strengthened. The big banks' financial resistance is very good in other words, both from an earnings and capital perspective.
A larger problem that does not directly affect the banks' profit has been the fact that the financing of operations has become more difficult. Up until now, the Swedish inter-bank market has functioned well from an international perspective and the banks have been willing to lend to each other. Therefore, no extra measures on the part of the Riksbank (the Swedish central bank) have been of current interest in order to strengthen the liquidity in the system. The Swedish market for long-term financing has also functioned well in an international perspective.
The Swedish big banks are, however, also dependent on the international financial markets for both short-term and long-term financing. The Euro-interbank market has not functioned as problem-free as the Swedish market. The European Central Bank, ECB, has therefore injected liquidity in order to equalise liquidity imbalances between the banks which arise when the banks have not wanted to lend money to each other or only at a very high interest rate. In a similar way, the markets for more long-term financing have functioned poorly or occasionally not at all. However, the Swedish big banks, compared with other countries, have had relatively good access to the international financial markets.
