Large Swedish banks show resilience in EU stress test

2021-08-02 | EBA News Bank

The five largest Swedish banks are resilient and have the ability to withstand a sharp deterioration in market conditions, based on the stress test conducted by the European Banking Authority (EBA).

The EBA's stress test tests the resilience of 50 of the largest European banks against a sharp deterioration in the economy combined with a large fall in real estate prices in the wake of an upswing in the pandemic. The scenario also continued low or negative interest rates and no prolongation of coronavirus-related support measures. The adverse scenario takes place over three years starting in December 2020. In order to estimate the effects of the scenario, banks follow a detailed methodology prescribed by the EBA. FI, as the national supervisory authority for Sweden, quality assures the Swedish banks' assumptions and outcomes in order to ensure that results are comparable between banks.

The EBA's stress test shows that the five Swedish banks have resilience against such an adverse scenario. In terms of the Common Equity Tier 1 capital ratio (CET1 ratio), the stress test shows a maximum reduction of between 2.5 and 4.1 percentage points for the major Swedish banks (Svenska Handelsbanken, Skandinaviska Enskilda Banken and Swedbank) and around 1.5 percentage points for the other banks (SBAB Bank and Länsförsäkringar Bank). All the Swedish banks in the stress test are thus able to withstand the scenario without breaching the capital requirements that FI requires them to meet.

The EBA's stress test has no automatic link to the capital requirements or the so-called Pillar 2 guidance that FI requires of the Swedish banks. To determine the size of a bank's Pillar 2 guidance in the annual assessment of the banks' total capital needs (SREP), FI uses an approach that is described in Finansinspektionen's memorandum "Övergripande ansats för att bedöma pelare 2- vägledningen för svenska banker" (2021). An English translation of the memorandum is available.
[link to EBA results] [to be added on 31 July when results published]

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