FI Analysis 26: Macro-based credit loss model for major Swedish banks

Large credit losses can result in otherwise profitable banks reporting a loss. This FI Analysis describes a methodology for estimating how large credit losses can be in a stressed macroeconomic scenario.

This FI Analysis describes the methodology FI has previously used to estimate credit losses for the major Swedish banks. The methodology estimates credit losses based on historical relationships between credit losses and macroeconomic variables during the period 2007–2017.

The models enable FI to estimate credit losses for important regions and different lending categories. This means that the stress test can reflect the regions and segments where a bank is active and the result in the form of total credit losses is impacted by the composition of a bank's lending portfolio. Based on the banks' credit exposures, the method uses the following regions: Sweden, other Nordic countries, Baltic countries, and other countries. The lending categories are mortgages, consumer credit, loans to small and medium-sized enterprises, loans collateralised by commercial real estate, and loans to other corporates.

Because crises occur infrequently and vary in nature, there is a significant degree of uncertainty associated with these types of analysis. Therefore, the results should be interpreted with caution and not be viewed as forecasts.