Swedish household debt has been increasing for a long time and households are currently highly indebted, in both a historical and an international perspective
Riksbank told what poses the greatest risk in Swedish economy. Source: shutterstock.com
According to the Riksbank’s assessment, the high and growing household indebtedness continues to pose the greatest risk in the Swedish economy. Therefore, as Riksbank officials noted on its official website, it is important to introduce measures within housing policy and tax policy that reduce risks and increase resilience in the household sector. It is important that all mortgages are subject to thorough credit assessment and that macroprudential policy is designed appropriately.
Swedish central bank also found that the indebtedness has gone hand-in-hand with strongly rising housing prices. After a fall that began in autumn last year, housing prices have stabilized somewhat recently and indebtedness is now increasing at a slower pace. Swedish household debt is expected to continue increasing at a faster pace than their incomes in the coming years.
There are several vulnerabilities and risks linked to the banking system in Sweden, including its size, concentration, interconnectedness, limited capital levels and in some respects low resilience to liquidity risks. The banks’ high exposure to the housing and property markets, for which the banks largely obtain funding on the international capital markets, also contributes towards increasing the vulnerabilities. Given these vulnerabilities, it is important that the banks have enough capital and liquidity. The Riksbank, therefore, considers that the banks’ capital in relation to total assets should increase and that a leverage ratio requirement of 5% should be introduced as soon as possible. It is also important for banks to insure themselves against liquidity risks in different currencies.
