Standard & Poor’s Research Report: Swedish Banking Sector

Competitive Dynamics

The Swedish banking market remains highly concentrated with the three major domestic banks (Swedbank, Svenska Handelsbanken AB, and SEB) accounting for about 55% of domestic lending and 54% of deposits from corporates and households.

Key Points:

• Domestic challenger banks (SBAB Bank AB and Länsförsäkringar Bank) continue to grow faster than the total loan market in 2020.
• The Swedish banking market is characterized by a high level of concentration, with a few major players dominating the market.

Risk Appetite

Swedish banks entered the pandemic with robust capital buffers and good profitability, with an estimated return on equity (ROE) of 12.3% in 2019.

Key Points:

• The forecast is for ROE to weaken to around 7.5%-11.0% in 2020-2022 due to the economic downturn.
• Swedish banks have a strong capital position and good profitability, which will help them navigate the challenges posed by the pandemic.

Industry Stability

There are about 125 banks, credit market companies, and other credit institutions operating in Sweden under FSA authorization.

Key Points:

• Swedish banks have advanced in their digital transformation and benefit from broad cooperation, providing some protection against disruption of their business models.
• The Swedish banking sector is characterized by a high level of stability, with many banks having a strong presence in the market.

Systemwide Funding

The report notes that stable covered bond funding compensates for the low share of customer deposits.

Key Points:

• The Swedish banking sector has a stable funding base, with a significant proportion of covered bond funding.
• This stability will help the sector navigate the challenges posed by the pandemic and maintain its stability.