Financial Stability December 2007

Financial stability in Sweden is sound at present However, the banks’ resilience to unexpected, negative events has declined somewhat Surrounding risks have grown

Financial stability is sound The Swedish banks are financially strong Profitability is favourable Borrowers are financially strong, this includes companies as well as households

Substantial profitability and low loan losses Totalled over four quarters, all four major banks, SEK billion Sources: Bank reports and the Riksbank Chart 3:1 (International financial reporting standards)

Somewhat lower resilience Credit risks have increased Increased lending to the Baltic countries Margins on lending have fallen Stress tests confirm the assessment

Associated risks have increased  Risks in financial markets have grown  Risk of a sudden slowdown in the Baltic countries  Risk of price adjustment in commercial property  Risk that house prices and household indebtedness will increase more quickly than incomes

Shocks in the interbank market The difference between the interbank rate and treasury bills in 2007, basis points Source: Reuters EcoWin Chart 1:2 Note. The differential is calculated as the difference between the three- month interbank rate and the three-month treasury bill rate in the respective country

Investors demand higher compensation for risk Credit spreads for corporate bonds in Europe, percentage points Source: Reuters EcoWin Chart 1:5 Note. Definition by Moody’s and Merrill Lynch. High-yield is classified by Moody’s/Standard & Poor’s as Ba/BB or lower.

Large deficits in the Baltic countries’ current accounts Current account as percentage of GDP, per cent, totalled over four quarters Source: Reuters EcoWin Chart 2:25

Substantial rise in inflation in the Baltic countries Harmonised index for consumer prices, annual percentage change Source: Reuters EcoWin Chart 2:26

High levels of credit growth in the Baltic countries Household borrowing in the Baltic countries, annual percentage change Sources: National central banks Chart 2:28

Household indebtedness and house prices increasing at a high rate in Sweden Annual percentage change Sources: Statistics Sweden and the Riksbank Chart 2:10

Household debts and interest expenditure in relation to disposable income Per cent Sources: Statistics Sweden and the Riksbank Chart 2:8

Low required rate of return on property Direct earnings requirement for office premises in city centres, per cent Sources: Newsec AB and Reuters EcoWin Chart 2:20

Financial stability in Sweden is sound at present However, the banks’ resilience to unexpected, negative events has declined somewhat Surrounding risks have grown