The Swedish banking sector
In macroeconomic terms, the banking sector in Sweden is as important as in other European countries. The balance sheet total of all Swedish banks in 2022 was 2.8 times the size of Sweden’s total economic output. By comparison, the European average was 2.4 times the GDP. The development of the bank branch network in Sweden is significantly below average, with 6,968 inhabitants per branch, compared to a European average of 3,228 inhabitants per branch.
In 2022, the portfolio of loans in danger of default at Swedish banks was 0.2%, significantly lower than the average of 1.8% in other European countries. The cost-income ratio of Swedish banks in 2022 was 44.8%, below the level of other European competitors. Profitability, measured by return on equity, was 11.5% in 2022, well above that of other banks in Europe.
Since the mid-1980s, the Swedish banking market has been extensively deregulated. As a result, there was an increase in the volume of credit, which fuelled a property and stock boom.
At the beginning of the 1990s, this development culminated in a system-wide banking crisis, which could only be overcome through massive government measures (establishment of bad banks and nationalisation of important banks). In the wake of cleaning up the banking crisis, there has been a profound reorganisation of the banking market. The Swedish banking market weathered the financial crisis from 2007 onwards relatively well due to targeted aid measures.
The Swedish financial system has proven resilient. The Swedish economy and its banking market have also made it through the COVID-19 pandemic well. The resident major banks have good capital and liquidity. However, the risk of overheating in the property market and possible price corrections has risen substantially due to recent price increases and the high level of household debt combined with a significant proportion of variable-rate loans. In addition, Swedish banks have considerable exposure to the commercial property segment. However, the banks’ financing situation is stable and the ability to provide credit to the real economy remains assured.1
LBBW Research, Financial Blickpunkt of 5/7/2022 ↩
The Swedish extraordinary member savings banks
The first Swedish savings bank was founded in Gothenburg in 1820. The Swedish savings banks of the early 19th century were intended to offer financial services to broad sections of the population, especially poorer people. For a long time, there was a deposit ceiling to comply with this target group, which hindered the growth of the institutions. It was not until 1969 that the savings banks and their activities were put on an equal footing with commercial banks.
Respected citizens from the local community managed the savings banks, which were run in the form of foundations. The Swedish savings banks had a local focus from the outset. Even though a limitation of activities to the local framework (regional principle) was not mandatory, it was observed voluntarily.
The number of Swedish savings banks has fallen sharply over the years. In 1928, the peak year, there were 498 savings banks; in 1960, there were 434. In 1980, there were still 164 savings banks, after many small institutions had merged into regional banks. As a result of an increasingly competitive environment, combined with the deregulation of the Swedish banking market, further mergers took place in the following period. An additional driver of consolidation was the concentration of many Swedish companies and the associated relocation of the registered office from provinces to the capital Stockholm, which caused the locally operating savings banks to lose competitive advantages.
Excerpt from the German Savings Banks Association (DSGV) article by Jana Gieseler