Swedish Banking Giants Sustain Capital Strength Amid Simulated 2025–27 Downturn

Swedish Banking Giants Sustain Capital Strength Amid Simulated 2025–27 Downturn

(IN BRIEF) The EBA’s 2025–27 stress test, involving 64 major EU and Norwegian banks, simulated a recession driven by geopolitical tensions and protectionist disruptions to supply chains, which would elevate commodity and energy prices, inflation, and interest rates while curbing consumption and investment. Under the prescribed methodology—requiring banks to apply their own data on a static balance sheet alongside EBA-defined caps and floors—Sweden’s five largest lenders (Handelsbanken, SEB, Swedbank, SBAB, and Länsförsäkringar) saw their Common Equity Tier 1 ratios decline by 0.7–2.1 percentage points on a transitional basis, with minimal impacts on SBAB and Länsförsäkringar, yet none fell below FI’s minimum capital thresholds. Results on a fully loaded basis reinforce the need for early adjustments to upcoming EU capital rule changes. Finansinspektionen will monitor these preparations closely and incorporate all stress-test findings into its Supervisory Review and Evaluation Process to determine each bank’s overall capital requirements.

(PRESS RELEASE) STOCKHOLM, 4-Aug-2025 — /EuropaWire/ — A recent stress test orchestrated by the European Banking Authority (EBA) confirms that Sweden’s top five lenders possess strong buffers to absorb a severe market downturn.

Simulating the years 2025 through 2027, the EBA’s adverse scenario envisions a global recession aggravated by geopolitical tensions. Heavy-handed protectionism disrupts trade routes and supply chains, pushing commodity and energy costs higher. These factors combine to stoke inflation, elevate borrowing costs, and dampen both household spending and corporate investment.

In total, 64 banks—representing roughly three-quarters of the combined assets of EU and Norwegian banks—were evaluated in coordination with the European Central Bank (ECB), the European Systemic Risk Board (ESRB), and national regulators. Sweden’s Finansinspektionen (FI) oversaw the participation of Svenska Handelsbanken, Skandinaviska Enskilda Banken, Swedbank, SBAB Bank, and Länsförsäkringar Bank, verifying that each institution followed the EBA’s uniform methodology for consistency.

Under this framework, banks apply their proprietary data and models on a fixed balance-sheet basis but must also align with the EBA’s prescribed definitions, limits, and adjustments. This approach ensures comparability of capital impacts—credit losses, squeezed profits, and shifts in risk-weighted assets—across all participants, making the exercise a comparative gauge rather than a literal forecast.

Results are presented under two lenses:

• Transitional basis, which factors in the phased rollout of new EU capital regulations through 2033.
• Fully loaded basis, which treats all upcoming regulatory changes as if they were already in force.

On the transitional basis, the three largest Swedish banks saw their Common Equity Tier 1 (CET1) ratios contract by between 0.7 and 2.1 percentage points over the three years. SBAB and Länsförsäkringar experienced only marginal declines. Crucially, none of the five banks fell below FI’s minimum capital thresholds.

The fully loaded results underscore the urgency for banks to adapt ahead of the final regulatory phase-in. FI will continue to monitor these preparations as part of its ongoing supervisory review and will incorporate the stress-test findings—alongside other domestic and international analyses—into the Supervisory Review and Evaluation Process (SREP) to set each bank’s overall capital requirements.

The EBA publishes the results of its 2025 EU-wide stress test

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SOURCE: FI.SE