EBA issues Opinion on measures to address macroprudential risk following notification by the Swedish Financial Supervisory Authority (Finansinspektionen)

EBA has issued an opinion on measures proposed by the Swedish Financial Supervisory Authority (FI) to address macroprudential risks related to the real estate sector in Sweden (eventid=21172).
The proposed measures aim to target asset bubbles in the residential and commercial property sectors and introduce risk weight floors for certain corporate exposures secured by these properties. EBA has reviewed the evidence and does not object to the implementation of the proposed measures.
Under the proposed measures, a risk weight floor of 35% will be applied to certain corporate exposures secured by commercial properties, and a risk weight floor of 25% will be applied to certain corporate exposures secured by residential properties. These requirements will be applicable to credit institutions that use the IRB for calculating regulatory capital requirements. The goal of the measures is to address the elevated systemic risks associated with the real estate sector in Sweden, particularly related to corporate exposures secured by commercial or residential properties generating rental income.
EBA acknowledges the concerns raised by the FI regarding financial stability risks stemming from the commercial real estate sector. EBA recognizes the increased activity levels in the Swedish commercial real estate sector and the high level of indebtedness of commercial real estate firms. Despite diversification in funding structures, banks remain exposed to risks in the sector. The changing macroeconomic environment, including rising interest rates and inflation, poses additional risks to the debt servicing capacity of commercial real estate borrowers. A crisis in the commercial real estate sector could have significant ripple effects on the economy and financial system and lead to procyclical behaviors from banks and other stakeholders.
The proposed measures are in accordance with Article 458 CRR and are considered suitable, effective, and proportionate by the FI.