Large Swedish banks show resilience in EU stress test

Following the publication of the 2023 bank stress test results by the European Banking Authority (EBA) (please see EventID 22384 in this context), the Swedish financial market regulator Finansinspektionen (FI) has published a statement in this context. Therein, FI informs of the stress test and of the performance of the participating Swedish banks and describes how it will take into account the results of the test in the assessment of banks‘ total capital needs.
#### The stress test
This year’s stress test assessed institutions‘ resilience in highly adverse economic conditions. Specifically, the test simulated a three-year macroeconomic scenario encompassing a recession triggered by severe geopolitical developments, elevated commodity prices, a renewed surge in Covid-19 cases, high inflation, and increased interest rates during 2023-25. 70 banks participated in the stress test, constituting around 75% of total banking assets in the EU and Norway.
#### Participating Swedish banks and their outcomes
Participating Swedish banking entities were Svenska Handelsbanken, Skandinaviska Enskilda Banken, Swedbank, SBAB Bank, and Länsförsäkringar Bank. These banks revealed satisfactory resilience: The common equity tier 1 capital ratio (CET1 ratio) demonstrated a maximum decline of 2.0 to 4.5 percentage points for the prominent banks (Svenska Handelsbanken, Skandinaviska Enskilda Banken, and Swedbank), with more modest reductions for the remaining banks (SBAB Bank and Länsförsäkringar Bank). Importantly, all participating Swedish banks maintained capital levels that adhered to FI’s requirements, signifying their capacity to withstand significantly adverse macroeconomic developments without breaching regulatory thresholds.
#### Using the results
According to Finansinspektionen , the EBA’s stress test results will factor into FI’s assessment of banks‘ total capital needs (SREP), scheduled for finalization in September 2023 (2024 for Länsförsäkringar Bank).