All of the big Swedish banks can withstand extreme pressure in the coming period, Sweden’s financial watchdog said.

The major Swedish banks can withstand credit losses in the Baltics exceeding 150 billion kronor (€14 billion) over a three-year period, according to Swedish Financial Supervisory Authority’s most negative stress test.

“There is currently no need for any of the big banks to strengthen their capital adequacy based on the regulatory requirements", the watchdog writes in a statement on Wednesday. "However, in extreme scenarios the market will most likely require a higher level of capital, which can place pressure on financing possibilities for banks that are most affected”.

The authority’s stress test examined how Sweden’s for largest banks, Nordea, Handelsbanken, SEB and Swedbank, might be hit if national and global economies plunge. The Swedish banks are major players in the Baltic market. As a result of the current turbulence in the Baltics, where a devaluation of the Latvian currency is running nearer, the Swedish banks are heading for massive losses. 

In the most likely scenario, the four big banks will have credit losses totaling 203 billion kronor during the period 2009-2011, mainly from the Baltics and Ukraine. In this scenario, the banks will make total earning of 296 billion kronor during the period. This can be compared to the most gloomy scenario where the credit losses are significantly larger, 350 billion kronor. In this scenario, three of the four big banks will make losses. 

Due to future highly uncertainties at the world’s financial markets, the banks are urged to have good capital preparedness, even for improbable scenarios. This means that the banks should have concrete plans for improving their capital adequacy within a reasonable period of time. The financial agency believes that the major Swedish banks currently possess this level of preparedness.