Sweden's Riksbank warns of "large risks" on the financial markets.

• Swedish economy grows faster than expected
• Sweden's unemployment rate jumps to 9.8%

The major banks are well-capitalised in an international comparison and loan losses are expected to be lower in the coming period, Sweden’s Riksbank said in its Financial Stability Report. The banks are therefore well-equipped to meet unexpected and negative events in the period ahead.

But it also warned that there are still large risks and that uncertainty has recently increased, many in the back of troubled public finances in several countries in southern Europe. This could lead to a wave of renewed uncertainty and to deterioration in the functioning of the markets, the central bank warned.

”In Sweden the financial markets are functioning well under the circumstances and have not been affected to any large degree by the international turbulence. Swedish banks have only small exposures to the southern European countries experiencing problems with their public finances. The Swedish banks are also well-capitalised, seen from an international perspective and have since the winter been able to return to normal funding without state support,” said Riksbank Governor Stefan Ingves.

”The important thing in the present situation is that the countries with problems in their public finances implement the necessary measures to correct the situation. This would contribute to greater stability in the financial markets,” he continued.

The Riksbank’s assessment is that the loan losses during the period 2010-2012 will be lower than was assumed in the previous Financial Stability Report published in November. The four major banks’ loan losses are expected to amount to 61 billion kronor ($8.5 billion), according to the main scenario.

The fact that loan losses are now expected to be lower is mainly due to the improvement in the real economy. The largest loan losses in relation to lending will continue to come from lending in the Baltic countries.

Sweden's GDP increased by 3 percent in the first quarter compared to the first quarter of 2009, the statistics office said last week. The economic upswing was considerably stronger than expected.