Sweden’s Finance minister Anders Borg sees “serious risks” in Latvia and is ready to act forcefully to deal with the mounting problems.

The economic recession in the Baltic States is a growing headache for Swedish banks as SEB and Swedbank, key players in the market, have lend hundreds of million of kronor to the crisis-hit states.

“There are serious risks,” Anders Borg said in an interview with Bloomberg in Berlin. “We have made clear that we have the resources and the ability to deal with any problem that might occur. We could deal quite forcefully if necessary.”

As a result of the turbulence in the Baltics, where a devaluation of the Latvian currency is running nearer, the Swedish banks have tumbled on the Stockholm stock exchange and the krona has dived against the euro and the dollar.

“If there would be credit losses that would undermine their capital, we’ve made clear that we are ready to provide capital for common stocks to safeguard the taxpayers’ interests and recapitalize the banks,” Borg said to the news wire. “If there would be huge losses we would be ready to take over banks. But the first responsibility lies with private owners.”

Last quarter the Latvian economy shrank 18 percent, the steepest slump in the European Union. As recently as 2007 Latvia boasted double-digit economic growth.

Some 40 percent of Latvia’s population of 2.3 million people are customers with Swedbank, according to Bloomberg. The bank controls about a quarter of the lending market in Latvia and has lent 65 billion kronor (€6.2 billion). SEB has total lending of 39 billion kronor in Latvia.

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.