Banks have low loan losses from corporate bankruptcies
News, Economic Commentaries In a new Economic Commentary, the authors study Swedish companies that have gone bankrupt and whether these have created loan losses for Swedish banks. The analysis shows that Swedish banks have had very low loan losses in recent years, due to the fact that the companies causing the loan losses have small loans. However, this could change in the event of a severe shock to sectors with large bank loans, according to the authors.
The authors Niklas Frykström, Anders Kärnä, Jakob Winstrand and Karin Östling Svensson, who work at the Financial Stability Department, have written the Economic Commentary “Corporate bankruptcies and loan losses in Swedish banks”. Here, they have analysed the loan losses incurred by Swedish banks and the types of companies that caused them, over the period 2019-2023.
Swedish banks' loan losses are low and the typical loan loss amounts to a few thousand kronor. The loan losses come mainly from companies operating in the construction, trade and commercial property sectors. The low loan losses may either indicate strict controls of the creditworthiness of the companies to which the banks lend, that Swedish banks primarily lend to sectors with low expected risk, or that the banks have good collateral for the loans they issue. However, the fact that Swedish banks have a large share of their lending to the commercial real estate sector could pose a risk if that sector was hit by a major shock.
In addition, Swedish banks' loan losses are low compared to other European countries. Major Swedish banks have a larger share of mortgages in their loan portfolios and it is unusual for Swedish households to go into personal bankruptcy. In addition, banks often hold collateral, such as property, when lending to businesses. However, there is value in continuing to investigate Swedish loan losses linked to bankruptcies, and the factors that influence which companies are allowed to borrow.
Authors: Niklas Frykström, Anders Kärnä, Jakob Winstrand & Karin Östling Svensson, all working in the Financial Stability Department
Economic Commentaries
Economic Commentaries are brief analyses of issues with relevance for the Riksbank. They may be written by individual members of the Executive Board or by employees of the Riksbank. Staff commentaries are approved by the relevant head of department, while Executive Board members are themselves responsible for the content of the commentaries they write.