Nordea Curbs Exposure to Swedish Mortgages as CEO Urges Caution

(Bloomberg) -- Nordea Bank AB won’t keep up with growth in Sweden’s mortgage market as the biggest Nordic lender adopts a more cautious approach, Chief Executive Officer Casper von Koskull said.

“Because of the competitive scene, we will grow less than the market,” he said in an interview in Stockholm. “Because we think we will be more cautious and we will not go into that price competition.”

Sweden’s housing market has dominated economic headlines of late amid signs a price correction is under way. Concerns that the adjustment might result in a full-on crash have hit the currency, with the krona losing more than 5 percent against the euro since the end of August.

Meanwhile, calculations by Bloomberg News based on data from Statistics Sweden show Nordea’s Swedish mortgage book shrank in October for the first time in 15 years. Von Koskull says the bank’s retreat is deliberate, and fits in with a broader strategy to reduce exposure to risky segments.

Nordea Swedish Mortgage Book Shrinks for First Time in 15 Years

“In the last 18 to 24 months, we have de-risked our bank, not only on the housing side,” von Koskull said. “The housing is not a de-risking, because we have grown less. But we have also grown less in real estate and we have shrunk in Russia, shipping and offshore, so when you look at the underlying growth in net interest income, absent these sectors, we would actually have had the same growth as others.”

“The de-risking doesn’t get a lot of credit,” he said. “But for us, it’s been the right thing to do.”

The shift in Sweden’s housing market follows years of rapid price increases and a massive buildup in household debt. While the Riksbank has made clear it finds that development worrying, it’s also made a point of focusing on inflation instead of macro-prudential matters when setting policy. 

As low rates have fueled borrowing, the financial regulator has tried to stem the buildup of private debt. It recently won approval to tighten amortization requirements further, after starting to force households to pay down their debt at a faster pace last year.

Stricter mortgage rules have coincided with a big increase in supply, and with households’ finances increasingly stretched, home prices have started to fall.

For more on the situation in the Swedish housing market, click here

“There is a cooling taking place in the Swedish housing market, no doubt,” von Koskull said. “It is healthy. It is a cooling at this level which will have very little impact, in my mind, or limited impact, on the underlying economic growth and dynamics.”

“My own sense is that you will not see any major drastic downward movement because you actually have an underlying healthy economic climate and an underlying healthy demand picture,” he said.

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