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UPDATE 2-Swedish c.bank lowers bank loan loss forecast

2009-11-26 10:37:28 GMT (Reuters)
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* Sees bank loan losses of 155 bln SEK in 2009-2011

* Says risks are still considerable

* Says banks can cope with increased loan losses

* Largest losses still seen stemming from Baltic business

(Adds detail, share prices, analyst comment)

By Niklas Pollard and Veronica Ek

STOCKHOLM, Nov 26 (Reuters) - Sweden's Riksbank on Thursday said it expected loan losses for the country's banks to be lower than previously seen due to an improving global economy, though risks, not least in the Baltics, remained considerable. In its latest financial stability report, published twice a year, the Riksbank said it expected loan losses in 2009 through 2011 at the major Swedish banks to total 155 billion Swedish crowns ($22.4 billion).

In its previous report, issued in June, it forecast loan losses of 170 billion Swedish crowns in 2009 and 2010.

"The Riksbank's assessment is that the major banks' resilience has improved," the central bank said in a statement.

"The financial markets have begun to function better and the recession appears to have bottomed out. Loan losses in the bank system are therefore expected to be lower than was assessed in June."

Swedish banking stocks have been hit by worries over the risks they face in the Baltic region where they expanded over the past decade but which is now mired deep in recession.

"It is more of the same message that we have been getting for quite some time now -- that the development of the crisis is still not fully under control and that the medication therefore is still needed," said Cecilia Skingsley, analyst at Swedbank.

BALTIC LOSSES

The Nordic country's banks, mainly Swedbank and SEB, have extended billions of crowns of loans in the Baltic countries over years of strong growth and now face a mounting loan losses due to the downturn in Estonia, Latvia and Lithuania.

"The largest losses are still expected to come from the banks' activities in the Baltic countries. However, the banks have sufficient capital to meet losses of this magnitude," the central bank said.

It added that the banks had sufficient capital to meet larger losses than in the main scenario and that they were well capitalised in an international comparison.

Swedish bank stocks were little changed on the news after falling back in early trading, with Swedbank shares down 2.7 percent to 64.95 crowns by 0913 GMT versus an 1.6 percent decline in the Stockholm bourse's blue chip index.

Shares in SEB were down 1.6 percent while Nordea fell 3.2 percent and Handelsbanken dipped 1.6 percent.

"The fact that the loan losses were lower than previously (seen) was expected," DnB NOR analyst Odd Weidel said. "The banks' loan loss capacity ... is better than earlier thought and the Baltics are more transparent."

The central bank said all the major Swedish banks perform better in its stress test than in they had in the one conducted in June, though risks that could lead to higher losses than assumed in its main scenario remained large.

The Riksbank pointed to the risk of the economic recovery in the Baltic countries taking longer than expected as well as the risk of a worsening of the situation in the financial markets and possible setbacks in terms of economic activity.

"However, these two risks are considered to have declined somewhat since June," it added.

(Additional reporting by Simon Johnson, Katarina Gustafsson, Victoria Klesty and Nicolas Vinocur; Editing by Andy Bruce) ((niklas.pollard@reuters.com; +46 8 700 1110, Reuters messaging: niklas.pollard.reuters.com@reuters.net)) ($1=6.910 Swedish Crown)

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