Banks in Sweden Facts about the Swedish banking market Published in Nov 2008 Banks in Sweden The Swedish financial market The economic role of the financial sector tween banking and insurance. It has led to that Efficient and reliable systems for saving, fi- all Sweden’s major banks are involved in the nancing, mediating payments, and risk man- life insurance business and some insurance agement are of fundamental importance for companies have their own banks. Sweden’s economic prosperity. These systems Another change is that branch offices have be- are operated by banks and other credit institu- come less important for bank customers’ daily tions, insurance companies, securities compa- services. Instead the customers tend to make nies and other companies in the financial sec- normal bank services through their internet tor. The financial sector channels in an effi- bank. Furthermore, opportunities to perform cient way society savings to investment and bank services in different ways have increased, consumption, such as household needs to e.g. cash- and debit card payments, cash with- smooth out consumption of various life stages drawals in supermarkets and credit applica- and the need for companies to finance invest- tions in chain stores. These new channels of ment. distribution have enabled the development of The financial industry account for almost four new services while existing services has per cent of the country’s total output, ex- changed. The new technology has also paved pressed as its Gross Domestic Product (GDP). the way for the establishment of new banks Around 100,000 people, representing about and increased competition in banking. two per cent of the total workforce in the coun- Moreover, mutual funds and insurance savings try, work in the Swedish financial industry. have developed into major forms of savings. In Types of financial enterprise recent years bank savings have increased and are now the largest household savings form. In The financial companies’ overall balance sheet the same time savings in bonds have declined in 2007 was SEK 13 800 billions. The three in importance. Over 75 per cent of the popula- largest groups of companies on the Swedish fi- tion have some of their savings in funds or eq- nancial market, measured in total assets, are uities, which are a high percentage by interna- banks, mortgage institutions and insurance tional standards. companies. Securities companies´ total assets are modest in relation to other financial com- Players on the financial market, Dec 2007 panies, but they play an important role in its part of the financial market. Banks’ share of the total assets of the financial market was 44 per cent at the end of 2007. Market changes The financial sector is experiencing a signifi- cant change in structure. Established compa- nies have broadened the scope of their busi- ness, while many new companies, both Swed- ish and foreign, have entered the market. One important change has been the industry slip be- Source: Sveriges Riksbank Nov. 2008 Swedish Bankers’ Association 1 Banks in Sweden Structure of the banking industry Number of banks Foreign banks were permitted to open branches There are four main categories of banks on the in 1990 and since then they have increased. In Swedish market: Swedish commercial banks, November 2008 they reached 33. Most foreign foreign banks, savings banks and co-operative banks focus on the corporate banking and se- banks. In November 2008 Sweden had a total curities market. The largest foreign bank is of 123 banks. The number of commercial Danske Bank, which became the fifth largest banks and foreign bank branches in Sweden bank when it acquired Östgöta Enskilda Bank has increased from 43 in 2000 to 64 in No- in 1997 and set up “provincial banks”. vember 2008. It is primarily more foreign Savings banks banks that contributed to the increase. Also the number of Swedish commercial banks in- There are numerous independent savings banks creased, including new internet- and telephone in Sweden. Generally, they are small and ac- banks as well as securities firms and credit tive in regional or local markets. Most savings market companies that has become banks banks operate in co-operation with Swedbank as regards technical solutions and the provision Swedish commercial banks of a common range of products and services. Swedish commercial banks are divided in three The number of savings banks has declined due categories. The largest are the four big banks: to that small savings banks have merged. Swedbank, Handelsbanken, Nordea and SEB. Co-operative banks These banks are important players on most segments of the financial market, and they e.g. A co-operative bank is an economic associa- account for more than 75 per cent of the depos- tion which has as its purpose to produce bank its from the public. Alongside the four big services for its members. To be able to use the banks, there are a larger number of smaller, bank services of a co-operative bank the cus- Swedish-owned commercial banks with di- tomer must become a member by paying a verse business focus and ownership structure. member share. There are two relatively small Some of these are savings banks that have been co-operative banks in Sweden. converted into joint stock companies, often Number of banks in Sweden with Swedbank as a shareholder. Most of the 2000 2008 Type of bank other commercial banks are formed during the (Dec) (Nov) mid nineties and until today. They are mainly Swedish commercial banks 22 31 focused on the retail banking market and dis- - of which four big banks 4 4 tribute their products and services online or - of which former savings banks 9 12 - of which other Swedish com- through telebanking. Some of the most re- 9 15 cently established banks are Avanza, and HQ. mercial banks Foreign banks 21 33 Foreign banks - of which subsidiaries 2 4 - of which branches 19 29 The first foreign bank was established in 1986, Savings banks 79 57 when foreign banks were first allowed to open Co-operative banks 2 2 subsidiaries. During a few years in connection Total 124 123 with the financial crisis in the beginning of the nineties the number of foreign banks declined. Source: The Swedish Financial Supervisory Author- ity (Finansinspektionen) Nov. 2008 Swedish Bankers’ Association 2 Banks in Sweden Banks function Deposits and lending downward trend since the early 1990s, but both Banks core business is to accept deposits and have begun to increase again from 2006 on- provide credit. In September 2008, the banks’ wards. The interest margin – the difference be- deposits from the public amounted to SEK tween the average lending and deposit rates, – 2,138 billions. The bulk of these deposits –43 has continued to decline. per cent - come from Swedish households. Mediation of payments Swedish companies account for 26 per cent of the deposits and foreign public for 17 per cent. In addition to depositing and lending money another important function of a bank is to pro- Previously, only banks were allowed to receive vide a means of payment. The Swedish pay- deposits from the public, but since first of July ment system is represented by among other 2004 credit market institutions are also allowed things the bank giro, commonly owned by the to receive deposits. Also so called deposit banks. The Swedish payment system is techni- companies may, with some restrictions, receive cally advanced, and has a high efficiency. This deposits. The deposit guarantee scheme applies means that payments are transacted quickly, however only deposits in banks and credit safely and at low cost. These systems for pay- market institutions. ments, but also securities transactions, belong to the financial infrastructure. The financial in- Lending to the public in Sweden takes place frastructure is an important part of Sweden’s mainly through banks and mortgage institu- total infrastructure. tions. Banks provide loans with different types of security and also smaller loans without col- Risk diversification lateral. Banks also provide loans secured on A third important task for the banks is to offer homes and buildings. Unlike mortgage institu- corporate and retail customers the opportunity tions, banks can above first mortgages also to reduce, redistribute and spread risks, for ex- provide second mortgages. Lending to the pub- ample by offering trading in futures and op- lic from banks reached SEK 3,000 billions in tions. September 2008. Forty-one per cent of lending to the public goes to the Swedish business sec- Bank deposits from and lending to the tor, while households and foreign borrowers public, September 2008 account for 24 per cent and 29 per cent respec- tively. Interest rates The interest rates banks set for their deposits and credits are highly dependent on the interest rates prevailing on the money market. Other factors affecting interest rates include the bor- rower’s creditworthiness, the risk in the under- taking, the competition among credit institu- tions, and the competition between different savings and loan forms. The banks’ average deposit and lending rates have shown a clear Source: Sveriges Riksbank Nov. 2008 Swedish Bankers’ Association 3 Banks in Sweden The major banking groups Swedish banking groups sive operations in the fund management, fi- From the mid-1990s, Sweden’s leading banks nance company and life insurance sectors. have evolved into financial groups with exten- Swedbank has an extensive network of over sive international activities. This development 450 bank branch offices in Sweden. In addi- is partly due to areas such as life insurance, tion, Swedbank have a close cooperation with fund management and mortgage lending be- the independent savings banks and partly coming an increasingly important part of the owned banks among the savings banks move- groups’ business activities alongside traditional ment.