OREANDA-NEWS. The health of Sweden's banking system is heavily dependent on effective mortgage and housing markets. Credit losses on mortgage loans are low but, with rising house prices, heavily indebted consumers and generously structured loans, systemic risks are increasing, Fitch Ratings says.

Swedish banks have significant residential real estate exposures, well above the EU average. A high 70% of mortgage loans outstanding in Sweden are interest only, and there is no statutory requirement for households to amortise housing loans.

Swedish house price rises among the highest in the developed world. House price contraction would be negative for the economy and the banks. Interest rate shocks would also impact highly indebted households. Nevertheless, we believe banks are mitigating the risks. Last month's stress test by the central bank indicates households have good debt servicing capabilities and rated banks are strongly capitalised.