Big banks’ mortgage profits rising

The total net interest for Sweden’s big four banks amounted to around SEK 30 billion for the second quarter – an increase of over one billion kronor since last year. The profits come mainly from mortgages.

“This is a completely unreasonable figure,” says Håkan Larsson, housing economist at the Swedish Homeowners Association. Håkan Larsson says that the development is due to the low repo rate, which has meant there is a huge difference between the interest banks themselves pay and what they offer mortgage customers.

During the same period mortgages have grown in importance for banks. For Swedbank and Handelsbanken, the mortgage share of the group rocketed from 25% in 2010 to 49% and 42% respectively in 2015.

Håkan Larsson points out that the four big banks have very similar interest rates for mortgage customers, calling it a price-fixing cartel. He believes politicians ought to act and the state SBAB bank ought to lead the way by bringing down interest rates.

Many traders going to refuse cash

Two thirds of Sweden’s traders believe they will stop accepting cash by 2030, according to a new, as yet unpublished, report from the Royal Institute of Technology (KTH).

Niklas Arvidsson, lecturer in industrial dynamics at KTH, is one of the authors and predicts that Sweden will be a cashless society by 2030. “It is moving very quickly just now.”

According to the Swedish Trade Federation, 80% of all transactions in retail are currently made by card, and this is increasing constantly.

Interest rate unchanged

The central bank, the Riksbank, is leaving the benchmark interest rate, the repo rate, at a negative 0.5%. The decision was expected.

Riksbank governor, Stefan Ingves, said, “It is important that inflation is more permanently at two per cent and does not just touch on two per cent. For that reason it is pressing and important to continue with an expansive monetary policy for some time longer.”

The first increase in the repo rate is expected in the middle of 2018.

China trip to pave the way for new deals

Prime Minister Stefan Löfven is to begin a three-day trip to China next week, including a meeting with Chinese Prime Minister Li Keqiang, accompanied by Enterprise Minister Mikael Damberg, Trade Minister Ann Linde and Environment Minister Karolina Skog, along with a business delegation that includes Ericsson, ABB, Astra Zeneca, Scania and Volvo Cars and Volvo Group.

Sweden’s exports to China amounted to SKr 46 billion in 2016. During the first quarter this year exports grew by 33%, compared to the same period last year.

Mikael Damberg says that China’s efforts to move forward on the global political arena in terms of trade and climate makes it easier to find a shared agenda.

Moderates – corporate tax drop is a rise on the sly

Sweden is lowering corporate tax for the third time since 2009, now to 20% (see SPR 20/6 Early Ed.). However the Moderates are calling it a tax rise on the sly.

Finance Minister Magdalena Andersson wrote in a Dagens Industri (DI) debate article yesterday that the lower tax will be compensated for by limits to interest deductions.

The Moderates have welcomed the limits to the tax deduction, which aims to stop companies’ aggressive tax planning, although. Maria Malmer Stenergard, tax policy spokesperson for the Moderates, would have liked a larger cut in corporate tax as compensation.

Meanwhile the Confederation of Swedish Enterprise (Svenskt Näringsliv) welcomes the tax decrease but is critical of limiting the right to a tax deduction.

“We are lowering corporate tax”

Today the Ministry of Finance is putting out a memorandum on new tax for the corporate sector, write Finance Minister Magdalena Andersson and deputy Finance Minister Per Bolund in Dagens Industri (DI).

It proposes a general rule for limiting tax deductions for interest in the corporate sector in order to increase tax neutrality between different forms of financing. The memorandum also includes other proposals such as new tax rules for financial leasing, new hybrid rules, and a primary deduction for rental properties. Additionally, the current interest rate deduction rules are to be tightened. The proposals are fully financed and are proposed to come into force on 1 July 2018.

As limiting the tax deduction for interest means that the tax regulations are tighter, it is proposed that companies are compensated by lowering corporate tax from 22 to 20 per cent. This lower rate is fully financed by tightening the other rule. Thus the proposal is a redistribution of total tax within business.

The proposal is out for consultation before the government makes a final decision.

Trump policy hitting Swedish export companies

After almost five months in the White House, Donald Trump’s trade policy is still unclear. This uncertainty is affecting Swedish export companies.

“The only concrete things we have seen is that he wants to renegotiate the North American free trade agreement Nafta, and that he has withdrawn the USA from TPP, the deal with Asia. We do not know more than this,” says Anna Stellinger, director general for the National Board of Trade. She continues, “Uncertainty is never positive. Not for trade and not for companies that want to invest.”

Anna Stellinger points out how important a market the USA is for Swedish companies. The board has calculated that 139,000 Swedish jobs are linked to Swedish exports to the USA.

Tense wait for report

With France and Germany pushing for closer cooperation, the European Commission has outlined five scenarios for the future of the EU post-Brexit. Sweden has remained remarkably quiet about the white paper, but at lunchtime today the Commission is to release a report that has the potential to change this.

According a rumour in the German media last week, pressure will be put on Sweden to adopt the euro no later than 2025. The European Commission has denied that this is the case, but Roberg Bergqvist, chief economist at SEB, believes there is a grain of truth in the rumour.

Finance Minister Magdalena Andersson (S) is defiant, saying she will not accept a specific date. “It is up to the people of Sweden … to decide if and when Sweden adopts the euro. There is no other alternative,” remarks the minister, believing that there is understanding in the EU for this stance post-Brexit.

EU warns of house prices

Sweden risks a disorderly housing market correction, warns the European Commission in its annual review of the Swedish economy, reports Reuters. The risk comes from persistent house price growth and that the policy implemented by Swedish authorities has not been sufficient.

The Commission wants to see housing tax reforms, steps to increase the rate of new housing construction and deregulation that leads to a more effective use of existing housing stocks. The Commission recommends gradually lowering the tax deductibility of mortgage interest payments.

Dispute over Nordea’s head office

Both parties could end up losing in the dispute over Nordea’s head office, according to several commentators. Nordea has threatened to move its headquarters out of Sweden as a result of the political decision to raise the fees for the resolution reserve (to aid banks in the case of a financial crisis – ed.).

However, although the government has so far focused on the positive elements of a Nordea move for taxpayers, an anonymous source to SvD points out, “It would make big international news. It could lead to a discussion about the business climate in Sweden, something the government does not want.” On the other hand Nordea risks disappointing customers, as the move could be perceived as a rejection of the bank’s largest market.

Meanwhile, writing in Dagens Industri today, MEP Gunnar Hökmark accuses the government of undermining Sweden’s competitiveness with the new bank tax and says that it is incomprehensible that Finance Minister Magdalena Andersson want to bring in this tax, which is making Nordea, the Nordic countries’ largest bank consider moving.