Understanding Household Debt in Sweden

In recent years, Sweden has seen significant developments in its economic landscape, particularly in the realm of household debt. This blog post provides an overview of key reports and statistics, shedding light on the current state of affairs in Sweden’s financial sector.

SCB: Labour Force Surveys

The Labour Force Surveys offers insights into the Swedish labour market. As of July 2023, the unemployment rate stands at 6.2%, a slight decrease from the previous year. The employment rate has seen an increase of 1.3%, demonstrating a positive trend in employment figures. These statistics play a pivotal role in assessing the overall economic health of the nation.

SCB: Consumer Price Index

In July 2023, Sweden experienced an inflation rate of 9.3%, indicating a significant increase in the general prices of goods and services compared to the previous year.

 Notable increases in charter holiday and food prices were primary drivers of inflation. These price hikes were likely influenced by post-pandemic travel demand and supply chain disruptions, as well as factors affecting food production costs.

Despite rising prices in certain categories, falling electricity prices played a role in stabilizing the overall consumer price index. Decreasing electricity costs were influenced by various factors, including energy market dynamics and regulatory changes.

 Economic Tendency Indicator

The Economic Tendency Indicator for August 2023 experienced a decline of 2.5 points, settling at 85.2. This drop was primarily attributed to subdued sentiments in the service sector, which has become the most pessimistic part of the business sector. The manufacturing industry, on the other hand, saw a slight decline, mainly due to diminished expectations for future production.

SCB: Swedish Debt Analysis

A detailed analysis of Swedish household debt reveals that Sweden ranks third in the EU for highest per capita debt. Over the years, easy access to loans and low-interest rates have fuelled a significant increase in Swedish household debt, impacting financial stability. While the majority of debts are housing-related, the vulnerability of households to interest rate hikes is a cause for concern, largely due to a preference for variable interest rates. Even small rate hikes can have substantial financial implications.

FI: Mortgage Report

Swedish mortgagors are grappling with growing financial pressure due to rising interest rates and inflation. New mortgagors, in particular, are affected, with an average of 12% of their disposable income going toward interest payments. This is nearly triple the 2021 percentage and represents the highest level recorded in FI’s surveys. Interest rate payments are expected to climb to nearly 16% of disposable income by the end of 2023, further intensifying financial stress.

FI has implemented measures like amortization requirements and a mortgage cap to reduce risks associated with household borrowing. This has led new mortgagors to borrow less and opt for more affordable homes.

Sources:

https://www.fi.se/en/published/news/2023/20232/rising-interest-costs-putting-pressure-on-mortgagors/

https://www.scb.se/hitta-statistik/artiklar/2023/svenskar-har-hoga-skulder-jamfort-med-andra-europeer/ (in Swedish)

https://www.scb.se/en/finding-statistics/statistics-by-subject-area/prices-and-consumption/consumer-price-index/consumer-price-index-cpi/pong/statistical-news/consumer-price-index-cpi-july-2023/

https://www.scb.se/en/finding-statistics/statistics-by-subject-area/labour-market/labour-force-surveys/labour-force-surveys-lfs/

https://www.konj.se/english/publications/economic-tendency-survey/economic-tendency-survey/2023-08-30-gloomy-signals-from-the-service-sector.html

One month ago Helix Ice attended the annual NPL Europe conference which was organised by Smith Novak in London. It was a great opportunity to meet other people from the industry, both investors, branch colleagues and technology experts.

We always strive to stay up to date with relevant current technology developments and the hottest trend right now is of course AI and primarily large language models (such as ChatGPT), reinforced learning (advanced machine learning), generative AI (create images etc. based on text requests) among others. I asked ChatGPT to write an article based on selected posts on LinkedIn that attendees had written based on their experiences from the conference we went to:

At a recent NPL conference, attendees discussed the state of the market in Europe and shared their thoughts on various topics related to non-performing loans (NPLs).

One of the main topics of discussion was the impact of COVID-19 on the NPL market. Attendees noted that while the pandemic had initially caused a slowdown in the market, things were starting to pick up again as economies reopened and stimulus measures helped to support businesses and households. However, there was some concern about the potential for a wave of NPLs to hit the market in the coming months as government support measures expire.

Another topic of discussion was the differences between the Nordic region and the rest of Europe in regards to the NPL market. Attendees noted that the Nordic countries tend to have lower levels of NPLs compared to other European countries, and that this is due in part to their strong economies and well-functioning financial systems. Additionally, the Nordic countries have a culture of transparency and cooperation between lenders, which has helped to mitigate the impact of NPLs on the financial system.

The role of technology in the NPL market was also discussed by attendees. Many noted that technology has the potential to streamline the NPL resolution process and make it more efficient, but that there are still challenges to be addressed, such as data privacy concerns and the need for standardization across different markets.

Finally, attendees discussed the importance of sustainability in the NPL market. Many noted that there is increasing demand from investors for sustainable investments, and that this is also true in the NPL market. Attendees highlighted the need for NPL investors to take into account the social and environmental impact of their investments, and to work towards sustainable solutions that benefit both investors and the wider community.

Overall, the NPL conference provided a forum for attendees to share their thoughts and insights on the state of the market in Europe. While there are still challenges to be addressed, such as the potential for a wave of NPLs and the need for technology and sustainability in the market, attendees expressed optimism about the future and the potential for continued growth and innovation in the NPL market.

I’d like to add a few takeaways of my own the conference.

• There was a lot of discussion about stream lining the data used in portfolio valuations, EBA is developing a data template that should be used in NPL transactions which will help buyers get necessary data. This is not as big of a concern to us in the Nordics as much as the rest of Europe as we already have a history of high data quality and information about our debtors.
• We can expect a higher degree of 2^nd hand market portfolio trades the coming year across Europe with some countries estimating 25% of all transactions being from the 2^nd hand market. In the Nordics, we do not have a long history of 2^nd hand trades but this year this will probably change and increase significantly, partly due to NPL backstop starting to have a real effect.
• Our COO Johan participated in the panel discussion for the Nordics session where there was some discussions about niche banks who might have some turbulence in the near future due to higher interest rates and the need to start selling off debt portfolios if they’re not already experienced in this regard.

Finally, I would like to express my gratitude to Smith Novak for hosting us, it was a great event!

We have all followed the horrible actions in Ukraine the past two plus months and hope it will come to an end soon. The invasion has affected us in different ways, some more than other of course with millions of people fleeing their home country not knowing where they’ll end up or for how long and others forced to defend their country with their own lives at stake.

Our lives here in the Nordics however have run its usual course and the NPL market is still active in the Nordics, just as before. Sweden and Finland are discussing the possibility of becoming NATO members with Finland planning to have a public vote.

Macro trends in Europe since the invasion Feb 24

The Russian MOEX index collapsed the days leading up to the invasion and was down 44% between the 16 and 24 Feb (this after already have been on a decline since October), it has since recovered a bit and is now (4 May) “only” down by 5% since Feb 16.

The Nordic indexes has changed with between -3,2 and +9,6 percent since the invasion (24 Feb to 4 May) with Sweden (OMXS30) declining the most and Denmark (OMXC20) gaining the most. Sweden and Finland (OMXH25) both declined over 8% the days leading up to the invasion (16 – 24 Feb) and then continuing down the following two weeks with Finland dipping 16% 16 Feb – 8 Mar and Sweden almost 13%.

We can also see similar effects in the bigger markets in Europe where UK (FTSE100) and Germany (DAX) both declining between 5 and 8 percent leading up to the invasion and Germany continuing down the weeks after with a total decline of 16,5% (16 Feb – 8 Mar). Both markets have recovered fairly well with UK at +4% and Germany at -1,8% since the invasion (24 Feb – 4 May).

Market overview:

In 2020, we had significantly lower prices for Forward Flows than before and a maximum of 6-12 months agreement compared to the previous standard which was 12-24 and up to 36 months. Large number of transactions available in the Nordic market for both OO and FF and especially within Bank & Finance. Requests for longer contracts are again up on the table with up to 24 months while the buying side tries to reduce this more to 12 + 12 months arrangement and instead of having the opportunity to adjust the price after 12 months.

The price level of unsecured loans in the segment 300 00 – 500 000 SEK has remained low while we see that there is a lot of competition now for the lower amounts, which once again leads to higher prices in that segment. At the moment, there are too many unsecured loan providers on the market and those with slightly more generous credit terms will have trouble selling off their NPL portfolios to the price levels that they calculated with.

Large increase in Sweden in the number of applications for debt restructuring but at the same time also an increased amount of rejections as many applicants have not made sufficient attempts to sort out their finances first. KFM has informed about this now after the summer. In Finland, tax refunds have been at record levels, which also had a positive impact on  return of investments during August and September. Norway has had a steady collection and flow of cases for most of the Corona and although there are some concerns in that market that there will be backlogs around consumers’ debt picture, the prospects are good there. In Denmark, there have been a lot of large portfolio deals within Bank & Finance during the summer and the start of the autumn. A tightening within the credit terms for e-commerce has resulted in several Nordic e-retailers choosing to leave Denmark now and leaving OO-portfolios available on attractive levels.

Increased competition in the Nordic region regarding the purchase of NPL portfolios as several of NPL buyers have been reloaded with funds to invest either through new bonds or through collaborations with major institutional investors. Most players also believe that there will be consolidation in the debt collection and NPL market within the next few years. Exciting times ahead!

Please feel free to contact us for more dialogues and opportunities around the Nordic NPL market.

/COO, Johan Gustafsson