Competition in the Swedish Banking Sector 2019

In Sweden, competitive pressure in the banking sector has been highly debated in recent years. Various stakeholders point to increasing interest margins and a low level of consumer mobility. Against this background, the Swedish Bankers’ Association has asked Copenhagen Economics to analyse competition in Swedish banking.

In an international comparison, we find no indications of insufficient competitive pressure in Swedish banking:

• Operational costs for Swedish banks are among the lowest in the EU, indicating a sufficient competitive pressure, pushing out inefficient banks.
• The low costs appear to be passed on to customers; the net interest margin is among the lowest in Europe.
• The concentration of the banking sector in Sweden is below average among comparable countries.
• Price changes in the Swedish banking market appear to be cost-driven; the banks who have experienced the biggest declines in operational costs in the past six years have also given the biggest price reductions to their customers.

Competitive pressure in the sector is supported by very low switching costs for banking customers and a high degree of digitalisation.

Particularly debated is whether Swedish banks have increased margins on mortgages more than what can be justified from a cost perspective. In analysing the increase in the mortgage margin, we find that most of the increase since the financial crisis can be attributed to increasing capital requirements.

The study is commissioned by the Swedish Bankers’ Association.