Top Swedish Bank CEO Says Crisis Accounting Rule Adding to Risks

The chief executive of one of Sweden’s biggest and best capitalized banks says an accounting rule introduced after the financial crisis of 2008 is now adding to risks as his industry struggles to cope with the coronavirus fallout.

International Financial Reporting Standard -- more specifically IFRS 9 -- forces banks to identify potential losses more quickly. In practice, that means booking loan losses sooner.

Johan Torgeby, the CEO of Stockholm-based SEB AB, says the risk is that investors and analysts penalize banks that follow the rules, especially at a time when governments are encouraging the financial industry to provide credit to struggling firms.

“I think we need just to have a cool and fact-based analytical mindset right now, because those things are accounting and not necessarily a true reflection of reality,” Torgeby said during a conference call with investors and analysts.

The European Banking Authority has urged the national supervisors it monitors to be flexible in enforcing existing rules.

Sweden’s financial supervisor has given banks permission to let borrowers temporarily stop paying down their mortgages. But Torgeby said how banks incorporate that development into their accounting remains “up for debate.”

“The whole point of doing those things is, of course, to mitigate a negative outcome, it’s to increase the probability that they can repay and reduce the probability of default,” Torgeby said. “But it will have this quirkiness in accounting that it goes the opposite way.”

To contact the reporters on this story:
Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net;
Hanna Hoikkala in Stockholm at hhoikkala@bloomberg.net

To contact the editor responsible for this story:
Tasneem Hanfi Brögger at tbrogger@bloomberg.net

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