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Western EuropeMarch 1 2017

Could tax and regulatory reform derail Sweden's strong showing?

Sweden’s banks have survived the recent low interest rate environment and remain profitable. But a payroll tax on financial institutions and ongoing regulatory uncertainty threaten to take their toll. Stefanie Linhardt outlines the likely headwinds.
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Challenged by negative interest rates since February 2015, Sweden’s banks have kept their pricing discipline and, despite strong competition, embraced co-operation to remain profitable. Average return on equity (ROE) ratios are higher than in most western European countries. But with interest rates likely to remain low, planned taxation of the financial sector and an increasing financial impact from regulations, the country's business environment looks set to get more challenging.

Since January 2017, Swedish banks have no longer been able to deduct interest on subordinated debt from their tax bills. Prime minister Stefan Löfven’s government is also planning to levy a payroll tax on the financial sector from 2018. Current proposals are for a 15% tax, which is expected to cost the country’s four largest banks, Nordea, SEB, Svenska Handelsbanken and Swedbank, about Skr2.781bn ($3.12bn) in 2018 (see table).

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