Banking and Finance

• Introduction
• Banking
• Financial Institutions
• Stock Market
• Venture Capital
• Almi Företagspartner AB
• The Swedish Industrial Development Fund

Introduction

Sweden's banking and finance sector has undergone considerable change in recent years. This has created greater competition, not only among older banks but by the establishment of new Swedish and foreign financial institutes. Some of the main features:

• Banking and finance has been liberalized and deregulated.
• Banks have long experience in international business.
• Highly developed systems for computerized transactions
• Greater competition enhances service.
• International banks now highly active in Sweden.
• Krona stabilized at lower exchange rate.

Swedish banking and finance has undergone extensive liberalization and deregulation in recent years. This, coupled with long experience in international trade and business, makes Swedish banks and financial institutions particularly useful to foreign companies investing in Sweden. An additional attractive feature is the highly developed national networks of computerized on-line banking and financial systems.

Sweden's monetary policy is administered by the Swedish Central Bank (Riksbanken), whose functions are similar to those of other national central banks. The Governor General and board of directors are appointed by Parliament. The Central Bank serves as a clearing house between banks, accepts deposits from banks and provides credits. It also administers the nation's foreign exchange and gold reserves and issues currency and coins.

The Swedish krona was allowed to float in November 1992, after having previously been fixed against other European currencies. As a result, the krona depreciated by about 25-30 percent in relation to the major currencies, but since then has stabilized at about 15 percent below the former level. Interest rates, which climbed to extreme heights for a very brief period before depreciation, fell to levels that in mid-1996 were about two percentage points above German and British rates for 10-year state bonds.

Foreign exchange regulations, in existence since 1939, were successively relaxed in the 1980s, and are now non-existent. There are no restrictions on the transfer of funds.

Banking
The Swedish banking sector, following far-reaching liberalization and deregulation, consists of both Swedish-owned and foreign-owned banks. Restructuring of Swedish banks accelerated in the 1980s, with a large number of mergers and acquisitions. The largest banks have branches nationwide.

The State has controlling interest in only one bank, Nordbanken. Seven banks, including Nordbanken, are listed on the Stockholm Stock Exchange. There are no longer any restrictions on the amount of shares foreigners may hold in Swedish banks.

Several banks have traditional close relations with so-called industrial "spheres". These consist of companies linked through cross-shareholdings and personal relationships between directors. Best known are Skandinaviska Enskilda Banken, with historic ties to the Wallenberg group, and Svenska Handelsbanken. These two are traditionally keen competitors. They have long experience working closely with Swedish and foreign multinational companies.

Sweden's commercial banks have well established, extensive contacts with foreign correspondent banks, which is of importance for transfers, export and import credits and international borrowing. The banks also have subsidiaries, branches and representative offices in major foreign financial centers, and have minority interests in some foreign banks as well as partnerships in international bank consortiums.

In addition to commercial banks, there are regional and local savings banks. Nordbanken has agreements with the Swedish Postal Service that enable post offices nationwide to provide basic services to the bank's customers.

Deregulation has allowed a number of new banks and financial institutions to enter the Swedish scene. Foreign banks, both branches and fully established local corporations, have become very active, especially in the business and industrial sector. Two foreign banks, Crédit Lyonnais of France and Okobanken of Finland, have also made inroads into the retail sector by offering attractive interest rates on deposits. However, foreign banks' share of total banking assets is still only a few percent.

A very new development in Swedish banking is
"niche banks", launched by insurance companies, financial institutions, and retailers. Insurance companies entered the market to compete with banks, which, following deregulation, are allowed to offer annuity and other pension insurance programs. Others specialize in project financing and leasing. (See appendix for list of Swedish and foreign banks).

Sweden's system of bank transfers, both domestic and international, is highly efficient. Swedish banks were the world's first to establish nationwide, computerized on-line banking services, and pioneered in developing currency-dispensing systems. Banks continue to build on this long experience and offer customers a wide range of automatic payment and deposit services, which are extremely valuable to businesses. There are no restrictions on foreigners opening bank accounts, and the procedure for opening an account is quite simple.

PostGiro, administered by the Postal Service, dominates the payments system, handling about 50 percent of all transfers. All banks are connected to the BankGiro system, which provides similar services. Almost all companies have PostGiro and BankGiro accounts to simplify payments and receipts. Private individuals also have PostGiro or BankGiro accounts.

Financial Institutions
Insurance companies play an important role in the credit market. They are major investors in the stock market and in bonds and other interest-bearing securities. As noted above, they have recently expanded into banking.

Mortgage institutions, another important factor in finance, have outstanding loans that are much larger than those of banks, and total about SEK 1,000 billion. These institutes lend to private home owners, commercial property owners and municipalities. They are financed largely through bonds and certificates in Sweden and abroad.

Stock Market
The Stockholm Stock Exchange lists the shares of about 225 companies. Deregulation and liberalization have eliminated all restrictions on stock ownership by foreigners. This, combined with earlier elimination of currency exchange controls, have been important factors in attracting foreign capital to the Swedish stock market.

The Stockholm market has been one of the world's best performers during the past 15 years. This has attracted international interest, and in mid-1996, foreign investors held about 35 percent of Swedish stock value. The market is expected to set new records in growth and trading volume in 1996.

Trading is handled by brokerage firms and the brokerage departments of banks. A central computerized service, VPC, registers transactions and administers payment of dividends. This greatly simplifies book-keeping and paperwork for companies and investors. OM Gruppen AB, a publicly-listed company, operates an options and futures market. OM, which has unique expertise in computerized trading systems, has established markets in a number of foreign countries.

Venture Capital
A number of private venture capital companies offer risk capital to small and medium-sized companies. They operate on a commercial basis, and generally invest in new or growth companies. They usually take equity positions and play an active management role.

Several state-owned institutions also offer venture capital: Almi Företagspartner provides loans for high-risk projects by small and new enterprises. The Swedish Industrial Development Fund (Industrifonden) offers backing for high-risk development projects and also provides venture capital loans for newly-established limited companies. The Swedish National Board for Industrial and Technical Development, Nutek, finances projects in very early stages of development, with a special emphasis on energy and the environment. Nutek also provides loans or capital in exchange for royalties.

Almi Företagspartner AB
Almi Företagspartner AB is a state-owned parent company with a majority interest (51 percent) in 22 regional Almi companies (of which county councils own 49 percent). Almi supports small and medium-sized enterprises through financing, consultancy services and partnerships.

Almi provides legal, technical and commercial consultantcy and information services for both newly-founded and existing small and medium-sized enterprises. It offers support in business establishment and expansion, product development, market strategy, information technology and patent issues.

The regional development companies, whose specialists have detailed knowledge of local businesses and business conditions, can assist entrepreneurs in evaluating new business ideas. Initial analyses are offered free of charge. Almi can then help formulate strategies, develop budgets and obtain financing. Almi organizes training programs and seminars to help clients improve corporate skills and establish contacts with other companies, both in Sweden and abroad.

Almi offers start-up loans and credit guarantees to assist in expansion or for investments in innovation and technology. Almi has a special scheme for loans to enterprises owned by women.

Foreign-owned businesses in Sweden can find Almi's special Baltic region programs of unique value. Almi has a number of programs to assist new business establishment and trade expansion in eastern Baltic countries, including Russia, Poland, Estonia, Latvia, Lithuania and the Ukraine. These programs range from finding trading partners to participating in manufacturing companies.

Through the Startöst Program, financed by Sida, the Swedish International Development Agency, Almi provides training and consultantcy to Baltic region companies. Almi has a trading house in Gdynia to assist in expanding business and trade between Poland and Sweden. Almi also operates the Baltic Business Center, which is a physical and electronic trading house, whose aims include establishing reliable international payment routines.

Affärslots Öst (Business Pilot East) is a program that offers consultantcy services by Swedish specialists in business in Baltic nations. These specialists support small and medium-sized companies with advice, partner searches and referrals. The program also assists is establishing companies, and arranging and participating in exhibits.

The Swedish Industrial Development Fund
The Swedish Industrial Development Fund (Industrifonden), created by Parliament in 1979, aids industrial development by providing loans for technical projects or to new or recently-founded limited companies. The Fund can provide up to 50 percent of capital needed for high-risk projects and provide venture capital loans to new companies. Projects must have a budget of at least SEK 2 million. The Fund participates in financing through conditional repayment loans, capital in return for royalty, project guarantees and credit guarantees. The Fund is required by law to guarantee confidentiality of clients.

Any type of industrial company in Sweden in any industry can apply for Fund assistance. Current projects are mainly in pharmaceuticals, biotechnology, medical appliances, mechanical engineering, electromechanics, process development, food technology and in the automotive and aircraft industries.

A company that presents a promising and well defined project can normally count on a decision within two to three months. A phone call to a Fund counsellor or a short letter or fax is usually enough to set up a meeting for preliminary evaluation of the project.

© 1996 by Invest in Sweden Agency