Swedish housing bubble ‘would not cause crisis in Lithuania’

Burst of the real estate bubble in Sweden would not induce a major financial crisis in Lithuania or the Baltic states, despite their exposure to Scandinavian banking, says Morten Hansen, head of Stockholm School of Economics in Riga.

In an interview to the daily Verslo Žinios, Hansen said he believed there was no reason for a financial crisis to automatically cross the Baltic Sea.

“I personally do not believe that a crisis could occur here just because it happened on the other coast of the Baltic Sea,” he said. “Well, unless banks started giving out loans more cautiously.”

Experts have been talking about a bubble forming in the real estate market in Sweden. Since many of Lithuania’s commercial banks are owned by Swedish and Scandinavian companies, including SEB and Swedbank. It is feared that a financial crisis in Scandinavia could affect the banks’ lending capabilities in Lithuania, too, as local branches would be forced to redirect resources to their mother companies.

Hansen also said he saw no signs of bubbles forming in the real estate markets of the Baltic states.

“Lending is still slow here, I don’t think we should worry about that here. I’d say the biggest problems in some places could arise from oversupply,” Hansen said.