October 09, 2009

Sweden is extending protection to its big banks over fears that fresh financial troubles in Latvia will hit Swedish lenders, which control about half of the Baltic state’s banking industry.A Latvian government plan to protect homeowners from full repayment on their mortgages drew an angry response from Sweden yesterday as it extended an SEK1.5 trillion credit guarantee to the Swedish banking system.

Valdis Drombovskis, Latvia’s prime minister, is proposing legislation that would make mortgage holders only liable for the value of the property, not the full value of the original loan.Plunging property values in Latvia’s deep recession have left borrowers heavily exposed to loans denominated in foreign currencies, mainly loans in euros provided by Swedish banks that are much bigger than the value of their homes.