SWEDEN: An introduction to Banking & Finance
Background
The Swedish lending market has traditionally been dominated by domestic and Nordic banks. However, in recent years, the lending market has diversified, enabling borrowers to obtain funding from mezzanine lenders, direct lending funds and other alternative debt providers, as well as increasingly through corporate bonds. While traditional banks still maintain a strong position, particularly in the medium-risk mid-market segment, these alternative funding sources provide borrowers with a broader range of options than before.
Geopolitical developments, including the ongoing war in Ukraine, the conflict in the Middle East, and trade-related disruptions such as continued tariff uncertainty in the United States, have contributed to global instability and increased uncertainty in the Swedish market. Despite these challenges, Sweden has seen a notable resurgence in deal activity over the past year, with transaction volumes surpassing 2023 levels, indicating a strong market recovery. Meanwhile, the Swedish banking and finance sector is undergoing gradual transformation, shaped by both international risk exposure and a shifting domestic regulatory landscape. While overall market conditions remain stable, these evolving dynamics are prompting financial institutions and investors to reassess their strategies in response to a more complex and rapidly changing environment.
Main Forms of Debt Financing in Sweden
Sweden has prominent private equity and real estate sectors, resulting in acquisition finance being a common form of debt financing. Other types of transactions, such as asset-based and securitisations, also occur but are less prominent in comparison. Structuring debt finance transactions in Sweden is a conventional process, involving negotiation of key terms, documentation, and disbursement upon fulfilment of conditions precedent. Repayment follows according to the agreed schedule. Most common forms of bank loan facilities in Sweden include traditional term loans, providing borrowers with a lump sum of money upfront, which is repaid over a specified period with regular principal and interest payments. Other common forms are revolving credit facilities and overdraft facilities, offering access to credit with a predetermined maximum amount which borrowers can utilise as needed.
The main advantages of syndicated bank loans versus debt securities in Sweden are that syndicated bank loans offer greater flexibility in terms of structure, covenants and repayment terms. Borrowers and lenders can negotiate terms tailored to specific needs. Syndicated loans often involve a direct relationship between the borrower and a syndicate of lenders. This relationship can facilitate communication, flexibility in restructuring, and potentially better terms in subsequent transactions. Syndicated loans typically involve less paperwork and regulatory requirements compared to issuing debt securities, allowing for quicker access to funds. Bank loans generally offer more confidentiality than debt securities, as details of the loan agreement may not be publicly disclosed.
Debt securities, on the other hand, provide access to a broader investor base, including institutional investors, pension funds and retail investors, allowing for potentially larger funding amounts. They may also offer lower interest rates compared to syndicated loans, especially for high-quality issuers, as they are priced based on prevailing market rates. In addition, the terms of syndicated bank loans generally impose greater restrictions and limitations on the borrower compared to debt securities which are subject to more standardised terms and conditions offering fewer and more flexible borrowing conditions.
The Swedish debt market attracts a diverse range of investors, such as commercial banks, investment banks, credit funds, institutional investors and retail investors. These investors contribute to market liquidity and efficiency, with each group pursuing distinct investment strategies and risk appetites. Commercial banks and credit funds provide financing through various loan products, while investment banks facilitate debt capital markets transactions. Institutional investors such as pension funds and insurance companies seek stable returns from fixed-income securities. Retail investors, including individual investors and retail-focused investment funds, may also participate in debt securities markets, diversifying the investor base in Sweden’s financial markets. They often invest in government bonds, municipal bonds or corporate bonds.
Key Trends and Legal Considerations in the Swedish Banking and Finance Market
Restrictions on Financial Assistance and Corporate Benefit
Specific considerations in Swedish debt financing transactions include Swedish law provisions on financial assistance and value transfers, which limit the ability of Swedish limited liability companies (Sw. aktiebolag) to provide security and guarantees. Compliance with these provisions is essential, particularly when structuring and securing a leveraged acquisition of a Swedish limited liability company.
In Sweden, a guarantee or security provided by a Swedish limited liability company for obligations of any person that is not a wholly owned subsidiary of the company may be considered as a value transfer under Swedish law, unless the guarantor or pledgor receives consideration on market terms for its undertakings or that sufficient corporate benefit accrues to it. Such value transfer is unlawful if and to the extent it, at the time when the guarantee or security is granted, impairs the restricted equity of the company providing the guarantee or security, as per its most recently adopted balance sheet (taking any subsequent adjustments in relation to restricted equity into account).
Under the financial assistance prohibition, a Swedish limited liability company is prohibited from providing guarantees and/or security to support borrowings incurred for the purpose of acquiring shares in the company itself or any parent (and, arguably, sister) company within the same corporate group as the company granting such financial assistance. The same prohibition applies to loans and advance payments. However, Swedish law would normally not restrict such financial assistance after the acquisition has been completed (e.g., if sufficient time has lapsed and provided that the creditor had a real credit risk until then without any recourse to the supporting company’s assets). A prohibited loan and advance payment must be returned by the recipient. A prohibited guarantee or security may be declared void if the company that provided the guarantee or security shows that the recipient knew or should have known that the guarantee or security was prohibited. A violation of this prohibition may also cause criminal liability.
Increased scrutiny of acquisitions and investments
Since its entry into force on 1 December 2023, the Swedish Act on Foreign Direct Investments (Sw. lagen (2023:560) om granskning av utländska direktinvesteringar) (the “FDI Act”) has been a key topic in the Swedish transaction market. The FDI Act stipulates that investments in Swedish activities that are worthy of protection (Sw. skyddsvärda verksamheter) cannot be made before they are notified to the Inspectorate of Strategic Products (the “ISP”), and, in certain cases, the investment is also subject to approval by the ISP. In a time of global uncertainty and a heightened focus on national security, it can be understandable that legislation such as the FDI Act is seen as essential. However, once the ISP initiates a review, significant delays in transaction execution may occur, posing challenges for the financial sector. To mitigate these risks, some investors submit voluntary notifications. While this may reduce regulatory uncertainty, it also leads to increased transaction costs and an administrative burden.
Sustainable Finance
Green and sustainable finance continues to be a prominent topic in Sweden. In northern Sweden, substantial green investments have played a pivotal role in advancing the country’s sustainability agenda, particularly within renewable energy and battery production. However, recent challenges in the sector have led financial institutions to adopt a more cautious approach. As a result, this may lead to a heightened emphasis on comprehensive due diligence and risk assessments when financing future climate-aligned projects. In parallel, the Loan Market Association (the “LMA”) has continued to shape the green finance landscape by releasing new publications in an effort to align global practices and promote sustainable finance. Until recently, in contrast to sustainability-linked loans, the LMA had not released a standardised documentation regarding provisions for green loans. However, in late 2024, the LMA published draft provisions for green loans, followed by the release of a draft green loan term sheet in early 2025, both of which are expected to be adopted within the Swedish loan market.
In addition to the evolving loan market landscape, the EU Green Bond Standard (EUGBS), which officially entered into force in 2024, is expected to play a growing role in shaping green capital markets in Sweden. While the Swedish bond market has historically been proactive in adopting voluntary green bond frameworks, the EUGBS introduces a harmonised and more stringent regime that could enhance investor confidence and comparability across issuances. Swedish issuers, particularly state-owned and municipally linked entities, are well-positioned to lead by example in aligning future green bond issuances with the standard. Nevertheless, the adoption of EUGBS may also entail increased compliance costs and reporting obligations, particularly for smaller issuers. As the Swedish market continues to mature, a gradual shift toward EUGBS-aligned issuances could become a natural next step in reinforcing Sweden’s leadership in sustainable finance on the European stage.