Sweden's largest banks require more capital against their lending to the commercial real estate sector where they could suffer "significant credit losses" in the case of a severe economic downturn, the country's financial regulator Finansinspektionen said May 28.

The regulator said major banks' capital and liquidity buffers are sufficient enough to weather a rapid worsening of market conditions and most have good profitability, supported by long periods of economic growth.

However, a large amount of lending is to the commercial real estate sector which the Finansinspektionen described as "vulnerable." Capital held by Swedish banks would not cover credit losses in this sector in the event of "severe financial stress."

The regulator noted that interest rates were likely to remain low for a long time, but warned of excessive risk-taking and rising asset prices.

Finansinspektionen also reported that the resilience of Swedish insurance firms was "satisfactory" but warned that life insurance firms with large shareholdings could impact other investors if they are forced to sell large posts of shares during periods of elevated uncertainty.