In that case, we could witness a more drastic adjustment that would drive the economy into a deeper and more protracted slump that would be difficult for economy policy to manage. This is a risk scenario that the Riksbank’s Executive Board has devoted some attention to in recent years. It is also a risk that individual households have reason to take into account when they are about to take on new loans. So these mechanisms are something that we have to take into account when we make our monetary policy decisions. The current economic situation International economic activity still firm International economic growth was high last year. In the latest Inflation Report in October, we noted that the slowdown in international economic activity earlier this year appeared to have been temporary. The oil price had turned out considerably higher than we previously expected, however, prompting us to sharply revise up our oil price forecast. This was expected to contribute to an increase  1  See Financial Stability Report 2005:1. 2  Inflation Report 2005:3, page 43. 3/6  in international price pressures and to a slight moderation of growth. These effects were forecast to be relatively limited, however. The picture of relatively firm economic growth abroad in the coming years was thus broadly unchanged. Consequently, Swedish export markets also were estimated to grow at a firm pace in the next few years. In the US, the hurricanes and oil price increases in recent months have contributed to dampening the economy somewhat.
The net banking system result for 2006 stood at a profit of ALL 7.45 billion, about 12.9 percent more than in 2005. Revenues from the principal activity (net income from interest) resulted to 31.2 percent more than in the previous year, reflecting the banking system orientation to activities of higher return and a rise in the overall volume of assets. At end of 2006, the net income from interests was 92.6 percent of the gross banking system incomes, compared to 84 percent at end of 2005. This indicator has recorded constant growth, particularly over three last years, reflecting the overall net income sustainability for the banking system. During 2006, the banking system assets grew by All 127.7 billion, or about ALL 57.6 billion more than the growth of assets noted in 2005. The main contribution to the growth of banking system assets was given by large banks, though their share in the market is downward. The estimates show that the lending activity concentration level is lower than that of assets and deposits concentration. The significant growth of lending has been associated with increased share of nonperforming loans portfolio, by about ALL 3.1 billion compared to end of 2005. The loans portfolio quality indicator, expressed as a ratio of nonperforming loans to total loans portfolio in gross terms, is estimated at 3.1 percent as at year-end, against 2.3 percent as at year-end 2005. The banking system capability of covering loss loans with capital has been downward, but still at good levels.