Swedish commercial property firms should reduce their debt and boost equity to be able to cope with the current high interest rates, the financial watchdog said in its twice-yearly stability report on Tuesday.

"Commercial real estate undertakings with high debt are particularly at risk should the interest rates remain high," the watchdog said in a statement.

These worries echo those of the Riksbank which called on high-street lenders to restrict dividend payments and share buy-backs so they have sufficient buffers to deal with the chance of deeper problems in the commercial real estate sector.

Swedish banks are among the best capitalised in Europe, but are heavily exposed to a property sector where companies ramped up borrowing when rates were low and are now struggling with soaring interest costs.

Several real estate firms have seen their debt cut to "junk" by rating agencies and need to restructure their balance sheets.


(Reporting by Simon Johnson, Terje Solsvik and Anna Ringstrom, editing by Louise Rasmussen)