The global credit crisis is threatening to undermine the stability of the banking systems of Sweden and Norway, bringing to an end a period in which they have managed to escape the effects of the downturn virtually unscathed.

Central banks of both countries on Tuesday released quarterly financial stability reports that eschewed their usual diplomatic language and voiced concern at the possible impact of global events on their banking systems. "The turmoil has ... spread to new assets, markets and participants. The uncertainty ... will probably persist for a long time to come. It cannot be ruled out that problems will get worse," said Stefan Ingves, governor of the Riksbank, Sweden's central bank.

The reports demonstrate that the credit crisis is having a knock-on effect on healthy financial systems that can boast well capitalised banks, no exposure to the subprime crisis and expanding economies.

Both central banks emphasised that financial stability in Sweden and Norway is satisfactory and that banks in the two countries are well placed to absorb any coming shock, but added the impact of the global credit crisis would probably be felt more indirectly.

These indirect effects included increasing banks' short-term borrowing costs, undermining profitability as the US economic slowdown hits corporate borrowers and increasing their sensitivity to a slowdown in other areas of their operations.

Sweden's Riksbank said the global financial crisis increased the sensitivity of banks to other shocks, adding that it had warned that growth in the Baltic states could slow down more suddenly than expected.

"This now appears to have happened and there is a risk that the ongoing cooling process in the Baltic economies could change into a pronounced economic downturn. This would affect Swedish banks with considerable activities there," the Riksbank said.

The two Swedish banks with the largest exposure to the Baltic economies of Lithuania, Estonia and Latvia are Swedbank and SEB. Nordea and Handelsbanken have smaller businesses in the region.

In spite of these fears and sharp falls in the banks' share prices, there are no signs Swedish banks are experiencing a marked increase in bad Baltic loans. They have also curtailed new lending in anticipation of a slowdown.

Norway's Norges Bank said market turmoil "challenges banks' liquidity management" adding: "Short-term loans account for a substantial share of banks' funding, and must be rolled over regularly."

The scale of short-term funding "increased somewhat in the past year due to limited access to long-term funding, which increases liquidity risk", it added.

Another area of concern for both central banks is a possible slowdown in the property market, where banks are exposed via loans to commercial property companies and mortgages. "Market prices for commercial property have risen substantially in the past few years, partly based on expectations of continued solid growth in rental income," said Norges Bank. "If these expectations are not met, property companies' profitability may be reduced."