Highly-indebted real estate companies in Sweden need to cut their borrowing after rapid interest rate rises and lower risk appetite have added to their vulnerability, the Financial Supervisory Authority said on Tuesday.

"They have large debts and a high interest rate sensitivity and also a large need to refinance their debts," the watchdog said in its bi-annual financial stability report.

"It is therefore important that highly-indebted real estate companies reduce their debts and strengthen their capital situation so that the sector not be forced into a more uncontrolled adaptation in the future."

SBB, one of Sweden's biggest commercial property landlords, on Monday said it may seek a buyer after its credit ratings were cut to junk status despite its efforts to boost liquidity, including halting dividend payments, scrapping a planned rights issue and selling its stake in builder JM .

The financial watchdog said Swedish banks, which have a large exposure to commercial property, have high profitability and satisfactory liquidity and capital buffers, making them resilient to any challenges.

It concluded, however, that threats to financial stability have increased because of protracted high inflation and the prospect of higher interest rates for a longer period. (Reporting by Anna Ringstrom, editing by Louise Rasmussen and Barbara Lewis)