Rock-bottom interest rates in recent years encouraged property firms to pile on debt and some have been caught out as central banks have tightened policy at a record pace to fight inflation.
With Sweden's banks heavily exposed to the real estate sector, worries have been growing that problems in a few individual firms could spread more widely and trip up the financial system.
"I judge that the risk of a banking crisis in Sweden is low," Riksbank Governor Erik Thedeen told reporters after the central bank published its regular report on financial stability.
"But there are risks."
Concerns have centred on real estate group SBB, which is looking for a buyer after its debt was cut to "junk" status and has been forced to restructure.
But SBB is not alone and Moody's said this week it had taken negative rating action on about 50% of the real estate firms it covers in Sweden.
Property companies have started to deleverage and Thedeen said there was still time for them to restore balance sheet health.
"Basically it's not difficult to say what's this about - it's about debt. It has to come down, otherwise it is going to be very tough for some companies," he said.
Thedeen called on banks not to cut credit to the sector as a whole.
"If they (banks) squeeze too much, they risk setting off something that is going to rebound on them and definitely the system as a whole," he said.
He also cautioned lenders to be "restrained in paying dividends and making share buy-backs" and build up their financial buffers.
Worries about the property sector - which triggered Sweden's last domestic crisis in the early 1990s - have hit the crown currency, which is trading at its weakest level against the euro for well over a decade.
Regulators say banks are better equipped to deal with turbulence in the sector, having beefed up their capital after the global financial crisis in 2008-2009. Bank resolution regulations have also been improved.
But the end of the long period of cheap money has exposed faults lines in the financial system, hitting niche lenders in the United States and forcing authorities to arrange a shot-gun wedding for Credit Suisse.
"I think .. the low rate environment exposed the system to risks and maybe the debate was a bit naive about what kind of risk we were building up during that period," Thedeen said.
(Reporting by Simon Johnson, editing by Terje Solsvik, Sharon Singleton and Chizu Nomiyama)
