“Growth in household debt and house prices pose a significant risk to financial stability.”
To initiate FSA its conclusion where they advise the Ministry of Finance to increase the countercyclical capital buffer of one percent now to 1.5 per cent with effect from New Year’s Eve next year.
They believe the situation is such that banks majority of banks profits in 2014 retained in the banks that they may be better equipped by a downturn in the Norwegian economy.
But the council has Treasury Siv Jensen has chosen not to follow.
– Added emphasis on uncertainty
In a press release Friday morning she warns that the countercyclical capital buffer is kept unchanged at one percent.
” The Ministry has among other things, emphasized that the uncertainty about economic developments have increased recently. There is an increased growth in house prices while there are prospects of a slowdown in the Norwegian economy, particularly as a result of the fall in oil prices, “states the press release.
Where the Ministry writes that it is important that banks use the current good earnings to strengthen equity and notes that persistent financial imbalances can provide a basis for increasing capital buffer requirement at a later date.
Will throat yield
FSA writes however in its recommendation that banks meet expectations of higher dividend payments in the stock market, which DNB notice that a gradually increasing share of profits should be distributed as dividend confirms.
It likes obviously not audit.
“It is easier to strengthen soundness in good economic times. The dividend ratio should be kept moderate in 2014, “states the recommendation.
In its recommendation shows FSA house prices and debt growth over the last year.
- An additional capital reserve that comes on top of ordinary capital requirements for banks
- Briefly it shall be built up when the economy is doing well, and fail when it does worse.
- The Ministry of Finance introduced this requirement because they want the banks to be more resilient if the economy goes into a recession.
- The cache will also have a dampening effect on credit growth and buildup of financial imbalances.
Rising house prices and high debt growth was the rationale for that in December last year introduced a countercyclical capital buffer of one percent.
“After assessment in the third quarter 2014, however, house prices continued to increase. Twelve-month growth in house prices was 6.5 percent in November. In November 2013 the twelve-month growth 0.4 percent. Growth in household debt has not fallen appreciably and remains higher than income. Twelve-month growth of 6.5 percent in October, “writes FSA.
They show that most mortgages have floating rates and that any increase in interest rates continued to increase household expenditure on servicing debt sharply.
And it’s not just mortgages that worries the Ministry of Finance. Even businesses borrow money are exposed, they believe.
“Historically weak”
“Debt servicing capacity in non-financial corporations are historically weak but the sector’s debt growth has remained low in recent years, “the report says.
Low demand for loans from businesses and continued growth in mortgages consequence bank share of total bank lending as the mortgage increases.
This is a type of loan that, according to regulations, require less capital than loans with greater perceived risk.
When Ministry of Finance sets the countercyclical capital buffer each quarter receives advice from Norges Bank and the Financial Supervisory Authority.
The decision is in line with the Council ministry got fraNorges Bank recommended unchanged capital buffer.
Financial Supervisory main purpose is to promote stability in the financial sector so that any economic crisis or fraud in individual banks triggering a full banking crisis that may affect the real economy further.
Chief Economist Frank Jullum Danske Bank says to E24 that he supports the Ministry of Finance decision. Jullum would not change capital buffer if he decided.
– The timing is all wrong. It is a risky sport dimensions to introduce new measures that tighten the economy now, says Frank Jullum to E24.
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