Norway
There are traits in the Norwegian economy makes the financial system vulnerable, warns the central Bank.
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the Vulnerability has increased in the financial system in Norway, believe the Norges Bank. Wednesday, adding the central bank forward the annual report on vulnerability and risks in the financial system.
the central Bank draws particular forward two conditions which increase the vulnerability:
- Strong growth in house prices
- High debt in the household sector
- Capital adequacy in banks is doubled after the financial crisis, and liquidity is improved. At the same time, there are features of the Norwegian economy makes the financial system vulnerable. It applies in particular to the strong growth in property prices combined with high debt in the household sector, ” says governor Jon Nicolaisen in a press release from Norges Bank on Wednesday.
May provide increased loss
the central Bank points out that boligprisveksten has increased since the in our and that it has been particularly strong in Oslo and the surrounding areas.
the central Bank points out that the high rise in house prices may lead to increased borrowing in the household sector. It can make households overall, more vulnerable and increases the risk of an abrupt decline in demand and increased loan losses in the banks back in time.
Up 25 per cent in Oslo: Boligprisprognoser for 2017, 2018 and 2019
the central Bank points out that the most important and the biggest vulnerability is the high level of household debt.
“the Percentage of households with very high debt burden has continued to rise. Younger households are especially vulnerable because many have a lot of debt, high debt burden and little other assets than housing. The high debt burden increases the farne that households tightening on consumption in the event of loss of income, increased interest rates or a fall in house prices. It can amplify a downturn in the economy and provide increased losses in the banks”, states the executive board’s assessment in the report.
the Executive board noting also that the growth in consumer loans has been marked up.
“Consumer loans comprise a small share of household debt, but the high interest rates on these loans helps to ensure that the interest burden still high for households that have large consumer loans. The executive board notes that the ministry of Children and equality has sent a proposal for consultation to get establish a gjeldsregister for the consumer”, states the assessment.
Will reduce the speed limit, but don’t take it away
Earlier in the autumn, financial supervisory authority of norway presented a proposal for the continuation of the so-called boliglånsforskriften. The current regulation runs out at new year. The authority proposed, among other things, that the so-called speed limit for banks, which are banks ‘able to deviate from the regulations’ requirements to betjeningsevne, belåningsgrad and payment in installations are completely removed. Today is the banks ‘power to deviate from the regulations’ requirements ten per cent of total loans.
Norges Bank’s executive board believes that, on their side, that the banks still should have some room to deviate from the requirements – and suggests, instead, that the speed limit be lowered.
“Requirements for banks utlånspraksis acts directly on the incurring of debt in the household sector and can limit the vulnerability of the households. The executive board believes that the requirements in the regulations relating to mortgage loans can be tightened somewhat, but that banks still should have some flexibility to provide loans that deviates from the requirements,” writes the executive board in its assessment.
High level of growth for commercial property
the Executive board also points out that the prices of commercial property have continued to rise sharply in the past year.
“commercial real estate is the enkeltnæringen banks have the greatest exposure to. It is also the industry which historically have applied to banks with the greatest losses in the crisis”, writes the executive board.
More solid banks
at the same time, visesentralbanksjefen that Norwegian banks has become more solid in the last year and thus are better equipped to withstand potential loan losses.
- stress test in the report shows that the capital adequacy of banks may fall substantially at a setback, but still remain well above the minimum requirements, ” says Nicolaisen.
the central Bank draws, however, also forward the banks ‘ short-term funding in foreign currency as a vulnerability.
“Norwegian banks have extensive krotsiktig financing in foreign currency. New regulation of money market funds in the united STATES have changed the market for short-term financing in dollars. The executive board notes that Norwegian banks have become more liquid in recent years and meets the requirement to likviditetsdekning by a good margin. It means that the banks have no time to find alternative sources of funding if the short-term finansieringe should fall away,” writes the executive board in its assessment.
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