General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
September 17, 2018

IMF published its staff report and selected issues report under the 2018 Article IV consultation with Norway. Directors noted the high levels of capital and liquidity in the banking sector but cautioned against financial stability risks, including from a combination of high household debt and fast rising house prices. In this context, Directors welcomed the recent extension of the macro-prudential measures but underscored the need to tighten policies further.

The staff report highlights that, while banks are healthy, vulnerabilities related to high household debt, commercial real estate, and reliance on external wholesale funding remain and need to be closely monitored. Balance sheets of banks are strong, loan losses are low, and banks comfortably meet higher capital requirements in effect from 2018: their average common equity tier 1 capital ratio is high (16.8% of risk-weighted assets at the end of 2017). In addition, strong Pillar 2 requirements are levied, especially on banks with concentrated exposures in commercial real estate and consumer lending. Banks’ average leverage ratio stood at 8% at the end of 2017, with all institutions exceeding the 5% requirement. Liquid reserves exceed the liquidity coverage ratio and prospective net stable funding ratio requirements by ample margins. The forthcoming headquarters move of Nordea from Sweden to Finland this October is not expected to affect Nordea’s Norwegian operations. Annex VIII contains a table that summarizes the response of authorities to past IMF recommendations and Annex IX summarizes the status of the recommendations of FSAP, which was conducted in 2015.

The staff report shows that commercial real estate exposures amount to 15% of total bank assets, with branches of foreign banks more exposed. Despite the 2017 correction, staff analysis shows that house prices are still overvalued, particularly in the Oslo region. In June, the Ministry of Finance extended, until the end of 2019, the mortgage regulations that were due to expire in mid-2018. The mortgage regulations of 2017 have reduced high-risk borrowing and their extension this June was essential. Actions on unsecured consumer lending—where default risks may be most immediate in a downturn—include tighter capital and consumer protection requirements and introduction of risk-based contributions to the deposit insurance and bank resolution funds (starting 2019). The authorities have responded to the risks related to commercial real estate with intensified oversight and Pillar 2 capital add-ons for banks with concentrated exposures. New rules requiring provisioning for prospective loan losses are being phased in, in line with the international standards. Legislation corresponding to the Bank Recovery and Resolution Directive (BRRD) in EU has been adopted and will become effective in January 2019. Finally, the licensing process to establish credit registries is underway and there has also been continued progress on implementing FSAP recommendations.

The selected issues report discusses the rapidly growing house prices in Norway in the recent years. In recent years, house prices have been increasing rapidly in Oslo and growing at a moderate pace in other regions. House prices in Oslo have been growing at a fast rate since 2013, with a real appreciation of over 20% in 2016 alone. While real prices in the capital declined by 11% between March and December 2017, they picked up strongly again in the first half of 2018 and, as of May 2018, they were again above their average 2016 level. The Oslo correction happened not long after new mortgage regulations entered into force in January 2017. The new measures included a debt-to-income (DTI) limit of five, tightened conditions for applying an amortization requirement, and a lower limit for the maximum percentage of new mortgage lending in Oslo to deviate from one or more of regulatory requirements. There is evidence that the regulations, especially the DTI limit, have been more binding in Oslo than in the rest of the country. The house price overvaluation has been estimated to be about 5% to 10% in the non-oil, non-Oslo Norway in 2017.

 

Related Links

Keywords: Europe, EU, Norway, Banking, Article IV, FSAP, Pillar 2, Regulatory Capital, Liquidity Risk, IMF

Related Insights
News

OFR Adopts Data Collection Rule on Centrally Cleared Repo Transactions

OFR adopted a final rule to establish a data collection covering centrally cleared funding transactions in the U.S. repurchase agreement (repo) market.

February 20, 2019 WebPage Regulatory News
News

FHFA Finalizes Rule on Federal Home Loan Bank Capital Requirements

FHFA published, in Federal Register, the final rule to adopt, as its own, portions of the regulations of the Federal Housing Finance Board pertaining to the capital requirements for the Federal Home Loan Banks.

February 20, 2019 WebPage Regulatory News
News

SRB Publishes Framework for Performing Valuations in Resolution

The framework provides independent valuers and the general public with an indication of the expectations of SRB on the principles and methodologies for valuation reports, as set out in the legal framework.

February 19, 2019 WebPage Regulatory News
News

US Agencies Extend Consultation Period for the Proposed SA-CCR

US Agencies (FDIC, FED, and OCC) extended the comment period for a proposed rule to update their standards for how firms measure counterparty credit risk posed by derivative contracts.

February 18, 2019 WebPage Regulatory News
News

FED Extends Consultation Period for Stress Testing Rule

FED has published in the Federal Register a notice proposing amendments to the company run and supervisory stress test rules.

February 15, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: Third Update for February 2019

EBA published answers to two questions under the Single Rulebook question and answer (Q&A) updates for this week.

February 15, 2019 WebPage Regulatory News
News

SEC Proposes Rule on Risk Mitigation Techniques for Uncleared SBS

SEC proposed a rule that would require the application of specific risk-mitigation techniques to portfolios of security-based swaps (SBS) that are not submitted for clearing.

February 15, 2019 WebPage Regulatory News
News

FSB Report Examines Financial Stability Implications of Fintech

FSB published a report that assesses fintech-related market developments and their potential implications for financial stability.

February 14, 2019 WebPage Regulatory News
News

US Agencies Amend Regulatory Capital Rule to Allow Phase-In for CECL

US Agencies (FDIC, FED, and OCC) adopted the final rule to address changes to credit loss accounting under the U.S. generally accepted accounting principles; this includes banking organizations’ implementation of the current expected credit losses (CECL) methodology.

February 14, 2019 WebPage Regulatory News
News

FASB Proposes Taxonomy Improvements for the Credit Losses Standard

FASB proposed the taxonomy improvements for the proposed Accounting Standards Updates on Targeted Transition Relief for Topic 326 (Financial Instruments—Credit Losses) and Topic 805 (on Business Combinations—Revenue from Contracts with Customers).

February 14, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2617