THE ONLINE NEWSPAPER: Norges Bank assesses the vulnerability and risk in the financial system twice a year. Household debt and the banking sector are central to what could threaten the Norwegian economy going forward. Greater risk of cyber attacks was a central theme in the previous report from November.
In the recent report, Norges Bank writes that the Norwegian financial system is well equipped to withstand the market turmoil. But the financial systems are characterized by high price growth and uncertainty. Increased interest rates make developments in the property markets more uncertain than usual.
House prices have for a long time grown faster than household incomes. This has increased the risk of a major fall in house prices. If that happens, households may have to cut back on consumption. This in turn leads to increased loan losses in the banks. Norges Bank believes that the development in housing prices is uncertain, but the fall is mitigated by a low level of housing construction.
More expensive loans
But the international market turmoil can spread. This can result in more expensive financing for the banks and make it more difficult for households and businesses to get loans.
A high debt also makes households vulnerable to loss of income, increased interest rates or falling house prices. Norges Bank is concerned that many households have had tighter finances. The share of income that goes towards paying interest is expected to increase from 4 per cent in the fourth quarter of 2020 to just over 9 per cent this year. We have not had such a high share since the financial crisis 15 years ago. That means less to route with for consumption.
Norges Bank warns that more households will have to start tightening their consumption, even if most are doing well. The central bank expects house prices to fall somewhat during the year as a result of the increased lending rates. And we have not yet seen the full effects of the interest rate increases, the banks have a six-week notice period when they raise housing interest rates.
Decrease in value for commercial properties
And then we have commercial property, for which the banks have large loans. Increased interest rates are not good for commercial properties, where prices rose for a long time. as a result of the record low interest rates. But now the interest rate market has turned, and prices therefore began to fall in 2022. Norges Bank expects a further fall in prices for commercial properties in the future.
According to Norges Bank, there is no doubt that commercial property constitutes a vulnerability for Norwegian banks.
The great uncertainty about the further development of the economy and the demand for returns from commercial property going forward make the forecasts more uncertain than usual. And Norges Bank warns both investors and banks:
“Weak economic development and increased market unrest can lead to a greater drop in prices and significant losses in the banks.”
Overall, however, Norges Bank is not overly concerned about the banking sector.
– The Norwegian financial system is characterized by profitable, liquid and solid banks. Growth prospects in Norway have improved over the past six months, but at the same time the further development of both the markets and the economy is uncertain, says Deputy Central Bank Governor Pål Longva in a message.
2023-05-10 14:57:22
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