The crisis could be lasting – E24

The case is being updated

On Wednesday, Finanstilsynet will present its semi-annual report “Financial Outlook” on the prospects for financial stability in Norway.

Although access to vaccines will eventually provide a foundation for phasing out invasive infection control measures, it may still be a long time before economic activity returns to the same level as before the pandemic outbreak, the audit writes.

– Some industries may also face lasting changes in demand. Therefore, banks and insurance companies should bear in mind that the crisis can be deep and long-lasting, says Director of Financial Supervision Morten Baltzersen in the press release.

Therefore, banks must be prepared for the fact that credit losses may increase significantly in the future.

Should wait with dividends for shareholders

– The great uncertainty indicates that banks preserve their capital by retaining profits, so they are in a good position to make loans to creditworthy clients even in a situation with large credit losses, says Baltzersen.

The Authority has previously advised banks to refrain from paying dividends to their shareholders “at least until January 1, 2021”, to ensure that they can maintain their lending activities during the crisis.

The corona pandemic has weakened the results of Norwegian banks in the first three quarters of the year. Credit losses are particularly high at consumer loan banks and banks with large loans to oil-related industries, Finanstilsynet announced a couple of weeks ago.

High debt results in vulnerable households

– Further development in the Norwegian and international economy is uncertain and will largely depend on the development of the infection, says Baltzersen.

The Authority has long been concerned about the high level of debt among Norwegian households, combined with rising house prices.

– High debt makes many households vulnerable to lost income, higher interest rates and falling home prices, says Baltzersen in today’s report.

Therefore, earlier this fall, the Authority recommended tightening the mortgage rules. Current regulations expire at the end of the year, but what the Finance Ministry will decide to do is currently unknown.

The audit press release can be found here.