Norges Bank: Big Uncertainty Over the Crown – Debt and House Prices Worry Most – E24

The case is being updated

On Tuesday, Norges Bank will present its annual report on financial stability.

– Recently, the spread of infection has increased, both abroad and at home. There is great uncertainty about the future course of the pandemic and the consequences for the economy and financial markets. This means that the outlook for financial stability is somewhat weakened, Lieutenant Governor Ida Wolden Bache says in a press release.

Norges Bank completed work on the report on November 5, ahead of the positive vaccine news on Monday.

The high level of indebtedness of the population, combined with high housing prices, is considered in conjunction with high prices for commercial properties. they continue to be the main vulnerabilities of the economy.

“House prices fell in March and April in connection with the virus outbreak, but have risen markedly since then. If house prices continue to grow rapidly, vulnerability may increase,” the bank writes.

Bank losses can be significantly higher

Credit losses in banks have increased so far this year, especially in relation to oil service companies, which are still in a demanding situation after the fall in the price of oil in 2014.

“The industries that have so far been most affected by the crown crisis represent a small part of total bank credit. If the crisis persists and commercial property prices fall sharply, the losses could be significantly higher,” writes the central bank.

However, it is emphasized that the best regulations since the financial crisis have resulted in more robust banks.

– Norwegian banks are profitable and strong and can bear losses that are likely to occur without restricting lending. At the same time, the prospects for future losses are more uncertain than usual, says Wolden Bache.

In the first three quarters of the year, the total credit losses of all Norwegian banks and mortgage companies accounted for about 0.7 percent of total loans, three times the average for the last 20 years.

– Low interest rates can exacerbate vulnerabilities.

The central bank cut interest rates by a total of 1.5 percentage points during the worst corona period this spring, ending at zero percent for the first time in history.

Interest rate cuts reduce the risk of a significant consumption tightening and can have a positive effect on corporate profits and reduce the risk of bank losses.

“At the same time, low interest rates over a longer period of time can contribute to higher debt accumulation and strong growth in prices for both real estate and securities. It can exacerbate vulnerabilities and weaken prospects for financial stability.

Climate risk

– If we look beyond the pandemic, the climate is one of the biggest challenges for Norwegian companies, says Torbjørn Hægeland, CEO of Norges Bank, in the webinar.

He then points out that there are several important industries for the Norwegian economy, such as industry, international shipping, and oil-related activities, which stand out with high emissions.

“It is important that banks take climate risk into account in their risk assessments
both new and existing loans, ”the report says.

The central bank notes that the Climate Act forces Norway to make significant emissions cuts in the coming years and that investors around the world are placing more emphasis on sustainable development than before.

‘The biggest risk for Norway is related to value development in the oil and gas industry. Norwegian banks also have loans for foreign shipments, which may have stricter weather regulations in the coming years. “