Growth in credit to mainland Norway has increased so far this year. Credit growth has been particularly strong from domestic sources, with banks making a substantial contribution. Credit growth has been appreciably higher than GDP growth, which means that domestic borrowers have increased their total debt burden.

The debt burden in enterprises is rising sharply, and is currently approaching the levels seen in the late 1980s. On the other hand, enterprises’ equity ratios rose in the course of the 1990s, and interest rates are considerably lower. Moreover, enterprises’ 1999 accounts showed higher earnings than in the previous year, and debt in the weakest enterprises was reduced. The credit risk associated with enterprise debt is considered to be somewhat lower than it was one year ago. However, the high debt burden means that enterprises are vulnerable to factors which erode earnings. The vast majority of households have sound finances, after several years of solid income growth and a moderate rise in debt. However, this report show that household debt as a percentage of disposable income is now rising more strongly than it has for several years, albeit from a low level. At the same time, it appears that net lending is declining. As a result of high lending growth and decreasing deposit-to-loan ratios, banks have financed lending to an increasing degree in money and capital markets. A large proportion of this takes the form of raising short-term debt, and an increasing number of banks are turning to foreign funding sources. Banks achieved good results in the first nine months of 2000, although results were somewhat weaker than in the same period in 1999. As a result of strong lending growth, average capital adequacy in banks has fallen, despite good results. Stiff competition for loans and deposits and expectations of a more normal loss level mean that banks need to improve earnings in areas other than conventional deposit and loan activities and cut costs further. The credit risk associated with participation in payment systems has diminished now that banks have introduced procedures eliminating the previous practice of advance crediting in connection with giro, card and cheque transactions. It is likely that corresponding changes will be introduced for other types of clearing and settlement in 2001.