Norwegian banks should continue to improve capital ratios
The risk of instability in the Norwegian banking system has decreased somewhat through autumn. Banks have ample access to funding, borrowing costs have fallen and earnings are solid, as shown in the November 2012 Financial Stability report.
"The financial crisis has demonstrated that robust capital adequacy ratios and stable funding are necessary to ensure banks' resilience. Banks should make use of the opportunity available to them now to strengthen their capital positions and improve liquidity", says Deputy Governor Jan F. Qvigstad.
A new and stricter global regulatory framework for capital and liquidity is underway. Several countries have also announced supplementary capital requirements for their largest banks. Norges Bank holds the view that supplementary capital requirements should also be imposed on large Norwegian banks.
The corporate sector could suffer substantial losses if heavily indebted households have to make abrupt cuts in consumption. Norges Bank holds the view that the authorities should take this source of systemic risk into account when determining the level of equity banks are required to hold against exposures to the residential mortgage market. Bank lending to households will be higher than otherwise when systemic risk is not taken into account.
The advantageous situation for Norwegian banks reflects robust growth in the Norwegian economy, with high oil prices and low unemployment. At the same time, the traditional export industry is being affected by weak developments among Norway's trading partners. The level of uncertainty regarding international developments is still high.
"Economic developments in Norway are very favourable, but sluggish growth in many advanced economies could weaken the global economy. This could lead to a fall in oil prices and increase the risk of financial instability in Norway", says Deputy Governor Jan F. Qvigstad.
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