Advice on the countercyclical capital buffer 2020 Q4
Norges Bank’s Monetary Policy and Financial Stability Committee has advised the Ministry of Finance to keep the buffer rate unchanged at 1.0 percent.
Both households and businesses appear to have ample access to credit. Banks’ credit losses have declined. Bank losses ahead remain highly uncertain. Losses are likely to be lower in 2021 than in 2020, but markedly higher than the average for the past 20 years. Norwegian banks are well equipped to absorb higher losses while maintaining credit supply.
Prior to the reduction in March, the countercyclical capital buffer requirement was set at 2.5 percent against the background of a build-up of financial imbalances over a long period. Household debt ratios are high and have increased markedly over many years. After rising rapidly over a long period, property prices are at high levels. During the Covid-19 pandemic, this trend has continued. Owing to persistently high house price inflation and increased credit growth, financial imbalances may build up further.
“On the basis of its current assessment of economic developments and prospects for bank losses and lending capacity, the Committee will advise increasing the buffer in the course of 2021. The Committee expects the buffer to return to 2.5 percent in the period ahead”, says Governor Øystein Olsen.
The Ministry of Finance decided today to follow Norges Bank’s advice.
- Ministry of Finance press release
- Norges Bank’s advice is issued in the letter: Advice on the countercyclical capital buffer 2020 Q4
- The decision basis for Norges Bank’s advice is presented in Section 5 of the December 2020 Monetary Policy Report
- Norges Bank’s framework and indicators for advice on the countercyclical capital buffer
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