Advice on the countercyclical capital buffer 2021 Q1
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.
Creditworthy businesses and households appear to have ample access to credit. Norwegian banks are posting solid profits even though credit losses increased in 2020. Credit losses are likely to be lower ahead, but the evolution of losses is still uncertain. Norwegian banks are well equipped to absorb higher losses while maintaining credit supply.
Prior to the reduction in March 2020, 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. Since May 2020, house price inflation has risen markedly and household credit growth has edged up. Commercial property prices fell in the first half of 2020, but the decline was more than reversed in the latter half of the year. The consideration of financial imbalances suggests in isolation a higher buffer requirement.
Norges Bank’s Monetary Policy and Financial Stability Committee has decided to advise the Ministry of Finance to keep the countercyclical capital buffer rate unchanged at 1.0 percent. The Committee expects the buffer to return to 2.5 percent in the period ahead.
“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 stepwise in the course of 2021”, 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 2021 Q1
- The decision basis for Norges Bank’s advice is presented in Section 5 of Monetary Policy Report 1/21
- Norges Bank’s framework and set of indicators for advice on the countercyclical capital buffer
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