Decision on the countercyclical capital buffer 2021 Q3
In June, the decision was made to raise the countercyclical capital buffer rate to 1.5%, effective from 30 June 2022. Norges Bank’s Monetary Policy and Financial Stability Committee decided to maintain this requirement.
On 3 September, the Government decided to give Norges Bank decision-making authority for the countercyclical capital buffer, effective from 10 September. The objective of the countercyclical capital buffer is to bolster banks’ resilience and to mitigate the amplifying effects of bank lending during downturns.
For Norwegian banks, profitability is solid, credit losses are low and losses are expected to remain low ahead. Creditworthy businesses and households appear to have ample access to credit. Norwegian banks are well equipped to meet a higher countercyclical capital buffer rate while maintaining credit supply.
Prior to the reduction in March 2020 to 1.0 percent, 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. During the pandemic, residential and commercial property prices have increased markedly, and household credit growth has accelerated. Property price inflation has recently been more moderate. The consideration of financial imbalances suggests a higher buffer requirement.
“Based on the Committee’s current assessment of economic developments and the prospects for bank losses and lending capacity, the buffer rate will be raised to 2.0 percent in December, effective from 31 December 2022”, says Governor Øystein Olsen.
The Committee expects the buffer rate to return to 2.5 percent somewhat further out.
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