The countercyclical capital buffer will be raised to 2.0 percent
Norges Bank’s Monetary Policy and Financial Stability Committee has decided to raise the countercyclical capital buffer rate to 2.0 percent, effective from 31 December 2022.
The objective of the countercyclical capital buffer is to bolster banks’ resilience and to mitigate the amplifying effects of bank lending during downturns. Banks’ loss-absorbing capacity is fundamentally sound, and a higher countercyclical capital buffer rate will contribute to maintaining this capacity.
The upswing in the Norwegian economy has continued. Higher infection rates and extensive containment measures are expected to weigh on activity in the near term. When infection rates subside further out and containment measures are eased, the economic upswing will likely continue.
For Norwegian banks, profitability is solid and credit losses are low. A relatively small share of banks’ exposures is to industries that have been most directly affected by containment measures, limiting banks’ risk of losses. If there is a need for more protracted containment measures that can pull down economic activity, bank losses may rise.
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, the countercyclical capital buffer rate 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. Over the past six months, property price inflation has been more moderate. The consideration of financial imbalances suggests a higher buffer rate.
“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 2.5 percent in the first half of 2022, taking effect one year later”, says Governor Øystein Olsen.
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