The countercyclical capital buffer will be raised to 2.5 percent
Norges Bank’s Monetary Policy and Financial Stability Committee has unanimously decided to raise the countercyclical capital buffer rate to 2.5 percent, effective from 31 March 2023.
Prior to the reduction in March 2020, the countercyclical capital buffer rate had been set at 2.5 percent. Financial imbalances had then built up over a long period. During the pandemic, residential and commercial property prices have increased substantially, and household credit growth has accelerated. Financial imbalances suggest that the buffer rate should be returned to 2.5 percent.
Activity in the Norwegian economy has continued to rise after containment measures were removed in winter. The war in Ukraine has led to heightened uncertainty about the economic outlook, but there are prospects of a continued upturn in the Norwegian economy.
Creditworthy firms and households appear to have ample access to credit. Norwegian banks are profitable and their credit losses are low. There appears to be little direct risk of credit losses owing to the war.
“Banks are well equipped to meet a higher countercyclical capital buffer rate while maintaining credit supply”, says Governor Ida Wolden Bache.
The objective of the countercyclical capital buffer is to bolster banks’ resilience and mitigate the amplifying effects of bank lending during downturns. The countercyclical capital buffer rate was reduced from 2.5 to 1.0 percent in March 2020. The buffer rate was raised to 1.5 percent in June 2021 and to 2 percent in December 2021, effective from 30 June 2022 and 31 December 2022, respectively.
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