Countercyclical capital buffer unchanged
In March, the decision was made to raise the countercyclical capital buffer rate to 2.5 percent, effective from 31 March 2023. Norges Bank’s Monetary Policy and Financial Stability Committee has decided to maintain this requirement.
Norwegian households are highly leveraged, but credit growth has slowed over the past year. Property price inflation has also slowed from a high level during the Covid-19 pandemic. Property prices are expected to edge down, and credit growth to slow further. Creditworthy households and firms appear to have ample access to credit. Norwegian banks are profitable and satisfy the capital requirements.
Bank losses are expected to be low ahead but there is substantial uncertainty surrounding the economic outlook. Rising interest rates and high inflation may result in a sharper fall in property prices and a more pronounced slowdown in the economy than currently envisaged. Considerable volatility in global energy and financial markets may lead to shocks that spill over to the Norwegian financial system. Owing to financial system vulnerabilities, shocks may have a stronger impact on the Norwegian economy, which may result in higher bank losses.
“The countercyclical capital buffer rate of 2.5 percent increases bank solvency, making banks more resilient to shocks”, says Governor Ida Wolden Bache.
Financial Stability Report 2022, where Norges Bank assesses the risks and vulnerabilities in the financial system, will be published on 9 November 2022. At the same time, Norges Bank will advise the Ministry of Finance on the level of the systemic risk buffer.
The objective of the countercyclical capital buffer is to strengthen banks’ solvency and mitigate the risk that banks’ lending standards amplifies an economic downturn. The countercyclical capital buffer was reduced from 2.5 to 1.0 percent in March 2020. Decisions have been made to raise the buffer rate to 1.5, 2.0 and 2.5 percent, effective from 30 June 2022, 31 December 2022, and 31 March 2023, respectively.
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