Increased risk of shocks

Global trade policy uncertainty has led to large movements in financial markets. Major equity indices fell markedly at the beginning of April, while bond market risk premiums and several uncertainty indicators rose. Since then, these movements have largely been reversed. The US has raised tariffs on a range of goods, and some countries have responded with countermeasures. The US has announced further tariff increases, but it is uncertain whether and when they will take effect. The uncertainty surrounding economic developments ahead is higher than normal, and there is an increased risk of shocks that may impact the Norwegian financial system. Financial system vulnerabilities could amplify a downturn in the Norwegian economy and lead to bank losses.

Firms and households have ample access to credit

In Norges Bank’s lending survey for 2025 Q1, banks reported some easing of credit standards related to first-home mortgages as a result of changes to the Lending Regulations. Household and corporate credit demand increased somewhat. Corporate lending rates have fallen somewhat more than expected, and banks reported increased competition for corporate loans. In Q2, banks expect no change in credit standards and broadly unchanged household and corporate demand. Credit premiums in the corporate bond market for firms with high credit ratings fell through Q1, and issue volume was high. As a result of uncertainty related to trade policy and geopolitics, credit premiums rose somewhat in April, and bond market activity has fallen back somewhat. In Norges Bank’s overall assessment, households and firms have ample access to credit.

Household credit growth has accelerated over the past year

The high indebtedness of many households is a key vulnerability in the Norwegian financial system. High and rapidly rising debt can amplify economic downturns and increase the risk of financial crises. For a long period, debt rose faster than household income. In recent years, debt growth has been slower than income growth.

Household credit growth has edged up over the past year after having slowed over a long period. Credit growth is normally closely linked to house price inflation. House price inflation picked up sharply in January and February but slowed in March and April. Turnover in the secondary housing market has been high in recent months. Activity in the primary housing market remains low, but the number of housing starts picked up in March.

Should the debt-to-income ratio decline over time, the household sector could become less vulnerable to interest rate increases and loss of income. Vulnerability may increase again if looser financial conditions result in rapidly rising house prices and debt.

Stable prospects for commercial real estate, but still challenging for real estate developers

Corporate financial positions, particularly in real estate, have weakened somewhat in pace with higher interest rates, but overall corporate sector solvency is strong. CRE loans account for most of banks' exposures to non-financial corporates. Overall, CRE firms' debt-to-earnings ratios are high. Higher interest rates in recent years have pushed up financing costs. High employment and growth in rental income enable most firms to service higher interest expenses with current earnings.

Commercial property selling prices have increased slightly over the past year due to higher rents. Looking ahead, selling prices are expected to rise moderately. At the same time, credit premiums have fallen, and the refinancing risk for debt maturing in the coming years has been reduced. Future developments remain uncertain. Should demand for office space fall markedly and rental income prove markedly lower than expected, many firms could face debt-servicing problems.

The share of bankruptcies among Norwegian firms has risen since the beginning of 2024. The rise has been particularly pronounced among real estate developers, whose profitability has been impaired owing to higher interest rates, high construction costs, lower residential construction activity and sluggish new home sales. Since the pandemic, real estate developers have shown the highest relative increase in bankruptcy rates, at over 50%. Bankruptcy rates in most other sectors have also increased somewhat, and the total number of bankruptcies is now close to its historical average. So far this year, the share of firms facing debt collection has been high, and the share of bankruptcies in Norwegian firms is expected to increase somewhat further in 2025, particularly in the real estate sector.

Buffer requirements strengthen financial system resilience to downturns

Norwegian banks satisfy capital and liquidity requirements by a solid margin and are highly profitable. Corporate credit losses increased somewhat through 2024 but are still low, and there are prospects for low losses ahead, see Financial Stability Report 2025 H1. The solvency stress test in the Report shows that banks can absorb large credit losses, while still maintaining lending. To ensure that financial system vulnerabilities do not amplify downturns, it is important to maintain banks' resilience. The countercyclical buffer rate of 2.5 percent helps to ensure that banks remain resilient.

The Committee unanimously decided to keep the countercyclical capital buffer rate unchanged at 2.5 percent.

Ida Wolden Bache
Pål Longva
Øystein Børsum
Ingvild Almås
Steinar Holden

7 May 2025

About the countercyclical capital buffer

The countercyclical capital buffer is intended to strengthen banks’ solvency and mitigate the risk that banks amplify an economic downturn. The countercyclical capital buffer is intended, in principle, to range between 0 percent and 2.5 percent. Norges Bank will normally set the buffer rate in the upper part of this range. If a downturn will or could cause a marked reduction in credit supply, the countercyclical capital buffer rate should be lowered. In the event of particularly high cyclical vulnerabilities, the countercyclical capital buffer rate may be set above 2.5 percent. If cyclical vulnerabilities recede significantly over time and the outlook for financial stability is good, the buffer rate may be reduced. Norges Bank sets the countercyclical capital buffer rate each quarter.