FSR 2025 H2
In a nutshell

Continued heightened risk of weakened financial stability

The Norwegian financial system is resilient. At the same, the outlook for the global economy is highly uncertain, in particular due to geopolitical tensions and changes in global trade policy. In a global, interconnected financial system, new shocks may quickly impact the Norwegian financial system.

Lower household debt-to-income ratios

Norwegian households are highly indebted, but debt growth has been slower than income growth in recent years. Debt-to-income (DTI) ratios have declined the most for households with the highest level of debt. This contributed to somewhat lower household sector vulnerabilities.

In the years following the pandemic, high inflation and higher interest rates have led to tighter finances for many households, but most households have been able to service debt and cover normal living expenses with current earnings. Many households also have accumulated savings.

Over the past two years, wage growth has outpaced inflation, and residential mortgage rates have edged down slightly in 2025. This has strengthened household purchasing power and improved debt-servicing capacity.

Developments in commercial real estate are stable but still a challenge for real estate developers

Banks have substantial commercial real estate (CRE) exposures. Higher interest rates and lower property values have posed a challenge for CRE firms, but high employment and increased rental income have enabled most firms to cover expenses with current earnings, while for real estate developers, this is still a challenge. Housing construction is low, and earnings have fallen. Somewhat lower interest rates and higher house prices may boost profitability ahead, but Norges Bank still expects somewhat higher bank losses on loans to real estate developers.

Banks are resilient

Resilient banks are important for financial stability. Norwegian banks are solid, have ample liquidity and low losses. Firms and households have ample access to credit. Maintaining financial system resilience is important. The countercyclical capital buffer requirement makes a contribution in this regard.

The Committee’s assessment

Norges Bank’s Monetary Policy and Financial Stability Committee considers the Norwegian financial system to be robust. Households and firms have solid debt-servicing capacity. Debt-to-income (DTI) ratios have declined over time across households, and vulnerabilities associated with high indebtedness have been reduced somewhat. At the same time, there is still a heightened risk of events that could weaken financial stability. It is important to maintain the resilience of the financial system so that vulnerabilities do not amplify an economic downturn.

Continued heightened risk of events that could weaken financial stability

The balance of risks for the global economy is marked by geopolitical tensions and changes in global trade policy. The effects of higher tariffs remain uncertain. They will likely dampen global growth, but so far do not appear to have significantly affected economic activity, neither in Norway nor among Norway’s main trading partners. At the same time, the framework for international cooperation appears to be more unpredictable than before.

The outlook for the global economy is highly uncertain, and the risk of unexpected events that could weaken financial stability is still higher than normal. Major equity indices have reached new peak levels, and the IMF points out that financial asset valuations appear stretched, increasing the risk of abrupt and disorderly market movements. At the same time, the interconnectedness between banks and other financial institutions is increasing, which could amplify market movements and contribute to stress spillovers in the financial system.

Changes in the security policy landscape have resulted in many European countries now increasing defence investment. At the same time, expenses related to climate transition and an ageing population are rising. Budget adjustments will be particularly difficult in countries with weak government finances and already high government debt. In a turbulent world, the risk of targeted cyberattacks and other operational disruptions also increases. If cyberattacks impact critical functions or cause a broad-based loss of confidence, they could pose a threat to financial stability.

The cryptoasset market is also growing rapidly, particularly stablecoins. Stablecoins are designed to maintain a stable value relative to reference assets, such as the US dollar, and are often backed by reserves in the form of bank deposits and liquid securities. However, if confidence is lost, stablecoins may face a redemption run. Rapid sales of underlying assets can trigger liquidity stress that can spill over to other markets. Should strong stablecoin growth persist, stablecoins may become a source of systemic risk in the global financial system. The new Markets in Crypto-Aassets Regulation (MiCA) contributes to reducing systemic risk. Globally, however, there is still a need for further regulatory developments and cooperation.

In a global, interconnected financial system, new shocks may quickly impact the Norwegian financial system. Financial system vulnerabilities could amplify a downturn in the Norwegian economy and lead to bank losses.

Lower household debt-to-income ratios

The high indebtedness of many households is a key financial system vulnerability as it increases the risk of sharp consumption cutbacks should interest rates rise, household income decline or house prices fall markedly. Should such multiple shocks coincide, consumption cutbacks could weaken firms’ earnings and debt-servicing capacity. Analyses in this Report show that households with the highest DTI ratios cut back on consumption more than other households when interest rates rise and house prices fall markedly.

According to Finanstilsynet’s (Financial Supervisory Authority of Norway) residential mortgage lending survey for 2025, DTI ratios increase somewhat with new mortgages, and a higher share of new mortgages are issued with loan-to-value (LTV) ratios close to 90%. Developments must be viewed in the light of the increase in the Lending Regulations’ maximum LTV ratio requirement at the turn of the year from 85% to 90%. At the same time, total household debt has risen less than income in recent years, and analyses in this Report show that DTI ratios have declined broadly across households and the most for those with the highest ratios. In Norges Bank’s assessment, Norwegian household vulnerability related to high debt has been somewhat reduced. This vulnerability may increase again if looser financial conditions result in rapidly rising house prices and debt.

Higher interest rates and high inflation tightened household finances in the years following the pandemic. However, most households have been able to service debt and cover normal living expenses with current earnings by a solid margin. Many households also have financial buffers. Over the past two years, wage growth has outpaced inflation, and residential mortgage rates have edged down slightly in 2025. This has strengthened household purchasing power and improved debt-servicing capacity.

For a long time, house prices rose faster than household income. At the same time, the owner-occupancy rate has remained firm, Nevertheless, there are signs that households’ response to higher house prices has changed. The analyses in this Report indicate that housing affordability has fallen over time, particularly in urban areas, and that individuals with relatively low income, low parental wealth or both, postpone home purchases.

In the CRE market, developments are stable, while low construction activity continues to pose challenges for real estate development

The overall financial position of Norwegian firms was stable through 2024, after having weakened somewhat in pace with the rise in interest rates in recent years. Overall, Norwegian firms are robust. The higher US tariffs introduced to date likely have a limited direct impact on activity in Norwegian firms.

Norwegian banks’ pa In recent years, ticularly high CRE exposure is a key financial system vulnerability. In recent years, the rise in financing costs and lower property values have put pressure on CRE firms’ profitability and solvency. However, high employment and growth in rental income enable most CRE firms to cover high interest expenses with current earnings. In recent years, a number of firms have sold real estate or raised equity to improve their financial positions, and sector solvency as a whole improved somewhat in 2024. Credit premiums for bank and bond financing have fallen further since the previous Report, reducing financing costs for loans that have to be refinanced.

The share of bankruptcies among Norwegian firms has risen in recent years, reflecting a normalisation following an unusually low number of bankruptcies during the pandemic. Bankruptcies in most sectors are now at approximately the same level as the average for the past decade.

However, bankruptcies in real estate development have risen markedly. Construction activity is low, and earnings have fallen. In Norges Bank’s lending survey for 2025 Q3, half of banks report an increased risk of default and breach of the terms of loan covenants. Looking ahead, somewhat lower financing costs and higher house prices are likely to boost profitability in construction and may lead to more projects being realised. Somewhat higher bank losses on exposures to the construction sector are expected in the year ahead.

Norwegian banks are solid

Banks are the most important source of financing for most households and firms, which is why resilient banks are key to financial stability. Norwegian banks satisfy capital and liquidity requirements by a solid margin and have ample access to both deposits and wholesale funding.

Banks’ profitability is the first line of defence against losses. Norwegian banks are highly profitable, primarily reflecting high net interest income and low credit losses. Looking ahead, lower interest rates are expected to reduce net interest income somewhat.

Financial system resilience is strong and must be maintained

Both in Norway and internationally, the financial system has proven resilient to major market shocks, high inflation and higher interest rates in recent years, partly reflecting global regulation standards that were put in place following the 2008 financial crisis. In a number of countries there is now increased pressure to ease banks’ capital requirements. There are good reasons to explore opportunities to simplify complex and comprehensive regulations, but this must not be at the expense of maintaining financial system resilience.

The Lending Regulations contribute to this resilience by setting limits on banks’ credit standards and dampening the build-up of household sector vulnerabilities. On 1 January 2025, the Regulations were made permanent. Permanent Lending Regulations will contribute to predictability and counter future deterioration of banks’ credit standards.

Norwegian banks’ capital buffer requirements reflect the vulnerabilities in the Norwegian financial system and bolster resilience. In the event of a sharp downturn, buffer requirements can be reduced to mitigate the risk of tighter bank lending. The solvency stress test in Financial Stability Report 2025 H1 shows that banks can absorb large credit losses, while maintaining lending.

Norges Bank sets the countercyclical capital buffer rate each quarter. At its meeting on 5 November 2025, the Monetary Policy and Financial Stability Committee decided to keep the countercyclical capital buffer rate unchanged at 2.5%.

Ida Wolden Bache
Pål Longva
Øystein Børsum
Ingvild Almås
Steinar Holden

1. Risk, vulnerabilities and resilience

1.1 Heightened risk of weakened financial stability

Uncertainty surrounding the global economic outlook remains high

The balance of risks for the global economy is marked by geopolitical tension and changes in global trade policy, and the uncertainty surrounding the growth outlook remains high. Higher tariffs are likely to dampen global growth but so far appear to have had little material impact on economic activity in Norway or among Norway’s main trading partners. Trade agreements between the US and several of its main trading partners have provided greater clarity, but the effects of the tariffs on supply chains and international inflation in the slightly longer term remain to be seen. The uncertainty that is clouding global trade policy and cooperation will likely persist. For a small, open economy such as Norway’s, a multi-lateral, rules-based world order is an important foundation for economic and financial stability.

In its October Global Financial Stability Report, the IMF emphasises the heightened risk of weakened global financial stability. This must be viewed in the context of multiple ongoing military conflicts and heightened tensions between countries. The IMF also points out that financial asset valuations appear stretched and that increasing interconnectedness between banks and non-bank financial institutions (NBFIs) could amplify market movements and contribute to stress spillovers in the financial system. Other developments emphasised by the IMF are growing fiscal deficits and borrowing requirements in many countries. The European Systemic Risk Board (ESRB) also assesses that there is a heightened risk of weakened financial stability in the EU.1

Norwegian market participants consider geopolitical tensions and cyberattacks to be the main sources of risk in the Norwegian financial system

In Norway, unemployment has increased somewhat over the past year, and capacity utilisation in the economy has declined to a normal level. At the same time, Norway’s financial system is robust. Household debt-servicing capacity is solid, and on the whole, Norwegian firms are financially sound (see Sections 2 and 3). Banks are also resilient (see Section 1.2).

However, new shocks may have consequences for both the real economy and the financial system. In a turbulent world, there is heightened risk of targeted cyberattacks and other operational disruptions. Attack surfaces expand as technology advances and financial system interconnectedness deepens. If cyberattacks impact critical functions or cause a broad-based loss of confidence, they could pose a threat to financial stability (see Financial Infrastructure Report 2025).

Norges Bank’s systemic risk survey conducted in October shows that Norwegian financial market participants consider geopolitical tensions and cyberattacks to be the main sources of risk to the Norwegian financial system (Chart 1.1). Overall, respondents assessed that the probability of an incident having a substantial impact on the financial system in the course of the next three years has increased somewhat over the last six months. However, they are highly confident that the Norwegian financial system will remain stable. For an overview of the most important vulnerabilities in the Norwegian financial system, see “Key vulnerabilities in the Norwegian financial system”.

Financial markets are vulnerable to shocks

The past few years have been marked by a number of events that have led to considerable uncertainty and market volatility. This has also impacted Norwegian financial markets.

Major trade restrictions and trade policy uncertainty led to heightened financial market volatility in April. Global financial conditions have since eased, and market volatility indicators have fallen (Chart 1.2).

A number of major equity indices have reached new highs, and credit premiums have fallen following the market turbulence this spring (Chart 1.3). The substantial rise in equity prices over the period can partly be explained by slightly higher earnings expectations among firms and higher rate cut expectations in the US.4 However, these factors cannot fully explain the rise in equity prices, indicating that equity risk premiums have fallen. In isolation, this raises the risk of abruptly falling asset prices and rising credit premiums in response to new information.

In the US, the rally in equity markets is driven by technology and communication companies, which have announced major investment in, among other things, AI and data centre developments. The seven largest companies in the US S&P500 benchmark index account for a steadily increasing share of market value6, and developments in the index are therefore heavily influenced by a small number of companies in the same sector. Technology shares on Oslo Børs have also surged but make up a relatively small share of the benchmark index. In Norway, energy equities have fallen in pace with lower oil prices, while consumer goods equities have increased.

Turbulence in international financial markets can result in a rise in the risk premiums paid by banks on wholesale funding, both in Norway and in other countries. As Norwegian banks have high credit ratings and are well capitalised, this may better insulate them against international market turbulence. At the same time, much of Norwegian banks’ funding is raised abroad and well-functioning international financial markets are therefore important to them.

The US dollar weakened following market turbulence this spring

The US dollar plays a key role in the global financial system and influences, among other things, conditions for financing and the pricing of risk, also in Norwegian markets. Previously, the US dollar has appreciated during market turbulence and thereby helped dampen the depreciation of US assets owned by US investors. However, in connection with the period of market turbulence this spring, the US dollar depreciated sharply together with an abrupt fall in equity prices. Since then, the decline in asset prices and premiums has been reversed, but the dollar has not appreciated. The IMF highlights several reasons for the dollar depreciation, including concerns over US government finances and political uncertainty.7 Furthermore, the IMF points out that while there has so far been little sign of investors withdrawing from the US, many have strengthened their currency hedging positions to reduce the risk of losses on dollar exposures. The increase in hedging has likely contributed to the dollar depreciation.

Norwegian banks have largely hedged foreign exchange risk. A weakening of the US dollar could nevertheless impact bank liquidity by increasing collateral requirements in currency swaps and requiring them to surrender liquidity to counterparties in these agreements. If the US dollar depreciates sharply and suddenly, collateral requirements are not likely to pose a liquidity challenge to Norwegian banks.

Increased supply and lower demand for long-term government bonds may push up long-term yields

The government bond market is important for financial stability. Government bonds serve, among other things, as a benchmark for other asset prices and as collateral for loans and derivatives transactions. In many countries, banks have large holdings of government bonds. If countries’ credit ratings are downgraded, banks’ credit quality could deteriorate, which may increase banks’ funding costs and result in tighter credit standards for households and firms.

A number of European countries are now increasing defence expenditure sharply. At the same time, expenses related to climate transition and an ageing population are rising, which will likely lead to larger fiscal deficits and an increased supply of government bonds. This may push up the premiums required by investors to hold long-dated rather than short-dated bonds, measured as the term premium. Pressure on government budgets, particularly in highly indebted countries, may erode fiscal space to address future problems and financial downturns.

Other developments may also have contributed to higher term premiums in the government bond market. In recent years, a number of the largest central banks have started to reverse their asset purchase programmes, ie they let their bond portfolios mature and no longer purchase government securities. At the same time, the transition from defined-benefit to defined-contribution occupational pension schemes in a number of European countries has resulted in lower demand from pension funds and insurance companies for long-term government bonds to meet their long-term obligations. Some funds will likely also have to sell significant volumes in a transitional period, which will increase the supply of government bonds.8 The uncertainty related to how lower demand will be balanced against a continued high and increasing supply of government bonds may intensify volatility in fixed income markets ahead and higher long-term yields.

Also in Norway, the transition to defined-contribution pension schemes has reduced the volume of Norwegian pension funds’ holdings of long-term bonds than was previously the case. The shift towards other assets, such as equities and shorter-dated bonds, has been gradual.

Non-bank financial institutions may amplify market turbulence

Important functions in the financial system are performed by non-bank financial institutions (NBFIs)9. They play a key role in channelling capital, sharing risk and contributing to financial stability. These institutions can assume, transform or transfer risk from the banking sector to market participants that are better positioned to manage such risk. Increasing interconnectedness between banks and less regulated NBFIs may, however, be a source of financial system vulnerabilities.

Internationally, NBFIs are playing an increasingly prominent role in the government bond market and in credit intermediation to non-financial corporates. In many countries, including Norway, the total assets held by NBFIs have grown more than the total assets held by banks. So far, direct lending from NBFIs to Norwegian non-financial corporates is limited (see “Who lends to Norwegian non-financial corporates?”).

At the same time, NBFIs have direct connections to banks through ownership of each other’s equity capital and debt instruments or by being counterparties in derivatives transactions (see Section 2.3 in Financial Stability Report 2025 H1. In a crisis, these close connections can amplify market movements and contribute to the transmission of stress to other parts of the financial system. In October, uncertainty about the credit quality and potential losses on securitised US corporate loans, which are held by both banks and NBFIs, led to a fall in global equity markets. This also illustrated the heightened attention in financial markets to connections between banks and NBFIs.

Norwegian banks’ direct exposure to the Norwegian NBFI sector is low compared to banks’ total assets, but the sector is important for banks’ wholesale funding. NBFIs hold, among other things, a substantial share of bonds issued by banks and mortgage companies. Selling pressure may arise if NBFIs, such as hedge funds, need liquidity, for example as a result of substantial collateral requirements in derivatives contracts or large redemptions of fund units. This may lead to a fall in bond prices and amplify market stress, as seen during the pandemic in 2020.

Foreign hedge funds hold an increasing share of covered bonds issued in NOK and use repurchase agreements with Nordic banks to obtain leverage. Leveraging enables the hedge funds to achieve high returns but also makes the funds vulnerable to events that may force them to conduct fire sales of covered bonds. This may lead to stress in the covered bond market, which may spill over to other parts of the credit market (see Financial Stability Report 2025 H1.

Amendments to the regulations for alternative investment funds (AIFs), AIFMD 2.0, allow such funds to engage in lending to consumers and non-financial corporates (see “Regulatory amendments permit alternative investment funds to engage in lending”). A broader range of financing sources can, in principle, strengthen financial stability by spreading credit risk among multiple market participants. On the other hand, lending through AIFs may entail vulnerabilities. Weaker reporting requirements may obscure risk and contribute to reducing transparency in credit markets.

Stablecoins may give rise to systemic risk further out

Norges Bank is seeing an increasing level of interconnectedness between traditional finance and the cryptoasset market. Stablecoins, which are a part of this market, are growing rapidly and becoming increasingly connected to the traditional financial system. Such developments have contributed to raising awareness of the potential consequences for financial stability.

Most stablecoins are pegged to the US dollar and are used, among other things, as a store of value and for money transfers in countries with less well-functioning money and payment systems. This has led to concerns over currency substitution in favour of the US dollar in such countries and may weaken the effect of national policy instruments in foreign exchange, money and capital markets.10

Stablecoins are backed by bank deposits and government securities to maintain a stable value relative to the reference asset. However, if confidence is lost, stablecoins may face a redemption run. A right to redeem the stablecoin for the nominal value of the reference currency may amplify vulnerabilities as users will require early redemption while the collateral is still sufficient. Fire sales of underlying assets may lead to a fall in prices and liquidity stress that could spill over to other markets. Wider adoption may also change banks’ funding structure if retail bank deposits are replaced to a greater extent by few and larger deposits from stablecoin issuers. Few deposits from some professional market participants may lead to more volatile financing and potentially reduce banks’ capacity to provide lending to households and firms.

To date, the exposure to cryptoassets in banks and other financial institutions appears limited. The IMF emphasises that the potential systemic effects depend on whether stablecoins continue to grow.11 Stablecoins in NOK have not yet been issued, but banks in the US and Europe have shown an interest in issuing stablecoins in EUR and USD, both individually and in collaboration, see “Increased interest in stablecoins triggers need for regulation”.

1.2 Norwegian banks are resilient

Banks are profitable and credit losses are low

International shocks and market stress may have consequences for the funding conditions of Norwegian banks. Banks’ funding markets have functioned well since the May Report. Risk premiums on banks’ wholesale funding have fallen somewhat, and deposit-to-loan ratios are stable. Norwegian banks satisfy capital and liquidity requirements by a solid margin.

Current earnings are banks’ first line of defence against losses. Return on equity for the large Norwegian banks has been high over the past three years (Chart 1.4). This increase in profitability has been mainly driven by increased net interest income and low losses. Higher net interest income reflects higher interest rate levels in recent years.12 The policy rate forecast from Monetary Policy Report 3/2025 indicates a lower interest rate level in the coming years. Combined with a decline in banks’ interest margins, this will pull down net interest income and thus banks’ profitability.

Banks’ total credit losses have remained low and in line with 2024 levels (Chart 1.5).

Banks’ corporate credit losses have also remained low. Norges Bank expects continued low construction activity to contribute to somewhat higher corporate default rates and credit losses in real estate development over the coming year (for more details, see Section 3). CRE prospects are stable. If employment were to fall markedly and rental income developments in the CRE sector prove markedly weaker than expected, banks could face substantial losses.

As a whole, Norwegian banks have moderate direct exposure to export-oriented industries, ie those directly impacted by trade restrictions. However, there are regional variations in industry structure, and the exposures of banks with different regional affiliations can vary. Lending to the fisheries and aquaculture sector, which can be affected both directly and indirectly by higher tariffs, accounts for around 6% of total bank corporate lending. See Section 3.2 for a detailed discussion of the impact on the fisheries and aquaculture sector.

Losses on loans to households are low. Looking ahead, higher real household income and lower interest rates are expected to strengthen debt-servicing capacity, and the loss rate on household exposures is expected to remain at a low level.

Banks are solid

Common Equity Tier 1 (CET1) ratios are well above total capital requirements and above banks’ own target ratios. Looking ahead, continued high profitability and low losses are expected to keep banks’ capital adequacy ratios at a high level. The amendments to the Capital Requirements Regulation (CRR III), which entered into force on 1 April 2025, mean that banks using the standardised approach (SA) will have lower capital requirements for low-risk exposures. This has increased SA banks’ capital adequacy ratios. So far, IRB banks are less affected by CRR III. The increase of the risk weight floors for IRB banks from 20% to 25% for residential mortgages has, in isolation, somewhat reduced IRB banks’ capital requirements.

The stress test in Financial Stability Report 2025 H1 shows that, on the whole, the largest Norwegian Banks are capable of absorbing large losses while maintaining lending to households and firms, and thereby will not contribute to amplifying an economic downturn.

Households and firms have ample access to credit

Norwegian banks’ financial strength gives them the flexibility to extend loans to creditworthy firms and households, even in the event of market stress and higher losses. In Norges Bank’s lending survey for 2025 Q3, banks reported unchanged credit standards, somewhat stronger household credit demand and slightly weaker corporate credit demand. Banks expect unchanged credit standards and credit demand in Q4. This autumn, bond market activity has been high, and credit premiums for investment-grade firms are close to the average for the past decade. In Norges Bank’s overall assessment, households and firms have ample access to credit.

2. Lower household debt-to-income ratios

2.1 Debt-to-income ratios decline further

Many Norwegian households have high debt-to-income (DTI) ratios, and Norges Bank has long considered this high debt to be a key vulnerability in the Norwegian financial system. Historically, household default rates have been low, even in downturns. At the same time, high debt levels, especially when combined with low liquidity, can increase the risk of sharp consumption cutbacks if interest rates rise, household income is reduced or house prices fall markedly. Such cutbacks can affect firms’ earnings and in turn lead to higher corporate credit losses among banks.

Norwegian household DTI1 ratios rose over many years and are high both historically and compared with other countries (Chart 2.1). Over the past four years, the overall household DTI ratio has levelled off and declined somewhat. Household debt service ratios and the interest burden have declined over the past year, following considerable increases in pace with the rise in interest rates.

According to Finanstilsynet’s (Financial Supervisory Authority of Norway) residential mortgage lending survey for 2025, DTI ratios increased somewhat with new mortgages, and a higher share of new mortgages are issued with loan-to-value (LTV) ratios close to 90%. Developments must be viewed in the light of the increase in the Lending Regulations’ maximum LTV ratio requirement at the turn of the year from 85% to 90%. The survey also shows that the share of loans granted to borrowers with low liquidity when interest rate stress tests are considered has declined after increasing for a number of years.2

Looking ahead, DTI ratios are expected to decline slightly further (see Chart 2.1 and Monetary Policy Report 3/2025). A falling DTI ratio means that income rises faster than debt.

Following a decline in 2022 and 2023, real household disposable income rose rapidly from the start of 2024 (Chart 2.2, left panel). In 2024, the rise in household real disposable income was the sharpest in over a decade. The saving ratio has also moved up again after declining in 2022 (Chart 2.2, right panel). At the same time, household credit growth has picked up somewhat over the past year, with a twelve-month rise of 4.4% in September. This acceleration followed a period of moderating growth, and credit growth remains lower than in the pre-pandemic years (Chart 2.3). According to the banks in Norges Bank’s Survey of Bank Lending, residential mortgage demand increased somewhat in 2025 Q3, while unchanged demand is expected in Q4.

Household consumer debt increased somewhat in 2022 and 2023, but credit growth has declined over the past two years. At the same time, it has been observed that while credit card usage has increased, interest-bearing credit card debt – ie unsettled credit card debt that accrues interest – has declined since 2022.

The decline in household DTI ratios is broadly based

Norwegian households have historically accumulated substantial debt, owing primarily to home purchases early in life. DTI ratios therefore vary considerably between households in different age groups (Chart 2.4, left panel). In recent years, DTI ratios have levelled off and declined in all age groups. Since 2021, the decline has been most pronounced among households under the age of 35, which also have relatively high DTI ratios. At the same time, there are wide differences in DTI ratios within each age group (Chart 2.4, right panel). In the 25–34 age group, 10% of households had DTI ratios higher than close to six times after-tax income in 2024. The median ratio in this age group was approximately three times after-tax income. There is also a large portion of the 35–44 age group with relatively high debt levels. Both the differences within these age groups and the percentage with high debt levels decline markedly with age.

The overall DTI ratio started to decline in 2022, and in 2024, the median DTI ratio was approximately 150% (Chart 2.5). The decline has been most pronounced among households with the highest DTI ratios. This is evident in the chart, which shows that the top of the distribution (90th percentile) has fallen more than the median.

Lower household DTI ratios lead to somewhat lower household vulnerability

The high level of household debt is a key financial system vulnerability, particularly as it increases the risk of sharp consumption cutbacks if interest rates rise, household income is reduced or house prices fall markedly. Norges Bank’s assessment is that the broad-based decline in household DTI ratios has reduced this vulnerability somewhat.

In connection with this Report two analyses have been conducted to shed light on the consumption channel described above (see “Housing-related costs may increase due to more frequent extreme weather events” and “Households with high debt-to-income ratios have reduced consumption the most in response to higher interest rates”).8 The first analysis focuses on how households have adjusted their consumption in the period of higher interest rates and rapid inflation. The analysis shows that highly indebted households have reduced consumption more than those with low DTI ratios. The second analysis focuses on how households adjust consumption in response to a sharp fall in house prices. Again, the analysis shows that households with high DTI ratios reduce their consumption more than those with low ratios.

These findings are in line with existing research.9 The fact that household DTI ratios have now declined, and that the decline has been most pronounced among the households with the highest debt, may therefore dampen consumption cutbacks in response to future interest rate hikes or marked falls in home prices.

2.2 Most households have adequate
debt-servicing capacity

Households’ discretionary income fell further in 2024

The combination of higher interest rates and high inflation in the years after the pandemic has left households with a smaller share of their income after taxes, normal living expenses and interest and principal payments have been paid (Chart 2.6).10 This buffer is referred to as discretionary income. Calculations show that the average discretionary income of Norwegian households amounted to approximately 40% in 2024, down from about 45% in 2021. This decline has mainly been driven by higher interest expenses and food prices. On the other hand, strong nominal wage growth and lower principal payments owing to the repayment of self-amortising mortgages have cushioned the decline in discretionary income. Despite higher expenses, most households are able, by an ample margin, to service debt and cover ordinary living expenses out of current income.11

However, an increasing number of households have relatively low levels of discretionary income. The share of households with discretionary income below 40% of their after-tax income has risen steadily since 2021 (Chart 2.7). The share of households with discretionary income of at least 50% of their after-tax income was close to 30% in 2024, broadly the same as in 2023.13

Very few households are at risk of defaulting on debt

Approximately 5% of households had negative estimated discretionary income in 2024, slightly lower than in 2023 (Chart 2.7). In order to meet their obligations, these households must either maintain a lower consumption level than assumed in this analysis,15 have unregistered income, draw on accumulated savings or receive transfers from others. In the event of payment problems, they can ask their bank for interest-only periods. Having negative discretionary income does not necessarily mean that a household will default on its debt.

To determine which households are at real risk of debt default, a margin factoring in these possible adjustments is calculated. A negative margin means that a household is not in a position to pay interest unless it reduces consumption to below a normal level.16 Approximately 1.2% of households had negative margins in 2024 (Chart 2.8),17 accounting for approximately 2.2% of overall household debt. The share of households with negative margins is higher than in 2022, but lower than in 2023. Looking at the share of debt held by these households, the same pattern emerges. These calculations are in line with the low residential mortgage default figures.

Housing-related costs may increase ahead and reduce discretionary income

Households’ debt-servicing capacity depends to a large extent on the size of their discretionary income, and Norges Bank therefore closely monitors factors that can impact this income. Since the pandemic, higher interest and food expenses in particular have reduced discretionary income. One factor that could potentially reduce discretionary income ahead is higher housing-related costs given higher physical climate risk. The rise in home insurance premiums has outpaced consumer price inflation in recent years and was particularly sharp between 2023 and 2024 following the extreme weather event “Hans”. Municipal fees have also increased, partly due to changes in weather conditions resulting in wear and tear on public infrastructure. If changes in weather conditions continue to lead to higher public fees and insurance premiums, a rise in housing-related costs can be expected (see “Lower housing affordability in urban areas: how do first-time buyers respond?”). When calculating discretionary income, housing-related costs are found to amount to a relatively modest share of household after-tax income. At the same time, such costs have increased substantially in other countries. Natural disaster insurance and preventive measures may help dampen the risk of similar developments in Norway and thereby limit the reduction in household discretionary income.

2.3 Households’ liquid buffers have increased over a long period, but have been reduced somewhat in recent years

Bank deposits are the most common form of savings for households

Bank deposits are the most liquid of households’ accumulated savings and the dominant form of financial wealth for most households (Chart 2.9).19 Bank deposits account for more than 90% of the financial wealth of half of Norwegian households, while just over a third of households only have bank deposits. At the same time, financial wealth has become slightly more diversified in recent years as a result of more households saving in funds and other financial assets. Some of these investments, such as broad-based index funds, are liquid and relatively simple to sell to improve household liquidity.

Households’ liquid buffers have been somewhat reduced as a share of income in recent years

Liquid buffers improve households’ ability to handle unforeseen expenses or a loss of income. After having risen for several years and surged during the pandemic, bank deposits as a share of after-tax income declined in pace with higher interest rates and high inflation (Chart 2.10, left panel). In 2023, the share returned to around pre-pandemic levels. For the median household in 2023, deposits amounted to slightly more than 30% of annual after-tax income. Preliminary data from the Norwegian Tax Administration and aggregated figures from Statistics Norway’s financial sector accounts indicate that the share has fallen slightly further in 2024 and 2025.

If fund units and equity savings account balances are included in liquid buffers, the level rises substantially (Chart 2.10, right panel).22 With this broader measure, buffers increased further in 2021, although bank deposits as a share of income declined. This means that the increase in holdings invested in equity savings accounts and fund units exceeded the fall in bank deposits. In 2023, the median household held total liquid buffers equal to just above 40% of annual after-tax income. This is higher than in the year preceding the pandemic and also reflects the changed composition of households’ financial portfolios in recent years. Statistics Norway’s financial sector accounts show that the aggregated household fund unit holdings have risen considerably faster than disposable income through 2024 and so far in 2025.

At the same time, some households have little or no liquid buffers in the form of bank deposits. After falling for a long time, the share of households in this category has increased slightly since the pandemic, in particular for households with high debt (Chart 2.11), and in 2024, this share had returned to around pre-pandemic levels.

For some households, such a small buffer means that they have little ability to meet unforeseen expenses or manage a loss of income. At the same time, there are also households that have adapted by having small bank deposits for other reasons than little discretionary income. Households can choose to keep their financial savings in assets other than bank deposits or they may have home equity lines of credit that can easily supply liquidity by increasing household borrowing to meet unforeseen events.

Many homeowners can improve their liquidity by borrowing against home equity

In addition to drawing on savings, many homeowners can, as mentioned above, increase liquidity by taking on new debt against home equity. To shed light on this channel, households are assumed to have easy access to loans if their LTV ratio is below 60%.24

By this definition, approximately two out of three homeowners could increase their borrowing in 2023 (Chart 2.12, left panel).25 Among those homeowners, around half had a potential liquidity buffer equal to more than double their after-tax income (Chart 2.12, right panel). This share has increased over time, measured relative to after-tax income, but declined somewhat through 2023.

2.4 Low residential construction and high demand contribute to higher house prices

The housing market is key to the assessment of financial stability, partly due to the interplay between house prices and debt.27 Homes are important assets for households and a key factor why they take on large debts. House prices have periodically risen considerably faster than household income, for example before the banking crisis in the early 1990s, before the financial crisis in 2008 and during the pandemic. This increased household sector vulnerability as household DTI ratios increased at the same time (Chart 2.1). In recent years, house prices as a share of disposable income have levelled off.

In 2024, prices in the secondary housing market increased by 3%. In the first half of 2025, house prices increased considerably. Regulatory easing of equity requirements for house purchases and expectations of lower interest rates may have contributed to the increase. However, house price inflation has since been lower. Looking ahead, house prices are expected to increase somewhat faster than household income due to lower interest rates and a low supply of new homes (see Monetary Policy Report 3/2025).

Lower housing affordability for households

When house prices increase faster than income over time, this may lead to fewer households gaining the opportunity to buy their own home. Such developments may influence households’ total borrowing and the distribution of risk between households, banks and other market participants. For banks, fewer new homeowners may dampen lending growth and reduce default risk if the most vulnerable households postpone buying a home to save more equity and benefit from higher income.

In connection with this Report, three analyses have been performed which shed light on developments in households’ access to the housing market and the behaviour of first-time buyers (see “Lower housing affordability in urban areas: how do first-time buyers respond?”). The first analysis indicates that housing affordability, defined here as the share of homes an individual can afford to buy with their own income within the debt-to-income requirements of the Lending Regulations, has declined over time, in particular in areas where housing demand is high. The other analysis finds that individuals with low income and/or low parental wealth postpone home purchases or remain longer in the rental market than before. The third analysis indicates that first-time buyers in the Oslo region, which is the area with the largest decline in housing affordability, to some extent postpone their purchase of a home until later in the life cycle and save more prior to purchase. They also receive more help to raise equity for home purchases than before, and the median size of the homes they purchase has changed little.

If access to homeownership is increasingly determined by parental wealth, the result over time could be a more uneven distribution of home ownership. On the one hand, such developments could strengthen households’ financial positions when they enter the housing market owing to higher equity levels. On the other, lower housing affordability can transfer more financing needs and risk on to the rental market, parents and other private financing sources or to new housing finance models, such as shared ownership and rent-to-own. If parents increasingly use accumulated equity to help their children enter the housing market, in isolation this may increase parents’ vulnerability to economic shocks if they therefore have smaller buffers to draw on. On the whole, the implications for financial stability are not clear.

Household formation is outpacing residential construction, particularly in urban areas

House prices are determined by a number of factors, including interest rates, income and tax policy stance. In addition, the supply of houses is a key driver of house prices over time. The relationship between the increase in the number of homes and the number of households is an indicator of developments in housing market supply and demand. In recent years, residential construction activity has been lower than household formation (Chart 2.13). The number of building permits and new home completions have fallen since 2022, partly driven by higher interest rates and increased construction costs. The number of building permits fell to very low levels in 2024, with the largest decline from 2022 in the counties of Telemark, Akershus and Innlandet. In the first half of 2025, the number of building permits increased somewhat compared with the same period in 2024.

The extent to which household formation has outpaced residential construction growth varies across regions (Chart 2.14). In the period between 2021 and 2024, household formation outpaced residential construction growth in all urbanisation classes, and over time, the difference is most marked in the main urban areas, which may have contributed to higher house prices in these areas.

There are prospects for a pick-up in residential construction ahead
(see Monetary Policy Report 3/2025). Low supply of new homes and higher real household disposable income are expected to push up prices in the secondary housing market, which may boost the profitability of building new homes and contribute to more projects being realised. See Section 3.2 for a more detailed description of profitability and activity among real estate developers.

3. Stable developments in commercial real estate, but real estate developers still face challenges

3.1 Norwegian firms are solid overall

Financial positions in the Norwegian corporate sector were stable through 2024 after having weakened somewhat in pace with higher interest rates in the two preceding years.1 Annual financial reporting shows that corporate sector solvency had improved and that profitability2 was marginally weaker than in 2023. The outlook is also stable. According to Regional Network contacts, output growth increased somewhat in early 2025, and contacts expect growth to remain elevated through 2025 H2, see Regional Network 3/2025.

Corporate sector solvency improved in 2024 and is strong overall. Annual financial statements show that equity ratios increased in most sectors, following a decline in several sectors in the two preceding years (Chart 3.1). Retained earnings, in particular, increased in 2024, ie firms retained a substantial share of profit for the year. Bank and bond debt growth was moderate through 2024.

Profitability, as measured by firms’ operating margins, declined marginally in 2024 (Chart 3.2). For sectors with high debt-to-income ratios, such as real estate development and commercial real estate (CRE), interest expenses have reduced profitability considerably since 2022. In real estate development, operating margins after interest expenses were marginally higher than in 2023, but only barely higher than during the 2008 financial crisis. In spite of persistently low activity in the construction industry, profitability was broadly unchanged between 2023 and 2024 and not far from its historical average.

3.2 Direct effect of higher tariffs on Norwegian firms is likely limited

Earlier in 2025, US import tariffs were raised substantially. Higher tariffs will likely dampen global growth but so far do not appear to have affected the corporate sector in Norway or abroad to any great extent.5

Among Regional Network contacts that export directly to the US, some report concern that they will lose market shares to competitors in countries subject to lower tariffs (Regional Network 2/2025). Some suppliers, including firms in the metal industry, report weaker demand and link this to the increased supply of Asian products in the European market.6 However, most export-oriented firms expect sound growth in H2.

The tariffs could primarily lead to changes in which markets Norwegian firms export to. This applies in particular to the aquaculture sector as the US is one of the largest export markets for Norwegian farmed salmon. More traditional fisheries largely export to other markets. However, a broader global downturn may also have negative spillover effects for traditional fisheries.

Lending to fisheries and aquaculture accounts for about 6% of banks’ total Norwegian corporate exposures (Chart 3.3). However, there are large differences between banks, and for the most exposed banks, these two sectors account for more than 20% of corporate exposures. Overall, aquaculture accounts for close to 60% of these exposures. However, the ten banks with the highest exposure to fisheries and aquaculture are most exposed to fisheries.

Aquaculture exports will likely be redirected to other markets

The export value of Norwegian farmed salmon has increased substantially in recent years, in particular due to a weak krone and high demand. At the same time, the aquaculture sector has long struggled with problems such as fish health and large fluctuations in operating costs. This has resulted in substantial volatility in the sector’s operating margins (Chart 3.4). However, the return on capital has been high over time.

The quantity of seafood produced by Norwegian firms is primarily determined by supply-side conditions. If US demand were to fall, exports could to a large extent be shifted to other markets. A number of aquaculture contacts in Norges Bank’s Regional Network expect that more farmed salmon from Chile and Canada, which have lower tariffs, will be exported to US markets, while Norwegian salmon will, to a greater extent, be directed at European and Asian markets. With fewer markets, salmon export prices may decline and weaken sector profitability somewhat.

The EU, the most important market for Norwegian seafood, has adopted tariff quotas for fish and aquaculture that entail reduced or no tariffs on several imported products. Although agreements with the EU provide relatively good market access, fish and aquaculture products are not fully integrated in the EEA Agreement for goods in general. Changes to tariff quotas may force Norwegian salmon to compete under different conditions in European markets, which may reduce demand and potentially further dampen export prices.8

On the other hand, Regional Network contacts report that improved fish health has contributed to substantial output growth in aquaculture in the first half of 2025, and contacts expect continued growth to the end 2025, see Regional Network 3/2025. Higher output as a result of improved fish health could help maintain profitability even if export prices decline.

Lower fishing quotas make fisheries vulnerable to price falls

In recent years, stocks have declined markedly for many species of fish,9 leading to gradual fishing quota cuts every year.10 However, profitability in the fisheries sector has been buoyed by a strong increase in fish prices, in particular for cod. Operating margins fell somewhat in 2022 and 2023 but increased somewhat again in 2024 (Chart 3.4).

Lower quotas and high price sensitivity make fisheries vulnerable to a decline in export prices. A global downturn or more adverse trade policies could push down fish prices and reduce sector profitability considerably. This may result in higher credit risk and tighter credit supply from some banks with considerable exposure to fisheries (Chart 3.3).

There is still considerable uncertainty surrounding global developments

In the longer term, higher tariffs and persistent trade tensions could contribute to lower global growth and higher financial market uncertainty. A more protectionist trade system may dampen investment, disrupt global supply chains and weaken productivity growth, which overall may increase credit risk for banks with high exposure to export-oriented industries.12

3.3 Higher number of bankruptcies in real estate development

Weaker economic developments contributed to a gradual increase in the share of bankruptcies among Norwegian firms through 2023 and 2024. At the same time, the increase must be viewed in the context of a normalisation following unusually low bankruptcy figures during the pandemic. So far in 2025, the bankruptcy rate has been relatively stable and at approximately the same level as the average rate for the past ten years (Chart 3.5).

The share of bankruptcies in the fisheries and aquaculture sector increased through 2023 and 2024. The increase is primarily in fisheries and relates to higher financing costs and lower fishing quotas. So far in 2025, bankruptcies have declined somewhat. Bankruptcies in this sector have mostly affected smaller firms.

Bankruptcies in the real estate sector have increased in recent years, reflecting higher interest expenses and low construction activity, which have impacted this sector in particular. The share of bankruptcies in real estate development has risen sharply and is higher than during the financial crisis. Bank debt related to bankrupt real estate developers has increased substantially in recent years (Chart 3.6). So far in 2025, bank debt of bankrupt real estate developers amounts to NOK 1.8bn, around ten times the average in the years before bankruptcy figures started to rise. Large individual bankruptcies account for a considerable part of this bank debt. So far in 2025, bankruptcies in real estate development account for 21% of total bank debt in bankrupt firms, which is relatively high given the size of the sector. See Section 3.4 for a further discussion of the real estate development market.

The number of bankruptcies has also risen in commercial real estate, but to a lesser extent. Higher bankruptcy rates are normal in the construction industry as building contractors often have small margins and low capitalisation, which makes them more vulnerable to a decline in demand or sudden cost increases. At the same time, debt in the construction industry is limited, making it easier to adjust production to lower construction activity. So far in 2025, bankruptcies in construction have declined.

Developments in debt collection cases do not indicate a sharp increase in bankruptcies ahead

The share of firms with debt collection cases has increased steadily since the pandemic and has levelled off slightly over the past year (Chart 3.7). Debt collection cases can ultimately end in bankruptcy. Norges Bank’s analyses of debt collection cases and bankruptcies show a clear correlation over time.15 In recent years, among the firms that had at least one outstanding debt collection case at the end of a given month, around 10% went bankrupt within a year.

A simple prediction model for developments in the share of bankruptcies one year ahead, based on the share of firms with debt collection cases, indicates a somewhat higher share of bankruptcies than observed so far in 2025 (Chart 3.8). Over the past year, the model has indicated that the share of bankruptcies will remain relatively stable at around 1.5% to 1.6%. The share of bankruptcies is therefore expected to lie between the current level of 1.4% and the prediction interval.

3.4 Low construction activity remains a challenge for real estate developers

High construction costs and higher interest rates have dampened demand for new residential and commercial buildings in recent years. Construction activity has declined, and the earnings of real estate developers and contractors have fallen. Real estate developers are particularly vulnerable because many are highly leveraged and directly affected by higher financing costs. Real estate development loans (planning, organising, execution and the sale of real estate projects) account for about 8% of banks’ Norwegian corporate exposures, which is lower than banks’ CRE exposures, albeit high compared with most other sectors.

Number of new unsold homes is still high and construction activity low

The real estate development market remains challenging, with solvency and liquidity problems reflecting the typical challenges faced by real estate developers in achieving selling prices that cover project costs. Cost growth is primarily driven by higher construction and financing costs (see “Cost components in a typical residential real estate development project”), which have dampened new home sales and resulted in a high number of unsold new homes (Chart 3.9).

For unsold new homes to be sold without a loss and for new projects to be launched, buyers’ willingness to pay must at least match developers’ costs in addition to a project margin. However, higher interest rates have reduced demand for new homes. At the same time, the price difference between new and existing homes remains somewhat wider than normal, making new homes relatively less attractive. Many projects are therefore not sold. Most developers also depend on external financing from banks, where there is normally a 50% pre-sale requirement. This makes starting construction on new projects difficult.

In the period between 2021 and 2024, interest expenses in real estate development doubled, while earnings halved. This has resulted in a marked decline in the interest coverage ratio (ICR), which measures current earnings as a share of interest expenses. In 2024, the ICR was stable at approximately 1, meaning that total earnings only covered interest expenses exactly (Chart 3.10).

Developments were somewhat more favourable than expected in Financial Stability Report 2024 H2, but an ICR of 1 is not sustainable. When earnings are insufficient to cover interest expenses, firms must draw on their financial buffers or resort to other measures to avoid defaulting on debt. Risk levels are particularly high for firms that have building plots financed to a large extent by debt and many unsold units.

Somewhat lower financing costs and higher house prices are likely to boost profitability ahead

Prospects indicate that the real estate development market will pick up somewhat. Construction costs are expected to increase less ahead, and lower interest rates are reducing financing costs somewhat. Increased household purchasing power is likely to boost demand for both new and existing homes. The impact on prices is expected to be faster and more significant and faster than in the primary housing market. If the price difference between the two housing markets narrows, new homes will become relatively more attractive.

The stock of unsold new homes remains high but has fallen somewhat since the peak in 2024. Given that the stock of homes is not rising further, this may indicate lower risk for residential property developers and their lenders. In addition, Norges Bank’s Regional Network contacts report some new project launches among financially sound real estate developers. This may be an early sign of market improvement.

However, developments are uncertain. The current situation is eroding liquidity in many firms, and more bankruptcies and higher credit losses are possible ahead. In Norges Bank’s lending survey for 2025 Q3, half of banks report an increased risk of default and breach of the terms of loan covenants in real estate development. See Section 3.6 for a discussion on the outlook for real estate development according to banks.

Cost components in a typical residential real estate development project

When assessing real estate projects, developers weigh various cost components and a margin against expected sales revenue. The calculations for residential and commercial buildings are primarily the same. However, for commercial buildings, the entire building is often sold before or upon completion, frequently with pre-lease contracts. The value is then largely determined by rents and yields. For residential buildings, the revenue side comprises expected income from the sale of the housing units (Chart 3.A).

The cost components in a calculation for a residential real estate development project can be summarised as follows:

• Construction contract cost: Materials and labour. This cost clearly accounts for the largest share of the costs in a development project.
• Land costs: purchase price, stamp duties and registration fees.
• Project owner costs: advisors, project management, sales/marketing, fees/charges and corporate costs.
• Financing costs: interest and costs related to construction loans and land financing.
• Sequencing provisions: costs related to regulatory requirements.
• Project owner costs: advisors, project management, sales/marketing, fees/charges and corporate costs.

In recent years, the construction contract cost has risen considerably, primarily as a result of higher material costs. Material costs have risen by around 55% since 2021, while labour costs have risen by around 18% in the same period. Financing costs have risen in pace with higher interest rates.
Theoretical calculations indicate that land costs have fallen in recent years.1 At the same time, there are few completed transactions that show a clear fall in prices. This may mean that developers are waiting for market conditions to improve, which may dampen construction activity over time.2 Costs related to sequencing provisions and project owner costs have remained relatively stable since 2021, and the margins used by developers in their calculations are likely little changed.3

Longer processing times for zoning plan proposals, in particular in Oslo, affect the property calculation. Increased time from project launch to completion reduces the current value of sales revenues, raises financing costs and may increase costs relating to materials, the project owner and labour. Extended construction time may also trigger new sequencing provisions.

1. 1 Theoretical calculations made by Union in their housing development survey in spring 2025 show that building plot prices for a standard project in Oslo have declined by 12% in nominal terms since the peak in 2021. The calculations are not based on actual transactions, but on house price developments, construction contract costs, project owner costs and financial costs.

2. 2 In Union’s spring 2025 survey, some developers report that they are in a demanding period where they have accepted lower margins in order to launch projects on existing building plots. According to the survey, one possible interpretation is that the value of existing building plots has fallen.

3. 3 See Union’s house development survey from spring 2025 for a more detailed description of cost component and project margin developments.

3.5 Stable outlook for commercial real estate

Banks’ high CRE exposure is a key financial system vulnerability. Higher financing costs and lower property values have exerted pressure on the profitability and solvency of CRE firms. At the same time, most firms have maintained ICRs well above critical thresholds, and default rates have remained low, increasing banks’ willingness to extend CRE loans.

Higher interest rates in recent years have lowered ICRs in the CRE sector (Chart 3.11). In 2024, the ICR fell approximately as projected in Financial Stability Report 2024 H2. Overall, CRE firms’ continued to have ICRs well above 1, ie when earnings are just sufficient to cover interest expenses and these ICRs are also above the minimum requirement of 1.8, which a number of lenders are using.20 Earnings among CRE firms have remained firm owing to a rapid rise in rental income on the back of high employment and inflation adjustments to existing leases. Interest expenses are assumed to have peaked in 2024 and are expected to remain more stable in 2025. Together with a further increase in rental income, this will improve ICRs for CRE firms ahead. In Norges Bank’s lending survey for 2025 Q3, banks report unchanged risk of breach to the terms of loan covenants relating to ICRs and equity ratios.

Estimates based on consolidated financial statements22 show that the vast majority of CRE groups were able to cover interest expenses out of current earnings in 2024 (Chart 3.12). CRE groups with ICRs below 1 accounted for just below 12% of debt in 2024, (Chart 3.12). This share is not substantially higher than in 2023, which may be because some groups have reduced debt by selling property.

The share of debt held by groups with ICRs below 1 has not increased appreciably, while the share of debt in groups with ICRs between 1 and 3 has increased somewhat (Chart 3.12). This implies that a larger share of debt is held by firms that are more vulnerable. Given that interest expenses have increased somewhat further in 2024, these developments were as expected. At the same time, the shift of debt towards groups with lower ICRs was less pronounced than in the period between 2022 and 2023, suggesting a more moderate rise in credit risk. The CRE sector’s ability to service interest payments is expected to improve ahead and shift debt distribution towards groups with higher ICRs. This indicates more stable CRE prospects.

Since the financial crisis between 2008 and 2009, CRE firms’ overall solvency has strengthened, partly reflecting a rise in commercial property prices without a corresponding rise in lending. Interest rate increases in recent years have led to lower property prices and put pressure on CRE firms’ solvency, resulting in a marked decline in equity ratios in the period between 2022 and 2023 (Chart 3.13). Even if interest expenses increased slightly further in 2024, solvency among CRE firms strengthened somewhat again between 2023 and 2024. The fact that some firms have raised equity or sold off property to pay down debt may have strengthened solvency.

CRE firms have ample access to financing, but equity-financed participants now account for a large share of transactions.

At present, banks’ willingness to lend is strong and there is intense competition between banks to provide CRE loans. In Norges Bank’s lending survey for 2025 Q3, a number of banks reported pressure on spreads and stronger competition, particularly for prime real estate. Credit premiums on CRE firms’ bank and bond financing have fallen from the peak at the end of 2023. For bonds, credit premiums increased slightly at the beginning of 2025 but have continued to fall through 2025. Together with somewhat lower short-term yields, this is dampening financing costs for loans maturing in the coming years.

Even though difficulties in obtaining financing have eased and costs have been reduced, transaction volumes are not particularly high. Market participants report selectivity in the transactions market, where the price expectations of buyers and sellers often differ. Over the past year, the transactions market has been marked by equity-financed participants such as pension funds and insurance companies. These participants have played a role in pushing down the yield to a level that is lower than what leveraged participants can compete with.

Selling prices have rebounded somewhat and are expected to remain flat ahead

Commercial property prices fell considerably in 2022 and 2023 owing to higher interest rates. Prices stabilised in 2024 and increased again somewhat in 2025 Q1. Selling prices are estimated as the ratio of market rents to a yield.25 The rise in interest rates resulted in markedly higher yields and a fall in selling prices, while a sharp rise in rents has cushioned the fall in prices. The yield was revised down somewhat in 2025 Q1,26 reflecting that equity-financed participants have had an impact on the market (see “Significance of equity investors in the transactions market for commercial real estate”).

The interest rate outlook suggests that yields are likely to remain fairly flat. Moreover, equity investors are expected to continue to purchase more properties, albeit to a somewhat lesser extent than before. This will result in slightly weaker competition, and more transactions are expected to be carried out by leveraged participants at somewhat lower prices, which leads to a slightly higher yield ahead. Should the equity investors divest from the market to a greater extent than assumed, this would suggest a somewhat higher yield than currently projected.

The rise in nominal rents has been sharp for a long period, driven by high employment and low office vacancy rates. So far in 2025, however, developments in nominal rents have been stable and somewhat lower than projected in the May Report. Even though employment is high, office vacancy rates have recently edged up slightly. Market participants report that demand for office space has weakened somewhat owing to heightened uncertainty. In addition, more large projects will be completed that are also likely to push up office vacancy rates somewhat ahead. Overall, rents are therefore expected to rise more moderately than in recent years.

On the whole, the projections for rent inflation and the yield imply that commercial property selling prices will remain fairly flat (Chart 3.14). These prices are expected to remain at a slightly higher level in the coming years than expected in the May Report, but they will be fairly similar at the end of the projection period.

3.6 Slightly higher losses on corporate exposures expected ahead

In 2025 H1, banks’ total losses on Norwegian corporate exposures remained low and in line with 2024 levels (Chart 3.15).

In 2024, losses on CRE exposures fell and were lower than expected. In the first half of 2025, however, credit losses in real estate development rose markedly again. Even though losses in 2024 were lower than expected, the share of defaulted loans in the sector rose further, (Chart 3.16). The default rate is well above the average for the past decade.

As expected, losses on CRE exposures have remained low, and the share of defaulted loans has remained low and stable. For exposures elsewhere, such as in oil-related and transport sectors, default rates have fallen substantially since 2021. This results in a total share of defaulted loans that is considerably lower than four years ago.

Overall losses on corporate exposures are expected to increase slightly in 2025 and 2026 compared with 2024 (Chart 3.17). Continued low construction activity is expected to result in higher losses on real estate development exposures.30 Improved economic developments lead to a marginal downward adjustment of loss projections compared with the projections in Financial Stability Report 2024 H2.

Owing to prospects for somewhat lower financing costs and higher earnings, CRE losses are expected to remain low, at around current levels. The projections have not changed substantially since 2024.

The projections are uncertain and losses may become higher than expected. If unsold new homes remain unsold and construction activity fails to pick up as expected, then more real estate developers could default on their loans and banks could face higher losses on their real estate development exposures than assumed.

The global growth outlook is considerably uncertain. Should long-term interest rates and risk premiums increase markedly, both debt servicing capacity and CRE property values could weaken. Should employment also fall markedly and rental income prove appreciably lower than envisaged, many CRE firms could face difficulties servicing debt and refinancing loans. In a situation where the profitability of many firms has been weakened by higher financing costs, this could trigger more property fire sales. This could lead to higher default rates and losses than envisaged.