FSR 2026 H2
In a nutshell

Increased risk of serious events that could weaken financial stability

The Norwegian financial system is resilient. At the same time, the risk of serious events has increased. Geopolitical tensions and cyberattacks, high and rising government debt in many countries and uncertainty related to the consequences of artificial intelligence could cause economic and financial market stress. International stress could quickly affect Norway.

Most households have the financial capacity to cope with new economic shocks

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 levels of debt. Over the past two years, wages have risen more than prices. For many households, this has strengthened purchasing power, improved debt-servicing capacity and also increased saving.

Higher interest rates are putting pressure on property values

Banks have substantial commercial real estate (CRE) exposures. Overall, CRE firms have strengthened their solvency in recent years, partly through property sales, equity injections and debt reduction. Higher interest rates are nevertheless putting pressure on property values ahead. Conditions remain challenging for real estate developers, with weak demand and high costs making few new construction projects profitable. Bankruptcies have increased, and banks report an increased risk of default in this sector.

Capital requirements are bolstering resilience

Norwegian banks are solid, have ample liquidity and low losses. Households and firms have ample access to credit. Capital buffer requirements, such as the countercyclical capital buffer, bolster the resilience of the Norwegian financial system.

The Committee’s assessment

Norges Bank’s Monetary Policy and Financial Stability Committee considers the Norwegian financial system to be resilient. Most households and firms have solid debt-servicing capacity, and debt-to-income (DTI) ratios have declined broadly across households. Overall, Norwegian firms are financially sound, but higher interest rates are putting pressure on property prices. At the same time, partly owing to geopolitical tensions, cyber threats, high and rising government debt in many countries and potential AI implications, the risk of serious events that could weaken financial stability has increased. Norwegian banks’ capital buffer requirements are bolstering the resilience of the Norwegian financial system to economic downturns.

Increased risk of serious events that could weaken financial stability
The international balance of risks is marked by geopolitical tensions. The conflicts in the Middle East and the closure of the Strait of Hormuz have pushed up energy and commodity prices. In spite of conflicts and considerable trade policy uncertainty, global economic activity has remained elevated, although economic growth has been slightly slower so far in 2026 than in 2025. A number of central banks have raised policy rates. Long-term interest rates have risen and are at multi-decade highs in a number of markets.

The policy rate in Norway has also been raised in 2026. Inflation has been above target for a number of years, and the rapid rise in business costs in recent years will likely contribute to keeping inflation elevated ahead. Higher prices for energy and various other commodities owing to the conflict in the Middle East are pushing up inflation both abroad and in Norway. In recent years, the policy rate has dampened economic activity, and capacity utilisation appears to be slightly below a normal level. However, most households are able to service debt by an ample margin, partly reflecting high employment. There is substantial uncertainty regarding the global economic outlook. Weaker global growth than assumed may lower demand for Norwegian exports and reduce investment in Norway.

The Committee considers the Norwegian financial system to be resilient. At the same time, the risk of serious events that could weaken financial stability has increased. In a turbulent world, the risk of targeted cyberattacks and other operational disruptions increases. Recently, more such incidents have occurred internationally. In a global, interconnected financial system, new external shocks can quickly affect the Norwegian financial system. An AI-driven market correction or a marked rise in long-term interest rates will result in lower asset values, and may result in higher risk premiums and higher funding costs for Norwegian banks. This may also reduce access to credit for households and firms.

Higher debt makes technology companies more vulnerable
High AI-related investment has contributed to underpinning global economic growth and has been a key driver of developments in both equity and fixed-income markets in 2026. High earnings and expectations of further growth have pushed up the equity prices of large technology companies in 2026 H1. Major equity indices have fallen in recent weeks, reflecting higher uncertainty about the framework conditions for data centre build-outs in the US and about whether the large AI investments will yield sufficient returns.

If expected AI-related productivity gains are realised, the technology could push up global growth markedly. At the same time, there is considerable uncertainty regarding the magnitude of these gains, how quickly they will materialise and how they will be distributed between countries, companies and others. AI-related investment is increasingly being financed by debt, particularly through bond markets, but also through banks and private credit funds. Increased debt financing makes markets more vulnerable if companies fail to meet the high expectations. This could trigger sharp falls in equity and bond prices and contribute to financial system turbulence.

High and rising government debt may cause market stress
Government debt is high and rising in many countries. Higher interest rates and steadily rising expenditure on eg defence and an aging population, combined with growing political divisions in many countries, make it difficult for governments to sufficiently tighten public budgets. An increase in uncertainty about government debt sustainability could lead to asset devaluations and higher risk premiums in global financial markets.

Highly leveraged investors can amplify and spread market stress
In recent years, price-sensitive investors such as hedge funds have become increasingly important in international financial markets, particularly in equity and government bond markets. These funds are often highly leveraged and may face liquidity difficulties during periods of severe market volatility, forcing them to fire-sell securities. Such sales can amplify market movements and impair market liquidity, and thereby also contribute to higher risk premiums elsewhere in the financial system.

Frontier AI models increase cyber risk
Operational resilience is essential for financial stability. In October, the Norwegian National Security Authority raised the cyber risk level to high, partly as a result of technological advances and a demanding threat landscape. AI can enhance the ability to manage cyber threats but can also enable faster and more sophisticated cyberattacks. In July, the European Systemic Risk Board (ESRB) warned that frontier AI models have increased systemic cyber risk. Norges Bank and Finanstilsynet (Financial Supervisory Authority of Norway) endorsed the warning. Increased digitalisation and increasing interconnectedness have made the financial system more dependent on shared technology and service providers. A serious operational failure or an extensive cyberattack could therefore affect many market participants simultaneously. Financial sector entities are making a considerable effort to strengthen the resilience of proprietary systems, and it is important that this work continues.

Most households have leeway to withstand new economic shocks
The high indebtedness of many households is a key financial system vulnerability. For a long period, debt rose faster than household income. Nevertheless, banks have incurred low losses on loans to households since the banking crisis in the 1990s, partly reflecting increased debt-servicing capacity from stronger purchasing power over time. At the same time, high debt, especially when combined with limited liquid assets, can increase the risk of sharp consumption cutbacks if interest rates rise, income is reduced or house prices fall markedly. This could weaken firms’ earnings and debt-servicing capacity. In recent years, debt has risen less than income. Analyses in this Report show that debt burdens have declined broadly across households and most for those with the highest debt-to-income (DTI) ratios.

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 necessary expenses out of current income by an ample margin. Over the past two years, wage growth has outpaced inflation. Many households’ purchasing power and debt-servicing capacity have improved, even when taking higher interest rates into account.

Many households have financial buffers that make them better able to cope with higher expenses or income loss. After declining in the years following the pandemic, there are signs that overall liquid buffers are increasing again. Over the past few years, households have increased their savings in bank deposits, funds and equities. This diversifies the financial buffers, but also makes them more vulnerable to financial market developments. In Norges Bank’s overall assessment, household vulnerabilities related to high debt have diminished somewhat.

Higher interest rates put pressure on property values
Norwegian firms’ financial positions were stable through 2025. Overall, Norwegian firms are financially sound. Profitability strengthened somewhat in 2025 after having weakened in pace with the rise in interest rates in recent years. Bankruptcy rates in most sectors are at approximately the same level as the average for the past decade.

A key financial system vulnerability is the high CRE exposure of Norwegian banks. In recent years, the rise in financing costs and the fall in property values have put pressure on both CRE firms’ profitability and solvency. However, CRE firms have strengthened their overall solvency over the past two years. A number of firms have adapted to a higher interest rate level by selling properties, injecting new equity and deleveraging. Analyses in this Report show that the share of particularly vulnerable firms with low solvency ratios and weak debt-servicing capacity fell last year.

Over the past year, yields in the office segment have remained fairly stable despite the rise in long-term interest rates. Strong demand from equity-financed investors and lower lending margins on CRE loans have likely contributed to keeping yields down. Market participants now report that demand from equity-financed investors is increasingly shifting towards other real estate segments, while lending margins have stabilised. Higher long-term interest rates are therefore expected to put pressure on property values ahead. Rising office vacancy rates are curbing the rise in rents, but few new office projects are expected to reach completion in the coming years, which will help sustain rents, particularly in central Oslo.

High construction and financing costs have dampened demand for new residential and commercial property in recent years and made conditions challenging for real estate developers. Bankruptcies have risen markedly, and a number of them have been among real estate developers with high bank debt. Weak demand and high costs mean that few new construction projects are profitable. Lower land values could help make projects financially viable. However, Norges Bank’s analyses show that land-related values remain elevated. There is considerable uncertainty surrounding developments in construction activity ahead. A number of Norges Bank’s Regional Network contacts point out that residential construction has troughed, but many report that the recovery keeps getting delayed.

Norwegian banks are solid
Banks are the most important source of financing for most households and firms in Norway, and bank deposits are important for both payments and saving. Norwegian banks are solid and satisfy capital and liquidity requirements by an ample margin.

Strong profitability is banks’ first line of defence against losses. Profitability has declined somewhat in 2026 but remains higher than the average for the past ten years. The decline mainly reflects lower net interest income. In Norges Bank’s lending survey for 2026 Q3, half of banks report an increased risk of breach of the terms of loan covenants and default on loans to real estate developers. Somewhat higher bank losses on construction exposures are expected in the year ahead. Overall, banks’ credit losses remain low, and they are also expected to continue to record low losses and strong profitability ahead.

Norwegian banks have ample access to both deposit and wholesale funding. Banks raise a substantial share of their funding in international markets, some of which is converted to finance lending in NOK. Severe market stress can lead to higher funding costs and liquidity difficulties for banks. Liquidity needs would primarily be in NOK, and banks are well equipped to manage liquidity stress in foreign currencies (see Financial Stability Report 2026 H1).

Cross-border interconnectedness between banks and non-bank financial institutions is increasing. Foreign hedge funds have become an important investor group in the Norwegian covered bond market. Fire sales by hedge funds as a result of market stress could lead to funding problems for banks and other participants that obtain funding in the Norwegian market.

Should global turbulence lead to a marked economic downturn in Norway, weaker corporate earnings and higher unemployment could weaken corporate and household debt-servicing capacity. In such a situation, both higher default rates and a marked decline in property prices that reduces the value of banks’ collateral can be expected. Credit losses could then become substantially higher than currently anticipated. Sound profitability and solvency provide banks with a solid basis for weathering higher losses.

Rapid advances in AI may increase cyber risk and place high demands on firms’ digital resilience. Norwegian financial institutions must have up-to-date systems and sufficient capacity to handle vulnerabilities and to adequately manage and control both their proprietary solutions and the parts of their IT operations that have been fully or partly outsourced to third parties. Norges Bank and Finanstilsynet monitor cyber risk developments and continuously assess the consequences for financial stability.

Capital requirements contribute to resilience
The European Commission is considering amendments to simplify European banking regulations and to better facilitate how banks meet financing needs in the real economy. Draft legislation is expected in 2027 H1 and will likely have implications for banks’ capital requirements and resilience. In the Committee’s view, there are good reasons to simplify the regulatory framework, but international regulatory standards must be safeguarded while national authorities retain a certain flexibility to address national vulnerabilities.

Norwegian banks’ capital buffer requirements should reflect the vulnerabilities in the Norwegian financial system and bolster resilience. In the event of a sharp economic downturn, buffer requirements can be reduced to mitigate the risk of tighter bank lending. The solvency stress test in Financial Stability Report 2026 H1 illustrates that banks can absorb large credit losses while maintaining lending.

Norges Bank sets the countercyclical capital buffer (CCyB) rate each quarter. At its meeting on 4 November 2025, the Monetary Policy and Financial Stability Committee decided to keep the CCyB rate unchanged at 2.5%.

Norges Bank also provides advice on the systemic risk buffer (SyRB) rate every other year. In May 2026, the Monetary Policy and Financial Stability Committee decided to advise the Ministry of Finance to maintain the SyRB rate at 4.5%, and in October, the Ministry decided to keep the rate unchanged at 4.5%.

Ida Wolden Bache
Pål Longva
Øystein Børsum
Steinar Holden
Hilde Christiane Bjørnland

1. Risk, vulnerabilities and resilience

1.1 Increased risk of serious events that could weaken financial stability

Geopolitical tensions and artificial intelligence influence the global economy

The international balance of risks is marked by geopolitical tensions. The conflicts in the Middle East and the closure of the Strait of Hormuz have pushed up energy and commodity prices. Despite conflicts and considerable trade policy uncertainty, global economic activity has remained buoyant, although economic growth so far in 2026 has been slightly lower than in 2025. A number of central banks have raised their policy rates, and market participants now expect interest rates to remain higher than previously assumed. Long-term interest rates have risen and are at multi-decade highs in a number of markets.

Substantial investment related to artificial intelligence (AI) has underpinned global economic growth, and the technology may yield productivity gains. At the same time, increased use of AI will likely lead to change in demand for different types of labour, and there is considerable uncertainty about the extent and pace of this restructuring.

Increased risk of serious events that could weaken financial stability

Although financial markets have so far proven robust, and banks are generally well capitalised, the IMF’s October Global Financial Stability Report points out that lower fiscal headroom and increased interconnectedness between banks and highly leveraged NBFIs1 may amplify the effect of shocks. As potential triggering shocks, the IMF points in particular to an AI-driven market correction, a further marked rise in long-term interest rates and severe cyberattacks that affect critical functions or result in a serious loss of confidence. The European Systemic Risk Board (ESRB) also assesses that risks to financial stability have increased.2

Global economic developments affect financial stability in Norway

The policy rate in Norway has also been raised. Inflation has been above target for a number of years, and the rapid rise in business costs in recent years will likely contribute to keeping inflation elevated ahead. Higher prices for energy and various other commodities owing to the conflicts in the Middle East are also pushing up inflation. In recent years, the policy rate has dampened economic activity, and capacity utilisation appears to be slightly below a normal level (see Monetary Policy Report 3/2026). The krone has appreciated against many currencies in 2026, and the Oslo Børs benchmark index has risen.

New international shocks can affect the Norwegian financial system both through the real economy and financial markets (Chart 1.1). Should geopolitical tensions intensify or the economic gains from AI prove smaller than expected, international growth prospects may weaken. Weaker global growth may result in lower demand for Norwegian exports and reduced investment in Norway, which in turn may weaken earnings and debt-servicing capacity among Norwegian firms. An AI-driven market correction or a marked rise in long-term interest rates will result in lower asset values and may result in higher risk premiums and higher financing costs for Norwegian banks and firms that obtain financing abroad. This may also reduce access to credit for households and firms. Adaptation among highly leveraged NBFIs may amplify and propagate stress across markets. Strong resilience in the Norwegian financial system dampens the risk of vulnerabilities amplifying economic downturns (see “Key vulnerabilities in the Norwegian financial system”).

Norges Bank’s systemic risk survey conducted in October shows that Norwegian financial market participants consider geopolitical risk and cyberattacks to be the main sources of risk to the Norwegian financial system (Chart 1.2). These have been the two most important sources of risk highlighted by the survey’s respondents over the past two years. Overall, the respondents assess that the likelihood of an incident with a substantial impact on the financial system occurring in the next three years has increased somewhat. However, they are highly confident that the Norwegian financial system will remain stable.

Norges Bank’s October 2026 systemic risk survey. Which source of risk do you consider most likely?4

Frontier AI models increase cyber risk

Operational resilience is essential for financial stability. Norway’s financial infrastructure is secure and efficient, but Norway’s financial system is also vulnerable to cyberattacks. Increased digitalisation and increasing interconnectedness have made the financial system more dependent on shared technology and service providers. A serious operational failure or an extensive cyberattack could therefore affect many market participants simultaneously and disrupt critical financial services.

In October, the Norwegian National Security Authority raised the cyber risk level to high, partly as a result of technological advances and a demanding threat landscape. Frontier AI models enable threat actors to find vulnerabilities and conduct cyberattacks more rapidly and on a greater scale than before. In July, the ESRB therefore published a warning about higher systemic cyber risk.5 The ESRB pointed out that over time, frontier AI models are likely to eventually also strengthen cyber resilience, but that in the short to medium term the technology provides a relative advantage to threat actors.

More autonomous AI agents may also give rise to new forms of cyber risk. Such agents can perform complex tasks with limited human involvement and act in unforeseen or undesirable ways. Events over the past year have shown that AI agents can autonomously attempt to circumvent security mechanisms and gain access to restricted systems. AI can therefore increase cyber risk both through threat actors’ use of the technology and through autonomous action by AI agents.

This cyber threat landscape is also relevant for the Norwegian financial system. Norges Bank and Finanstilsynet (Financial Supervisory Authority of Norway) endorsed the warning published by the ESRB.6 Rapid technological advances require firms to maintain a high level of digital resilience. Norwegian financial institutions must have up-to-date systems and sufficient capacity to address vulnerabilities and adequately manage and control both proprietary solutions and those parts of their IT operations that have been fully or partly outsourced to third parties. Norges Bank monitors cyber risk developments as part of its work on financial stability and supervises security and contingency preparedness in key payment and settlement systems. The Bank also conducts exercises and analyses to assess how serious cyber incidents can affect critical financial services and propagate through the financial system. Together with Finanstilsynet, Norges Bank follows up the digital resilience of financial institutions through eg testing and dialogue. See further discussion in the Financial Infrastructure Report 2026.

Higher debt makes technology companies more vulnerable

International financial markets are increasingly influenced by developments in the AI sector. Expectations of continued strong growth in demand for AI services have accelerated the build-out of data centres and other AI-related infrastructure. Over the past year, high earnings and expectations that AI investment will contribute to further earnings growth have lifted equity prices in the large technology companies. These developments have lifted the US equity market in particular, where technology companies account for a large share of the market value of major equity indices (Chart 1.3). Recently, developments have been more volatile. Increased uncertainty about the profitability of extensive AI investment has contributed to falling equity prices in markets with a high proportion of technology companies, including in the US and Japan (Chart 1.3).

The large technology companies that account for much of the build-out of AI-related infrastructure, ie hyperscalers, have historically had low debt. However, the scope of AI investment plans has increased the need for debt financing, primarily from the bond market, but also from private credit funds and banks.8 According to the IMF, hyperscalers’ share of global investment-grade corporate bond issuance increased from less than 1% in 2024 to close to 10% in 2026.9

Uncertainty about the profitability of AI investment has increased recently. Debt risk premiums of some data centre and computer chip firms with low credit ratings have risen markedly. Higher debt makes technology companies more dependent on sufficient future earnings from AI investment. This may also increase systemic risk as many financial system participants, eg banks, hedge funds and other large corporate bond investors, such as insurance companies and pension funds, are exposed to AI sector developments. If profitability expectations for AI investment weaken considerably, this could lead to a concurrent marked repricing of both equity and credit markets.

Financial relationships have also become closer within the AI value chain.10 Some firms invest in or lend to other firms while also entering into agreements for the future purchase of the latters’ services. Such relationships can contribute to problems in one firm spreading to other parts of the value chain.

AI investment growth has also contributed to extensive data centre build-out in Norway. Many of the data centres are owned by foreign firms that largely obtain financing from international capital markets. So far, Norwegian banks therefore have limited direct exposure to these firms. At the same time, equity and credit market investors are exposed to these developments. Norwegian households have increased their investment in equities and mutual funds in recent years, and a marked fall in share prices could reduce their financial buffers (see Section 2.3). A market correction would also lead to valuation losses for Norwegian asset managers and funds with substantial investment in international equity markets. Norges Bank conducts stress tests of the investment portfolio of the Government Pension Fund Global (GPFG).11 In one of the 2025 scenarios, AI did not meet the market’s productivity gain expectations, resulting in lower expected cash flows and higher equity risk premiums. Under this scenario, the value of the GPFG fell by 35%.12

High and rising government debt may cause market stress

Long-term sovereign bond yields have risen since Financial Stability Report 2026 H1 (Chart 1.4). The rise reflects rate hikes by many central banks and persistently high market-implied policy rate expectations ahead. In addition, various measures of the term premium have increased. Large budget deficits and rising government debt in many countries, as well as a marked rise in hyper-scalers’ debt issuance, have led to an increased supply of long-term bonds. At the same time, demand from central banks and other traditional investors such as pension funds and insurance companies has declined. More price-sensitive investors such as hedge funds therefore account for a growing share of the investor base13 and may require higher compensation for holding long-term bonds. Long-term inflation expectations have also been fairly stable, meaning that the increase in nominal interest rates likely reflects an increase in real interest rates.

Recently, the sustainability of public finances has received renewed focus in financial markets. In the US, large budget deficits and increasing interest expenses are expected to increase government debt considerably in the coming decade. In early October, ten-year US government bond yields rose to above 5.3%, the highest level since 2002. In Europe, the rise in yields has been most pronounced in France. Weaker growth prospects, higher spending on eg defence and higher interest expenses, as well as increasing political divisions in many countries, are making it difficult for governments to sufficiently tighten public budgets. The spread between French and German ten-year government bond yields has increased markedly.

Norwegian long-term yields are largely influenced by developments in international bond yields. Norwegian long-term yields have risen in 2026, but less than in many other European countries. The large movements in government bond yields have lifted fixed income market volatility indicators somewhat (Chart 1.5). Credit spreads have increased somewhat in the US and euro area, in particular for firms with low credit ratings, but also for banks’ wholesale funding. At the same time, European bank equity prices have fallen, reflecting the fact that government bonds are important references for the pricing of other financial instruments and their use as collateral for loans and derivatives. In many countries, banks also have large government bond holdings. Higher government bond yields reduce the value of banks’ holdings and can contribute to higher funding costs, as well as tighter credit standards for households and firms.

Turbulence in international government bond markets can also have implications for financial stability in Norway. During the European sovereign debt crisis in 2011 and 2012, Norwegian banks’ funding costs rose markedly. Higher risk premiums for banks’ wholesale funding can result in higher financing costs, as well as tighter credit standards for households and firms. The rise in long-term yields puts pressure on both debt-servicing capacity and asset values in commercial real estate (CRE), which can give rise to higher bank losses (see discussion in Section 3).

Highly leveraged investors can amplify and spread market stress

An AI-related market correction or a marked further rise in government bond yields can trigger considerable movements in financial markets. In recent years, price-sensitive market participants such as hedge funds have become increasingly important in international financial markets, particularly in the equity and government bond markets. Hedge funds are often highly leveraged and may, in the event of severe market volatility, experience liquidity problems and be forced to sell securities. Such divestment can amplify market movements and weaken market liquidity. At the same time, hedge funds finance a large share of their highly leveraged investments with bank debt. In periods of severe market turbulence, the close linkages to banks can propagate stress across different parts of the financial system.

Significant market movements internationally may also have consequences for the Norwegian financial system via NBFIs with exposures abroad. During the market turbulence in connection with the outbreak of the pandemic in 2020, falling international equity prices contributed to a substantial weakening of the krone. This weakening increased the collateral requirements on FX swaps that asset managers use to currency hedge foreign investment and resulted in a substantial liquidity need. Bond sales to cover this need pulled down market liquidity and pushed up risk premiums in the Norwegian bond market.16 Such adaptations can amplify market turbulence and weaken market liquidity, thereby posing a financial stability risk.

In recent years, foreign hedge funds have increased their ownership share in the Norwegian covered bond market (see Financial Stability Report 2026 H1). Covered bonds are an important source of wholesale funding for Norwegian banks. Should hedge funds be forced to fire-sell covered bonds, the result could be major price fluctuations and weakened liquidity in the covered bond market. This could in turn weaken funding conditions for Norwegian banks and other bond issuers.

The international private credit market has grown substantially and become an increasingly important source of corporate financing. In Norway, this market is still small, but activity levels have increased in recent years, particularly through lending from foreign funds.17 Although private credit operates outside the traditional banking system, banks may have indirect exposure through credit lines and other financing facilities to private credit funds. However, the exposure of the Norwegian banking sector to such structures appears to be very limited.

Stablecoin use is growing but does not pose a risk to financial stability in Norway

Stablecoins are cryptoassets designed to maintain a stable value against a reference asset. They are mostly used for cryptoasset investment, but their use is also growing in international payments and payments requiring programmability. Stablecoins may provide benefits within such areas, but they also lack some of the characteristics of general-purpose means of payment (see further discussion in Financial Infrastructure Report 2026).

In Norway, stablecoins are little used. Norges Bank’s cryptoasset surveys from 2024 and 2026 show limited awareness and use of stablecoins among the Norwegian public.18 Exposures among Norwegian financial institutions are also limited.

Stablecoin issuers hold reserves in the form of bank deposits and securities. Large redemptions can trigger fire sales of reserve assets and propagate stress to other parts of the financial system. The European Markets in Crypto-Assets Regulation (MiCAR) sets requirements for the reserve assets and helps mitigate risk. The Regulation has been transposed into Norwegian law from 1 July 2025 through the Cryptoassets Act. However, further regulatory development is needed. In 2026, the European Commission conducted a consultation on the review of MiCAR.19 The consultation response from the European System of Central Banks (ESCB) included a recommendation to remove the minimum percentages of the reserves that must be held as bank deposits. The ESCB pointed out that such reserve requirements create a direct link between stablecoin issuers and credit institutions20.

Cryptoasset theft may result in substantial losses and weaken confidence in the crypto market. In October 2026, around USD 6bn was stolen from Binance, the world’s largest crypto exchange, much of it in stablecoins. For the time being, major international crypto platforms, such as Binance, have limited connections to the Norwegian financial system. Closer interconnectedness between the crypto market and the traditional financial system could increase the risk that losses and loss of confidence will have implications for financial stability, also in Norway.

1.2 Norwegian banks are resilient

Slightly weaker bank profitability

International shocks and market stress may have implications for the funding conditions and loss prospects of Norwegian banks. Banks’ funding markets have functioned well since the May Report. Turbulence in international fixed-income markets has contributed to a slight increase in risk premiums for banks’ wholesale funding in the past couple of months. At the same time, deposit-to-loan ratios are stable. Norwegian banks satisfy capital and liquidity requirements by an ample margin.

Profitable operations are banks’ first line of defence against losses. Norwegian banks’ return on equity has been high in recent years (Chart 1.6). Increased net interest income and low losses in particular have pushed up profitability. Higher net interest income reflects higher interest rates in the wake of the pandemic21 Profitability has declined slightly in 2026 but remains high.

Banks’ total credit losses have remained low and are in line with 2025 levels (Chart 1.7). Overall credit losses on corporate exposures are expected to increase slightly in 2026 and 2027 but to remain at low levels. Even though several key financial figures improved last year, the current situation is weighing on the liquidity of many real estate developers, and continued low construction activity is expected to result in higher losses on corporate exposures. Prospects for higher financing costs and lower rental income mean that losses on banks’ CRE exposures are also expected to increase slightly but to remain low.

Losses on loans to households are low. Higher real income has strengthened household debt-servicing capacity in recent years, and the loss rate on household exposures is expected to remain at a low level.

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 2026 Q3, banks reported unchanged credit standards, broadly unchanged household credit demand and slightly weaker corporate demand. In Q4, banks expect household credit demand to be broadly unchanged and corporate demand to decline slightly further. Bond market activity has been at a normal level this autumn. Credit spreads for investment-grade firms increased somewhat in October but are close to the average for the past decade. In Norges Bank’s assessment, households and firms have ample access to credit.

Capital requirements are bolstering resilience

The Common Equity Tier 1 (CET1) ratios of Norwegian banks are well above total capital requirements. Looking ahead, continued high profitability and low losses are expected to help keep banks’ capital adequacy ratios at a high level. The solvency stress test in Financial Stability Report 2026 H1 shows that banks can absorb large credit losses while maintaining lending to households and firms, and that they therefore will not amplify an economic downturn.

Capital buffers form part of banks’ overall capital requirements and are important macroprudential policy instruments. Norges Bank sets the countercyclical capital buffer (CCyB) rate each quarter and provides the Ministry of Finance with advice on the systemic risk buffer rate at least every other year.

The CCyB is intended to reflect the assessment of cyclical vulnerabilities in the financial system and mitigate the risk of banks amplifying an economic downturn. At its meeting on 4 November 2026, Norges Bank’s Monetary Policy and Financial Stability Committee decided to keep the countercyclical capital buffer rate unchanged at 2.5 percent.

The SyRB is intended to help ensure that banks hold sufficient capital to withstand downturns, and should reflect the structural vulnerabilities in the financial system, ie persistent features that change little from year to year. In May, Norges Bank advised the Ministry of Finance to maintain the SyRB rate at 4.5% for all exposures in Norway. In November, the Ministry of Finance decided to keep the requirement unchanged.24

The Ministry of Finance has stipulated a floor for average risk weights for residential and CRE mortgages in banks that use an internal ratings-based approach to calculate their capital requirements. Such floors serve as a backstop that prevent banks’ capital levels from becoming too low as a result of a fall in risk weights. Excessively high floors may, however, weaken both the risk sensitivity of the capital requirements and the incentives for sound risk management. In a consultation letter of 21 September 2026 from the Ministry of Finance, Finanstilsynet proposes maintaining the current risk weight floor levels.25 In its consultation response, Norges Bank has no reservations to the proposal.26

In Norway, the financial system has proven resilient to major market shocks and higher interest rates in recent years. The introduction of new regulation in Norway and abroad following the financial crisis has bolstered resilience both internationally and domestically. The European Commission is currently considering amendments to simplify European banking regulations and to better facilitate how banks meet financing needs in the real economy. This work includes the interaction between different capital requirements, macroprudential policy instruments and crisis management requirements. Draft legislation is expected in 2027 H1 and will likely have consequences for banks’ capital requirements and resilience. In Norges Bank’s view, there are good reasons for simplifying the regulatory framework, but international regulatory standards must be safeguarded while national authorities retain a certain flexibility to address national vulnerabilities.

2. Most households have adequate debt-servicing capacity

2.1 Debt-to-income ratios have declined and are levelling off

Many Norwegian households have high debt-to-income (DTI) ratios, and Norges Bank has long considered this to be a key vulnerability in the Norwegian financial system. Since the banking crisis in the 1990s, few households have defaulted on their debt, even in downturns. At the same time, high debt levels can increase the risk of sharp consumption cutbacks if interest rates rise, household income is reduced or house prices fall markedly. Analyses from Norges Bank indicate that households with high DTI ratios tighten consumption more than households with low DTI ratios, both when faced with higher interest rates and high inflation, and when house prices fall markedly.1 This channel is amplified if households have small liquid buffers or limited access to credit. Such cutbacks can affect firms’ earnings and in turn lead to higher corporate credit losses among banks. Both DTI ratios and the size of liquid buffers therefore have implications for household vulnerability.

Norwegian household DTI ratios2 rose over many years and are high both historically and compared with other countries (Chart 2.1). Over the past five years, debt growth has been slower than income growth, and the overall household DTI ratio has declined. The debt service ratio and the interest burden have also declined slightly over the past two years, after rising substantially in pace with higher interest rates in the preceding years. Looking ahead, household debt is expected to rise broadly in pace with income, and that the DTI ratio therefore will change little. Household interest burdens are expected to increase somewhat in the near future as a result of higher interest rates, before gradually falling back.

According to Finanstilsynet’s (Financial Supervisory Authority of Norway) Residential Mortgage Survey for 2025, the average DTI ratio increased for new mortgages and for the share of new mortgages issued with loan-to-value (LTV) ratios close to 90%. This reflects the increase in the Lending Regulations’ maximum LTV ratio requirement from 85% to 90%. This year’s survey shows that both the average DTI ratio and the share of new loans with LTV ratios close to 90% have increased somewhat further.4

Banks can use flexibility quotas to grant loans that deviate from one or more requirements in the Lending Regulations.5 After the regulatory amendment in 2025, banks’ use of flexibility quotas related to the LTV ratio requirement declined (Chart 2.2). In Oslo, the decline was less pronounced than in the rest of Norway, reflecting the fact that the DTI ratio is the main binding requirement for borrowers in Oslo. At the same time, use of flexibility quotas related to the DTI requirement has increased.

Increased household purchasing power

Following the decline in 2022 and 2023, average household real disposable income increased again in 2024 and 2025 (Chart 2.3, left panel). Growth in real disposable income continued through 2026 H1, partly driven by the rise in wage income, pensions and government benefits. Growth ahead is expected to be lower than in the past two years but at broadly the same level as the average for the past 10 years (see Monetary Policy Report 3/2026).

Household credit growth picked up again in 2024 and 2025 after a period of slowing growth (Chart 2.3, right panel). So far in 2026, credit growth has levelled off, with a 12-month rise of 4.5% in September. The higher interest rate level and expectations of higher mortgage rates ahead may have curbed credit demand.8 Despite the rise in 2024 and 2025, credit growth remains lower than before the pandemic. In Norges Bank’s lending survey, banks report broadly unchanged residential mortgage demand in 2026 Q3, and they expect no change in Q4.9

Consumer debt10 only accounts for slightly less than 4% of overall household debt, but has historically accounted for the largest share of banks’ credit losses on household exposures.11 Growth in household consumer debt was particularly strong in 2022 and 2023, but has slowed in recent years. Consumer credit growth has been driven by an increase in instalment loans. Despite increased credit card use, interest bearing credit card debt has trended downwards since 2022.

The decline in household debt burdens is broad-based

Vulnerabilities related to high household debt depend not only on the overall debt burden but also on how debt is distributed across households. Microdata are therefore used to examine more closely how DTI ratios have developed across household groups.

Norwegian households have historically accumulated substantial debt, particularly related to home purchases in the household formation phase. DTI ratios therefore vary between households in different age groups (Chart 2.4, left panel). In recent years, DTI ratios have declined in all age groups. Since 2021, the decline has been most pronounced among households under the age of 35, which also have the highest 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 5.6 times after-tax income in 2025. The median ratio in this age group was just below three times after-tax income. Many households in the 35–44 age group are also highly indebted. Both the differences within these age groups and the percentage with high debt levels decline markedly with age.

The decline in DTI ratios is broad-based across the household distribution (Chart 2.5). Since 2021, the decline in DTI ratios has been most pronounced in the upper parts of the distribution, reflecting a particular decline in the share of highly indebted households. In 2025, the median DTI ratio was approximately 130%.

In Financial Stability Report 2025 H2, it was pointed out that the broad-based decline in debt-to-income ratios has reduced vulnerabilities related to high household debt somewhat. Developments have since been in line with this assessment.

2.2 Most households have adequate debt-servicing capacity

High debt levels can increase household vulnerability to higher interest rates, reduced income or a marked fall in house prices. However, the risk of households facing debt-servicing difficulties also depends on their financial leeway. A high share of expenses for ordinary consumption, housing and debt-servicing means that less income is available for unforeseen expenses or income loss. Developments in household expenses as a share of after-tax income therefore provide information on how their debt-servicing capacity has developed over time. A new analysis indicates that household debt-servicing capacity has improved over the past 25 years, in line with previous analyses (see “A historical perspective on household debt-servicing capacity”).14

Households’ necessary expenses have risen at a slower pace than income over the past two years

In order to assess households’ debt-servicing capacity, necessary expenses are calculated as a share of after-tax income. Necessary expenses comprise ordinary consumer expenditure15, fixed housing costs, electricity expenses and interest expenses. The analysis is limited to homeowners because they hold most of total household debt.16

Partly owing to the combination of higher interest rates and high inflation in the years following the pandemic, households’ necessary expenses rose faster than income (Chart 2.6). Norges Bank’s calculations show that necessary expenses on average accounted for approximately 59% of after-tax income in 2023, up from approximately 55% in 2021. The increase was primarily driven by higher interest expenses. Even though interest expenses rose further in 2024, income growth contributed to necessary expenses as a share of income falling somewhat. Preliminary figures from tax assessments indicate that necessary expenses as a share of after-tax income were on average approximately unchanged from 2024 to 2025.

The share of these expenses in relation to income varies considerably across households (Chart 2.7). In 2021, necessary expenses were equivalent to more than 60% of after-tax income for around 34% of households.18 This share increased to 43% in 2023 and fell back somewhat, to 40%, in 2025.

Developments through 2024 and 2025 mean that necessary expenses account for a smaller share of income for many households. Despite necessary expenses continuing to account for a larger share of income than prior to the rise in inflation and interest rates, most households are able, by an ample margin, to service debt and cover expenses with current income.

Very few households are at risk of defaulting on debt

Around 2.5% of households do not have sufficient current income to cover necessary expenses (Chart 2.7, rightmost bars). This does not necessarily mean that they are at risk of defaulting on their debt. Some households may have lower expenses than assumed. They may also draw on any accumulated savings, receive transfers from others or have income that is not captured in the statistics.19

To assess the number of households with weak debt-servicing capacity, a margin is calculated that also takes into account the possibility to draw on accumulated savings. A negative margin means that a household is not able to pay interest expenses without having to reduce consumption to below assumed estimated necessary expenses.21 The analysis finds that slightly less than 2% of households had negative margins in 2025 (Chart 2.8).22 These households held around 2.2% of total debt held by homeowners. Both the share of households with a negative margin and the share of debt held by these households were somewhat lower in 2025 than in 2024. Overall, the analysis suggests that a very small share of households are at risk of defaulting on their debt. This is consistent with the low residential mortgage default figures.23

2.3 Households’ liquid buffers are increasing again

Accumulated savings may make households better able to manage a loss of income and unforeseen expenses. The usefulness of such buffers depends, among other things, on how liquid they are, ie how fast they can be sold. The buffers can help maintain both consumption and debt-servicing capacity.

Households’ financial saving has picked up

Net financial investment shows the difference between households’ financial investment and borrowing and is a measure of households’ financial saving. Households’ borrowing has generally been higher than financial saving and hence led to negative net financial investment (Chart 2.9).25 Households’ total net financial investment increased markedly during the pandemic before declining somewhat again. The rise was driven by higher household saving in bank deposits and securities. Over the past four quarters, net financial investment has been positive and equivalent to just below 1% of household disposable income. Higher interest rates may have contributed to this development by making it more attractive to save and less attractive to borrow. Greater uncertainty may also have given households an incentive to build up financial buffers.26

Households’ total holdings of bank deposits, listed equities and mutual fund units have increased more than debt since the pandemic (Chart 2.10). Both net financial investment and appreciation of securities have contributed to this development. The increase has been most pronounced for mutual fund units, partly reflecting rising equity prices. Over the past four quarters, households’ total liquid assets accounted for approximately 60% of total household debt.

Valuation gains have made a substantial contribution to the rise in liquid buffers

As household financial buffers have increased and a large share is invested in mutual funds and listed equities, developments in financial markets can have a greater impact on the size of liquid buffers ahead. Developments in households’ financial asset holdings can be divided into contributions from active saving and value changes.

With the exception of 2022, the total stock of households’ mutual fund units and listed equities has increased relative to disposable income since the pandemic (Chart 2.11, left panel). Some of the increase is due to households’ net purchase of fund units and equities, ie active saving.29 However, the largest contribution to the increase came from changes in the value of existing financial assets.30 The contribution from value changes was particularly large in 2024 but also considerable in 2025.31 Over the past four quarters, households’ holdings of mutual fund units and listed equities have increased by an amount equivalent to just over 9% of disposable income. Approximately 70% of this increase is due to value changes.

By comparison, households’ overall active saving in bank deposits declined relative to disposable income after the pandemic but has risen again since 2023 (Chart 2.11, right panel). The rise was particularly pronounced in 2025. Over the past four quarters, the increase in bank deposits accounted for slightly more than 5% of households’ disposable income.

More households have a more diversified financial portfolio

Household resilience depends not only on overall financial buffers but also on their distribution across households. Microdata are therefore used to examine more closely how the buffers have developed across households.

Bank deposits are the most liquid part of households’ accumulated savings and the dominant form of financial wealth for most households (Chart 2.12, left panel).33 Half of households hold more than 90% of their financial wealth in bank deposits, while just under one-third hold only bank deposits. At the same time, the share of households holding all their financial wealth in bank deposits has declined (Chart 2.12, right panel). Households’ 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, can be realised quickly to improve liquidity.

Households’ liquid buffers have increased more than income

For the median household, bank deposits accounted for slightly less than 30% of annual after-tax income in 2024 (Chart 2.13, left panel). After the marked rise during the pandemic, bank deposits rose more slowly than income across large parts of the distribution and in 2024 were approximately at the pre-pandemic level.Preliminary figures from tax assessments indicate, however, that bank deposits rose more than income across large parts of the distribution in 2025 (see orange bars in the chart).

If fund units and equity savings account balances are included in the liquid buffer measure, the level rises substantially (Chart 2.13, right panel).36 With this broader measure, liquid buffers increased again in 2024, despite the decline in bank deposits as a share of income. In 2024, the median household’s liquid buffer was equivalent to more than 40% of annual after-tax income, higher than in the pre-pandemic period.

At the same time, some households have small liquid buffers. In 2024, approximately 19% of households with DTI ratios above three times after-tax income had little or no liquid buffer in the form of bank deposits (Chart 2.14). The share increased somewhat from 2023, but was approximately at the pre-pandemic level. Preliminary figures from tax assessments indicate that the share declined somewhat in 2025.

2.4 House price inflation has declined despite low residential construction

The housing market is key to the assessment of financial stability, partly due to the interplay between house prices and debt.38 Housing is a key asset for households and an important reason why they take on substantial debt.

For a long time, house prices increased faster than household income (Chart 2.15). This increased household sector vulnerability as household DTI ratios increased at the same time (Chart 2.1). In recent years, house prices relative to disposable income have declined. Following a period of moderate house price inflation and high turnover in the secondary housing market in autumn 2025, house price inflation has slowed and remained low in 2026. Low house price inflation so far in 2026 has coincided with household credit growth levelling off (Chart 2.3, right panel). At the same time, there are wide regional differences. House price inflation has recently been particularly weak in the Oslo area, but high in other cities in Norway. Annual house price inflation is expected to be a bit lower in 2026 and 2027 than in 2025, before picking up again in pace with an increase in housing investment (see Monetary Policy Report 3/2026).

When house prices increase faster than household income over time, fewer households may be able to purchase their own home. In recent years, alternative housing purchase models that reduce the need for accumulated equity have emerged, with rent-to-own and shared ownership being the most common. Rent-to-own combines renting with a right to subsequently purchase, while shared ownership involves buying a share of the home and renting the rest, often with the option of increasing the ownership share over time. Regulatory changes are currently under way to facilitate increased use of such models (see box below).

Low residential construction is being offset by lower household formation and an ample stock of existing homes

House prices are determined by a range of factors, including interest rates, income and the tax policy stance. The housing supply also has implications for house prices over time. The relationship between the increase in the number of homes and household formation is an indicator of developments in housing market supply and demand. Residential construction has been outpaced by household formation since 2018 (Chart 2.16). The number of housing start permits and completions has fallen since 2022, partly owing to higher interest rates and increased costs.40 At the same time, household formation has slowed, particularly in 2025, in line with lower population growth. Slower household formation, combined with an increased supply of existing homes, may have contributed to weaker house price inflation in the secondary housing market, despite low residential construction.

The extent to which household formation has outpaced the rise in the number of homes varies across regions in Norway. In the period between 2021 and 2024, household formation outpaced the number of dwellings in all urbanisation classes (Chart 2.17).42 In 2025, the difference increased further in the most urban areas outside Oslo and in urbanisation class 5. In the other urbanisation classes, the rise in the number of households and homes was approximately the same.

Over time, the difference has been widest in the most urban areas, which may have contributed to higher house prices there (Chart 2.18). At the same time, the difference is less pronounced in most areas than it has been in the post-pandemic years.

3. Stable corporate developments, but challenges in real estate sector remain

3.1 Overall, Norwegian firms are financially sound

Financial positions in the Norwegian corporate sector were stable through 2025.1 Annual financial statements show that corporate profitability2 improved, while solvency was broadly unchanged. According to Norges Bank’s Regional Network, profitability has changed little so far in 2026 and moderate activity growth is expected ahead (see Regional Network 3/2026). Strengthened household purchasing power, increased defence spending and data centre buildout are contributing to the upturn, while low construction activity is having a dampening effect. The increase in bank and bond debt was low through 2025, and corporate solvency is strong overall. Annual financial statements show that equity ratios increased in most sectors in 2025 (Chart 3.1).

Profitability, as measured by firms’ operating margins, improved in 2025 (Chart 3.2). For sectors with high debt-to-income (DTI) ratios, such as real estate development and commercial real estate (CRE), interest expenses have reduced profitability considerably since 2022. Adjusted for interest expenses, operating margins in real estate development improved somewhat in 2025. Despite persistently low activity, profitability in construction improved in the period between 2024 and 2025, and operating margins after interest expenses are now in line with the historical average.

The real estate sector’s importance for financial stability

The financial position of real estate firms is important for financial stability because problems in these firms can result in bank losses. Historically, banks’ losses have been higher on loans to the corporate sector than to households.

CRE and real estate development loans amount to more than half of Norwegian banks’ total corporate exposures (Chart 3.A). Construction firms account for a smaller share of banks’ corporate exposures but a higher share of those employed in real estate.

In a construction project, real estate developers normally own the project and take out loans secured on the project. Before providing financing, Banks normally require either that a substantial share of the project is pre-sold or that binding lease agreements have been made. The contractor and sub-contractors are responsible for the building construction.

When a building is completed, ownership is normally handed over to a household if the property is residential or to a CRE firm if it is commercial. The new building usually becomes a part of the CRE firm’s existing portfolio of commercial rental properties. Banks play a key role in financing building purchases, both for households and CRE firms. For CRE firms, banks also play a key role in refinancing loans.

Banks’ credit risk on exposures to real estate developers and CRE is closely linked to price developments in the real estate market. For real estate development exposures, the risk also reflects demand for new commercial and residential buildings, and the number of unsold units in projects that have already been started.

3.2 Higher rate 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 reflects a normalisation following unusually low bankruptcy figures during the pandemic. So far in 2026, the corporate bankruptcy rate has been relatively stable and broadly in line with the average for the past 10 years (see broken line in Chart 3.3, left panel).5

Higher interest expenses and low construction activity have markedly increased the bankruptcy rate in the real estate sector in recent years. The rise has been most pronounced in real estate development, where the bankruptcy rate has more than doubled since 2022. The firms that have gone bankrupt are primarily individual stand-alone project companies of a limited size.7 Bank debt has also risen among bankrupt real estate developers (Chart 3.3, right panel). Over the past 12 months, the overall bank debt of bankrupt real estate developers has amounted to NOK 1.9bn, approximately ten times more than the average in the years preceding the rise in bankruptcies. The six largest bankruptcies account for about 60% of the bank debt of real estate developers that went bankrupt over the past 12 months.8 In CRE, the bankruptcy rate has risen less. Nevertheless, the bank debt of bankrupt CRE firms has increased in recent years. Measured as banks’ total CRE exposure, the extent is limited.

The bankruptcy rate is normally higher in construction, as contractors often have small margins, which makes them more vulnerable to a decline in demand or sudden cost increases. However, debt in the construction sector is limited.

Developments in debt collection cases indicate a slight decline in bankruptcies in 2027

Payment remarks may provide an early indication of payment difficulties. In recent years, among the firms with at least one outstanding debt collection case at the end of a given month, around 10% went bankrupt within a year. Norges Bank’s analyses find that firms with four or more outstanding debt collection cases are around four times as likely to go bankrupt within one year as firms with one to three such cases.9 Debt collection cases may therefore provide early information about credit risk before problems become evident in default rates. If many firms face payment difficulties at the same time, an increase in defaults and credit losses could reduce banks’ profitability and capacity to lend.

The share of firms with debt collection cases increased steadily after the pandemic but has levelled off over the past two years. A simple, stylised model10 for developments in the share of bankruptcies one year ahead, based on the share of firms with debt collection cases, indicates that the share of bankruptcies will remain broadly unchanged in 2027, close to 1.2% (Chart 3.4). This is broadly in line with the average share of bankruptcies over the past ten years excluding the pandemic period.

Sources: Brønnøysund Register Centre, Dun & Bradstreet and Norges Bank Norges Bank’s bankruptcy probability model, KOSMO, complements this picture (Chart 3.5). The model estimates the probability of a firm going bankrupt within one year, based on accounting data and payment remarks from the previous year, as well as macroeconomic indicators for the current year. When weighted by bank debt, the bankruptcy probability has increased from a low level after the pandemic and is now higher than before the rise in interest rates. The model indicates broadly unchanged bankruptcy risk ahead for the sectors as a whole, but developments vary across sectors. Risk is expected to increase in real estate and construction, with the former accounting for a growing share of overall bankruptcy risk owing to its large share of bank debt.12

3.3 Low construction activity remains a challenge for real estate developers

High construction and financing costs have dampened demand for new residential and commercial property in recent years. Both new home sales and housing start permits have remained at a low level so far in 2026 (Chart 3.6). Real estate developers are particularly vulnerable as they bear a large share of project and financing risk, and many are highly indebted (see “The real estate sector’s importance for financial stability”). Lending to real estate development accounts for approximately 7% of banks’ Norwegian corporate exposures.

The profitability of real estate development projects is under pressure on both the demand and cost sides. In addition to high construction and financing costs, market participants point to increased costs associated with sequencing requirements15 and lengthy planning processes. Sequencing requirements further reduce profitability when margins are already under pressure, while high interest rates increase the cost of lengthy planning processes. The price differential between new and existing homes has therefore widened considerably, which makes new homes relatively less attractive, while high costs limit developers’ scope for reducing prices. At the same time, a large supply of existing homes and lower household growth have contributed to weak price developments in secondary housing market segments (see further discussion in Section 2.4). This limits buyers’ willingness to pay for new homes.

For many housing projects, expected sales revenues are therefore insufficient to cover costs and investors’ required rate of return. Lower land value is a possible adjustment that could make projects financially viable. Norges Bank’s analyses indicate, however, that land-related values remain elevated and are historically high (see “Land accounts for a larger share of residential property values”).

Weak project finances are an important reason why activity remains low. Most developers depend on external financing from banks that normally require a 50% pre-sale rate. Owing to weak new home sales, fewer projects are securing sufficient pre-sales to obtain financing and proceed to construction. Norges Bank’s Regional Network contacts report few new residential and commercial construction projects so far in 2026. Activity remains low in most regions. South-West Norway is an exception, where residential construction has increased, partly reflect spillovers from high activity related to energy production. In parts of the region, house prices have also risen considerably more than the national average over the past year.

Improved profitability and interest coverage ratio despite low activity

The financial position of real estate developers improved somewhat in 2025, after having deteriorated markedly in the preceding years. In the period between 2021 and 2024, interest expenses doubled while earnings were almost halved (Chart 3.7, left panel). This led to a marked decline in the interest coverage ratio (ICR) (Chart 3.7, right panel). Profitability improved in 2025 despite continued low activity. Costs fell more than revenues and, together with lower interest expenses, contributed to a slight increase in the ICR, from around 1 in 2023 and 2024, when earnings barely covered interest expenses, to 1.2 in 2025.

The higher ICR largely reflects firms’ adjustment to the low level of activity, but the improvement is not broad-based. Nearly 30% of firms with interest expenses and positive earnings had an ICR below 1 in 2025, broadly unchanged from 2023 (Chart 3.8, left panel).

Real estate developers’ solvency has also strengthened over the past two years. Debt and assets have declined amid lower activity and fewer project starts, while a small number of large firms have received capital injections from their owners. Overall, this has contributed to a marked increase in equity ratios. Lower debt and a higher equity ratio leave firms as a whole better able to absorb losses and withstand high financing costs. At the same time, the share of firms with negative equity has risen further, to 26% (Chart 3.8, right panel). Some of these firms will likely be wound up or go bankrupt. Real estate developers that have gone bankrupt have generally had negative or very low equity in their most recently submitted financial statements.

For the sector as a whole, the ICR is expected to remain broadly unchanged in 2026 and 2027, although differences across firms are considerable. The projections assume that interest rates follow the path projected in Monetary Policy Report 3/2026 and that debt in the sector remains unchanged. The policy rate has been raised in 2026, but as it was lowered over the course of 2025, the average interest rate this year will be broadly unchanged from last year. With unchanged debt levels, interest expenses will therefore also remain broadly unchanged in 2026. In 2027, higher interest rates will feed fully through to annual interest expenses, but this will be offset to a large extent by higher revenues as construction activity is expected to pick up somewhat. The projections largely depend on construction activity. A number of contacts in Norges Bank’s Regional Network report that residential construction has troughed, but many report that the recovery continues to be delayed. In a downside scenario where residential investment falls further instead of picking up, the ICR for the sector as a whole would decline to 0.9 in 2027. Earnings would then be insufficient to cover interest expenses, and more firms than today would need to draw on their financial buffers.

3.4 Higher interest rates put pressure on CRE

Banks’ high CRE exposure is a key vulnerability in the Norwegian financial system. In recent years, higher financing costs and lower property values have put pressure on CRE firms’ profitability and solvency. At the same time, most firms have maintained ICRs well above critical thresholds, and default rates have been low, supporting banks’ willingness to extend CRE loans.

Higher interest rates contributed to a decline in the CRE sector’s ICR between 2021 and 2024 (Chart 3.8, left panel). Overall CRE sector interest expenses more than doubled over the period. At the same time, strong growth in rental income, reflecting high employment and CPI adjustments of existing leases, supported earnings (Chart 3.9, left panel). The ICR for CRE firms as a whole has therefore remained well above 1 and also above the minimum requirement of 1.8 widely used by lenders.18

Continued steady rent inflation and lower interest expenses contributed to an improvement in CRE firms’ ICR, to 2.5 in 2025 (Chart 3.9, right panel). The ICR is expected to remain broadly unchanged in 2026. The policy rate has been raised in 2026, but as it was lowered over the course of 2025, the average interest rate this year will be broadly unchanged from last year. Interest expenses are therefore only rising in line with debt, while rental income is expected to rise somewhat faster than consumer prices. In 2027, higher interest rates will feed through to interest expenses. Combined with more moderate rent inflation, the ICR for the CRE sector as a whole is expected to decline slightly, to 2.4. This is well above the minimum requirement of 1.8 widely used by lenders, but masks differences about individual firms. In Norges Bank’s lending survey for 2026 Q3, several banks report an increased risk of breach of ICR-related loan covenants in CRE ahead. In a downside scenario where interest rates are higher than assumed and rental income growth is substantially weaker than expected, the ICR would fall to 1.9 in 2027.

Lower debt in groups with weak solvency and low ICR

Estimates based on consolidated financial statements20 show that the majority of CRE groups were able to cover interest expenses out of current earnings in 2025 (Chart 3.10). The share of debt in groups with low ICRs declined. Debt in groups with an ICR below 1 roughly halved, and the share of debt in groups with an ICR below 1.8 fell from 58% to 47%. At the same time, the share of debt in groups with an ICR above 3 declined, although around half of this decline was due to developments in a single group.

Higher interest rates led to lower property values and put pressure on CRE firms’ solvency in the years following the pandemic, and equity ratios fell markedly in the period between 2022 and 2023 (Chart 3.11). Over the past two years, the solvency in CRE has improved again, and the share of debt in groups with low equity ratios has declined. Market participants report that an increasing number of CRE firms are adjusting their financing and balance sheets to the prospect of interest rates remaining higher than before the rate rise. Some firms have raised equity or sold off property to reduce debt, which has helped strengthen solvency.

The most vulnerable CRE groups are those with both low equity ratios and weak ICRs. The share of debt in these groups increased in the period up to 2023 but has declined over the past two years (Chart 3.12). The improvement primarily reflects stronger debt-servicing capacity, while change in solvency has been less pronounced. The most exposed CRE segment remains vulnerable if earnings weaken, financing costs rise or property values fall.

Higher long-term interest rates push up CRE yields

The rise in long-term interest rates has increased uncertainty regarding international CRE pricing and contributed to lower office segment turnover in a number of European countries. Commercial property selling prices rose at the beginning of 2025 but fell back again in 2026 Q2. Selling prices are calculated as market rental value divided by an estimated yield.24 The CRE yield has remained fairly stable in recent years even though long-term interest rates have risen. The yield fell in line with long-term interest rates in the years following the 2007–2008 financial crisis but has only partly followed the rise in rates since the pandemic (Chart 3.13).

An important explanation is that higher nominal interest rates have largely coincided with high inflation and a rapid rise in rents. Higher rental income has supported investor returns without a corresponding increase in the yield. In recent years, however, real interest rates have also risen. Higher real rates increase returns on alternative investments without a corresponding increase in rental income and therefore put upward pressure on the CRE yield. Market participants nevertheless point to two factors in particular that have so far helped keep the yield down:

• Strong willingness to lend and high competition among banks to extend CRE loans have put downward pressure on CRE lending margins. Credit spreads for CRE firms in the bond market have also declined, although they have recently risen somewhat. This has offset some of the rise in market interest rates. Banks continue to report strong willingness to lend but several indicate that margins are bottoming out. Higher interest rates are therefore likely to feed through to financing costs to a greater extent for leveraged CRE firms going forward.
• In recent years, the CRE transactions market has been dominated by equity investors, such as pension funds and insurance companies. These investors have played a role in pushing down the yield to a lower level than leveraged investors can compete with. So far this year, they have been less active on the buyer side, while real estate companies have accounted for a larger share of purchases in the office segment. Such developments mean that leveraged investors’ financing costs are again becoming more important for CRE pricing.

Higher office vacancy dampens rent inflation

Nominal rent inflation has long been elevated, driven by high employment and low office vacancy rates. So far this year, rents have remained unchanged and lower than projected in Financial Stability Report 2026 H1.

Slower employment growth in office-based occupations has dampened demand for office space, and office vacancy rates in Oslo have recently risen somewhat. The increase in the rates also reflects the fact that more companies are reducing their office space when entering into new leases. Some market participants highlight that such developments may be amplified by increased use of AI. However, the effects of AI on office space demand are uncertain. Increased use of AI could also boost activity and create new tasks, which could in turn increase demand.

Weaker demand for office space will likely dampen the rise in rents. At the same time, few new office buildings are expected to be completed in the coming years. This will limit the supply of office space and likely help support rents, particularly in central Oslo. Rent inflation overall is expected to be weak in 2026 but to pick up again in the coming years.

On the whole, the projections for rent inflation and the yield imply that commercial property selling prices will remain fairly flat in the coming years (Chart 3.14).26 Prices are expected to remain slightly lower over the next few years than projected in the previous Report.

3.5 Slightly higher losses on CRE exposures expected ahead

In 2026 H1, banks’ total losses on Norwegian corporate exposures remained low and in line with 2025 levels (Chart 3.15). Losses on exposures to real estate development have increased further in 2026, as expected in the previous Report. Defaults among real estate developers have also risen further over the past year and are now considerably higher than the average for the past ten years (Chart 3.16).

As expected, losses on CRE exposures have remained low, and the share of defaulted loans has remained low and stable. In construction, credit losses rose markedly in 2026 Q1, but the increase was mainly attributable to impairment losses on a few large exposures. Construction defaults have also increased and are at their highest level since 2018.

The share of defaults in other sectors has remained stable in recent years. Overall, the share of defaults on Norwegian corporate exposures is now lower than the average for the past ten years.

Overall credit losses on corporate exposures are expected to increase slightly in 2026 and 2027 but to remain at low levels. Even though a number of key financial figures improved last year, the current situation is eroding the liquidity buffers of many real estate developers, and continued low construction activity is expected to result in higher credit losses. In Norges Bank’s lending survey for 2026 Q3, half of banks report an increased risk of default and breach of the terms of loan covenants and a higher risk of default on loans to real estate developers. This suggests that credit risk may remain elevated. Prospects for higher financing costs and lower rental income mean that losses on CRE exposures are also expected to increase slightly but to remain low.

The outlook for credit losses is uncertain, and losses on real estate development exposures could be higher than expected. Overall, real estate developers are better positioned than a year ago, with lower debt and higher equity ratios. At the same time, margins remain tight for many firms. So far, bankruptcies have mainly involved firms with weak solvency. If construction activity remains low for a prolonged period, firms that currently appear financially sound will also draw on their buffers. If the recovery in construction activity is delayed substantially, more real estate developers could default on their loans and banks could incur larger losses on real estate development exposures than assumed.

There is also substantial uncertainty about the global economic outlook. CRE is an important channel through which external shocks can affect financial stability in Norway (Chart 1.1 in Section 1). A marked increase in long-term interest rates and risk premiums could weaken both debt servicing capacity and property values in CRE. 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 many firms already have weakened profitability owing to higher financing costs, this could trigger fire sales of real estate and result in higher defaults and losses than currently envisaged.