Norges Bank

Assessment of financial stability 2020

All about Norges Bank assessments of vulnerabilities and risks in the financial system from the committee meeting on 27 October 2020.

Resilient financial system, but uncertainty is high

The Covid-19 pandemic has led to a deep downturn in the Norwegian economy, but the financial system in Norway has been resilient and performed well. Nevertheless, owing to considerable uncertainty regarding the future path, the financial stability outlook has weakened somewhat.

Financial Stability Report 2020, where Norges Bank assess the vulnerabilities and risks in the financial system, was published on Tuesday.

A partial lockdown of society after the Covid-19 outbreak led to a deep economic downturn. Extensive government support measures have helped to dampen the impact of the pandemic. The Covid-19 outbreak led to considerable financial market turbulence. Extraordinary measures by Norges Bank contributed to dampening the turbulence.

“Recently, infection rates have risen, both abroad and in Norway. There is considerable uncertainty regarding the future path of the pandemic and the impact on the economy and financial markets. This has weakened the financial stability outlook somewhat,” says Deputy Governor Ida Wolden Bache.

The key financial system vulnerabilities in Norway have long been high household debt, high house prices and high commercial property prices. These vulnerabilities have not changed substantially over the past year. House prices fell in the wake of the Covid-19 outbreak in March, but have since risen markedly. If house prices continue to rise rapidly, vulnerabilities may increase. Norges Bank supports a continuation of the requirements for prudent lending standards.

Banks’ credit losses have risen so far in 2020. Much of the losses have been on loans to oil service companies, which continue to face a difficult situation since the fall in oil prices in 2014. The industries so far hardest hit by the Covid-19 pandemic account for a small share of total bank lending. If the crisis persists and commercial property prices should fall markedly, losses may be substantially greater.

 “Improved regulation since the last crisis has increased financial system resilience. Norwegian banks are robust and well capitalised and are able to absorb losses that are likely to materialise without having to tighten lending. At the same time, the outlook for losses is more uncertain than normally,” says Wolden Bache.

Reference rates play a key role in the financial system. The ongoing work to replace Libor, the most important global reference rate, may also have consequences for the Norwegian Nibor. The work to facilitate use of the alternative reference rate Nowa is well under way. To minimise the risk associated with the transition to new reference rates globally, users of Nibor are urged to make the necessary preparations to be able to adopt Nowa.

Support measures have helped to dampen the consequences of the pandemic

The Norwegian financial system has weathered the Covid-19 pandemic well. Government support measures have dampened the economic impact. Norges Bank implemented extraordinary measures to support well-functioning markets.

Uncertainty about the outlook is high

New shocks may occur, both in Norway and globally. A banking sector that remains robust contributes to resilience. Overall, the financial stability outlook is somewhat weakened.

Vulnerabilities from debt and property prices not substantially changed

High household debt and high residential and commercial property
prices are the key financial system vulnerabilities in Norway. In Norges Bank’s assessment, these vulnerabilities have not changed substantially over the past year.

The pandemic has affected many companies

The Covid-19 pandemic has reduced the earnings of a number of Norwegian firms. The industries hardest hit by the crisis account for a
small share of banks’ total lending. If the crisis persists and commercial property prices fall sharply, banks’ losses may be substantial.

Norwegian banks are solid

New regulations following the global financial crisis have strengthened the financial system. Norwegian banks are solid and have ample access to funding. Stress tests indicate that banks will be able to absorb higher credit losses.

Financial Stability Report 2020: vulnerabilities and risks

Read the report (web edition)

Financial Stability Report 2020 - in brief

Support measures have helped to dampen the consequences of the pandemic

The Norwegian financial system has weathered the Covid-19 pandemic well. Government support measures have dampened the economic impact. Norges Bank implemented extraordinary measures to support well-functioning markets.

Uncertainty about the outlook is high

New shocks may occur, both in Norway and globally. A banking sector that remains robust contributes to resilience. Overall, the financial stability outlook is somewhat weakened.

Vulnerabilities from debt and property prices not substantially changed

High household debt and high residential and commercial property
prices are the key financial system vulnerabilities in Norway. In Norges Bank’s assessment, these vulnerabilities have not changed substantially over the past year.

The pandemic has affected many companies

The Covid-19 pandemic has reduced the earnings of a number of Norwegian firms. The industries hardest hit by the crisis account for a
small share of banks’ total lending. If the crisis persists and commercial property prices fall sharply, banks’ losses may be substantial.

Norwegian banks are solid

New regulations following the global financial crisis have strengthened the financial system. Norwegian banks are solid and have ample access to funding. Stress tests indicate that banks will be able to absorb higher credit losses.

 

Related information:

Press release: Resilient financial system, but uncertainty is high

Coverimage of the publication Financial Stability Report 2020: vulnerabilities and risks