Risk Outlook – December 2024

Increased interest income, low losses and streamlined operations with a high degree of digitalisation yield good results and high returns in Norwegian banks. Competition for bank customers and reduced interest rates in the period ahead could cause a decline in banks’ net interest income and a rise in losses.

There are few signs of serious debt servicing problems among Norwegian households. The share of non-performing loans in the personal customer market has increased somewhat but is still below pre-pandemic levels. This development must be viewed in light of the continued high level of economic activity in Norway, with high employment and low unemployment.

“These are good times for the Norwegian economy and Norwegian banks. In this situation, we need to preserve the resilience of the financial system to be able to handle unforeseen events,” says Finanstilsynet’s Director General, Per Mathis Kongsrud.

High household debt and elevated residential and commercial property prices remain the key vulnerabilities in the Norwegian financial system. Norwegian household debt has decreased over the past couple of years, measured in per cent of disposable income. Nevertheless, the debt burden remains high, and Finanstilsynet’s residential mortgage lending survey shows that many borrowers take up large loans relative to income and the value of their property. Lower interest rates and the easing of the lending regulation could lead to a further increase in house prices and household debt in the future.

Weaker operating earnings and higher interest expenses have resulted in lower profitability and impaired debt servicing capacity for a number of corporations. There are significant differences between industries. In industries such as retail trade and construction, the aggregate debt of corporations with weak debt servicing capacity was considerably higher last year than in the years prior to the pandemic. Parts of the manufacturing industry have benefited from a weaker krone exchange rate and increased demand and have improved their debt servicing capacity.   

Financial market regulation serves important purposes, but has become comprehensive and complicated. There is growing international pressure to relax key regulatory requirements. Finanstilsynet, together with the other Nordic financial supervisory authorities, has expressed concern over the increased complexity of the pan-European regulations and thinks that greater emphasis should be placed on ensuring that the regulatory framework is simple without easing important requirements for the industry.

“The defences that have been built up reduce the risk of severe crises in the financial system. Experice shows that such crises can arise suddenly, spread quickly and lead to significant costs for society,” says Kongsrud.