Banks and other financing activity

Developments in the economy and the securities markets 

The Norwegian economy was characterised by a high level of activity in 2022. There were few available resources in the economy, and unemployment was low. However, a number of economic key figures and expectation barometers pointed to weaker economic growth ahead, both in Norway and globally. Supply chain disruptions, partly as a result of the Covid-19 pandemic and the war in Ukraine, have dampened growth prospects and contributed to a sharp rise in global inflation. Central banks in several countries have raised their policy rates considerably and announced further rate hikes. In addition, central banks are tightening monetary policy by scaling back their bond holdings. Prospects of weaker economic growth combined with persistently high inflation have raised fears of stagflation. In the event of stagflation, there will be few fiscal and monetary policy instruments available to counteract an economic downturn by stimulating demand for goods and services.

A large proportion of banks' lending is to the real estate sector. High household debt and elevated property prices still represent the key vulnerabilities in the Norwegian financial system. The debt burden of Norwegian households is high, both in historical terms and compared with other countries. Many households have very high debt relative to income. House prices in Norway have risen considerably over a long period of time and significantly more than disposable income per capita. However, house prices declined during the last few months of 2022, particularly in Oslo.

Commercial property prices have risen markedly over many years. During 2022, however, the market was characterised by rising inflation, higher interest rates and weaker growth prospects. The required rate of return on commercial property increased in 2022 and is expected to climb further in the period ahead. A general increase in interest rates and higher risk premiums may lead to a fall in commercial property prices.

During certain periods, there was considerable volatility in the securities and commodity markets in 2022, and risk premiums in the money and capital markets increased. The elevated risk premiums are reflected in more pronounced differences between yields on corporate and government bonds. Many international equity indices showed a pronounced decline in 2022.

The total return on shares listed on Oslo Børs was higher than in many other countries, largely due to higher share prices for companies in the petroleum sector, which experienced strong earnings growth. Issue activity in shares and corporate bonds was low compared with the previous year.

Reduced exports of natural gas from Russia and the phasing out of nuclear power in Europe contributed to a substantial increase in energy prices. The high energy prices have major redistribution effects and cause financial problems for firms and households in a number of European countries.

In September 2022, the European Systemic Risk Board (ESRB) issued a warning to the member states on increased risks to financial stability. The ESRB noted that the risk of weaker debt-servicing capacity among households and firms will raise the credit risk on loans and amplify the risk of a substantial fall in asset prices. According to the ESRB, geopolitical developments after the outbreak of the war in Ukraine have increased the probability that several risks may materialise simultaneously and mutually amplify their impact.

Supervision, monitoring and control

Supervision of banks, credit institutions and finance companies should promote financially sound and well-capitalised financial institutions with good risk awareness, management and control. The provision of financial services must be compliant with the regulatory framework in the best interest of society and the users of these services. 

Monitoring and analyses

Finanstilsynet monitors developments in the financial industry, the financial markets and the Norwegian economy on an ongoing basis. Analyses are regularly prepared of the capital and liquidity situation of banks and mortgage companies, and of the financial performance of finance companies, mortgage companies, individual banks and the banking sector as a whole. The analyses are available on Finanstilsynet’s website. Finanstilsynet also regularly publishes reports on developments in households’ consumer debt, banks' utilisation of the flexibility quotas in the Lending Regulations and developments in banks’ loan losses and non-performing loans.

In its macroeconomic surveillance, Finanstilsynet attaches importance to both the risk facing banks as a result of economic developments and the risk that the banks as a group pose to the financial system and the economy. In June and December each year, Finanstilsynet publishes the Risk Outlook report, which contains analyses of the prospects for financial stability. Finanstilsynet also publishes an annual Risk and Vulnerability Analysis (RVA) that summarises the work on ICT security in the financial sector and how the industry and individual institutions comply with the regulations. 

Reporting from the undertakings

The institutions' reporting constitutes an important basis for analyses and follow-up in the form of off-site and on-site inspections.

Banks, mortgage companies and finance companies in Norway report to ORBOF (a database for accounting information from banks, mortgage companies and finance companies), which is a cooperation between Finanstilsynet, Norges Bank and Statistics Norway. In 2022, the Norwegian Banks' Guarantee Fund joined the cooperation, aiming to reduce banks' reporting burden.

In addition, a selection of Norwegian banks, mortgage companies and finance companies report a key figures form with selected accounting items to Finanstilsynet on a quarterly basis. Credit institutions also report other solvency and liquidity information directly to Finanstilsynet. The reporting includes capital adequacy, liquidity ratios, large exposures, leverage ratios and encumbered assets. This reporting is fully harmonised in the EEA. 

Finanstilsynet also obtains reports from finance companies, payment institutions and electronic money institutions, account information service providers, savings bank foundations and financial foundations.

The European Banking Authority (EBA) collects information on developments in the EEA member states’ financial markets for use in its supervisory and analysis activity at European level. Finanstilsynet forwards data for Norwegian financial institutions. Due to the delays in the incorporation of the ‘banking package’ into Norwegian law, no data based on the Capital Requirements Regulation (CRR) were submitted to the EBA between May 2021 and June 2022. 

The EBA and the European Central Bank have an ongoing long-term project whose aim is to integrate reporting to financial supervisory authorities and resolution authorities and information for statistical purposes in one and the same system. In the longer term, this may result in major changes in the way data are reported. Finanstilsynet contributes to the project.

Fraud reporting

Payment service providers, such as banks and payment institutions, must report payment service fraud statistics at least once a year to Finanstilsynet. The statistics give Finanstilsynet an update on trends in fraud related to the use of payment services and a basis for assessing possible measures. Data for payment card and online banking fraud are published in Finanstilsynet's annual Risk and Vulnerability Analysis (RVA).

Risk reporting – ICT

At least annually, institutions subject to the ICT regulations shall perform risk analyses to ensure that risk is managed within acceptable limits relative to the institution's business. This follows from the ICT regulations.

Payment service providers, such as banks and payment institutions, shall submit an overall assessment to Finanstilsynet of the operational and security risks associated with the provider's payment services. The reporting requirement follows from the regulations on payment services systems. The questions in the 2022 risk form were somewhat revised and now serve as a general report to Finanstilsynet on Norwegian financial institutions’ risk assessment of their ICT operations.

Financial soundness and profitability of Norwegian banks

Banks' profitability has improved considerably over the past two years after a weaker performance in 2020 in consequence of the outbreak of the pandemic. The banks had a total return of equity of 11.6 per cent for the first three quarters of 2022, which was on a level with the years before the pandemic. The rise in profits in 2022 is due to an increase in net interest income, although the level is still slightly lower than prior to 2020. At the same time, substantial reversals of previous impairment losses have ensured an overall low level of loan losses.

Chart 1. Pre-tax profits and return on equity in Norwegian banks

Source: Finanstilsynet

Norwegian banks are financially sound and meet the regulatory capital requirements. The CET1 capital ratios of the largest Norwegian banks approximate the ratios of banks in the other Nordic countries and are slightly higher than the median ratios in other European countries. Norwegian banks' leverage ratio is slightly higher than for large banks in the other Nordic countries. 

Although capital adequacy ratios have strengthened since 2019 (chart 2), the banks’ combined solvency levels are largely unchanged when regulatory changes that have reduced risk weights are taken into account. Disregarding the effect of the relaxation of the capital adequacy requirements implemented in Norway on 1 June 2022 (the banking package), the banks' CET1 capital ratios would have been somewhat lower in 2022. Leverage ratios also decreased slightly during this period.

Chart 2. CET1 capital

 Source: Finanstilsynet

Liquidity monitoring

Banks' funding mainly comprises deposits from customers and funding in the money and capital markets. Norwegian banks meet the minimum liquidity reserve and stable funding requirements by an ample margin (chart 3). This helps increase the banks' resilience to periods of market turbulence. A minimum requirement for stable funding (NSFR) was introduced from the second quarter of 2022, but the NSFR indicator has been reported and followed up for several years. The past year has been characterised by high uncertainty and volatility due to inflation fears, interest rate increases and the war in Ukraine. This has contributed to a marked increase in risk premiums in the money and capital markets. Banks have also, according to Norges Bank's liquidity survey, reported somewhat reduced access to wholesale funding during the past year.

Chart 3. LCR and NSFR

Source: Finanstilsynet

Finanstilsynet is keeping a close watch on the financial institutions’ liquidity situation, including how they meet the minimum liquidity buffer requirement (LCR) and stable funding requirement (NSFR), as well as other liquidity and financing indicators. The institutions’ own assessments of liquidity and funding risk are also reviewed in connection with the supervisory assessment of risk and capital needs (SREP) and at on-site inspections.

Consumer loans

Figures from Gjeldsregisteret AS as at 30 September 2022 showed that the decline in total consumer debt had slowed substantially over the preceding year compared with prior years. At end-September 2022, the total lending volume was 1.4 per cent lower than a year earlier (chart 4).

Chart 4. Interest-bearing and non-interest-bearing debt
Sources: Finanstilsynet and Gjeldsregisteret AS

Finanstilsynet’s survey of a selection of institutions offering consumer loans in the Norwegian market showed a 1.3 per cent decline in the lending volume to Norwegian customers from end-September 2021 to end-September 2022 (chart 5). Adjusted for the sale of portfolios of non-performing loans, there was an increase of 1.7 per cent.

Chart 5. Twelve-month growth in consumer lending and domestic household debt (C2) in Norway
Source: Finanstilsynet

The volume of non-performing consumer loans declined in 2022, partly in consequence of the sale of portfolios of non-performing loans and slowing lending activity. However, the share of non-performing loans remained high, standing at 9.1 per cent of lending in the Norwegian market at end-September 2022 for the sample combined (chart 6). For Norwegian banks specialising in consumer lending, non-performing loans represented 13.7 per cent.

Chart 6. Share of non-performing consumer loans more than 90 days past due
Source: Finanstilsynet

Follow-up of the Pillar 1 capital requirements

The Pillar 1 capital requirements set out minimum and buffer requirements for own funds.

Every year, Finanstilsynet advises the Ministry of Finance on which financial institutions should be considered systemically important in Norway. Systemically important institutions are subject to a buffer requirement of 1 or 2 per cent, depending on their size and their market share of lending to the private non-financial sector in Norway. In line with advice from Finanstilsynet, the Ministry of Finance defined DNB Bank ASA, Kommunalbanken AS and Nordea Eiendomskreditt AS as systemically important in Norway in 2022.

Finanstilsynet shall provide relevant information and assessments concerning both the systemic risk buffer and the countercyclical buffer. Every second year, the Ministry of Finance sets the level of the systemic risk buffer based on advice from Norges Bank. In 2022, the Ministry of Finance decided to retain the 4.5 per cent systemic risk buffer requirement for banks using internal models to calculate capital requirements for credit risk (IRB banks). Institutions using the standardised approach will be subject to the same requirement from year-end 2023. During 2022, Norges Bank decided to increase the countercyclical capital buffer to 2.0 per cent as of 31 December 2022 and further to 2.5 per cent as of 31 March 2023.

Ten Norwegian institutions have received permission from Finanstilsynet to use internal models to compute capital requirements for credit risk (IRB models). In order to obtain such permission, the institutions must document that the models are suited to measure risk, that they are used as part of the banks' risk management, credit approval process and internal and external reporting of risk, and that they are tested (validated) on a regular basis. Finanstilsynet considers these aspects when processing applications and when following up the institutions after permission has been granted. The follow-up takes place partly in the form of on-site inspections and partly as reviews of validation reports and capital requirements report from the institutions.

In 2022, Finanstilsynet proposed an increase in the floor for risk weighting of residential and commercial mortgages. The Ministry of Finance decided to retain the existing risk weight floors for another two-year period. Read more about this below, under Regulatory development.

All the Norwegian IRB banks applied for approval of new IRB models in 2021, and the applications were under consideration by Finanstilsynet throughout 2022. Conclusions are expected to be reached in 2023. The consideration of the applications is based on the supervisory practices outlined in Circular 3/2021.

Finanstilsynet is in the process of mapping and following up the use of the ‘retail exposures’ category by the banks that use standard models to calculate capital requirements. Exposures categorised as retail exposures may be assigned a lower risk weight than corresponding exposures outside this category. The regulations therefore contain a number of requirements that must be met by the banks' portfolios for them to be allowed to use this category. Still, there is also much room for interpretation. The number of institutions using this category increased by over 24 per cent from the fourth quarter of 2020 to the second quarter of 2022.

The European Banking Authority (EBA) assesses whether CET1 instruments meet the requirements of the CRR. In December 2022, the EBA published an updated overview of eligible instruments, which includes Norwegian shares, equity certificates and members’ contributions. In the EBA’s opinion, the rules for Norwegian instruments must be changed to make them eligible as CET1 capital. In December 2022, the Norwegian instruments were included in the list of eligible instruments on condition that the Norwegian authorities would follow up the EBA’s assessments. Finanstilsynet will submit proposals for legislative amendments to the Ministry of Finance. Finanstilsynet has informed the EBA that, in addition to the proposed legislative amendments, initiatives will be taken to review savings banks’ capital structure.

Follow-up of the Pillar 2 capital requirements – implementation of the supervisory review and evaluation process (SREP)

Every year, Finanstilsynet carries out an assessment of individual institutions’ overall risk. Based on this risk assessment, Finanstilsynet regularly sets individual capital requirements for the institutions, called Pillar 2 requirements. The Pillar 2 requirements cover risks that are not, or are only partially, covered under Pillar 1. The frequency at which Finanstilsynet sets Pillar 2 requirements depends, among other things, on the institutions’ size and risk profile.

In 2022, Finanstilsynet was working on refining the analytical basis for the risk assessment of banks. It has also been working on further developing the calculation method for individual risks used in assessing institutions’ risk and capital needs. During 2022, Finanstilsynet obtained supplementary documentation from each institution, including internal governing documents and reports. 

After being commissioned by the Ministry of Finance in December 2020, Finanstilsynet also reviewed its own practices for assessing risk and capital needs and setting Pillar 2 requirements. In this connection, the methods used for capital adequacy assessments in other relevant European countries were examined. Finanstilsynet has also compared the level of the Pillar 2 requirements set for Norwegian institutions with those in other countries. On the basis of the review, Finanstilsynet drafted provisions specifying the parameters for setting bank-specific additional capital requirements (Pillar 2 requirements). Finanstilsynet updated its methodology for assessing risk and capital needs and communicated this in ‘Circular 3/2022 on Finanstilsynet’s practices for assessing risk and capital needs’. This circular replaced circular 12/2016.

In consequence of the delayed introduction of the pan-European changes to the Capital Requirements Regulations (the ‘banking package’ with CRD V and CRR II), Finanstilsynet did not update its so-called SREP circular until 9 September 2022. The circular describes Finanstilsynet's methodologies for assessing risk and capital needs. It also sets expectations regarding the institutions' assessments of risk, capital needs and funding needs (ICAAP and ILAAP).

Finanstilsynet made 43 Pillar 2 decisions in 2022. The decisions were published on Finanstilsynet's website (in Norwegian only). A further 17 banks received preliminary SREP assessments in December 2022.

At year-end 2022, Pillar 2 requirements or capital requirements had been set as part of the licence terms and conditions for 109 banks, mortgage companies and finance companies among the total of 169 relevant financial institutions. Finanstilsynet has not previously set Pillar 2 requirements for institutions with total assets below NOK 5 billion and a CET1 capital ratio that is minimum 6 percentage points above the prevailing minimum and buffer requirements. After the introduction of CRD V, Finanstilsynet will set Pillar 2 requirements for all Norwegian banks.

In 2022, Finanstilsynet participated in a peer review under the auspices of the EBA on the assessment of ICT risk in connection with the SREP process (Finanstilsynet’s review of banks' overall risk levels and capital needs).

Supervision

General information

At an on-site inspection, Finanstilsynet makes a thorough review of institutions’ varying risk aspects. Inspection meetings are held with the institutions, and preliminary and final supervisory comments are prepared. The final inspection reports are published on Finanstilsynet’s website (in Norwegian only).

On-site inspections are an important means to uncover any deficiencies in the institutions’ management and control or high levels of risk. The dialogue with management and the board of directors provides the opportunity to guide and advise the institutions to enable necessary action to be taken at an early stage.

In 2022, Finanstilsynet conducted a total of ten ordinary on-site inspections at banks, mortgage companies and finance companies. A key issue at the inspections in 2022 was the institutions’ lending activity, including changes in risks, loss and impairment assessments and exposure monitoring. Finanstilsynet places great emphasis on the corporate governance responsibilities of the board of directors and management, which include establishing sound internal control systems for the various risk areas.

Nine inspections carried out at banks related to ICT infrastructure, security, outsourcing and emergency preparedness, two related to banks' internal models for calculating capital requirements for credit risk, while five on-site inspections addressed the banks' measures to uncover money laundering and terrorist financing. In addition, inspections carried out at seven banks focused on the banks’ lending to office rental, while off-site thematic reviews of 13 banks addressed interest rate risk in the banking book (IRRBB).

During 2022, Finanstilsynet also conducted on-site inspections at two Norwegian payment institutions and one electronic money institution.

Sustainability and climate risk were important topics in Finanstilsynet’s supervisory activity in 2022. Finanstilsynet included monitoring of sustainability risk, including climate risk, in supervisory modules for the various risk areas. Climate risk was on the agenda at all ordinary inspections in 2022.

Inspection of systemically important institutions and institutions reviewed by supervisory colleges

Supervision of major banks operating in several countries in Europe is coordinated through supervisory colleges in which the relevant countries' supervisory authorities are represented. Finanstilsynet is the coordinating authority in the supervisory college for the DNB Group and also participates in supervisory colleges for five foreign banks that operate in Norway through subsidiaries or branches. These are Bank Santander S.A., Danske Bank, Handelsbanken, Nordea Bank and SEB.

The work of the colleges follows guidelines set by the EBA. The supervisory colleges focus on preparing Joint Decisions on risk levels and capital needs, liquidity and recovery plans. Regular meetings are held with the groups' management and with the board chair, the statutory auditor and the internal auditor. In addition, regular meetings are held on banks' reporting of financial statements, risk and regulatory compliance.

The supervisory college for the DNB Group consists of the supervisory authorities in six of the countries where the Group is represented, in addition to Finanstilsynet. The Joint Decisions cover both the Group and its subsidiaries. In addition to the collaboration in the DNB College, Finanstilsynet maintains direct contact with the supervisory authorities of some of the other countries in which DNB operates. In 2022, Finanstilsynet also followed up DNB Bank's acquisition of Sbanken.

The EBA’s ‘Guidelines on supervision of significant-plus branches’ emphasise the need to broaden host country supervision of systemically important branches. Finanstilsynet regards the branches of Danske Bank, Handelsbanken and Nordea Bank as systemically important in Norway.

As part of the Joint Decision for Nordea Bank, Finanstilsynet set Pillar 2 requirements for Nordea's subsidiaries Nordea Eiendomskreditt AS, Nordea Finans Norge AS and Nordea Finance Equipment AS in 2022. Nordea Eiendomskreditt AS has been defined as systemically important in Norway since 1 July 2021. Finanstilsynet was also involved in considering Nordea's application to the ECB for new IRB models in 2022.

Supervision of other large institutions

Every year, Finanstilsynet carries out risk assessments of the other major banks in Norway. These are large and medium-sized banks that mainly operate in the domestic market and have high market shares nationally or regionally. In 2022, this category comprised 12 banks and banking groups. The risk assessments provide a basis for making inspection priorities and for assessing the banks' capital needs (SREP). The institutions are also regularly followed up, partly through dialogue meetings and partly through the collection of information. Seven of the banks received their final SREP feedback in the course of 2022. The IRB systems of two of these banks were subject to inspection in 2022. Finanstilsynet also carried out on-site thematic inspections addressing office property finance among the banks in this group as well as off-site thematic reviews where sanction screening and interest rate risk in the banking book were on the agenda.

Supervision of other institutions

The ordinary inspections of medium-sized and small banks comprised internal governance, credit risk, market risk, liquidity risk and operational risk. Conflicts of interest and the role of the board of directors were also key issues at the 2022 inspections of medium-sized and small banks using the standardised approach. In addition, climate risk was on the agenda at all inspections. Special inspections concerning the institution’s AML work and ICT operations were also carried out at some of the small and medium-sized banks.

Some individual cases

MyBank ASA was subject to special follow-up by Finanstilsynet in 2022. In this connection, Finanstilsynet sent a recommendation to the Ministry of Finance relating to the complaint from three of the bank’s board members who had to resign following Finanstilsynet’s conclusion that they were not fit and proper to sit on the board of a bank. Finanstilsynet sent the bank a preliminary inspection report, notifying a number of orders. The final inspection report and decisions on orders were sent to the bank in early January 2023.

In 2022, Askim & Spydeberg Sparebank was subject to special monitoring by Finanstilsynet, focusing on the bank's handling of the matters that resulted in the dismissal of its CEO in spring 2022. Finanstilsynet also notified the bank that it would be ordered to replace three board members. The inspection report was sent to the bank on 12 September 2022. The bank had initiated a separate investigation of the matter in November 2021, and Finanstilsynet’s inspection report is partly based on the conclusions from the external investigation. An inspection of the bank’s AML work was also conducted in 2022. Conclusions from the inspection will be finalised in 2023.

In 2022, Finanstilsynet followed up DNB Bank ASA's lack of documentation of customers' ID and levied a coercive fine of NOK 50 000 per business day until this has been rectified. More information on this can be found in the reports from each supervisory area.

Finanstilsynet’s follow-up of particular themes Office rental

Commercial property loans account for the largest share of Norwegian banks' total lending to the corporate market. Commercial property prices have risen markedly over the past decade as a result of increasing rental prices and low required rates of return. In the past, both Norwegian and international banks have suffered substantial losses on commercial property exposures during severe downturns.

During 2022, Finanstilsynet looked more closely at banks' financing of the office rental segment. The thematic review included seven banks. The main purpose of the review was to map and assess the banks' credit risk limits and lending policies within this segment. In addition, Finanstilsynet reviewed the banks’ approach to the changed requirements concerning the properties’ condition and usage arising from the increased emphasis on climate risk and energy efficiency. Finanstilsynet carried out sensitivity analyses of how changes in interest rates and rental income may affect the firms’ debt servicing capacity and the value of the properties provided as collateral.

In addition to the reports for the individual banks included in the review, a summary report will be prepared. The summary report is expected to be finalised during the first half of 2023 and will be published on Finanstilsynet’s website.

Interest rate risk in the banking book (IRRBB)

Interest rate changes affect credit institutions' earnings and risk in both the short and long term. In 2022, Finanstilsynet conducted an off-site inspection to assess banks' management and control of interest rate risk in the banking book (IRRBB). The inspection encompassed 13 banks. In connection with the inspection, Finanstilsynet also made a comparison between the parameters used to assess interest rate risk by banks with similar business models. Finanstilsynet’s inspection report was published on 6 December 2022.

It follows from the Capital Requirements Directive (2013/36/EU) that supervisory authorities shall ensure that the institutions have systems in place to identify, evaluate and measure the risk arising from changes in interest rates that affect the bank’s banking portfolio. There are extensive requirements for stress testing, and for measuring risk related to both equity and profits. In its inspection report, Finanstilsynet noted that some of the banks do not meet the stress testing requirements and that there are inadequate assessments of how interest rate risk may affect financial performance. Finanstilsynet also pointed out that assessments of interest rate risk are rarely included in governing documents.

Compliance with the Lending Regulations

Residential mortgages and consumer loans are regulated by the Lending Regulations. The purpose of the regulations is to promote financial stability by setting requirements for financial institutions' lending practices to prevent financial vulnerability among households and financial institutions.

Financial institutions providing residential mortgages and consumer loans, respectively, are required to report how they use the flexibility quota to their board of directors or the management of foreign branches. Each quarter, Finanstilsynet obtains figures from a selection of Norwegian and foreign financial institutions on total loans granted during the quarter and loans granted that do not meet one or more requirements set out in the regulations. Finanstilsynet publishes quarterly reports on financial institutions' use of the flexibility quotas in the Lending Regulations.

Residential mortgage lending survey

Finanstilsynet regularly examines banks' lending practices. In the residential mortgage lending survey carried out in autumn 2022, 30 of the largest banks reported data on close to 12 000 new residential mortgages granted after 1 August 2022. Data were reported on close to 8 000 new instalment loans and 4 000 new lines of credit secured by newly acquired or already owned residential property. For the majority of the new loans in the survey, properties already owned by the borrower served as first priority security.

The residential mortgage lending survey shows that borrowers who took out a new residential mortgage had total debt (loans secured by residential property and other debt) representing 347 per cent of gross annual income (debt-to-income / DTI ratio) (chart 7). This is roughly on a level with 2021 and 10 percentage points higher than in 2020.

In recent years, a large and growing proportion of new loans have been taken out by borrowers with a high DTI ratio. After the maximum DTI ratio requirement was regulated in 2017, a smaller proportion of new residential mortgages have been granted to borrowers whose total debt exceeds five times gross annual income. On the other hand, there has been a sharp increase in the proportion of new loans granted to borrowers whose total debt exceeds four times income. The latest survey (2022) shows that almost half of total loans granted went to borrowers with a DTI ratio above 4, while just over one-fourth of loans went to borrowers with a DTI ratio above 4.5. These figures are virtually unchanged from the 2021 survey.

Chart 7. Debt-to-income ratio*. New instalment loans and lines of credit

*Maximum debt relative to income was not regulated until 1 January 2017.
 Source: Finanstilsynet

Off-site AML/CFT inspections

In 2022, Finanstilsynet conducted two thematic off-site inspections on compliance with the anti-money laundering (AML) legislation. One of these addressed all banks’ compliance with the AML Act’s rules on customer due diligence, ongoing monitoring and procedures. The second was a thematic inspection of 20 banks on compliance with the rules on sanction screening. Conclusions from the two thematic inspections will be presented in 2023.

The thematic inspection of 46 banks, addressing internal audit controls of compliance with the AML legislation, was completed in 2022. The purpose of the inspection was to assess the scope and organisation of the banks' internal audit controls in light of the requirements set out in Section 35 of the AML Act. The report pointed to areas of improvement as to how this work should be organised.

Requirements in the Payment Services Directive (PSD2) – interface for trusted third parties

PSD2 requires account servicing payment service providers to make available interfaces that give payment initiation service providers and account information service providers, so-called trusted third parties, access to payment accounts belonging to customers of account servicing payment service providers. The directive defines operational requirements (uptime, quality, error rectification, test facilities etc.) as well as requirements as to what information should be available in the PSD2 interface.

Available statistics show that there are more errors and lower availability in a number of the PSD2 interfaces than in the account servicing payment service providers' own customer interfaces, such as online banking, mobile banking and corporate systems. In several of the interfaces, important functionality, such as customer authentication, does not function satisfactorily. Moreover, the account servicing payment service providers do not give payment initiation service providers access to direct debits or other forms of payments initiated by the payee. Finanstilsynet followed up the account servicing payment service providers through 2022.

Licensing

Establishments

Finance companies

In February 2022, Zolva Capital AS was granted a licence to operate as a finance company.

During 2022, Finanstilsynet received notifications from two foreign credit institutions about their plans to establish a branch in Norway. These were Loomis FX, Gold and Services, headquartered in France, and Nordax Bank AB, headquartered in Sweden. In addition, several foreign credit institutions reported cross-border activity to Norway directly from another EEA state.

In Norway, Sparebank 1 SR-Bank notified that it wishes to provide an investment service on a cross-border basis from its head office in Norway to all EEA/EU states. The mortgage company Nordiska Financial Partner Norway AS notified the liquidation of its branches in Estonia and Finland. In December 2022, Finanstilsynet granted DNB Bank permission to retain its branch in the UK following the expiration of the temporary permissions regime.

Payment and electronic money institutions 

In the course of 2022, Finanstilsynet received six new applications for a licence to operate as a payment institution / electronic money institution. One of these institutions has applied for permission to operate as a payment initiation service provider and account information service provider.

Providers of payment services that are exempted from the licensing obligation pursuant to the Financial Institutions Regulations are required to notify Finanstilsynet. In 2022, Finanstilsynet processed a number of notifications from institutions subject to the exemption for ‘payment instruments that can only be used within a limited network or to acquire a very limited range of goods or services’.

During the year, Finanstilsynet also decided to revoke the licence to operate as a payment institution for three institutions providing the payment service money transfers and one electronic money institution. Finanstilsynet cooperated closely with the police on measures relating to parts of the payment institution industry and agents of foreign payment institutions. As part of the cooperation, Finanstilsynet provided advice on current regulations and shared its knowledge about payment institutions. In addition, specific cases were discussed.

In 2022, Finanstilsynet participated in a peer review under the auspices of the EBA on authorisation under PSD2.

Mergers and demergers

In February 2022, OBOS-banken AS and OBOS Finans Holding AS were given permission to merge, with OBOS-banken AS as the acquiring company.

In March 2022, Sparebank 1 Sørøst-Norge and Sparebank 1 Modum were given permission to merge, with SpareBank 1 Sørøst-Norge as the acquiring bank.

In June 2022, Østre Agder Sparebank and Arendal og Omegn Sparekasse were given permission to merge, with Østre Agder Sparebank as the acquiring bank under the name Agder Sparebank.

In September 2022, the Kredinor Group and the Sparebank 1-owned Modhi Group were given permission to merge. The merger means that the Sparebank 1 Alliance and the Kredinor Foundation have equal ownership interests in the Kredinor Group. The Kredinor Group consists of the parent company Kredinor AS (which has been merged with the two debt collection agencies Modhi Norge AS and Modhi Collect AS) and its subsidiary Kredinor Finans AS, which is a merger of the two finance companies Modhi Finance AS and Kredinor Finans AS. 

In October 2022, Sparebanken Vest and Etne Sparebank were given permission to merge, with Sparebanken Vest as the acquiring bank. At the same time, permission was granted for the establishment of Sparebankstiftinga Etne.

In October 2022, Bank Norwegian ASA and the Swedish Nordax Bank AB were given permission to merge, with Nordax as the acquiring company. From November 2021 until the merger, Bank Norwegian was a wholly-owned subsidiary of Nordax. The merger was completed in late November 2022. The operations in Norway are continued as a branch of Nordax Bank AB.

In December 2022, DNB Bank ASA was given permission to merge with Sbanken ASA, with DNB Bank ASA as the acquiring company. The merger will be completed by July 2023.

On 1 July 2022 Vipps AS was given permission to demerge BankAxept and BankID as a separate company, BankID BankAxept AS. At the same time, permission was granted to establish a financial institution as the owner of Vipps AS and Bank ID BankAxept AS. The demerger was completed on 19 July 2022.

Cooperation agreements

In October 2022, Finanstilsynet approved a cooperation agreement between Sparebank 1 SR-Bank ASA and Swedbank. The agreement concerned cooperation on large corporate loans to customers within certain industries and the referral of customers using everyday banking services that conduct business outside the respective banks' domestic market.

In October 2022, Finanstilsynet granted permission for a significant change of ownership interests in Eika Boligkreditt AS and in the cooperation organised through the company, whereby distribution agreements were terminated and liquidation agreements were entered into with Aasen Sparebank, Askim & Spydeberg Sparebank, Drangedal Sparebank, Nidaros Sparebank, Sparebank 68 Grader Nord, Selbu Sparebank, Sparebanken Din, Stadsbygd Sparebank, Tolga-Os Sparebank and Ørland Sparebank.

On 28 April 2022, Finanstilsynet approved a cooperation agreement between Pareto Bank ASA and FundingPartner AS.

Acquisition of qualified stake

In May 2022, the application from Lunar Bank A/S for permission to acquire a qualified stake of up to 100 per cent of the shares in Instabank was rejected.

Expansion of financial services group

In June 2022, Finanstilsynet approved the expansion of a financial services group, whereby FundingPartner Securities AS will become a wholly-owned subsidiary of FundingPartner Group AS.

Waiver of obligation of confidentiality

In February 2022, Finanstilsynet waived Valdres Sparebank's obligation of confidentiality pursuant to the Financial Institutions Act Section 16-2 with respect to specific information to be used for a book project. Finanstilsynet considered the purpose for which the information was to be used, as well as the scope and age of the information. After careful consideration, Finanstilsynet waived Valdres Sparebank's obligation of confidentiality in the relevant matter.

In a letter sent in March 2022, Finanstilsynet asked the Ministry of Finance to take the initiative to look into amendments to the confidentiality rules in the Financial Institutions Act Section 16-2.

Debt information undertakings

Three undertakings are currently licensed to conduct debt information activity. In autumn 2022, Finanstilsynet published a general statement on the disclosure of debt information to third parties. This included the obligation of debt information undertakings to facilitate the disclosure of information to the data subject's third-party payment service providers and guardians, either electronically or on paper. In connection with digital consent/authorisation solutions, Finanstilsynet expects the data subject's consent to the disclosure of debt information to third parties to be based on an explicit signature using minimum two-factor authentication. This should ensure that it is the right person who consents. It must also be clear to the data subject what the consent entails and that it may be withdrawn.    

Recovery and resolution

In 2022, Finanstilsynet prepared resolution plans and set minimum requirements for own funds and eligible liabilities (MREL) for 12 banks, placing particular emphasis on the banks' management information systems and access to the financial infrastructure in a crisis situation. In addition, Finanstilsynet has provided input to the resolution plan and made MREL decisions for one subsidiary of a foreign bank.

Finanstilsynet headed the resolution college for the DNB Group in 2022 and participated in the resolution colleges for six banks with extensive operations in Norway.

In view of updated guidelines from the EBA, including requirements for recovery indicators in recovery plans, Finanstilsynet has updated circular 10/2019 on Finanstilsynet’s practices for reviewing recovery plans. The new circular 1/2022 replaced circular 10/2019.

Resolution / public administration

In the summer of 2021, the Ministry of Finance decided to liquidate Optin Bank ASA and place it under public administration in line with advice from Finanstilsynet. An administrative board and an auditor were appointed by Finanstilsynet in the summer of 2021 to perform the liquidation. Optin Bank was a relatively newly established bank with changing strategies and business areas. Deposits totalled approximately NOK 270 million, divided among roughly one hundred depositors. Most of the deposits were covered by the deposit guarantee scheme and were disbursed by the Norwegian Banks' Guarantee Fund.

In 2022, the administration board continued the liquidation of the bank. In the course of the year, Finanstilsynet extended the liquidation period by up to nine months. Claims have been distributed in advance to the Norwegian Banks' Guarantee Fund and other preferential creditors on an ongoing basis. Distribution to non-preferential creditors took place in December 2022. The dividend was approximately 11 per cent.

Other licensing matters

In 2022, Sparebanken Sør was given permission to convert part of the bank's ownerless capital into owners’ capital through the issue of equity certificates which were transferred free of charge to Sparebankstiftelsen Sør.

Regulatory development

Implementation of the pan-European solvency framework

The pan-European solvency framework comprises a directive that includes licensing requirements, rules on corporate governance and supervisory review (CRD) and a regulation on minimum own funds and liquidity coverage requirements (CRR). The framework is based primarily on the Basel Committee's capital and liquidity standards (Basel III). The regulations have been amended in the so-called ‘banking package’ (CRD V and CRR II). The banking package was incorporated in the EEA Agreement and entered into force in Norway on 1 June 2022. Finanstilsynet was involved in assessing how the regulations can be implemented in Norwegian law.

Some of the consequences of the regulatory amendments were lower Pillar 1 capital requirements for loans to SMEs and to firms operating or financing infrastructure projects, as well as new methods for calculating counterparty risk. The banking package brought about a change in the required composition of capital that can be used to meet Pillar 2 requirements. In addition, it is no longer permissible to set a general buffer requirement for the leverage ratio. On the other hand, the amendments opened up for stipulating Pillar 2 leverage ratio requirements.

The banking package also included amendments to the EU Banking Recovery and Resolution Directive (BRRD). The amendments are referred to as BRRD2 and were also implemented in Norwegian law in the Financial Institutions Act and Regulations as of 1 June 2022.

The European Commission is undertaking a broad review of the BRRD and the Deposit Guarantee Schemes Directive (CMDI Review), which was circulated for comment in 2021. No specific proposals for regulatory amendments have yet been presented.

The EU’s package for the introduction of the latest Basel III reforms is under preparation. These reforms include a revised standardised approach for calculating credit risk and a floor on capital requirements calculated according to the IRB approach. On 27 October 2021, the European Commission published its proposed rules, which have been circulated for comment to the European Council and Parliament. The proposed date of entry into force in the EU is 1 January 2025.

In October, Finanstilsynet adopted the required regulatory amendments to make pan-European rules on the calculation of credit risk weights applicable in Norwegian law. The new rules entail changes in the risk weighting of acquired portfolios of non-performing exposures, whereby previous impairment losses reflected in the selling price can be taken into account. Finanstilsynet has previously stated that only impairment losses made by the institution itself can be reflected in the risk weighting.

On 3 March 2022, Finanstilsynet was commissioned by the Ministry of Finance to draft provisions in laws and regulations that clarify the parameters on which Finanstilsynet's determination of bank-specific additional capital requirements (Pillar 2 requirements) is based. Finanstilsynet was also asked to account for the current Pillar 2 practice. Draft regulations were sent to the Ministry of Finance on 31 October, but had not been circulated for comment as at 31 December 2022.

In the summer of 2022, Finanstilsynet adopted a series of complementary rules amending the CRR/CRD IV Regulations to ensure that Norwegian rules are in line with pan-European rules and EEA obligations.

Floor for risk weighting of residential and commercial mortgages

In 2020, the Ministry of Finance set floor requirements for average risk weighting of residential and commercial mortgages of 20 and 35 per cent, respectively, with effect from 31 December 2020. The requirements were set in accordance with pan-European rules (CRR) that allow national governments to set temporary requirements in the event of increased systemic risk, including risk weight requirements targeting asset bubbles in the residential and commercial real estate sector.

On commission from the Ministry of Finance, Finanstilsynet made an assessment in 2022 of the need to uphold or modify the floor requirements for average risk weighting of residential and commercial mortgages for IRB institutions. Finanstilsynet concluded that the risk of financial instability is higher now than when the current floor on risk weights was set and proposed an increase in the risk weight floor for both residential and commercial mortgages. In this connection, reference was also made to the warning issued by the European Systemic Risk Board (ESRB) on 29 September 2022, urging public authorities to take action to preserve or enhance the resilience of the financial sector so that it can continue to support the real economy if and when serious incidents occur.

Finanstilsynet’s proposal was circulated for comment in November 2022. In December, the Ministry of Finance decided to retain the existing risk weight floors for another two-year period.

Risk weights and LGD levels for residential and commercial property

In 2022, Finanstilsynet considered the risk weighting of residential and commercial mortgages for banks using the standardised approach to calculate credit risk, as well as minimum LGD requirements for residential and commercial mortgages to personal customers for banks using the IRB approach.

According to the Capital Requirements Regulation, institutions using the standardised approach shall generally assign a 35 per cent risk weight to residential mortgages and a risk weight of 50 per cent to commercial mortgages, subject to specific assumptions. In Norway, a national requirement of 100 per cent has been set for commercial mortgages.

The exposure-weighted average LGDs for residential mortgages to the personal customer market and commercial mortgages shall be minimum 10 and 15 per cent, respectively. In Norway, the LGD floor for residential mortgages was increased to 20 per cent in 2014.

Despite the fact that the systemic risk associated with the property market was considered to be somewhat higher than at the time the current risk weights were last assessed, Finanstilsynet also concluded that the prevailing risk weights under the standardised approach could be retained. Finanstilsynet further assessed that the LGD floor for residential mortgages in the IRB methodology could be retained.

Finanstilsynet's assessments were sent to the Ministry of Finance on 30 November 2022. The ministry has stated that it will circulate Finanstilsynet’s assessments for comment.

New Act on loan intermediation

The Act on loan intermediation was passed by the Storting in December 2022 and is expected to enter into force on 1 July 2023. Finanstilsynet has been involved in the work on the proposition and has also initiated work on regulations to the new Act.

Once the new Act on loan intermediation enters into force, loan intermediaries whose operations target consumers must have permission from Finanstilsynet. Other loan intermediaries and financial agents will be subject to the same registration requirements as today. However, the new Act allows the Ministry to lay down rules for this group in regulations, including requirements concerning permissions/licences, operations, organisational structure, etc.

Lending Regulations

In 2022, Finanstilsynet responded to a number of inquiries from the industry and other stakeholders concerning the interpretation of the Lending Regulations.

In the course of the year, Finanstilsynet, on commission from the Ministry of Finance, drew up a consultation document proposing changes to the Lending Regulations. In the consultation document, Finanstilsynet proposed that the maximum limit for the borrower's total debt when grating new loans should be reduced from 5 to 4.5 times gross annual income, that the regulations should be extended to include loans to private individuals secured by assets other than housing, that the flexibility ratio for residential mortgages should be reduced to 5 per cent throughout Norway and that the flexibility quotas for unsecured credit or loans secured by assets other than housing should be dispensed with. The Ministry of Finance circulated the proposals for comment with a deadline for response in October 2022. After the consultation, the Ministry chose to uphold the Lending Regulations, slightly easing some of the requirements. The requirement for how large an interest rate increase borrowers should be able to withstand was reduced from 5 percentage points to 3 percentage points. However, the banks should nevertheless assume a 7 per cent interest rate hike when assessing customers’ debt servicing capacity. Furthermore, the regulations were extended to include loans secured on assets other than housing. The revised regulations entered into force on 1 January 2023.

Professional indemnity insurance / guarantee for payment initiation services and account information services

Pursuant to PSD2, the European Banking Authority (EBA) has drawn up guidelines on professional indemnity insurance and comparable guarantees. After the EBA in the summer of 2020 stated that excess, deductibles and thresholds could be applied to professional indemnity insurance, Finanstilsynet concluded that this provided a basis for changing practices in Norway. Finanstilsynet proposed that the requirements for professional indemnity insurance should be laid down in regulations. The proposal was circulated for comment in autumn 2021 and was incorporated in the Financial Institutions Regulations on 24 August 2022. Finanstilsynet has provided guidance to the regulatory changes in Circular 2/2022 (in Norwegian only).

Debt information undertakings

Debt information includes information on individuals' debt or unutilised credit lines that are not secured by a registered pledge on assets belonging to them. However, the Ministry of Children and Family Affairs circulated a consultation document in autumn 2022, proposing to include collateralised debt in the scheme, and Finanstilsynet supported this proposal in its response. The matter is still under consideration by the ministry. 

Other regulatory matters

In 2022, Finanstilsynet gave its response to the consultation on regulations to the new Financial Contracts Act and the consultation on the

strengthening of consumers' right to make cash payments.

Guidance and communication

In 2022, Finanstilsynet provided guidance by publishing information on finanstilsynet.no, This included: 

• inspection reports
• circulars providing guidance on Finanstilsynet’s supervisory practices
• descriptions of new legislation on separate topic pages
• consultations on draft legislation, both from Norway and EU consultations of relevance to the EEA

Finanstilsynet also hosted webinars and gave talks at several seminars and conferences hosted by the trade associations and others.

Read more in the reports from the supervised sectors for 2022:

• Digital finance and IT risk
• Money laundering and financing of terrorism