Countercyclical capital buffer unchanged
The decision was made last year to raise the countercyclical buffer rate to 2.5 percent, effective from 31 March 2023. At its meeting on 18 January, Norges Bank’s Monetary Policy and Financial Stability Committee decided to maintain this requirement.
The countercyclical capital buffer is intended to strengthen banks’ solvency and mitigate the risk that banks amplify an economic downturn. If a downturn will or could cause a marked reduction in credit supply, the countercyclical capital buffer rate should be lowered.
Activity in the Norwegian economy is high, and the labour market is tight. High inflation and higher interest rates are weakening household purchasing power, and many firms expect a fall in activity ahead. The outlook for the Norwegian economy is more uncertain than normal.
Property prices have risen substantially in recent years, and many households are highly indebted. Such vulnerabilities may amplify a downturn. House prices fell through autumn 2022, which has dampened household credit growth. Selling prices in the commercial real estate market have fallen since summer 2022 on the back of higher yields. The price decline is being cushioned by higher rents.
Creditworthy firms and households appear to have ample access to credit, even if there are some signs of a tightening of banks’ credit standards. Risk premiums on new corporate bond issues rose markedly in 2022, particularly for commercial real estate firms.
Norwegian banks satisfy the capital requirements and are highly profitable. Analyses in Financial Stability Report 2022 show that banks are resilient and able to absorb losses and maintain lending in a severe economic downturn. The countercyclical capital buffer rate of 2.5 percent contributes to this resilience.
The Committee unanimously decided to keep the countercyclical capital buffer rate at 2.5 percent.
Ida Wolden Bache
Pål Longva
Øystein Børsum
Ingvild Almås
Jeanette Fjære-Lindkjenn
18 January 2023
Norges Bank sets the countercyclical capital buffer rate each quarter. From 2023, the rate will be published together with the policy rate decision in January and August and together with Financial Stability Report in May and November. The next decision on the countercyclical capital buffer will be published on 10 May, together with Financial Stability Report 2023-1.