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. The assessment of the countercyclical capital buffer rate is based on Financial Stability Report 2023 H1.

Growth in the Norwegian economy has slowed, but activity remains high. The labour market is tight, and wage growth is set to be higher in 2023 than last year. At the same time, higher living costs and interest rates have led to tighter finances for many households. There is considerable uncertainty about future economic developments.

Residential and commercial property prices have increased substantially in recent years, and many households are highly indebted. Such vulnerabilities may amplify a downturn in the Norwegian economy.

Property prices fell through autumn 2022 but have edged up in the course of winter. Future developments in property prices are more uncertain than normal. Many CRE firms are highly indebted and therefore vulnerable to a fall in prices and increased financing costs. A number of CRE firms hold considerable bond debt that will soon mature. However, banks have limited exposure to such firms with the weakest financial strength.

Creditworthy firms and households appear to have ample access to credit. In Norges Bank’s lending survey, banks as a whole reported unchanged credit standards in 2023 Q1 and expect no change in Q2. Household credit growth has slowed gradually over the past year, while corporate credit growth has risen. Bond risk premiums remain higher than normal since rising markedly in 2022.

Problems at some banks abroad have led to substantial movements in financial markets but have not resulted in funding difficulties or an increase in losses for Norwegian banks. If the uncertainty in the financial sector grows and spreads, Norwegian banks’ wholesale funding may become more costly. Norwegian banks are solid, liquid and highly profitable. In the event of a sharp downturn, credit losses may become so large that bank profitability turns negative, and banks draw down the capital buffers that they have built up. Stress tests and sensitivity analyses, including those in Financial Stability Report 2022, show that banks are resilient and are capable of absorbing losses and maintaining lending, even in the event of a sharp economic downturn. The countercyclical capital buffer rate of 2.5% helps banks to remain resilient.

The Committee unanimously decided to keep the countercyclical capital buffer rate at 2.5%.

Ida Wolden Bache
Pål Longva
Øystein Børsum
Ingvild Almås
Jeanette Fjære-Lindkjenn

3 May 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 17 August.