The report shows that overall debt growth in Norway is still high. Household borrowing in particular is high. Debt growth in the enterprise sector is more moderate, but the debt burden is high. Banks' earnings have declined, but their financial position remains sound. Overall, the outlook for financial stability is considered to be satisfactory, but less favourable than in May 2002.

The overall debt burden in the enterprise sector is high after many years of heavy borrowing. In the last few years, weaker profitability has reduced debt-servicing capacity. If the lower profitability persists, a number of enterprises may experience debt repayment problems in the period ahead. Enterprises in the exposed sector are most exposed vulnerable. Sheltered sector enterprises will not be affected to the same extent. Credit risk associated with loans to the enterprise sector must now be described as relatively high for loans to enterprises in the exposed sector, but still moderate for enterprises in the sheltered sector.

In the last 2½ years, there has been a sharp rise in household debt. Households with a high interest burden currently account for a considerably larger share of banks' lending than before. A large share of these loans has in turn been given to low- and middle-income households. This is new compared with the period preceding the banking crisis. At that time, this type of high-risk loan to low- and middle-income households represented a considerably lower share of lending. On the whole, credit risk associated with loans to the household sector is considered to be moderate.

Banks' results were considerably weaker in the first three quarters of 2002 than in the same period of 2001. Despite weaker results, banks' capital adequacy improved, and they are still well equipped to face more sluggish economic developments.