Growth in total credit (C3) has declined, and is now approximately in line with the growth in the Norwegian economy. Debt accumulation by the household sector has continued at a rapid rate. The sharp rise in the value of dwellings in recent years is an important explanatory factor. The interest rate decline has increased households' capacity to service their debt. The growing debt, however, increases the vulnerability of households to economic disturbances. This represents an element of uncertainty regarding economic developments.

Corporate profitability has improved. The number of bankruptcies has fallen from the peak level in the second quarter of 2003. Measured in terms of market value, the bankruptcy peak was reached in the latter half of 2002. The property industry accounts for the largest share of bank lending. Enterprises that rent out office premises have had weaker earnings than other types of property enterprises. Although financial vulnerability varies across industries, Norges Bank assesses overall vulnerability to be moderate and somewhat lower than six months ago.

Norwegian banks have improved their performance in the last year. The positive developments are due to lower loan losses, increased earnings on securities and lower operating expenses. Banks' net interest income has declined as a result of the fall in interest rates. Banks have satisfactory financial strength, and appear to be well capable of absorbing increased losses in the event of an economic downturn.

For further information, please contact Birger Vikøren, Director (Tel. +47 22 31 61 42) or Arild J. Lund, Director (Tel. +47 22 31 61 44).