Sharp rise in property prices and high household indebtedness result in increased vulnerabilities
"Banks' capital ratios have doubled since the financial crisis and liquidity has improved. At the same time, some aspects of the Norwegian economy make the financial system vulnerable. This primarily relates to high property price inflation combined with high household indebtedness", says Deputy Governor Jon Nicolaisen in connection with the publication of the 2016 Financial Stability Report.
The banking sector's profitability remains firm despite higher losses. The losses are primarily associated with loans to oil-related industries. The calculations in this Report
show that banks can absorb substantial losses on oil exposures without a fall in their capital ratios.
High house price inflation could lead to increased household borrowing. This could make households as a whole more vulnerable and increase the risk of a sharp decline in demand and higher bank losses further ahead.
Norwegian banks have become more resilient. The stress test in the Report shows that banks' capital ratios could fall markedly in the event of a downturn, but banks will still
amply meet the minimum requirements", says Deputy Governor Nicolaisen.
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