Norway economy: Familiar risks dominate financial report

Norwegian banks are financially sound and profitable. However, the authorities remain concerned by the rise in household and corporate borrowing, which, under worst-case stress-test scenarios, would create systemic-risk implications. The latest annual assessment of Norway’s financial system by its supervisory agency highlights the efforts being made to mitigate these risks. This is sure to have an impact on the banks’ liquidity positions and long-term funding profiles.

The latest annual risk outlook from the Financial Supervisory Authority (Finanstilsynet) provides what appears to be an exemplary report on Norway’s financial markets. It notes that Norwegian banks are “financially sound and profitable”, with good income and low loan losses mentioned as two of the defining characteristics. The life insurers and pension funds are singled out for their sound results in 2013, on the back of a stockmarket recovery.

These strengths are to be expected. Although Norwegian lenders were as badly affected by the closure of the interbank lending markets as their contemporaries during the global credit crunch of 2008, many survived because of risk-averse lending practices. The industry’s reputation, as in Sweden, had been badly damaged by a crisis in 1988-92, stemming from financial deregulation, which ultimately forced the krone to float as the pegged exchange rate was abandoned. The banks have since steered a steady course, fearful of the risky sub-prime lending and complex structured financial products that brought down some of the US and UK lenders.

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