Norwegian banks have emerged well from the financial crisis

• No Norwegian banks were compelled to close down as a result of the crisis.
• Sound performances and retained earnings, along with fresh capital, including through new stock issues, strengthened banks’ tier 1 capital by 1,5 – 2 percentage points.
• Losses in 2008 and 2009 proved smaller than feared.
• Insurers also fared well through the crisis, and buffer capital levels are higher.

Mr Skogstad Aamo highlighted satisfactory risk management on the part of the banks themselves, good rules and good supervision along with effective measures taken by the Government and Norges Bank, as important factors explaining why Norwegian banks have emerged so well from the crisis. “The fact that the banks appear to be devoting the bulk of their net profits for 2009 to bolster equity capital is both positive and necessary”, he said.

Where the challenges ahead are concerned, the Director General highlighted the following:

• The impacts of the financial crisis on business and industry may yet inflict a good deal of losses on banks. Pressure on earnings, uncertain economic prospects and signals of more stringent international rules make it imperative for the banks to continue to give due weight to sound equity capital positions ahead.
• Continued large residential loans relative to incomes and property values render households vulnerable and pose a risk to the banks. Finanstilsynet’s home loan survey, with weighting by bank size, shows a higher loan-to-value ratio than where weighting is absent.
• Experience shows that residential lending can contribute to financial instability. It is important to assure a lending practice that lessens residential borrowers’ vulnerability and lessens housing market fluctuations.

Finanstilsynet supports the international effort to achieve stricter requirements on equity capital and liquidity. A sound capital situation does not warrant more stringent capital requirements at present, but earlier introduction of quantitative liquidity requirements could suitably be contemplated once a larger portion of the international rules is made available.