Risk Outlook Summary – June 2026
In brief
 |
Geopolitical tensions and war increase the risk of financial instability |
 |
The cyberthreat level is high, and incidents could have systemic consequences |
 |
High household debt and elevated property prices are key domestic vulnerabilities |
 |
Risk remains high within property development |
 |
Norwegian banks and insurers are profitable, well capitalised and competitive |
 |
The regulatory framework should be simplified without undermining |
Summary
The outbreak of war in the Middle East at the end of February, followed by the closure of the Strait of Hormuz, has led to increased uncertainty regarding the global economic outlook. Prices of products such as oil, gas and fertiliser have risen sharply, leading to higher inflation in most countries. Long-term interest rates have increased, and policy rates are expected to remain unchanged or be raised in the coming period. Several central banks and the International Monetary Fund (IMF) have expressed concern that a prolonged energy crisis could lead to a period of higher inflation and lower growth, known as stagflation, in the global economy.
Equities and corporate bonds are traded at low risk premiums in many markets. There are high expectations regarding future earnings in technology companies and companies developing artificial intelligence. The IMF points out that investors appear to be underestimating the risk of negative shocks. Pricing in some markets are at levels that have historically been associated with a higher probability of corrections.
In several countries, public debt is at historically high levels and is expected to rise further in the coming years, driven by increased defence spending and an ageing population. Weaker growth prospects and higher interest rates on sovereign debt will put further pressure on public finances. High levels of debt and large deficits undermine countries’ ability to use fiscal policy to cushion economic downturns. Uncertainty surrounding the sustainability of countries’ sovereign debt could in itself lead to declining asset values and higher risk premiums in international financial markets.
As outlined in Finanstilsynet’s Risk and Vulnerability Analysis 2026, the cyberthreat landscape is severe. Rapid developments in artificial intelligence create opportunities for efficiency gains but also introduce new threats and vulnerabilities. Complex value chains, a high degree of outsourcing and service provider concentration heighten the risk that cyberattacks or operational incidents could have negative consequences for critical functions, businesses and the financial system. The geopolitical situation, with wars in Europe and the Middle East, leads to a more severe threat landscape.
In Norway, activity in the mainland economy picked up throughout 2025 and in early 2026. Higher energy prices and more expensive imports, combined with strong wage growth and rising rents, contribute to sustaining inflation. Norges Bank has revised its inflation projections upwards and raised its policy rate to 4.25 per cent in May. High household debt and elevated residential and commercial property prices remain the key vulnerabilities in the Norwegian financial system.
Norwegian household debt, measured in per cent of disposable income, has decreased since late 2021. The debt burden is nevertheless high, both in historical terms and compared with other countries. Credit growth in the household sector has picked up over the last couple of years but remains lower than income growth. Debt servicing problems in the household sector could have major ripple effects on the rest of the economy. So far, there are few signs of serious debt servicing problems for the Norwegian household sector overall.
Price growth in the Norwegian secondary housing market has been relatively moderate in recent quarters. Both sales of new homes and housing starts are at historically low levels, and housing investments remain low. Persistently low housebuilding activity combined with population growth may, over time, lead to an increasing housing shortage, stronger price growth in the secondary housing market and rising demand for borrowing among households. If economic growth were to be significantly weaker than expected, or interest rates markedly higher, house prices could fall sharply, as shown in Finanstilsynet’s stress test for 2026.
Higher interest rates have led to declining commercial property values and reduced earnings in many commercial real estate (CRE) companies in recent years. Many of these companies have high levels of debt and weak interest servicing capacity. Yields on commercial real estate remain low compared to returns on long-term risk-free investments. If interest rates remain high or increase, risk premiums normalise and/or rental prices show a weaker than expected development, property values could decline, and the companies’ debt servicing capacity could become more strained.
Risk remains high within property development. The total debt of property development companies that have gone bankrupt, as a share of the sector’s total debt, rose sharply in 2025. In addition to higher interest expenses, property development companies are affected by higher construction and material costs and by sluggish sales of new properties. Growth in bank lending to property development companies has slowed considerably, and the banks assess that credit risk has increased.
Norwegian banks enjoy high earnings and strong solvency. Return on equity exceeds the average for banks in the EU. Over the past year, profitability and return on equity have declined as a result of lower net interest income and higher operating expenses. Loan losses have risen slightly in recent years, particularly on corporate loans, but remain at a low level. Credit risk on loans to companies engaged in property development, construction and fishing and fish farming has increased.
In recent years, the banks’ overall common equity Tier 1 (CET1) capital ratio has remained stable. The banks’ margins to the CET1 capital requirement have widened over the past year, largely as a result of regulatory changes related to the implementation of the final elements of the post-crisis reforms (CRR3). Measured by the leverage ratio, the banks’ solvency has weakened somewhat in recent years and was at its lowest level since 2015 at year-end 2025.
The banks appear to have good access to both short-term and long-term funding, despite increased geopolitical uncertainty. During periods of strong turmoil in the money and securities markets, it may be difficult for the banks to obtain wholesale funding even when interest rates are at a level where liquidity and credit risk premiums are high. Covered bonds constitute a large portion of Norwegian banks' wholesale funding and liquidity buffers. Banks’ liquidity risk is therefore linked to developments in the housing market, while extensive cross-ownership gives rise to systemic risk.
Both in Norway and internationally, there are ongoing discussions as to whether the current financial regulatory framework is unduly extensive and complex and hampers innovation and economic development. Finanstilsynet participates in the simplification initiatives led by the European supervisory authorities and is reviewing its own practices in dialogue with the industry associations. In this context, Finanstilsynet focuses on simplification measures that do not undermine financial stability.
Banks' ability to bear losses and provide new loans to creditworthy customers during downturns requires that they have sufficient equity. Finanstilsynet’s stress test for 2026 shows that banks’ capital adequacy could be severely weakened in the event of a sharp downturn driven by escalating geopolitical tensions and a more fragmented global economy. In the stress scenario, inflation and interest rates rise significantly, corporate profits decline sharply, and unemployment rises. Equity prices and the prices of residential and commercial property are strongly reduced. For the banks, this results in sizeable losses, particularly on corporate loans. For several of the banks, the CET1 capital ratio falls below the current requirement.
Overall, insurers and pension funds have a satisfactory solvency position. Through investments in equities, bonds and property, insurers and pension funds are exposed to significant market risk, and market turbulence and falling equity prices led to weaker returns at the beginning of 2026. Life insurers are increasingly exposed to stock market developments through higher equity exposure. The transition to defined-contribution schemes means that members have greater freedom to choose their equity exposure and bear the return risk themselves. Profits from insurance business in the non-life insurance sector has improved significantly over the past couple of years, mainly as a result of strong premium growth and a lower claims ratio.
Given the complex and evolving risk landscape and significant vulnerabilities in both the Norwegian and the global economy, it is vital that the resilience of the financial system is maintained and further developed. This requires sound governance and control within institutions, with due attention to emerging risks. Efforts to strengthen emergency preparedness should be intensified, both within supervised institutions and by public authorities. Regulatory requirements should be designed to help maintain underlying solvency within the European regulatory framework.