Norwegian banks demonstrate further strength
Nordic Credit Rating (NCR) applies a score of ' a' for the Norwegian banking market and expects the domestic operating environment to be rather benign for Norwegian banks over the next two to three years. Despite higher capital requirements, Norwegian banks have outperformed European peers in terms of earnings and efficiency and have managed a downturn in the oil and offshore segment with robust loss performance in recent years. The banking market score is a component of NCR’s issuer ratings for financial institutions. Depending on the nature of the rated entity’s exposure and geographic profile, the score can affect up to 20% of an issuer’s overall credit rating.
For the moment, NCR considers the Norwegian banking market to be somewhat stronger than in Sweden, which was scored 'a-'. ''In the short term, we see a better balance in the Norwegian housing market than in Sweden and expect the Norwegian labour market to improve further in the coming years. In addition, the Norwegian banks are somewhat better capitalized than their Swedish peers and we believe that the strong bank alliances have supported strong earnings performance'', says credit analyst Geir Kristiansen at NCR.
Norway’s current economic growth is marginally over its historical trend, after a period of low growth largely due to the oil price drop. We expect Norway to show strong economic development over the next few years. Norway’s mainland GDP has been supported by a weaker currency following the oil price drop, low interest rates and rising housing prices. These factors are not expected to generate positive impulses in the future, but GDP is expected to grow by 2.5 percent annually over the next two years. Growth will be supported by stronger oil prices and international economic development.
Norwegian banks are consistently well capitalized. The Norwegian FSA has recently proposed that more banks in Norway should be regarded as systemically important and subject to higher capital requirements to ensure that they remain resilient during a downturn. In particular, the FSA proposes that six banks with more than 10% regional market share should be defined as systemically important (SIFI) banks and get 2% extra CET1 requirements. This increase will counteract the effect of removing
Norway – scoring of national indicators
| SUBFACTOR | SCORE | RATIONALE |
| Sovereign strength | aa | Major credit rating agency average: AAA, minimum: AAA. |
| Output growth | a | We expect moderate but increasing economic growth due to greater investment in the oil industry. |
| Credit growth | bbb | Credit growth is more than twice GDP growth, but growth is slowing due to expectations of higher interest rates and high debt levels. |
| Housing prices | bbb | We expect strong growth in housing prices to slow due to higher interest rates and increased supply. |
| Unemployment | aa | Unemployment is low and falling. |
| Available stable funding | a | Available stable funding in the form of stable deposits and domestic covered bonds exceeds monetary financial institution (MFI) private-sector loans in most foreseeable market conditions. |
| International cycle | bbb | Global growth prospects are improving, though supported by significant monetary stimulus. Increasing trade rhetoric and the prospect of the UK leaving the EU without a trade agreement could affect economic growth. Asset prices are at or near peak levels. |
If you have any questions, please contact:
Geir Kristiansen, Analyst, +47 90 78 45 93, geir.kristiansen@nordiccreditrating.com
Sean Cotten, Lead analyst, +46 732 32 43 78, sean.cotten@nordiccreditrating.com
Nordic Credit Rating AS is a credit rating agency headquartered in Oslo with a branch in Stockholm. The company provides credit ratings to companies and financial institutions in the Nordic region, and bases its analysis on local insights. Nordic Credit Rating is registered with the European Securities and Markets Authority (ESMA).
