Countercyclical buffer increases next year

The Ministry of Finance has today decided that the level of the countercyclical capital buffer requirement shall be increased to 1.5 per cent from 30 June 2016, in accordance with advice from Norges Bank. The Ministry has earlier decided that the buffer requirement shall be set at 1 % from 30 June this year.

– Based on developments in the credit market, property prices and Norwegian banks’ financial situation, the Ministry of Finance has today, based on advice from Norges Bank, decided that the countercyclical capital buffer requirement shall be increased to 1.5 per cent from 30 June 2016. The Ministry has put emphasis on Norwegian households’ debt burden.  Norwegian banks are profitable, well capitalised compared to banks in other countries, and have a good ability to meet upcoming capital requirements, says Minister of Finance Siv Jensen.

– We have now won some experience with setting the countercyclical capital buffer requirement, where Norges Bank’s assessments and advice have provided a good basis for the Ministry’s decisions. I have therefore been able to act quickly on Norges Bank’s advice, says Minister of Finance Siv Jensen.

In a letter of 17 June 2015 to the Ministry, Norges Bank assessed that the continued rise in household debt indicates that financial imbalances in the household sector are increasing, while new requirements on banks’ residential mortgage lending practises and a slowdown in the Norwegian economy may contribute somewhat to dampen household debt growth. Norges Bank also notes that even lower lending rates imply a risk of even higher property prices and debt levels. Credit growth in the corporate sector is overall moderate, but credit growth in the commercial property business has recently accelerated. The largest Norwegian banks are well positioned to meet capital requirements effective next year. Viewed against this background, Norges Bank has advised the Ministry to increase the countercyclical capital buffer requirement to 1.5 per cent from summer 2016. In a letter of 17 June 2015 to the Ministry, the Norwegian Financial Supervisory Authority has endorsed Norges Bank’s assessment and advice.

Each quarter, Norges Bank shall provide a basis for the decision on the level of the countercyclical capital buffer requirement, and give an assessment and advice on the level of the countercyclical buffer. The purpose of the countercyclical capital buffer is to strengthen the financial soundness of banks and their resilience to future loan losses when financial imbalances are building up or have been built up. The Ministry of Finance decided on 12 December 2013 that banks shall hold a countercyclical buffer of 1 per cent from 30 June 2015.

Norges Bank’s advice shall include an assessment of recognition of countercyclical buffer rates set in other countries. In the letter of 17 June 2015, Norges Bank notes that requirements on countercyclical buffers have been established in several EU/EEA countries, and recommends that these requirements are made applicable for Norwegian banks’ exposures in those countries. In its letter of 17 June 2015, the Financial Supervisory Authority has endorsed this view. The Ministry of Finance refers to the EU’s CRR/CRD IV framework, whereby requirements on countercyclical buffers are to be phased-in over a three-year period, from 2016 to 2019. The member states may, however, impose a shorter transitional period. The Ministry aims to make foreign countercyclical buffer rates applicable for Norwegian banks in parallel with EU requirements entering into force.

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