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Countercyclical buffer unchanged

Today, the Ministry of Finance has decided not to change the countercyclical capital buffer requirement for banks.

The buffer requirement currently stands at 2 percent, and will be increased to 2.5 percent from 31 December 2019, as decided by the Ministry in December 2018.

The purpose of the countercyclical capital buffer requirement is to strengthen banks’ solvency and resilience to absorb loan losses, in order to mitigate the risk that banks will amplify a downturn by reducing their lending. Banks should hold a countercyclical capital buffer when financial imbalances are building up or have been built up.

Each quarter, Norges Bank shall provide advice to the Ministry on the level of the countercyclical capital buffer requirement. In a letter of 18 September 2019, Norges Bank recommended keeping the level unchanged, and said that its assessment of financial imbalances has not changed substantially since the past quarter. Norges Bank also said that household debt ratios remain high and property prices are high after rising rapidly for many years. Over the past two years, however, the rate of household debt growth has slowed and is now close to the rate of growth in disposable income. Norges Bank said that at the same time, house price inflation has been moderate, while the sharp rise in commercial real estate prices has abated in the past year. In the period ahead, Norges Bank expects that the higher interest rate level and continued moderate house price inflation will curb debt growth further. Norges Bank’s assessment is published in its Monetary Policy Report with financial stability assessment 3/19.

In a separate letter of 18 September 2019 to the Ministry, Finanstilsynet said that it concurs with Norges Bank’s advice.

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