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Norway Needs Higher Risk Weights on Mortgages, Qvigstad Says

Norges Bank Deputy Governor Jan F. Qvigstad said Norway should tighten risk weights on mortgage loans to free up capital for other lending and ease pressure in the housing market.

“One problem is that the risk weights for housing loans are very low,” he said today in interview in Lillehammer, Norway. “If that had been higher the banks would have been more eager to lend to businesses relative to households and housing.”

The central bank last week decided last week to keep its benchmark rate at 1.5 percent for a fourth meeting and to push back any increase to March at the earliest. The bank doesn’t want to raise rates too much to avoid large difference to the euro area, which is struggling to contain its debt crisis.

Rate increases would help balance an economy that’s showing signs of overheating. Norway’s Financial Supervisory Authority has warned that Europe’s second-biggest oil exporter may be facing a housing bubble as credit growth and sent private debt loads to almost double disposable incomes.

Norwegian household debt was 195 percent of disposable incomes in the third quarter of 2011 according to the most recently available data. It will rise to 202 percent by the end of next year, according to the central bank.

Risk weights, as defined by Basel II regulations, on mortgage loans in Norway are 11 percent, compared with 15 percent in Germany and as high as 35 percent in Spain, according to data from the Swedish central bank. Risk weights determine how much capital a bank must set aside to guard against potential losses.

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