High household debt levels in Sweden and Norway that have regulators worried don’t pose a risk to financial stability, according to Fitch Ratings Ltd.
“Household debt is not a present risk for ratings,” Alex Muscatelli, director for sovereigns ratings said in an interview in Oslo. “This risk is mainly a macroeconomic one, not really a financial stability one.”
Both Sweden and Norway are working to cool house price and household debt growth. The Swedish Financial Supervisory Authority has proposed rules for faster amortization while its Norwegian counterpart recommended last month raising rates used in stress tests and a minimum 2.5 percent a year amortization requirement.
Sweden and Norway will be able to weather a correction of house prices due to the “healthy state” of the banks and “very low” level of non-performing loans, Muscatelli said.
While there’s a risk for a slump in house prices in Sweden and Norway, Fitch doesn’t see that impacting the financial system.
“It would need to be very sharp and extreme to materially impact the ratings through macroeconomic developments,” he said. “For it to change we need to see a situation where interest rates are higher, where affordability is lower and where house prices still continued to rise and the interest burden becomes higher than it is.”