Norway Businesses Bemoan Push to Tighten Bank Capital Rules

Norwegian businesses will be hurt by the government’s plans to introduce stricter bank capital rules and tighten risks for mortgage lending, the country’s biggest employers’ group says.

Norway’s government wants to set stricter mortgage lending standards than those enforced elsewhere to fend off a property bubble as house prices and private debt surge to record levels. The country is also planning other measures to tighten capital standards and curb covered bond lending, reducing the capital available for banks to lend.

“It seems like this government wants to introduce new banking regulation before everybody else and we fear that that will lead to a lowering of banks’ ability to lend in terms of volumes,” Dag Aarnes, a director at the Confederation of Norwegian Enterprise, or NHO, said today in an interview in Oslo. “It’s relatively naive to think that this would not affect the corporate lending sector.”

Western Europe’s largest crude exporter has withstood a euro area recession as a boom in its petroleum sector has boosted labor demand and pushes up wages. Near record-low borrowing costs have encouraged private borrowing with household debt estimated to grow to more than 200 percent of disposable income this year. House prices, which rose an annual 8.5 percent last month, have surged almost 30 percent since 2008 and almost doubled in the past decade.

The krone was little changed at 7.4918 per euro as of 5:07 p.m. in Oslo.

Norges Bank

The government will do everything in its power to prevent another bank crisis, Finance Minister Sigbjoern Johnsen said last month at a seminar in Oslo. His administration will present proposals for higher capital requirements, including tougher rules on mortgage risk weights, to parliament in the first half with a view to getting the bill passed after July, he said.

Norway’s central bank said today in a letter to the Finance Ministry that it backs a proposal to limit covered bond issuance to promote financial stability.

“Norges Bank endorses the Financial Supervisory Authority and Finance Ministry’s view that rules to limit the use of covered bonds as a means of financing mortgages should be considered,” central bank Governor Oeystein Olsen said in a letter dated Feb. 28 and published on the bank’s website.

The ministry has asked the country’s financial regulator to consider almost tripling risk weights on mortgage loans to 35 percent. Risk weights determine how much capital a bank must set aside to guard against potential losses. Authorities have also commissioned a review into whether to curb covered bond issuance after it surged eight-fold since 2007.

The Fear

“We have had some good growth in the Norwegian economy over the past two to three years so normally we would have expected to see investments in the mainland economic sector to have growth,” Aarnes said. “That’s not happening and we fear that the banks’ reduced ability to lend is an important factor.”

Norwegian companies “are very bank-dependent unlike American and other European businesses who are more inclined to borrow straight in the market,” Aarnes said. “The danger is that these financial issues increase our dependency on big companies and the oil sector.”

Growth in the mainland economy, which excludes oil, gas and shipping, is estimated to slow to 3 percent in 2013 from 3.75 percent last year, according to central bank forecasts.

Norway’s manufacturing industry unexpectedly shrank last month to the lowest level since June as orders slumped, a survey by Danske Bank A/S showed today.

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