Norway Regulator Reviews Tightening Capital and Loan Standards

Norway’s financial regulator is studying the need for further tightening of loan-to-value ratios on mortgages to slow debt growth in Scandinavia’s richest economy.

“We don’t find reason to amend those guidelines at this point in time,” Morten Baltzersen, director general of the Financial Supervisory Authority, said yesterday in an interview in Oslo. “However it might be necessary to consider tightening the guidelines in the future, if household debt growth doesn’t gradually decline from the present level.”

Norway’s housing market, which Nobel laureate Robert Shiller already in 2012 said was in a bubble, has been inflated by a period of record-low interest rates that fueled a borrowing spree and left Norwegians with more debt than ever before. Households owe about twice their disposable incomes, a level the central bank and the regulator have warned is unsustainable.

The housing market is now showing signs of deflating, and prices have dropped 5 percent since August as the market retreats from a half-decade real estate boom. Credit growth was 6 percent in December, down from more than 7.3 percent in 2012.

The regulator in 2011 capped mortgages at 85 percent of a homes’ value, and the government has raised capital requirements to as much as 10 percent of risk-weighted assets by July. For eight systemically important banks, including Norway’s largest lender DNB ASA, the target will rise to 11 percent in 2015 and 12 percent a year later.

Tightening View

At the start of the year it also raised the loss-given-default floor to 20 percent on home loans from 10 percent. The regulator last week rejected a proposal by the government to ease the loan-to-value standards to 90 percent.

The watchdog is now reviewing individual banks, which could lead to increases in the loss-given-default floor and “to higher capital standards than the minimum standards laid down in legislation,” Baltzersen said. It’s looking to “possibly tighten our requirements as to the parameters of the models” of the Basel I transitional backstop, he said.

The Conservative-led government, which won power in September, promised before elections to look into raising the amount banks can lend to borrowers to 90 percent of a property’s value, in part to ease access for first-time buyers.

Finance Minister Siv Jensen said yesterday that the government will on Feb. 7 respond the regulator.

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