Bloomberg News

Norway Banks Can Absorb Credit Crisis Shock, Johnsen Says

October 13, 2011

(Updates with September house prices in 11th paragraph.)

Oct. 13 (Bloomberg) -- Norway’s banks are ready to absorb the first shocks from a potential debt crisis that risks engulfing Europe, Finance Minister Sigbjoern Johnsen said.

“The Norwegian banking sector is stronger today than it was in 2008 and in that respect they also have a first line of defense,” he said in an Oct. 11 interview. “One of the impacts the situation in Europe can have on Norway might be through the banking sector, so we’re very well aware of that risk.”

Norway, which has a $530 billion sovereign-wealth fund, has been shielded from the worst of the euro area’s debt crisis as unemployment holds below 3 percent and the oil and gas industry helps fuel an economic expansion. This has allowed banks such as DnB NOR ASA, the country’s biggest, to benefit from lower risk premiums than the rest of Europe, the Financial Supervisory Authority said last month while warning that loan losses may rise from a “substantial setback” in the global economy.

With banks in better shape than in 2008, the world’s seventh-largest oil exporter may be able to avoid a rerun of 2009, when the government tapped its oil wealth to set up to two funds totaling 100 billion kroner ($17.7 billion) to support banks and bond markets after Lehman Brothers Holdings Inc.’s collapse. Lenders have since raised reserves, increased long- term funding and improved finances, according to the financial regulator.

“Norwegian banks have sufficient liquidity for the coming months so there is, as far as we know, no refinancing needed in the international market,” said Jan Digranes, director of the banking and capital markets department at Finance Norway, a banking trade group.

Capital Ratios

DnB NOR, Scandinavia’s second-largest bank, passed stress test by European regulators earlier this year with a capital ratio of 9 percent under an adverse scenario. The same goes for Sweden’s biggest lenders -- Nordea Bank AB, Swedbank AB, Svenska Handelsbanken AB and SEB AB -- which all do business in Norway.

Norway’s central banks said in May that the country’s banks, including a number of savings banks, had an average Tier 1 capital ratio of 11.8 percent as of December, up from below 10 percent at the start of 2008, after adding capital through retained earnings and share sales. DnB in 2009, for example, raised 14 billion kroner in a share sale to boost its capital.

“Being from Sweden or Norway doesn’t really matter,” said Thomas Johansson, an analyst at Carnegie Investment Bank. “The ultimate backstop we have is strong, very solid state finances. Even though Norway is a bit stronger than Sweden, Sweden is still among the absolute best on the planet.”

Concerns over a potential default by Greece and contagion in other debt-ridden nations have helped push the 46-company Bloomberg Europe Banks and Financial Services Index down 26 percent this year. DnB has slumped 24 percent and the Norwegian three-month interbank rate has risen to more than 3 percent, from about 2.6 percent at the start of the year.

Moody’s Downgrade

Moody’s Investors Service this week downgraded Norwegian lender Storebrand Bank, a unit of insurer Storebrand ASA, citing concerns related to its franchise strength, profitability and credit risk concentration, particularly to commercial real estate. In neighboring Denmark, three banks have failed so far this year, buckling under strains from a slump in that country’s housing market.

Norway’s financial regulator last month recommended lowering a cap on how much consumers can borrow for homes as it seeks to prevent credit growth from fanning a property market bubble. The watchdog is seeking to tighten a market where home prices gained an annual 9.7 percent in September, according to data from Norway’s Real Estate Brokers Association. Household borrowing rose an annual 7.2 percent in August, near a 2 1/2- year high, Statistics Norway said.

‘Systemic Dimension’

European Central Bank President Jean-Claude Trichet this week warned the crisis had reached a “systemic dimension” as leaders struggle to contain a crisis that has pushed Greece to the brink of default, shaken markets and fueled speculation that the 17-nation currency might not survive in its current form.

French President Nicolas Sarkozy and German Chancellor Angela Merkel have vowed to outline a plan this month to recapitalize banks as investors hesitate to extend short-term funding on concern they will have to write down holdings of Greek and other peripheral European debt. European banks need as much as 200 billion euros of capital, the International Monetary Fund said last week. Franco-Belgian Dexia SA became the first banking victim of the debt crisis at the core of Europe this week as its directors moved to dismantle the lender.

Banks in Norway, the only Scandinavian country that isn’t part of the European Union, have “insignificant” holdings in Greece and limited investments in Ireland, Portugal, Spain and Italy, the financial regulator said in a June report. The six largest banks hold less than 1.3 percent of their managed capital in Greek, Irish, Italian, Portuguese and Spanish assets, primarily in private companies and banks.

“We are a very keen follower of what is happening in Europe and of course we are very well aware of that this can also develop in Norway,” said Johnsen. “The Norwegian banking sector is strong and they have done a very good job over the last few years in order to build their own reserves.”

--Editors: Jonas Bergman, Tasneem Brogger

To contact the reporter on this story: Josiane Kremer in Oslo at jkremer4@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net


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