Bloomberg News

Norges Bank Says Banks More Vulnerable Amid Rising Turmoil

November 29, 2011

Nov. 29 (Bloomberg) -- Norway’s central bank said the nation’s financial system in Norway is more vulnerable amid rising turmoil and that banks should ensure their liquidity situation by increasing long-term funding.

The banks “are well capitalized and have posted solid earnings” so far in 2011, the Oslo-based central bank also said today in a financial stability report. Direct exposure to the most vulnerable countries in Europe is “very limited,” the bank said, adding that “banks’ reliance on foreign sources of funding may post a challenge in the short term.”

Rising credit growth is putting pressure on Norges Bank to raise interest rates to prevent the emergence of a credit-driven housing bubble, even a sovereign debt crisis in Europe threatens to push the region into recession. Policy makers in Oslo in October shelved planned rate increases to the second half of next year because of the turmoil. Governor Oeystein Olsen has said he is ready to cut the benchmark from the current 2.25 percent, if global growth prospects worsen.

The failure of European leaders to end the debt crisis in the euro area is sapping growth in Norway, which sends more than 60 percent of its exports to the region. The country’s mainland economy, which excludes oil, gas and shipping, grew 0.8 percent last quarter, slowing from an expansion of 1.3 percent in the period through June.

Falling unemployment and near record-low borrowing cost encourage Norwegian households to borrow money to finance property investments. Property prices rose an annual 9.3 percent last month, according to Norway’s Real Estate Brokers Association, prompting Olsen to say that house price growth presents a “possible challenge” to financial stability.

The European Central Bank this month unexpectedly cut its benchmark rate by 0.25 percentage point this month to 1.25 percent, as the debt crisis threatened to engulf even core member states of the European Union.

Norway’s policy makers will next meet on Dec. 14 to decide on interest rates. The Riksbank will meet on Dec. 20.

--Editors: Jonas Bergman

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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