Boligkreditt

Norwegian savings banks have a particularly strong position in the Norwegian banking landscape with a combined market share of lending of 33 per cent in the market for private customers (households) and 30 per cent in the corporate market. SpareBank 1 represents the largest single group of savings banks with a market share of approximately 20 and 17 per cent in the market for individuals and corporates, respectively.

A decline in the price of oil of 60 per cent in the second half of 2014 has increased the uncertainty for the Norwegian economy. We believe however that both Norway as a nation and Norwegian banks in particular are well suited to meet the challenges associated with the decrease of activity in the petroleum sector:

• The equity components of Norwegian banks' balance sheets has doubled from 2008 to 2014 through equity issuance, reduced lending and reduced dividends to shareholders
• Losses on residential mortgages are historically low over time for Norwegian banks. Credit risk in the covered bond issuers (Boligkreditt) which finance residential mortgages up to 75 per cent loan to value therefore seems particularly low
• The share of long-term financing has increased meaningfully and banks are able to run for 12 to 18 months without needing to access external financing
• The banks' lending margins have increased over the last few years and therefore also their capability to absorb potential losses over the P&L.
• Norwegian authorities has shown a high level of vigilance when it comes to the banking sector; not only in the sense that a very effective funding mechanism was developed in 2008-09 when the wholesale funding markets seized up (the swap facility) but also the fact that the Norwegian regulator of banks (Finanstilsynet) has launched strict new lending conditions for residential mortgages in the last few years and effectively requires more equity capital to be held in Norwegian banks than that which is regulated in CRD IV.
• Very limited deployment of the oil revenue stream in the government's budgets over the last few decades and the corresponding funding of the Norwegian sovereign wealth fund (the 'oil fund') with a current size of NOK 6,700 billion (NOK 1,3 million per resident) allows for a large fiscal measures to be taken to counter the effects of the decline in the oil price