On 6 Dec. 2024, the Norwegian Ministry of Finance adopted regulatory amendments that, among other changes, will reduce regulatory requirements for the safest mortgage loans by lowering the required risk weight to 20% from 35%. The amendments are part of Norway's implementation of the EU's Capital Requirements Regulations III (CRR3). Under CRR3, the new standardised approach also involves reduced risk weights for commercial real estate loans with low loan-to-value ratios.
The new standardised approach will have positive impact on small and medium sized Norwegian bank's capital ratios. We take a forward-looking approach in our capital analysis. Where we expect banks to grow or pay out extraordinary dividends, the temporary improvements in capital ratios will have little impact on our view of capital. However, if banks commit to maintaining higher capital buffers, we could see some positive impact, given improved capital flexibility and increased distance above strict regulatory minimums. (See Norwegian savings banks' capitalization boosted by CRR3, 26 Jun. 2024.)
CRR3 will be implemented under Norwegian law through an amendment to existing capital requirements regulations. The amendment cannot take effect until CRR3 is adopted by the entire European Economic Area (EEA), which also incorporates Iceland and Liechtenstein. CRR3 will enter into force in the EEA once any constitutional reservations in the other two countries have been lifted.
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com