The Norwegian Ministry of Finance has proposed new capital requirements for Norwegian banks and foreign bank's lending in Norway. The aim is to maintain existing capitalisation despite the implementation of the SME discount in Norway and the removal of the Basel I floor for Norwegian IRB banks.
"We had expected, in line with signals from Norwegian FSA, that the authorities would implement higher Pillar 2 requirements for individual banks. However, the Ministry's suggestion is instead to use a market-wide approach", said Geir Kristiansen, bank analyst at NCR.
The Ministry's proposal would increase the systemic risk buffer from 3% to 4.5% at 31 Dec 2019 for IRB banks and by 31 Dec 2021. Moreover, the Ministry recommends implementing risk weight floors of 20% for residential mortgage loans and 35% for loans with commercial real estate collateral.
In its report Norwegian bank's SME discount likely to be financed by mortgage customers, 28 Jan 2019, NCR discussed the potential for new capital requirements. In that report we concluded that lowering capital requirements for SME customers and maintaining the total capital requirement would most likely lead to higher margin requirements for residential mortgage customers to offset lower margins on SME loans.
If you have any questions, please contact:
Geir Kristiansen, analyst, +47 90 78 45 93, geir.kristiansen@nordiccreditrating.com
Sean Cotten, analyst, +46 732 32 43 78, sean.cotten@nordiccreditrating.com