Today Nordic Credit Rating (NCR) lowered its assessment of the Norwegian banking sector to 'a-' from 'a' due to the economic effects of the COVID-19 pandemic. This assessment affects up to 20% of an overall issuer credit rating on a financial institution. We have revised down our scores and expectations for output growth, housing prices, unemployment and the international cycle as shown below. We have increased the impact of sovereign strength in our overall assessment given the Norwegian government's support for individuals, banks and corporations.
We note that many companies have elected to furlough employees using a government-supported programme which reduces costs for employers and maintains up to 80% of employees' wages. However, there was a significant rise in unemployment during the last weeks of March and we believe there will be long-term challenges for many sectors given varying degrees of economic shut down for Norway's neighbours and global trading partners.
NCR views the outlook for the domestic operating environment as negative given the abrupt reduction in activity and the uncertain prospects and timeline of an economic recovery. Initially, the government's efforts to counter the severe macroeconomic disruption could be effective, however, we believe that maintaining stability, especially in terms of bank earnings and credit losses, will become increasingly difficult the longer economic activity remains subdued.
Analyst contact details:
Geir Kristiansen, +47 90 78 45 93, geir.kristiansen@nordiccreditrating.com
Sean Cotten, +46 732 324 378, sean.cotten@nordiccreditrating.com