"In a bank crisis scenario, we see that some Norwegian banks may be in breach of their pillar 2 requirements", said Geir Kristiansen, Credit Rating Analyst at NCR. "However, if the Norwegian financial authorities remove the 1% countercyclical buffer, the banks will be able to withstand one year of losses equal to the 1991 level."
We believe that the banking crisis of the early 1990s can give us some indication of which sectors are more at risk, even though we believe that the likelihood of a full-scale banking crisis now is reasonably low. The main reasons for this are the significantly lower interest rate levels of today compared with the double-digit interest rates of 30 years ago, a pro-active government supporting companies with significant reductions in revenues, higher levels of benefits for the unemployed, liquidity support programmes for banks and corporates, and significantly higher equity and liquidity requirements for banks. Nevertheless, Nordic Credit Rating (NCR) recently lowered its assessment of the Norwegian banking sector to 'a-' from 'a' due to the economic effects of the COVID-19 pandemic (see NCR sees increased risk for Norwegian banks, 3 Apr. 2020).
While savings banks are predominantly mortgage banks, the share of corporate loans within their lending is on average 33%. Of this, an average 44% consists of loans to commercial real estate, a sector we believe would pose a major risk in a protracted crisis. In the short-term, retail, hotel and restaurants have the highest risk, but lending to these sectors is relatively small at an average 5% of corporate loans. We have also included oil-related borrowers and building and construction among the high-risk sectors.
Analyst contact details:
Geir Kristiansen, credit rating analyst, +47 90784593, geir.kristiansen@nordiccreditrating.com
Sean Cotten, +46 735 600 337, sean.cotten@nordiccreditrating.com