Norwegian savings banks head into an uncertain 2023 with a degree of positive momentum following a relatively strong performance in 2022, Nordic Credit Rating (NCR) said in a report published today.
Net interest margins have improved materially due to a rebound in interest rates, with the domestic policy rate and three-month NIBOR increasing by 275bps over the past 15 months, the report notes. NCR expects the improvement in margins to support pre-provision earnings even as credit growth declines and provide additional buffers as credit losses rise.
Although improved interest rates are supporting earnings, higher borrowing costs are only part of the cost inflation likely to affect households and corporates in 2023. A central bank decision on January 19 to maintain its key policy rate at 2.75% reflects an increasing focus on the country's slowing economy and inflation. However, the central bank has indicated a high likelihood of a rate increase at its March meeting.
As the economy slows, a reduction in consumer spending is likely to impact the asset quality of bank loans to SMEs, a primary focus of commercial lending in Norway. NCR expects the initial impact of higher loan losses to be offset by pre-provision earnings, resulting in improved profits. However, a long-term decline in economic activity could lead the agency to revise this expectation.
"We believe that Norwegian savings banks are well positioned to face a harsher economic climate in 2023 and will maintain the strongest credit profile among Nordic banks," said NCR credit analyst Sean Cotten. "In combination with improved earnings and low non-performing loans, we believe most banks will record strong performances this year."
Sean Cotten, chief rating officer, +46735600337, firstname.lastname@example.org
Geir Kristiansen, analyst, +4790784593, email@example.com
Christian Yssen, analyst, +4740019900, firstname.lastname@example.org