Persistent pressure in residential property development is widening the gap in asset quality between Norway’s strongest and weakest savings banks, according to a report published by Nordic Credit Rating (NCR) today. The report reviews aggregate data the sector as a whole and detailed information for the 33 banks rated by NCR. Average sector metrics remain broadly stable, but they increasingly mask stress concentrated among roughly one-fifth of banks. We believe this divergence is connected to struggles in the residential development sector, with varied impact on the banks depending on historic underwriting quality and conditions in banks’ local markets.
“The sector averages remain relatively stable, but the highest and lowest performers are increasingly standing out," said Ylva Forsberg, analyst at NCR. "This is also reflected in how our forecasts have changed since last year, with stronger metrics for banks at the higher scoring levels and a weakened starting point, combined with more gradual improvement expected among those at the lower end.”
Higher financing costs have lasted longer than many developers and lenders expected. New homes have also become increasingly expensive relative to existing properties, while elevated construction costs limit developers’ ability to reduce prices. Projects with weak pre-sales or unsold units can therefore continue to pressure lenders. Across the sector, net Stage 3 loans remain broadly stable, but higher coverage and wider dispersion underline the importance of bank-specific exposures, collateral values and project structures.
Contacts:
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
Christian Yssen, analyst, +4740019900, christian.yssen@nordiccreditrating.com