(Bloomberg) -- Norway will require banks to hold a counter-cyclical buffer of 1% of risk-weighted assets as of July 2015, the Finance Ministry said.
The size of the buffer was in line with advice from Norges Bank and its implementation will be six months later than the central bank had advised, the ministry said in a statement.
“I have decided to give banks more time to meet the new requirement,” Finance Minister Siv Jensen said in the statement. “That’s a good signal to the banks,” she said in an interview after the announcement.
The government started today with setting a counter- cyclical buffer for banks, which will be between zero and 2.5% of risk-weighted assets each quarter, based on advice from Norges Bank.
Norway unveiled a plan to raise bank capital requirements in March, arguing stricter rules are needed to protect the $500 billion economy from record household debt as property values hover near record highs. The country will target core capital requirements of 10% of risk-weighted assets by July next year, up from the 9 percent required today.
For eight systemically important banks, including Norway’s largest lender DNB ASA, the target will rise to 11% in 2015 and 12% a year later.
Financial Imbalances
Given the slowdown in the Norwegian economy, the buffer should have been lower than 1%, Finance Norway, which represents banks, said in an e-mailed statement. At the current level, the eight designated banks will have to increase equity by as much as 23 billion kroner ($3.7 billion) in 18 months, Finance Norway said.
The Financial Supervisory Authority, the central bank and the International Monetary Fund have all sounded the alarm on risks facing the nation’s housing market after prices doubled during the past decade and household debt swelled to a record 200% of disposable incomes.
“There are now signs of financial imbalances in the Norwegian economy,” Jensen said. “Banks should therefore hold a countercyclical capital buffer. It will make them more robust against future loan losses.”
In addition to tighter capital requirements, regulators have responded by capping lending and proposing higher risk weights. Norway is also stress-testing covered bond issuance to prevent banks from fueling mortgage market imbalances. DNB has been raising mortgage rates and loan prices to help cover the cost of more capital.
