Norway: Financial Sector Assessment Program - Financial System Stability Assessment
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International Monetary Fund. Monetary and Capital Markets Department
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Publication Date:
09 Sep 2015
eISBN:
9781513522111
Language:
English
Keywords:
ISCR; CR; bank; Norway; price; financing; estimates of household loss; issuance of covered bonds; increasing reliance
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This paper discusses key findings and recommendations of the Financial System Stability Assessment for Norway. Norway’s financial system coped well with the global financial crisis and has further increased buffers to deal with potential shocks, but significant financial imbalances have also built up since then. Stress tests suggest that under severe macroeconomic shocks, banks and life insurers could face important but manageable capital shortfalls. The authorities have taken significant measures to improve the oversight framework, but further strengthening is needed. The regulatory and supervisory framework is generally good, but some weaknesses need to be addressed.

Abstract

This paper discusses key findings and recommendations of the Financial System Stability Assessment for Norway. Norway’s financial system coped well with the global financial crisis and has further increased buffers to deal with potential shocks, but significant financial imbalances have also built up since then. Stress tests suggest that under severe macroeconomic shocks, banks and life insurers could face important but manageable capital shortfalls. The authorities have taken significant measures to improve the oversight framework, but further strengthening is needed. The regulatory and supervisory framework is generally good, but some weaknesses need to be addressed.

Macroeconomic Management is Sound, But Financial Imbalances are Growing

A. Macroeconomic and Financial Sector Setting

1. With solid macroeconomic frameworks and policies, Norway’s recent economic performance has been generally favorable, and Norway appears well positioned to deal with external and domestic shocks. Real mainland (i.e. non-oil) GDP growth has averaged about 2.9 percent in the last two decades, with unemployment at 3.5 percent in 2014. Norway’s flexible inflation targeting framework allowed the anchoring of inflation expectations without causing significant volatility in interest rates and output, while its flexible exchange rate has helped absorb foreign shocks. High oil production and exports, together with Norway’s fiscal rule and Government Pension Fund Global (GPFG)—which have provided a significant degree of insulation from sharp changes in oil prices—have resulted in strong fiscal and external positions.

2. While Norway is a major net creditor to the rest of the world, the private sector has become a relatively large net external debtor. Norway’s net creditor position vis-a-vis the rest of the world has reached more than 200 percent of mainland GDP. This figure, however, masks important differences across sectors. On the one hand, the public sector (including the central bank) and institutional investors have a net external creditor position of about 280 percent of mainland GDP, largely as result of high oil production and exports, together with Norway’s fiscal rule and GPFG. On the other hand, banks (including mortgages companies) and corporations have a net debtor position equivalent to about 85 percent of GDP.

3. The availability of external credit, in turn, has facilitated the buildup of significant private sector imbalances during the prolonged period of economic expansion. In particular, while the public sector accumulated substantial foreign assets, growth in domestic credit demand far outstripped the evolution of deposits, banks (and mortgage companies) increasingly relied on wholesale sources, particularly external, to supplement their funding (Figure 1). At the same time, credit grew well above GDP growth with a rapid increase in real estate prices, which are now estimated significantly overvalued. This has resulted in a substantial increase in the financial indebtedness of households and corporations to well above OECD averages.

Figure 1.
Figure 1.

Net Financial Claims by Sectors of the Norwegian Economy

(In percent of Mainland GDP; end–2014)

Citation: IMF Staff Country Reports 2015, 252; 10.5089/9781513522111.002.A001

Sources: Statistics Norway; and IMF staff estimates.
A01ufig1

Norwegian Net Claims Against the Rest of the World

(In percent of Mainland GDP; end-2014)

Citation: IMF Staff Country Reports 2015, 252; 10.5089/9781513522111.002.A001

Sources: Statistics Norway; and IMF staff estimates.

B. Structure of the Financial System

4. Norway’s financial system is large relative to the country’s economy and population, although less so compared with other Nordic countries (Figure 2). The sector is concentrated and dominated by conglomerates, some of which are based in other Nordic countries. The largest domestic financial group, DNB, holds a significant market share, and its importance is further increased by its role as the settlement bank for 97 smaller banks in the system. Regulatory firewalls, including restrictions on intra-group financial transactions, are in place, and in normal times such conglomerate structures lend themselves to risk diversification. In more extreme situations, however, they could increase risks of contagion.

Figure 2.
Figure 2.

The Structure of the Banking Sector

Citation: IMF Staff Country Reports 2015, 252; 10.5089/9781513522111.002.A001

Sources: Norwegian authorities; and IMF staff estimates.

5. Banks and mortgages companies rely extensively on wholesale funding (Figure 3), in particular covered bonds. Banks’ lending operations exceed deposits by a margin of almost two to one, with covered bonds issued through mortgage companies becoming banks’ dominant source of financing. The introduction of a government-led swap arrangement during the financial crisis, under which banks could swap covered bonds for Treasury bills, accelerated the set-up of mortgage companies that issue covered bonds to fund the transfer of mortgage loans from parent banks. Banks, excluding DNB, have transferred about 45 percent of their mortgage loans to their partly or fully owned covered bond companies. DNB has transferred 80 percent.

Figure 3.
Figure 3.

Funding Sources of Norwegian Banks

Citation: IMF Staff Country Reports 2015, 252; 10.5089/9781513522111.002.A001

Sources: Statistics Norway; and IMF staff estimates.

6. State ownership of financial institutions is significant, although they are managed along commercial lines. Two of the three banks designated as D-SIBs are at least partly state owned. The government holds a 34 percent stake in DNB but does not intervene in the bank’s day-to-day operations, keeping an arm’s length. However, market power and implicit government support for DNB may cause distortions in the Norwegian credit market. The other D-SIB, Kommunalbanken, which is fully owned by the government, mainly finances local governments.

C. Financial Sector Performance

7. Norwegian banks coped well with the global financial crisis and have continued to perform well, but substantial financial risks have built up. Despite some funding pressures during the global financial crisis, there were no bank failures, with only a modest increase in nonperforming loans (NPLs). However, banks have increased their reliance on wholesale funding, including foreign borrowing.

8. Norwegian banks have remained profitable and well capitalized. NPLs are low, and profitability has been stable and higher than in most peer countries (Table 2, Figures 4 and 5). Banks’ risk-weighted capital ratios have increased significantly since the adoption of Basel II in 2007, due partly to reduced risk weights by banks adopting the internal ratings-based (IRB) approach. The authorities have taken strong measures to limit excessive reductions in risk weights by banks, including through tightening the requirements on banks’ IRB models and maintaining the “Basel I floor rule” that ensures that the risk-weighted assets (RWAs) of banks using IRB models for capital requirements purposes are not lower than 80 percent of the Basel I RWAs. At 6½ percent, the leverage ratio for Norwegian banks is well above the proposed 3 percent minimum leverage ratio under Basel III.

Table 2.

Norway: Financial Soundness Indicators (FSIs)

(In percent)

article image
Source: Norwegian authorities.

These may be grouped in different peer groups based on control, business lines, or group structure.

Consolidated data for the seven main banking groups (IFRS).

Figure 4.
Figure 4.

Norway; Banking Sector Indicators, latest

(In percent)

Citation: IMF Staff Country Reports 2015, 252; 10.5089/9781513522111.002.A001

Source: IMF, Financial Soundness Indicators (FSI) database.
Figure 5.
Figure 5.

Norway; Banking Sector Developments

Citation: IMF Staff Country Reports 2015, 252; 10.5089/9781513522111.002.A001

Sources: FSA; Statistics Norway; and Fund staff calculations.

9. The financial condition of insurance companies and pension funds under Solvency I has been satisfactory. The insurance sector is relatively small and concentrated. Insurance companies have low expense ratios, and stable solvency levels under Solvency I (Figure 6).

Figure 6.
Figure 6.

Insurance Sector Performance Indicators

Citation: IMF Staff Country Reports 2015, 252; 10.5089/9781513522111.002.A001

Sources: Norweigan authorities; EIOPA; and IMF staff estimates.

10. Good progress was made in implementing the 2005 FSAP recommendations, although only limited steps were taken to strengthen the formal independence of the FSA (Appendix I).

Risks Require Proactive Mitigating Efforts

Key financial stability risks are related to the impact of sharp reductions in oil prices and their durability over the medium term, high and rising household debt and property prices, banks’ reliance on wholesale borrowing, and regional interconnectedness. The impact on financial institutions of lower oil prices (particularly if continued over the medium term), declining oil investments, and a housing price correction would come mainly through weaker economic activity, higher unemployment, and deteriorating corporate and household balance sheets.

A. Macrofinancial Risks

11. A protracted period of low oil prices or slow growth in advanced and emerging economies or a disruption in global liquidity could have a major impact on the Norwegian economy. The sound policy frameworks and large fiscal buffers notwithstanding, protracted lower oil prices could have significant adverse effects on growth and employment, which, in turn, would erode the quality of bank loan portfolios. Furthermore, the economy is exposed to real and financial shocks through its close interconnectedness with the Nordic region and the rest of the world. Similar to the experience during the global financial crisis, a potential disruption in global liquidity could have a strong impact in Norway (Appendix II).

12. In this context, high household indebtedness presents a key source of vulnerability. Along with rising house prices, household indebtedness has increased to high levels (Figures 7 and 8).1 Household debt was at about 220 percent of disposable income at end-2014, one of the highest among members of the Organization for Economic Co-operation and Development (OECD). About 85 percent of household debt is residential mortgages, typically with variable interest rates; and about 14 percent of new loans are interest only. Banks are highly exposed to households through mortgage lending, which accounts for about 57 percent of total bank lending.

Figure 7.
Figure 7.

Real Estate Prices

Citation: IMF Staff Country Reports 2015, 252; 10.5089/9781513522111.002.A001

Sources: Norwegian authorities; OECD; and IMF staff estimates.
Figure 8.
Figure 8.

Household Debt Burden

Citation: IMF Staff Country Reports 2015, 252; 10.5089/9781513522111.002.A001

Sources: Statistics Norway; OECD; Norges Bank; and IMF staff estimates.

13. Households are particularly vulnerable to house price corrections and interest rate risks. A sharp rise in interest rates—especially if coupled with large declines in house prices or in household income and employment—could force households to cut consumption sharply to be able to continue to service the debt. This could, in turn, hurt the banking sector indirectly, due to a rise in credit risks related to a slow-down in the corporate sector. Under current conditions, risks seem contained, including because of Norway’s well-developed safety nets, but the share of vulnerable household debt could rise if economic conditions deteriorate significantly (Box 1).2

14. Corporate borrowing from banks has recently slowed, and enterprises have raised more capital in the bond market and abroad. The debt servicing capacity of the enterprise sector has been stable at the pre-crisis level, and the equity ratio has increased since the global financial crisis (Figure 9). The commercial property sector is a source of vulnerability due to the large share of bank lending to this sector, with particularly large exposures to the commercial property market in Oslo, where prices have increased more rapidly than residential house prices since the mid-2000s. Banks’ total exposures to other “risky sectors” such as shipping, fisheries and fish farming are modest, but individual bank exposures can be large.

Figure 9.
Figure 9.

Corporate Sector Finances

Citation: IMF Staff Country Reports 2015, 252; 10.5089/9781513522111.002.A001

Sources: Norwegian authorities; and Bloomberg.
A01ufig2

Number of Bankruptcies

(Total bankruptcies, 12 months MA)

Citation: IMF Staff Country Reports 2015, 252; 10.5089/9781513522111.002.A001

Source: Norwegian authorities.

Household Debt Stress Tests

Despite high debt levels in recent years, Norwegian households do not appear to face significant payment capacity problems under current conditions.1 A Norges Bank study found that only about 2 percent of household debt is “more vulnerable,” and the proportion of vulnerable households is about 1 percent.2 These results are based on households debt meeting three risk criteria: (i) debt above five times disposable income; (ii) financial margin (income minus taxes, interest and ordinary living expenses) below one month of after-tax income; and (iii) net debt (debt minus deposits) larger than the value of dwelling.

Share of Household Debt and Households Breaching the Three Criteria

(In percent)

article image
Note: Margin below two months after-tax income was used for the second criterion.

To gain insights into households’ vulnerabilities to a change in economic conditions, the Norges Bank approach was expanded to include a set of shocks. These shocks are included separately and combined: (i) lending rate increase of 2 percentage points; (ii) real house price drop by 40 percent; and (iii) income (after tax) drop of 20 percent. The share of vulnerable debt rises to about 5 percent, 6 percent, and 8 percent, under each scenario, respectively. The proportion of vulnerable households rises but remains relatively low. On the other hand, under the severe scenario with combined shocks, the share of vulnerable debt increases to 21 percent, and the proportion of vulnerable households rises to about 9 percent. The impact varies across different income deciles and age groups. In particular, lower income and younger households are disproportionally more affected by the three combined shocks.

The proportion of vulnerable households remains below 10 percent under the severe scenario, but the aggregate number masks distributional effects. Household vulnerability could rise under severe stress scenarios, and these effects will be felt unevenly across different income and age groups.

A01ufig3

The Share of Vulnerable Household Debt by Age

(Percent, 2012)

Citation: IMF Staff Country Reports 2015, 252; 10.5089/9781513522111.002.A001

Sources: Norges Bank and Fund staff calculations.
1 Norges Bank also conducts various scenario analyses using the household level data. 2 See Norges Bank, Financial Stability Report 2014.

B. Financial Institutions

Banks

15. Banks are exposed to potentially high credit risks, which may materialize if macroeconomic conditions deteriorate significantly. The overall limited diversification of the economy, the high leverage of the private sector, and an overvalued real estate market in a low interest rate environment accentuate these risks.

  • Lending to the private sector has increased considerably faster than GDP, raising the leverage in Norway well above the average for OECD countries. Since the mid-1990s, the ratio of credit to mainland GDP has almost doubled. Thus, a severe slowdown of the domestic economy can lead to a deterioration of household and corporate balance sheets.

  • Banks’ exposure to the oil sector could be larger than suggested by the lending share of merely 1 percent of banks’ corporate lending portfolios. In particular, when measured by the percentage of banks’ equity returns attributable to oil-related firms, banks’ total exposure to the oil sector can be in excess of 30 percent.3

16. With 60 percent of wholesale funding from foreign sources (predominantly in foreign currency), banks are vulnerable to turbulence in foreign financial markets. About one-third of the foreign currency funding is used to finance domestic currency assets, equivalent to about 10 percent of banks’ total assets. Although banks hedge foreign currency exposures, they do so with FX or basis swaps with maturities not necessarily corresponding to the maturity of the foreign funding, and may therefore be exposed to rollover risks. Even for covered bonds, for which mortgage companies are required to fully hedge currency risks for the maturity of the bond, it is common practice for them to arrange for those contracts with the bank holding company, which then could cover the position with shorter term hedges.4

17. Banks may face challenges in meeting the envisaged LCR.5 Given the limited stock of high-quality liquid assets denominated in domestic currency, NB has proposed that the LCR requirement should be set at 60 percent in domestic currency, and the total “all currency” LCR requirement at 100 percent. The FSA recently proposed not to have individual currency LCR, but to address the issue under Pillar II supervisory process. There was also a gap between the longer-term lending and the available stable funding under the previous reporting requirements (the 17 largest banks’ NSFR averaged below 90 percent at end-June 2014, down from 93 percent at end-2013), but not on average under the new reporting requirements.

18. The LCR and NSFR may not be sufficient to fully address vulnerabilities in funding positions. The largest Norwegian banks hold substantial liquid assets in foreign currencies, which could be funded by borrowing at marginally longer periods than the 30-day threshold period under the LCR. Although the requirement applies on a continuous basis, this inflates banks’ liquidity ratios to some extent, rendering them less useful indicators of the liquidity situation.

19. Although banks’ increasing reliance on covered bond issuance has yielded important benefits, it has also increased asset encumbrance, creating new risks. The issuance of secured debt has strengthened the maturity profile of the banks. At end-June 2014 the average maturity of the wholesale funding was 3.3 years for all banks, and 4.4 years for the largest banks which also are the most wholesale financed banks. On the other hand, the rising issuance of covered bonds increases losses that may be incurred for unsecured creditors in case of default, and reduces the amount of capital available for bailing in creditors in the event of a bank resolution. In particular, the high share of secured funding is disadvantageous for non-guaranteed depositors and the BGF.

20. In addition, because banks own substantial amounts of other banks’ covered bonds, the system would become vulnerable in a crisis when banks may try to sell each other’s covered bonds to meet liquidity needs. In this context, the authorities should consider measures to force banks to internalize the costs that such cross-ownership of assets may impose on the system, while being aware that many possible remedial measures may have negative side effects as well.

Insurance and Pension Sectors

21. Life insurers face major challenges going forward, which heightens the importance of sound risk management and effective oversight by supervisors. First, a continued low-interest rate environment would adversely impact earnings and the claims-paying capacity over the medium term, since some 83 percent of life insurers’ liabilities carry guaranteed minimum rates of return: at end-2013, the guaranteed return averaged 3.2 percent, which was higher than the return on 10-year government bonds, and the difference seems to have widened in 2014–15. Second, life insurers are exposed to longevity risks. Third, pension providers are required to apply new mortality tables, which will significantly increase technical reserves; due to the large revisions, companies have been granted a transition period of seven years to increase the value of existing technical provisions. In response, insurers have recently started to encourage existing policyholders with guaranteed products to switch their policies to nonguaranteed products, thus shifting risks from insurers towards policy holders.

22. The implementation of Solvency II from 2016 represents additional challenges for life insurers (like in many peer countries). Under Solvency II, liabilities will be measured at fair value, applying the current low interest rates (instead of the guaranteed rate), which will increase the estimated value of future liabilities.6 Furthermore, the increased capital requirements on paid-up policies under Solvency II pose a particular challenge to insurers. The FSA has proposed to implement Solvency II through allowing (i) a 16-year transition period for implementing the Solvency II capital requirements and (ii) the use of volatility adjustment. In contrast, for non-life insurers, the transition to Solvency II is expected to lead to a reduction of technical provisions. This is because their current fluctuation provisions requirement represents a more demanding approach than the “best estimate” (“expected value”) assessment under Solvency II.

C. Interconnectedness

23. The Norwegian economy and financial system are well integrated into the Nordic region, making it desirable to include a regional dimension in future stress tests. To a large extent, financial integration is through the direct provision of credit and services to non-financial sectors by foreign branches and subsidiaries—a business-driven model and not a cross-border wholesale funding model. Although this business-driven model of financial integration may be less sensitive to short-term financial shocks emanating from elsewhere in the Nordic region, it may make local credit markets more sensitive to macroeconomic developments in other countries in the region (see IMF 2013).

24. In addition to regional linkages, connections with global financial centers are also important. Evidence based on a variance decomposition of the volatility of equity returns suggests that Norwegian banks are significantly affected by the performance of banks in Sweden, the Euro Area, the United States, and the United Kingdom. American and British real estate companies and European insurers are the most significant non-bank sectors affecting the behavior of Norwegian banks’ stocks. Norwegian insurers are significantly affected by banks from the major financial centers and by foreign insurers, while the Norwegian real estate sector is very exposed to the performance of American and British financial firms.

25. Foreign banks and institutional investors hold 70 percent of Norwegian covered bonds, but more detailed and complete data are needed on foreign ownership of bonds issued by banks and mortgage companies. A careful analysis of these data will serve to improve the quality of funding stress tests.

26. Although Norwegian financial institutions have limited potential as a source of shocks to foreign institutions, they are vulnerable to shocks stemming from abroad. An analysis based on data on bank claims from the Bank for International Settlements (covering only a part of funding risks) suggests that this vulnerability is similar to that of peer countries and has been declining (Figure 10). Similarly, simulations of funding shocks coming from global financial centers, namely the euro area, the United Kingdom, and the United States, show that Norwegian banks are now less exposed to such risks.

Figure 10.
Figure 10.

Vulnerability and Contribution to Contagion of Nordic Banks

Citation: IMF Staff Country Reports 2015, 252; 10.5089/9781513522111.002.A001

Sources: BIS Consolidated Bank Statistics; and IMF staff calculations.Note: Indices of contagion and vulnerability are based on Espinosa-Vega and Solé (2014). The vulnerability index for Country A roughly measures how often Country A’s banking sector becomes insolvent if other banking sectors induce a funding shock. The contagion index for Country A roughly measures the number of banking sectors that become insolvent if Country A’s banking sector does not roll over funding. The funding shock simulation underlying the indices assumes that 95 percent of claims owned by banks from a given national banking system over banks in other countries cannot be rolled over. Consequently, borrowing banks must liquidate assets to meet this shortfall but at a 50 percent loss, which erodes their equity. The indices only measure contagion and vulnerability to shocks originating from BIS reporting countries, do not take into account funding from central banks, do not take into account asset quality, and are not a measure of the overall financial strength of each country’s banking sector.

27. The possibility of cross-sectoral contagion in Norway is to some extent limited by the regulations on exposures to companies in a conglomerate. In principle, institutions may not provide loans/guarantees to another company within their group without consent from the MOF. This rule covers also insurance companies’ investments in bonds issued by another undertaking within the group, but deposits and covered bonds are exempted, within quantitative limits and governed by specific purposes. Overall, bank instruments are not a large fraction of Norwegian insurers’ assets: at end-2014, insurers’ investments in bank debt instruments averaged 7 percent of total assets in the life sector and 9 percent in the nonlife sector.

28. The analysis of spillovers across institutions suggests that the potential for the transmission of financial stress among Norwegian banks is a function of size, with the DNB and Nordea exhibiting the highest transmission potential. In this context, the authorities should consider resuming the regular monitoring of bank-to-bank direct and indirect exposures.

D. Stress Tests

29. The transmission of macroeconomic shocks to the Norwegian financial system was analyzed under a baseline and two versions of an adverse scenario. The baseline scenario is based on IMF staff projections as of end-2014. The adverse scenarios assume considerable negative deviations of economic activity from the baseline forecast path.

  • The adverse scenario with no monetary policy response assumes an upsurge in global financial market volatility and a slowdown in global growth (Appendix II), possibly on concerns about weakening fundamentals globally. A slowdown of Norway’s key trading partners leads, inter alia, to persistently low oil prices, with a strong downward impact on domestic growth, higher unemployment, and a sharp correction in real estate prices. The level of GDP declines by 16.1 percent below the baseline by 2019 (Figure 11).

  • The adverse scenario with a monetary policy response assumes the same external shocks as above, but presumes a monetary easing (a 1½ percentage point cut in the policy rate in 2015-16; without fiscal measures) to counteract the effects of the shock, in line with NB’s assumptions. The level of GDP declines 13.9 percent below the baseline.

  • The adverse scenarios were calibrated to reflect a severe deterioration of key macroeconomic factors, including: (i) sustained lower nominal oil prices at US$40 per barrel over the entire stress testing horizon, considerably below the baseline projection of US$77 by 2019; (ii) an increase in money market rates by about 200 bps and wholesale funding spreads by an additional 150 bps (relative to the baseline); and (iii) a 40 percent decline in real property prices over five years, in line with international boom-bust episodes.7

  • These shocks translate to a decline of 2¾ to 3.1 standard deviations of five-year cumulative real GDP growth rate relative to the baseline. Such stress is considerably more severe than several other FSAPs, but broadly in line (albeit of longer duration) with assumptions in previous top-down (TD) stress testing exercises by the FSA and NB.

  • The impact of these risks on the banking system was assessed through TD and bottom-up (BU) stress testing exercises.8

Figure 11.
Figure 11.

Real Growth of Mainland GDP under Various Scenarios

Citation: IMF Staff Country Reports 2015, 252; 10.5089/9781513522111.002.A001

Sources: Norwegian authorities; and IMF staff estimates.

Bank Stress Tests

30. Solvency tests suggest that major banks’ capital needs under severe stress should be manageable. Under the IMF TD approach, the CET-1 ratio would fall by 6.7 percentage points to 6.3 percent under the adverse scenario without policy response (Figure 12). The loss in capitalization is driven by higher loan losses, the rise of RWAs, and higher funding costs (contributing by about 1.4 percent, 0.8 percent, and 0.3 percent a year to the decline of the CET-1 ratio, respectively; Figure 13). The recapitalization needs under the adverse scenario without policy response is estimated at 4.6 percent of GDP by 2019 (Figure 14).9 Parallel FSA and NB stress tests estimated slightly lower losses than the IMF, reflecting the IMF’s use of parameters based on the global experience with severe crises.10

Figure 12.
Figure 12.

CET-1 Ratios under Various Stress Testing Scenarios

(In percent)

Citation: IMF Staff Country Reports 2015, 252; 10.5089/9781513522111.002.A001

Sources: Norges Bank; FSA; and IMF staff estimates.
Figure 13.
Figure 13.

Contributions to Changes in CET-1 Ratios, IMF Estimates Adverse Scenario without Policy Response

(In percent)

Citation: IMF Staff Country Reports 2015, 252; 10.5089/9781513522111.002.A001

Source: IMF staff estimates.
Figure 14.
Figure 14.

Expected Recapitalization Needs

(In percent of GDP)

Citation: IMF Staff Country Reports 2015, 252; 10.5089/9781513522111.002.A001

Sources: Norges Bank; FSA; and IMF staff estimates.

31. The adverse effects on capitalization are significantly milder in BU stress tests, suggesting that banks should consider introducing more conservative assumptions in their models. Under the BU approach, the CET-1 ratio for the banking sector declines by 0.6–1.4 percentage point over the stress testing horizon, far less than the 6.7 percentage point drop in the TD tests. The discrepancy is driven by much lower credit loss rates in the BU approach, reflecting in part expert judgment in modeling losses on large corporate exposures. Also, banks’ estimates of household losses are relatively muted, given limited history of past losses.

32. Sensitivity tests suggest that Norwegian banks’ risks related to credit concentration are limited. Credit concentration risk was evaluated via BU simulations of defaults of banks’ largest borrowers (up to the 10 largest borrowers). Banks were found to be able to absorb defaults of their largest clients, with average CET-1 ratios remaining above the regulatory minimum.

33. Liquidity stress tests show that the Norwegian banking sector remains exposed to risks related to the limited availability of liquid NOK instruments. Potential stresses were evaluated based on two scenarios: (i) a complete dry-up of unsecured wholesale funding, motivated by the experience of the 2008 crisis; and (ii) a complete dry-up of secured wholesale funding (including corporate deposits), and strong outflows of committed credit and liquidity facilities. Even in the baseline (based on the assumptions under the standard LCR) some banks fall short of the 60 percent minimum NOK LCR, currently proposed by NB. The aggregate NOK LCR for the banking sector declines from 33 percent to 18 percent under a dry-up of unsecured wholesale funding, with the corresponding NOK liquidity gap growing to NOK 306 billion from NOK 120 billion in the baseline. Banks’ FX liquidity positions are generally better. Most banks are above the 100 percent threshold under Basel III, with aggregate LCR at 124 percent in case of a complete dry-up of unsecured funding. The FX funding gaps are generally small, and increase up to NOK5.3 billion in case of a complete dry-up of unsecured wholesale funding from NOK3 billion in the baseline (Figure 15). Banks’ liquidity ratios improve only partly under the broader recognition of covered bonds as HQLAs in the new EU LCR rules.11

Figure 15.
Figure 15.

Liquidity Coverage Ratios in Baseline and under Stress, end-2014

(In percent)

Citation: IMF Staff Country Reports 2015, 252; 10.5089/9781513522111.002.A001

Source: IMF staff estimates based on data from the FSA.Note: The secure wholesale market dry-up scenario also assumes higher deposit and contingency funding run-offs relative to the unstressed LCR.

34. Although the authorities monitor closely banks’ liquidity positions, there is scope for enhancing their liquidity stress testing frameworks. In particular, the authorities could consider performing liquidity stress tests using the structure of cash flows at various maturities; or performing customized versions of the LCR more closely aligned with banks’ funding profiles.12 The adoption of such approaches could take place over time, particularly in view of the changing nature of banks’ reporting requirements, but it would facilitate a more systemic approach to identifying potential liquidity difficulties.

Insurance Sector

35. Stress tests under Solvency II (simplified approach) combines the above shocks with a number of underwriting, counterparty default, and other insurance-related shocks, as applied under the FSA/ EIOPA stress tests.13,14 A third scenario with a combination of ad hoc shocks better tailored to insurance companies’ vulnerabilities, with more adverse consequences for insurers, was also analyzed. For example, instead of the 250 bp increase in interest rates, it is assumed that interest rates will decline by 100 bps (Appendix IV).15

36. The adverse scenarios have large negative effects on life insurance companies. The solvency indicators of the insurers drop substantially, with their capital buffer wiped out under all three scenarios (with severe shocks). Their buffer capital utilization ratio (BCU, reverse of the Solvency Coverage Ratio, SCR) would increase to 139, 142, and 180 percent, respectively, under the three scenarios. The largest contribution to the deterioration comes from the shocks to equity prices, real estate prices, and credit spread (Figure 16).16

Figure 16.
Figure 16.

Life Insurance Stress Tests: Factors Contributing to Increases in BCU After Shocks

Citation: IMF Staff Country Reports 2015, 252; 10.5089/9781513522111.002.A001

Sources: Norwegian authorities; insurance companies; and IMF staff estimates.

37. The rules for the transition to Solvency II (over 16 years), including the envisaged volatility adjustment, imply a significant reduction in the estimated regulatory capital needs of the companies under the above scenarios. Without the transition rules, the companies’ capital shortfall to fully cover all the risks (without restoring capital) would amount to 39 percent, 42 percent, and 80 percent of the sample’s available capital before stress, in the three scenarios, respectively, or 1 percent, 1.1 percent, and 2.1 percent of 2014 GDP. With the transition rules, these capital needs are significantly reduced.

38. Non-life insurers show a much higher degree of resilience in the stressed scenarios. This is due mainly to their smaller asset-liability duration mismatches and the gain from discounting their insurance liabilities under Solvency II (Figure 17).

Figure 17.
Figure 17.

Non-Life Insurance Stress Tests: Factors Contributing to Increases in BCU After Shocks

Citation: IMF Staff Country Reports 2015, 252; 10.5089/9781513522111.002.A001

Sources: Norwegian authorities; insurance companies; and IMF staff estimates.

39. At a conglomerate level, financial institutions could weather the combined losses from their banking and insurance operations. However, during a crisis there could be competing demands on the conglomerate capital, which would make any resolution difficult. Therefore, the authorities should (i) require that the insurers with weak capital adequacy are recapitalized on a solo basis, and (ii) identify systemically important companies, and require them to prepare a resolution plan, and conduct their resolvability assessments. In this context, the FSA should continue to constrain dividend payouts by the weakly capitalized companies.

Prudential Framework Could be Strengthened Further

40. Norway has robust prudential frameworks, with well-developed micro and macroprudential policies and practices to identify and contain financial stability risks, although there is scope for further improvements. The authorities have been proactive in containing risks and enhancing the resilience of the financial system to shocks, including through adopting more stringent capital requirements than in many peer countries. Nevertheless, imbalances have continued to build up suggesting that there is need for additional measures.

A. Macroprudential Framework17

41. While the ultimate responsibility for financial stability resides with the MOF, key macroprudential powers and responsibilities are allocated to NB and the FSA. Although the MOF generally bases its decisions on advice from NB and/or the FSA, there have been cases when it has overruled the FSA’s advice. There is no committee for macroprudential policy. The arrangements by NB and the FSA for giving advice differ across the various instruments—with NB’s advice on countercyclical capital buffer (CCB) based on a transparent and elaborate framework, regularly published, while the FSA’s advice on LTV is not discussed with NB—could pose challenges in coordinating individual measures. The CCB and LTV are two examples of macroprudential instruments where powers could be further delegated by the Ministry of Finance.

42. This organizational structure has not resulted in “inaction bias,” and the authorities have introduced macroprudential measures to address systemic risks. Norway was among the first countries to establish an analytical framework for the countercyclical capital buffer. Requirements for risk-weighted capital are higher relative to Basel III (e.g., Basel I floor on RWAs), and CRR/CRD IV capital and buffer requirements have been implemented earlier than envisaged by the EU timetables. By July 2016, Norwegian banks will be subject to more stringent capital requirements than most European peers, including a minimum CET1 requirement of 7 percent (including the capital conservation buffer), a 3 percent systemic risk buffer, a 2 percent capital D-SIBs surcharge, and a 1.5 percent countercyclical capital buffer.18,19 In addition, the FSA makes active use of Pillar 2 capital requirements. Banks are also required to implement an 85 percent LTV ceiling on residential mortgage lending and an affordability test by applying a 5 percentage point increase in the interest rate when granting mortgage loans.

43. Good progress has been made in ensuring that macroprudential measures apply to all banks operating within Norway. Most of the measures apply to the branches of foreign banks operating in Norway, through bilateral agreements with the supervisory authorities in Sweden and Denmark, the reciprocity conditions within relevant EU legislation, and the application of guidelines on lending standards to all banks. However, the Basel I RWA floor does not apply to the branches of foreign banks, while reciprocity on the systemic risk buffer will be subject to the incorporation of the CRR and CRD4 into the EEA Agreement. The authorities should continue to make progress on establishing and implementing reciprocity agreements.

44. The authorities have been proactive in adopting measures, including after the FSAP mission was conducted, but there is scope for improvement in some areas. In July 2015, while the requirements on debt servicing capacity and LTV were not changed, the framework was tightened by replacing guidelines with regulations, which provide a stronger basis for follow-up action, for example by allowing corrective orders on banks that breach the requirements. In addition, loans that do not meet the requirements are now limited to 10 percent of the lender’s total new loans. The regulation also specifies yearly repayment of at least 2.5 percent of the initial loan (or what the repayment would be on a 30-year annuity mortgage, if lower) for loans with an LTV above 70 percent. Nevertheless, the authorities should consider the following additional measures:

  • Take additional measures to contain systemic risks from the growth of house prices and household indebtedness. These could include stricter LTV, and considering loan-to-income or debt service ratio limits to supplement the affordability test.

  • Take additional measures to contain risks related to banks’ wholesale funding. Limits could be placed on (i) the proportion of short-term wholesale funding from abroad, subject to the constraints imposed by the European Union’s CRR regulations; and (ii) mismatches between the maturity of currency swaps (and other hedging techniques) and the maturity of the underlying exposures to mitigate roll-over risk. When setting the individual currency LCR requirement, the authorities should consider whether it provides sufficient incentives to banks to limit their short-term wholesale funding. Running more severe funding and liquidity stress tests could help the authorities to identify the most effective measures.

  • Continue close monitoring of banks’ issuance of covered bonds, and consider the point at which such issuance should be limited. The NB’s proposal to increase transparency about asset encumbrance is welcome, and the FSA should use its power to restrict excessive asset encumbrance, if needed. Adoption of TLAC/MREL in due course will limit asset encumbrance.20

  • Improve the existing institutional structure. This should include more standardized and transparent procedures for giving advice to the MOF; a transparent “comply or explain” approach by decision-makers; an annual, broader overview of the collective purpose, impact, and effectiveness of the use of macroprudential instruments; and, in due course, greater delegation of decision-making powers over macroprudential instruments to NB or the FSA, based on clear mandates, objectives, and accountability. Alternatively, some macroprudential policy functions could be exercised through a formal committee.

  • Over time, build a more comprehensive and coordinated framework for macroprudential policy. This should include a clear specification of the overall objectives of macroprudential policy and instruments, both individually and collectively; the expected benefits and costs; and (notwithstanding significant challenges involved) post-implementation reviews of their effectiveness. The authorities should also consider setting medium- to long-term broad ranges for key financial stability ratios (e.g., wholesale funding) as a communication tool to explain their actions.

  • In addition, the authorities should consider fiscal and structural measures to reduce longer-term demand and supply imbalances in the housing market. In particular, the tax incentives for home ownership could be phased out, and planning and building requirements could be relaxed to stimulate the supply of new housing units.

B. Microprudential Framework

45. The BCP assessment suggests that the regulatory and supervisory framework is generally good. It is largely based on EU supervisory laws which, as a member of the EEA, Norway transposes into national laws. The FSA employs a risk-based approach to supervision with an enhanced focus on institutions of systemic importance and important risks. Its supervisory framework is comprehensive, taking into account macroeconomic and system-wide aspects. Supervision of large banks is frequent and intensive. The supervisor challenges banks and has shown its willingness to act to ensure the safety and stability of the whole sector and individual institutions. Consolidated supervision of financial groups is satisfactory. Solid cross-border supervisory cooperation is taking place, including participation in the supervisory colleges both for banks and insurance firms. This is particularly strong among the Nordic supervisors. Supervisory information is shared with foreign supervisors as necessary.21

46. Nevertheless, a number of weaknesses exist in the system. In particular, the authorities should further (i) strengthen the de jure operational autonomy of the FSA, increase supervisory resources to allow an increase in the frequency and depth of inspections of small institutions, and expand the range of its sanctioning tools; (ii) upgrade the rules on related party lending, which are currently narrowly defined; and (iii) improve on limited AML supervision. In addition, there is room for expanding the frequency of the supervisory assessment for small banks and the range of sanctioning tools, and strengthening banks’ non-ICT operational risk management.

47. For the insurance sector, a new law incorporating Solvency II was adopted in 2015. This will apply to all life and nonlife businesses, excluding very small marine insurers. Pension funds will not be subject to Solvency II, but will be required to report stress tests based on a simplified Solvency II approach. All insurers have been asked to undertake a forward-looking assessment of own risks and solvency (ORSA) and report the results to the FSA.

C. Financial Market Infrastructure

48. Norway’s financial market infrastructures (FMIs) are modern and stable. There is a strong legal basis for the supervision and oversight of FMIs, and the authorities have adequate resources to discharge their duties. Assessments of FMI critical service providers are ongoing.

49. The supervisory and oversight framework for FMI appears to be effective, but there is room to strengthen regulatory cooperation to handle potential risks related to the dependence of FMIs on critical service providers. Risk reducing measures include (i) leveraging by the NB of the FSA’s operational and technical expertise in payment systems and establishing oversight expectations for FMI critical service providers. In addition, the crisis management framework in existing cooperation arrangements should be reviewed, and the role of the Financial Infrastructure Crisis Preparedness Committee led by the FSA should be enhanced; and the Norwegian authorities should enter into foreign cooperation arrangements with foreign authorities to oversee central counterparties that have been licensed to operate in Norway.22

50. The outsourcing of operations in systemically important payment systems has helped enhance their efficiency, but also raised oversight challenges. Potential improvements could include (i) strengthening the risk management framework and governance arrangements in the NICS; (ii) improving the business continuity plan in the NBO and NICS; and (iii) requiring FMIs to conduct and publish regular assessments (every two years) against the CPMI-IOSCO Disclosure Framework for FMIs.

D. Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT)

51. Norway’s AML/CFT framework underwent a comprehensive assessment by the Financial Action Task Force (FATF) in 2014 which found a number of important shortcomings.23 It recommended, among other things, the following priority actions: (i) commencing work on a more robust national risk assessment with a comprehensive assessment of ML/TF risks and full engagement by all stakeholders, and consequently developing AML/CFT national policies and strategies based on those risks; (ii) updating the AML/CFT law to ensure that preventive measures are consistent with the FATF 2012 Recommendations; and (iii) enhancing AML/CFT supervision so that it is undertaken on the basis of ML/TF risks and assesses the effectiveness of reporting entities in implementing preventive measures, and ensuring that any identified AML/CFT deficiencies are subject to supervisory actions that are dissuasive, proportionate, and effective.

Safety Nets Could be Improved

52. The legal and institutional foundations for crisis management, safety nets, and resolutions are generally well developed, though certain matters will need to be addressed in the transposition of the EU Bank Recovery and Resolution Directive (BRRD) into local law.24 The legal framework for early intervention, resolution, and winding-up and liquidation contains substantial powers that have been effectively used to resolve banks in the past. However, the framework will require enhancements to bring it into compliance with international best practices and standards, including the FSB Key Attributes (KAs). Responsibilities for crisis management and bank resolution among the four safety net players—MOF, FSA, NB, and BGF—are generally well defined. However, establishing adequate operational independence of the resolution authorities remains a challenge. Also, the BGF should consider spinning out its liquidity and solvency support functions to another institution and reconsider having a board comprised of active bankers.

53. Recovery planning for the largest banks is on track, but resolution planning by the MOF, the lead resolution authority, has yet to be initiated. The MOF should initiate resolution planning for banks that could be systemically significant if they fail, including assessing impediments to resolvability, and delegate explicit responsibilities to the FSA. It should also (i) adopt policies for the information it requires on the local aspects of the recovery and resolution plans for subsidiaries and branches of foreign banks that could be systemically significant; and (ii) assess impediments to resolvability of those subsidiaries and branches as stand-alone entities as a contingency.

54. Sources of funding for liquidity and solvency support are in place, but the BGF requires formal policies for provision of ELA and solvency support25 and a committed back-up funding facility, and the MOF requires a source of resolution funding under its control. NB policies for provision of ELA are in place, and limit assistance to solvent banks. The BGF can offer ELA and solvency support to members, but needs to adopt policies addressing the circumstances, terms, and conditions for such support. It also needs to adopt policies specifying when board members must recuse themselves, considering actual and prospective conflicts of interests in, for example, taking decisions on providing financial support to members. BGF does not have a committed backup funding facility and should put one in place. The MOF does not have a ready source of resolution funding and should establish one.

55. The authorities have made good use of unilateral, bilateral, and tripartite crisis simulation exercises to enhance preparedness. They should consider (i) adopting a domestic level MOU on crisis preparedness, and (ii) the means to better integrate the BGF into crisis preparedness arrangements and exercises.

56. The existing legal framework for bank resolution contains some of the recommended key resolution tools, but will require enhancements to fully align with the FSB KAs. Key issues include:

  • Clear identification of the roles and responsibilities of each resolution authority and ensuring operational independence.

  • Establishing distinct sets of rules for going concern and gone concern resolution.26

  • Legal protection for the authorities that carry out resolution actions, their officers and staff, for good-faith actions in resolution, including for administration boards under Chapter 4 of the GSA.

  • Provisions authorizing use of bridge banks and asset management companies in resolutions.

  • Full bail-in powers as a formal resolution power.

  • Establishing earlier triggers for resolution.

  • Ensuring that the framework adequately addresses cross-border resolutions, in particular transparent and expedited mechanisms to give effect in Norway to foreign resolution measures.

  • Suspending early termination clauses that might otherwise be triggered by initiation of resolution but provide appropriate safeguards for financial contracts.

Ensuring that courts cannot unwind resolution actions and in the event a decision is considered unlawful, the remedy is limited to monetary compensation.

Appendix I. Status of the Recommendations of the 2005 FSAP

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Appendix II. Risk Assessment Matrix1

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Appendix III. Stress Test Matrix (STeM) for the Banking Sector

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Appendix IV. Stress Test Matrix (STeM) for the Insurance Sector

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1

House prices have risen steadily in real terms since the early 2000s with short-lived reversals in 2007–2008 and 2013. Various factors have contributed to the housing boom, including demand and supply factors (rapid income growth; immigration-driven increase in the population; low interest rates; supply constraints related to regulations on land use and minimum unit size) and institutional factors (preferential tax treatment for owner occupied properties including full deductibility of mortgage interest payment and lower wealth tax than on other financial assets). Estimates suggest that housing prices may be overvalued by about 25–60 percent, depending on measures of overvaluation (Figure 7).

2

Household lending has historically not generated significant increases in NPLs or large losses for banks, reflecting the facts that (1) mortgages are full recourse loans (although a framework exists that allows a reduction in the unsecured part of the debt burden for borrowers in severe payment difficulties, with the cost borne by lending banks), and (2) a well-developed and generous social welfare system supports households’ ability to service their debt during downturns.

3

Bjornland and Thorsrud (2013) find very similar estimates for the contribution of oil-related activity to mainland GDP.

4

This is only the case for fully-owned mortgage companies with an acceptable rating.

5

According to EU regulation, LCR requirements will be implemented (gradually) from October 2015 and the NSFR requirements will be implemented in 2018.

6

The maximum guaranteed rate for new policies has been reduced several times, and was reduced from 2.5 percent to 2 percent starting in January 2015. The new rate will be used in the valuation only of new liabilities.

7

The spike in funding costs is meant to capture the effect of dislocations in global funding and the FX swap markets, in view of the importance of the latter in Norwegian banks’ funding models.

8

For a more detailed discussion of bank stress tests, see the accompanying technical note on the subject.

9

Of the potential recapitalization needs by 2019, about 1.4 to 1.9 percent of GDP would be attributable to the introduction of Basel III (depending on the TD approach).

10

The IMF approach is based on empirically determined “rules of thumb” to capture the link between bank losses and macroeconomic conditions at times of extreme distress, based on international experience. See Hardy, Daniel C. and Christian Schmieder, 2013, “Rules of Thumb for Bank Solvency Stress Testing,” IMF Working Paper, WP/13/232.

11

Certain qualifying covered bonds can be categorized as Level 1 HQLA (in a newly created Level 1B category), up to a ceiling of 70 percent and at a haircut of 7 percent. Covered bonds that don’t qualify as Level 1B assets can also be part of Level 2A HQLA (with haircuts in line with Basel rules), and as Level 2B assets (under the EU rules). Under the EU Delegated Act (adopted in October 2014), the set of permissible HQLAs was expanded to include high-quality covered bonds that meet certain criteria.

12

Various TD supervisory liquidity stress testing frameworks are discussed in Basel Committee on Banking Supervision, 2013, “Liquidity stress testing: a survey of theory, empirics and current industry and supervisory practices”, Working Paper No. 24. These include balance sheet approaches (e.g., Bank of Italy); simulation methods (e.g., Netherlands Bank); or more integrated approaches (e.g., Austrian National Bank).

13

The shocks are assumed to happen instantaneously. Most liability side risks were estimated by the insurance companies under the FSA’s stress tests, independent of the FSAP, which were taken as given by the FSAP team. More resources are needed for the FSA to assess the liability-side risks.

14

The combination of risks under the FSA/EIOPA assumptions correspond to the Value-at-Risk of the basic own funds of insurers subject to a confidence level of 99.5% over a one-year period, implying that such a shock could happen once in about 200 years.

15

For a more detailed discussion of insurance stress tests, see the accompanying technical note on the subject.

16

While these results are similar to the results of the authorities’ own stress tests under Solvency II, the authorities’ stress tests under Solvency I and the companies’ own stress tests (performed on a consolidated level) suggest much less vulnerability to shocks.

17

For a more detailed discussion of macroprudential policy, see the accompanying technical note on the subject.

18

These capital add-ons are appropriate given the high degree of exposure of the economy, and hence the financial system, to volatile commodity prices and inward spillovers (see the IMF Staff Guidance Note on Macroprudential Policy at http://www.imf.org/external/np/pp/eng/2014/110614.pdf).

19

A number of material weaknesses, found by the Basel Committee on Banking Supervision in the CRR/CRD IV capital framework compared to Basel III, are either not incorporated in the Norwegian capital framework or have limited significance for Norwegian banks.

20

The TLAC/MREL reform requires banks to hold some unsecured debt that can be bailed-in in a resolution after equity and subordinated debt but ahead of other liabilities. This funding should reduce the issuance of secured funding, including covered bonds, over time.

21

For the details, see the accompanying Detailed Assessment of Compliance with BCPs for Effective Banking Supervision.

22

For the details, see the accompanying technical note on FMI.

23

See FAFT, “Anti-money Laundering and Counter-terrorist Financing Measures”, December 2014 at: http://www.fatf-gafi.org/media/fatf/documents/reports/mer4/Mutual-Evaluation-Report-Norway-2014.pdf

24

For a more detailed discussion of these and other issues relating to the legal framework, please refer to the Technical Note on Crisis Management, Bank Resolution, and Financial Safety Nets.

25

These should be guided by criteria set out in Article 11 of the EU Deposit Guarantee Scheme (DGS) Directive.

26

Going concern resolution generally refers to official control of an institution without its closure, which can permit a broad range of resolution techniques. Gone concern resolution refers to official control of an institution that is to be wound up and liquidated. In some cases, a resolution may involve the use of both.

1

The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Nonmutually exclusive risks may interact and materialize jointly.

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Cover IMF Staff Country Reports
Norway: Financial Sector Assessment Program - Financial System Stability Assessment
Author:
International Monetary Fund. Monetary and Capital Markets Department
Volume/Issue:
Volume 2015: Issue 252
Publisher:
International Monetary Fund
ISBN:
9781513522111
ISSN:
1934-7685
Pages:
57
DOI:
https://doi.org/10.5089/9781513522111.002
Figure 1.

Net Financial Claims by Sectors of the Norwegian Economy

(In percent of Mainland GDP; end–2014)

Norwegian Net Claims Against the Rest of the World

(In percent of Mainland GDP; end-2014)
Figure 2.

The Structure of the Banking Sector
Figure 3.

Funding Sources of Norwegian Banks
Figure 4.

Norway; Banking Sector Indicators, latest

(In percent)
Figure 5.

Norway; Banking Sector Developments
Figure 6.

Insurance Sector Performance Indicators
Figure 7.

Real Estate Prices
Figure 8.

Household Debt Burden
Figure 9.

Corporate Sector Finances

Number of Bankruptcies

(Total bankruptcies, 12 months MA)

The Share of Vulnerable Household Debt by Age

(Percent, 2012)
Figure 10.

Vulnerability and Contribution to Contagion of Nordic Banks
Figure 11.

Real Growth of Mainland GDP under Various Scenarios
Figure 12.

CET-1 Ratios under Various Stress Testing Scenarios

(In percent)
Figure 13.

Contributions to Changes in CET-1 Ratios, IMF Estimates Adverse Scenario without Policy Response

(In percent)
Figure 14.

Expected Recapitalization Needs

(In percent of GDP)
Figure 15.

Liquidity Coverage Ratios in Baseline and under Stress, end-2014

(In percent)
Figure 16.

Life Insurance Stress Tests: Factors Contributing to Increases in BCU After Shocks
Figure 17.

Non-Life Insurance Stress Tests: Factors Contributing to Increases in BCU After Shocks