Norway shows leniency towards banks with buffer delay
By Camilla Knudsen and Joachim Dagenborg
OSLO (Reuters) - Norway showed some leniency towards its banks when it delayed an increase in capital buffers on Thursday, hoping to relieve a sector already under pressure from falling house prices and earlier buffer increases.
Norway, one of Europe's healthiest economies, will require banks to build a capital buffer worth 1 percent of their risk-weighted assets, on top of requirements set by the Basel III accord, less than some had expected. The new requirement will take affect in mid-2015, six months later than recommended by the central bank.
"I think the sector just needs a little extra time to adjust," Finance Minister Siv Jensen said, adding the buffer should give banks no cause for raising mortgage rates.
"We consider Norwegian bank capital levels pretty good ... but there are signs of financial imbalances in the Norwegian economy," she said.
Norway's banks are well-capitalised and escaped the global financial crisis relatively unharmed, but policymakers have implemented some of the toughest banking regulations in Europe, hoping to avoid a repeat of the country's banking collapse in the early 1990s.
Still, the new rule should come as a slight relief for banks, analysts said.
"The level is a bit lower than expected and the banks get an extra half year to build capital, so it's clearly positive for the sector," Christian Berner, a bank sector analyst at brokerage Fondsfinans said. "The regulatory framework is now is place, so you also remove a factor of uncertainty."
In the long term the delay is largely symbolic, aimed at meeting the new government's pledge of being mindful of rising borrowing costs. The central bank said there would be no major policy implications.
DNB , the country's biggest bank, said the move in isolation will require it to build 10 billion Norwegian crowns in additional capital. It still sees a need to build between 40 billion and 60 billion crowns in capital by 2016.
"As we said in October, we will do this organically, through lower costs, lower dividend yield, more efficient use of capital and maintaining a required level of earnings," DNB Chief Financial Officer Bjoern Erik Naess said.
The buffer is generally expected to move between zero and 2.5 percent. Increases should usually take effect 12 months after the announcement while cuts will be immediate. The buffer is expected to be imposed during relatively prosperous periods and reduced during difficult periods.
Although Norway's economic growth is expected to halve this year, policymakers are keen on the extra buffer, as Norwegian households are among the most indebted in Europe. Critics say that measures already in place have been effective and house prices, considered by the IMF to be 40 percent overvalued, are already falling.
The price falls, which could reach 10 to 20 percent before levelling out, dragged consumer confidence to a two-year low in the fourth quarter and the confederation of enterprises, the NHO, said the tough bank rules are the biggest reason growth is falling so quickly.
(Additional reporting Ole Petter Skonnord and Terje Solsvik; Writing by Balazs Koranyi; Editing by Larry King)
