Financial Stability 2/10

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Financial Stability 2/10

Charts

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Chapter 1

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-3 -2 -1 0 1 2 3 4

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 As of 09 Q3

As of 10 Q3

Net interest income Other operating income Personnel expenses Other operating expenses Loan losses Pre-tax profit

1) All banks excluding branches of foreign banks in Norway Source: Norges Bank

Chart A.1 Banks’

¹⁾

pre-tax profits as a percentage of average total assets.

Annual figures. 2000 – 2009. Three first quarters of 2009 and 2010

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-1,000 0

1,000 2,000 3,000 4,000 5,000 6,000 7,000

-1,000 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000

2008 Q4

2009 Q1

2009 Q2

2009 Q3

2009 Q4

2010 Q1

2010 Q2

2010 Q3

Change in individual writedowns Change in group writedowns Actual losses, non-provisioned Reversal of previous losses Loan losses

Chart A.2 Components of banks’

¹⁾

recognised loan losses. In millions of NOK.

Quarterly figures. 2008 Q4 – 2010 Q3

1) All banks in Norway Source: Norges Bank

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Retail market (mortgages)

52.1

Retail market (other loans)

5.5 Property

management 15.9 Construction

3.0 Services

5.8

Shipping 2.8 Foreign enterprises²⁾

4.7

Manufacturing 2.6

Other industries 7.6

Chart A.3 Distribution of banks and OMF covered bond mortgage companies’ loans to the retail market, corporate market and foreign enterprises.

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Per cent. As of 30 September 2010

1) All banks and OMF covered bond mortgage companies in Norway 2) Shipping accounts for a large share of lending to foreign enterprises Source: Norges Bank

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0 5 10 15 20 25

0 1 10 100 1,000 10,000

T ie r 1 ca pi tal ratio

Total assets (logarithmic scale)

New Tier 1 capital ratio requirement New Tier 1 capital ratio requirement + conservation buffer

New Tier 1 capital ratio requirement + conservation buffer + maximal

countercyclical buffer

Chart A.4 Banks’

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Tier 1 capital ratio. Per cent. Total assets. In billions of

NOK. As of 2010 Q3

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0 2 4 6 8 10 12

1987 1990 1993 1996 1999 2002 2005 2008

Tier 1 ratio Equity ratio

Chart A.5 Banks’

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Tier 1 capital ratio and equity ratio. Per cent. Quarterly figures.1987 Q4 – 2010 Q3

1) All banks excluding branches of foreign banks in Norway. Equity ratio prior to 1990 is for all banks Sources: Finanstilsynet (Financial Supervisory Authority of Norway) and Norges Bank

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0 10 20 30 40 50 60 70

1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 Retail market

Corporate market Other customers

Chart A.6 Distribution of banks’

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gross lending to different customer groups.

Shares in per cent. Monthly figures. March 1987 – September 2010

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1) All banks and covered bond mortgage companies excluding branches and subsidiaries of foreign banks in Norway

Source: Norges Bank

0 10 20 30 40 50 60 70 80 90

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Banks

Banks and OMF covered bond mortgage companies

Chart A.7 Banks and OMF covered bond mortgage companies’

¹⁾

deposit-to-loan

ratio for customers. Per cent. Monthly figures. January 2000 – September 2010

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1) All banks and OMF covered bond mortgage companies excluding branches and subsidiaries of foreign banks in Norway

Source: Norges Bank

0 10 20 30 40 50 60 70 80

0 200 400 600 800 1,000 1,200 1,400 1,600

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Gross market funding in billions of NOK (left-hand scale)

Share of market funding with remaining maturity up to 1 year (right-hand scale) Share of market funding with remaining maturity over 1 year (right-hand scale)

Chart A.8 Banks and OMF covered bond mortgage companies’

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gross market

funding. In billions of NOK. Distribution of market funding. Per cent. Quarterly

figures. 2001 Q1 – 2010 Q3

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0 50 100 150 200 250 300 350 400

2009 Q2 2009 Q4 2010 Q3

Maturity 1 – 3 years Maturity 3 – 5 years Maturity 5 – 10 years Maturity over 10 years

Chart A.9 Banks and OMF covered bond mortgage companies’

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long-term bond financing by remaining maturity. In billions of NOK. As of 2009 Q2 and Q4 and 2010 Q3

1) All banks and OMF covered bond mortgage companies excluding branches and subsidiaries of foreign banks in Norway

Source: Norges Bank

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0 10 20 30 40 50 60 70 80

Under 25 per cent

25 – 50 per cent

50 – 75 per cent

75 – 100 per cent

Over 100 per cent

Original proposal 2009 Q4 Revised proposal 2009 Q4 Original proposal 2010 Q2 Revised proposal 2010 Q2

Chart A.10 Banks’

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liquid assets as a percentage of required liquid assets.

Number of banks. As of 2009 Q4 and 2010 Q2

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0 50 100 150 200 250 300 350

Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10

Short-term paper in NOK Bonds in NOK

Short-term paper and bonds in foreign currency Deposits in Norges Bank

Treasury bills in swap arrangement

Chart A.11 Norwegian banks’

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deposits in Norges Bank and government and government-guaranteed bonds and short-term paper. Outstanding Treasury bills in connection with swap arrangement. In billions of NOK. Monthly figures.

June 2007 – September 2010

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DnB NOR Bank 32.8

Foreign subsidiaries

18.8 Foreign branches

17.8 Other savings

banks 28.6

Other commercial banks

2.0

Chart A.12 Banks and OMF covered bond mortgage companies’

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lending to the corporate market. Market shares. Per cent. As of 30 September 2010

1) All banks and OMF covered bond mortgage companies in Norway Source: Norges Bank

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Bank Risk weight Norwegian banks (IRB)

SpareBank 1 SR-Bank 10

DnB NOR Bank 11

SpareBank 1 Nord-Norge 11

SpareBank 1 SMN 12

Nordea Bank Norge 13

Sparebanken Vest 14

Nordic banks (IRB)

Handelsbanken 7

Swedbank 7

Danske Bank 10

Nordea 11

SEB 17

Norwegian banks (Standardised approach) Loans with loan-to-value ratio of less than

80 per cent 35

Sources: Capital adequacy reports and quarterly reports by banks and Norges Bank

Table A.1 Average risk weights on loans secured on dwellings. Per cent.

Consolidated numbers for 2009 and 2010

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Chart B.1 GDP mainland Norway and trading partners. Quarterly change.

Seasonally adjusted. Per cent. 2007 Q1 – 2011 Q2

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-3 -2 -1 0 1 2 3

Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11

GDP mainland Norway GDP trading partners

1) Projections for 2010 Q3 – 2011 Q2

Sources: Statistics Norway, OECD, Thomson Reuters and Norges Bank

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Chart B.2 Bank lending surveys in US and euro area. Percentage of banks that have tightened credit standards minus percentage of banks that have eased credit standards. Quarterly figures. 2003 Q1 – 2010 Q3

Sources: Federal Reserve and the European Central Bank (ECB) 17

-40 -20 0 20 40 60 80 100

2003 2004 2005 2006 2007 2008 2009 2010

Enterprises (euro area) Households (euro area) Enterprises (US)

Households (US)

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0 20 40 60 80 100

1999 2001 2003 2005 2007 2009

Europe US

Chart B.3 Implied volatility

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derived from equity options. Per cent. Daily figures.

4 January 1999 – 23 November 2010

1) Market participants’ expectations as to future fluctuations in equity prices. The broken lines show the average for the period 1999 – 2010

Sources: Thomson Reuters and Norges Bank

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Chart B.4 The IMF’s Global Financial Stability Map

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Oct. 10 Apr. 10

CONDITIONS Macroeconomic

risks

Emerging market risks

Credit risks

Market and liquidity risk

Risk appetite Monetary and

financial conditions

RISKS

1) Risks: Closer to centre signifies less risk. Conditions: Farther from centre signifies improved monetary and financial conditions or increased risk appetite.

Source: IMF

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Chart B.5 Government bond spreads. Compared with German government bonds. 10-year maturity. Percentage points. Daily figures.

1 January 2007 – 23 November 2010

0 2 4 6 8 10

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10

Portugal Ireland Italy Greece Spain

Source: Thomson Reuters

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Faktapresentasjon 6. september 2010

Chart B.6 CDS prices. iTraxx Senior Financials

¹⁾

and Nordic banks. Basis points. 1 January 2007 – 23 November 2010

0 50 100 150 200 250

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 iTraxx

Danske Bank DnB NOR Nordea

1) iTraxx Senior Financials comprises 25 large European financial institutions Source: Bloomberg

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Chart B.7 Indicative risk premiums on 5-year Norwegian corporate bonds, bank bonds and OMF covered bonds. Spreads against swap rates. Percentage

points. Weekly figures. 2 July 2007 – 17 November 2010

-0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Smaller banks with high rating 1)

DnB NOR Bank

OMF covered bonds Industrials

1) Banks with total assets between NOK 5bn and 15bn and rated A by DnB NOR Markets Source: DnB NOR Markets

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0 1 2 3 4

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10

US

Euro area Norway

Chart B.8 Spread between 3-month money market rate and market

expectations as to the key rate.

¹⁾

Percentage points. 5-day moving average.

Daily figures. 5 January 2007 – 23 November 2010

23

1) Expected key rates are derived from Overnight Indexed Swaps (OIS). OIS for Norway estimated by Norges Bank

Sources: Bloomberg, Thomson Reuters and Norges Bank

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0 500 1,000 1,500 2,000 2,500 3,000 3,500

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Jan – Oct 2009

Jan – Oct 2010 0

500 1,000 1,500 2,000 2,500 3,000 3,500

Other Bank

Chart B.9 Bonds issued by European companies. Total issuance in all currencies. In billions of USD. 1999 – 2010

Sources: Bloomberg and Norges Bank ²⁴

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Chart B.10 Household debt burden and interest burden. Per cent. Quarterly figures. 1988 Q1 – 2013 Q4

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0 2 4 6 8 10 12

1988 1992 1996 2000 2004 2008 2012

0 50 100 150 200 250

Debt burden (right-hand scale) Interest burden (left-hand scale)

1) Projections for 2010 Q1 – 2013 Q4

Sources: Statistics Norway and Norges Bank

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Chart B.11 Private households

¹⁾

by net debt burden.

²⁾

Per cent. Annual figures.

2005 – 2008

0 5 10 15 20 25 30 35

No net debt

0 – 100 100 – 200 200 – 300 300 – 400 400 – 500 Over 500

2005 2006 2007 2008

1) Corresponds to the term retail market

2) Net debt burden is debt minus bank deposits as a percentage of disposable income Sources: Statistics Norway and Norges Bank

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Chart B.12 12-month house price inflation in per cent, housing starts and housing turnover in thousands (total over past 12 months). Monthly figures.

January 2003 – October 2010

-10 -5 0 5 10 15 20

0 15 30 45 60 75 90

2003 2004 2005 2006 2007 2008 2009 2010

Housing turnover (left-hand scale) Housing starts (left-hand scale)

12-month house price inflation (right-hand scale)

Sources: Association of Norwegian Real Estate agents, Association of Real Estate Agency Firms, Finn.no, Econ Pöyry, Statistics Norway and Norges Bank

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Chart B.13 Real house prices. Indices. 1985 = 100. Annual figures. 1985 – 2010

¹⁾

0 20 40 60 80 100 120 140

1985 1988 1991 1994 1997 2000 2003 2006 2009

Deflated by disposable income minus expenses for food, non-alcoholic beverages, clothing and footwear 2)

Deflated by disposable income

1) January – October 2010. Broken lines show the average over the period 1985 – 2009 2) Sub-indices for private consumption from the national accounts

Sources: Association of Norwegian Real Estate agents, Association of Real Estate Agency Firms, Finn.no, Econ Pöyry, Statistics Norway and Norges Bank

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Chart B.14 Household net financial assets incl. and excl. insurance reserves. In billions of NOK. Quarterly figures. 1996 Q1 – 2010 Q2

-800 -600 -400 -200 0 200 400 600 800 1,000

1996 1998 2000 2002 2004 2006 2008 2010

-800 -600 -400 -200 0 200 400 600 800 1,000

Net financial assets Insurance reserves

Net financial assets excluding insurance reserves

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Chart B.15 Key ratios for enterprises listed on Oslo Børs.

¹⁾

Per cent.

Quarterly figures. 2002 Q1 – 2010 Q2

-30 -20 -10 0 10 20 30

2002 2003 2004 2005 2006 2007 2008 2009 2010

Return on equity Operating margin

30

1) Sample consisting of 139 listed non-financial enterprises as of 2010 Q2. Statoil is not included in the sample. Broken lines show the average for the period 2002 Q1 – 2010 Q2

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Chart B.16 12-month growth in credit (C2) to enterprises and contribution in per cent

¹⁾

. Monthly figures. January 2007 – September 2010

1) Not adjusted for exchange rate fluctuations in the contributions

2) Loans from insurance companies, state lending institutions and pension funds Source: Statistics Norway

-10 -5 0 5 10 15 20 25

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10

Short-term paper and bond debt Finance companies

Mortgage companies Banks

Other 2) C2 enterprises (left-hand scale)

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Chart B.17 Debt servicing capacity

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for selected industries. Per cent.

Annual figures. 2008 – 2009

Hotels and restaurants Commercial property Business services Oil services Telecom Fisheries Shipping Manufacturing and mining Energy and water supply Agriculture and forestry Transport excl. shipping Retail trade Construction Total

0 10 20 30 40 50 60 70

2008 2009

1) Profits before tax, writedowns and depreciation as a percentage of bank and bond debt.

Intragroup funding is not included Source: Norges Bank

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Chart B.18 Real rental and selling prices for office premises.

¹⁾

Semi-annual figures. Indices. 1986 = 100. June 1986 – December 2010

²⁾

0 20 40 60 80 100 120

1986 1989 1992 1995 1998 2001 2004 2007 2010

Selling price Rental price

1) High-standard offices centrally located in Oslo. Broken lines shows the average over the period 1986 – 2010

2) Selling price until June 2010

Sources: OPAK, Statistics Norway and Norges Bank

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Chart B.19 Freight rates (Clarksea Index)

¹⁾

in USD per day and selling price of ships in millions of USD. Monthly figures. January 1990 – October 2010

²⁾

0 10 20 30 40 50

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Clarksea Index Selling price

1) Weighted average for earnings in the tanker, bulk, container and gas segments 2) Selling price from January 1995

Source: Clarkson Research Services Ltd

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Chapter 2

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Chart 1 Mainland GDP. Annual volume change. Per cent. Annual figures.

2005 – 2013

¹⁾

-2 0 2 4 6

2005 2007 2009 2011 2013

Baseline scenario Stress scenario

1) Projections for 2010 – 2013

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Chart 2 House prices. Annual change. Per cent. Annual figures. 2005 – 2013

¹⁾

-12 -8 -4 0 4 8 12 16

2005 2007 2009 2011 2013

Norges Bank Finansiell stabilitet

Sources: Association of Norwegian Real Estate Agents, ECON Pöyry, Finn.no, Association of Real Estate Agency Firms and Norges Bank

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Chart 3 Credit to households and enterprises. Weighted by sector. Year-on-year growth.

¹⁾

Per cent. Annual figures. 1998 – 2013

²⁾

1) Changes in inventory measured at the end of the year 2) Projections for 2010 – 2013

0 4 8 12 16 20

1998 2000 2002 2004 2006 2008 2010 2012

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Chart 4 3-month money market rate. Per cent. Annual figures. 1998 – 2013

¹⁾

0 2 4 6 8

1998 2000 2002 2004 2006 2008 2010 2012

1) Projections for 2010 – 2013 Source: Norges Bank

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Chart 5 Problem loans in stress scenario under alternative assumptions.

Percentage of gross lending. Annual figures. 1998 – 2013

¹⁾

0 1 2 3 4

1998 2000 2002 2004 2006 2008 2010 2012

Stress scenario Oil price USD 30

Allowing for depreciation of the real exchange rate

30% fall in property prices

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Chart 6 Loan losses in baseline scenarios and stress scenarios in FS 1/10 and FS 2/10. Percentage of gross lending to customers. Annual figures. 1987 – 2013

¹⁾

-2 0 2 4 6

1987 1990 1993 1996 1999 2002 2005 2008 2011

Baseline scenario FS 2/10 Stress scenario FS 2/10 Baseline scenario FS 1/10 Stress scenario FS 1/10

1) Projections for 2010 – 2013 for DnB NOR Bank, Nordea Bank Norge, SpareBank 1 SR-Bank, Sparebanken Vest, SpareBank 1 SMN and SpareBank 1 Nord-Norge

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-3 -2 -1 0 1 2 3 4

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Net interest income Other operating income Operating expenses

Loan losses Pre-tax profit

1) All banks excluding branches of foreign banks in Norway

Source: Norges Bank

Chart 7 Banks’

¹⁾

pre-tax profits as a percentage of average total assets.

Baseline scenario. Per cent. Annual figures. 2002 – 2013

²⁾

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-3 -2 -1 0 1 2 3 4

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Chart 8 Banks’

¹⁾

pre-tax profits as a percentage of average total assets.

Stress scenario. Per cent. Annual figures. 2002 – 2013

²⁾

1) All banks excluding branches of foreign banks in Norway

Source: Norges Bank

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-0.3 0.0 0.3 0.6 0.9 1.2 1.5

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Median

Highest and lowest value

Chart 9 Banks’ post-tax profits. Stress scenario. Percentage of average total assets. Annual figures. 2003 – 2013

¹⁾

Source: Statistics Norway and Norges Bank

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-1.0 -0.5 0.0 0.5 1.0 1.5 2.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Median

Chart 10 Banks’ loan losses. Stress scenario. Percentage of gross lending to customers. Annual figures. 2003 – 2013

¹⁾

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Chart 11 Banks’ post-tax profits in stress scenarios. Percentage of average total assets. Annual figures. 2003 – 2013

¹⁾

-2 -1 0 1 2

2003 2005 2007 2009 2011 2013

Stress scenario with increased losses in commercial property Stress scenario with 20% loss ratio

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Chart 12 Banks’ Tier 1 capital ratio in stress scenarios. Per cent. Annual figures.

2003 – 2013

¹⁾

0 2 4 6 8 10

2003 2005 2007 2009 2011 2013

Stress scenario with increased losses in commercial property Stress scenario with 20% loss ratio

Current minimum Tier 1 capital ratio Proposed minimum Tier 1 capital ratio

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0 2 4 6 8 10 12

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Median

Current minimum Tier 1 capital ratio Proposed minimum Tier 1 capital ratio

Chart 13 Banks’ Tier 1 capital ratio. Stress scenario. Per cent. 2003 – 2013

¹⁾

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Box 1

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-2 -1 0 1 2 3

2007 2008 2009 FS 1/10 2)

2010

2010 Q1 – Q3

Chart 1 Banks’

¹⁾

pre-tax profits as a percentage of average total assets. Annual figures. 2007 – 2010

1) DnB NOR Bank, Nordea Bank Norge, SpareBank 1 SR-Bank, Sparebanken Vest, SpareBank 1 SMN and SpareBank 1 Nord-Norge

2) Baseline scenario in FS 1/10

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Chart 2 Problem loans as a percentage of gross lending in baseline scenarios.

1990 – 2010

¹⁾

0 2 4 6 8 10 12

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Historical figures

Baseline scenario FS 1/10

1) Historical figures until Q3 2010. Projections for 2010 from baseline scenario FS 1/10 Sources: Statistics Norway and Norges Bank

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Box 2

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Chart 1 Current and proposed minimum capital requirements, and capital buffer requirements. Per cent of risk-weighted assets

Common equity 2.0

Common equity 4.5

Conservation

buffer 2.5

Countercyclical

buffer 0 – 2.5

Hybrids 2.0

Hybrids 1.5

Tier 2 4.0

Tier 2 2.0

0 1 2 3 4 5 6 7 8 9 10 11 12 13

Current Proposed Proposed with buffers

Tier 1

Sources: The Basel Committee and Norges Bank

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0 1 2 3 4 5 6 7 8 9 10 11

DnB NOR Bank

Nordea Bank Norge

SpareBank 1 SR-bank

Sparebanken Vest

SpareBank 1 SMN

Chart 2 Consolidated common equity capital ratios of the five largest Norwegian banking groups and Nordea Bank Norge. Per cent. As of 2010 Q3

SpareBank 1 Nord-Norge New common equity requirement including

conservation buffer

New common equity requirement including conservation buffer and maximum countercyclical buffer

Sources: Banks’ financial reports and Norges Bank

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Chart 3 Banks’

¹⁾

stable funding in per cent of requirements. Group average.

As of 2010 Q2

0 20 40 60 80 100 120

All banks Savings banks (excluding DnB NOR Bank) December 2009 proposal

July 2010 revised proposal

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Box 3

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-20 -15 -10 -5 0 5 10 15 20 25 30

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Suggested thresholds for when the buffer

requirement is triggered and when it is at maximum

Chart 1 Credit/GDP in Norway. Measured as gap relative to trend.

¹⁾

Percentage points. Quarterly data. 1985 Q1 – 2010 Q2

1) According to guidelines from the Basel Committee. Data for mainland Norway from1993 Q4.

Sources: Statistics Norway, IMF and Norges Bank

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Box 5

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0 2 4 6 8 10 12 14 16 18

1976 1980 1984 1988 1992 1996 2000 2004 2008

Germany (10 yrs) US (10 yrs)

Germany (2 yrs) US (2 yrs)

Norway (5 yrs)

Chart 1 Yields on government bonds in Germany, US and Norway. Time to maturity in brackets. Per cent. Daily figures. 1 Jan 1976 – 23 Nov 2010

Source: Thomson Reuters

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Chart 2 Relationship between bank lending rate and debt burden

¹⁾

with an interest burden

²⁾

of 11%

1) Debt as percentage of disposable income

2) Interest expenses as per cent of after tax income Source: Norges Bank

0 200 400 600 800 1,000

0 1 2 3 4 5 6 7 8 9 10 11 12

De bt bu rde n

Bank lending rate

Relationship between lending rate and debt burden Household debt burden as at 2009 Q4