FINANCIAL STABILITY REPORT 2016
LOW INTEREST RATES AND HIGH HOUSEHOLD DEBT
TORBJØRN HÆGELAND
EXECUTIVE DIRECTOR
NORGES BANK FINANCIAL STABILITY
22 NOVEMBER 2016
International interest rates have fallen
Long-term interest rates. 14 OECD countries
1). Percent
0 2 4 6 8 10 12
0 2 4 6 8 10 12
1984 1989 1994 1999 2004 2009 2014
Nominal interest rate Real interest rate
1) US, Germany, France, Italy, UK, Japan, Netherlands, Austria, Belgium, Sweden, Denmark, Canada, Switzerland and Norway. Unweighted average.
Source: OECD 2
3
Household deposit rates close to the zero floor
4
Percent. January 2011 – September 2016
0 0,2 0,4 0,6 0,8 1 1,2 1,4 1,6
0 0,2 0,4 0,6 0,8 1 1,2 1,4 1,6
2011 2012 2013 2014 2015 2016
Euro area Sweden Switzerland
Sources: Statistics Sweden, ECB and Swiss National Bank
5
Basis points, relative to German and US government bonds.
0 200 400 600 800 1 000
0 200 400 600 800 1 000
2012 2013 2014 2015 2016
High-risk enterprises - Europe High-risk enterprises - US Low-risk enterprises - Europe Low-risk enterprises - US
Source: Thomson Reuters
Risk of sharp rise in risk premiums
Strong rise in commercial real estate prices
6
Index. Q4 1998 = 100. Q1 1982 − Q2 2016
0 50 100 150 200 250 300 350 400
0 50 100 150 200 250 300 350 400
1982 1986 1990 1994 1998 2002 2006 2010 2014
Commercial real estate (central Oslo) - nominal prices Commercial real estate (central Oslo) - real prices
Sources: Dagens Næringsliv, Real Estate Norway, Eiendomsverdi, Finn.no, OPAK, Statistics Norway and Norges Bank
Strong rise in both CRE and house prices
7
Index. Q4 1998 = 100. Q1 1982 − Q2 2016
0 50 100 150 200 250 300 350 400
0 50 100 150 200 250 300 350 400
1982 1986 1990 1994 1998 2002 2006 2010 2014
Houses (Norway) - nominal prices
Commercial real estate (central Oslo) - nominal prices Houses (Norway) - real prices
Commercial real estate (central Oslo) - real prices
Sources: Dagens Næringsliv, Real Estate Norway, Eiendomsverdi, Finn.no, OPAK, Statistics Norway and Norges Bank
Key vulnerabilities in Norway
8
High household debt
9
Household debt ratio, debt service ratio and interest burden.
Percent. 1987 Q1 − 2019 Q4
10 50 100 150 200 250
0 5 10 15 20 25
1987 1991 1995 1999 2003 2007 2011 2015 2019
Debt ratio (right-hand scale)
1) Projections for 2016 Q2 – 2019 Q4 (broken lines).
Sources: Statistics Norway and Norges Bank
High household debt
10
Household debt ratio, debt service ratio and interest burden.
Percent. 1987 Q1 − 2019 Q4
10 50 100 150 200 250
0 5 10 15 20 25
1987 1991 1995 1999 2003 2007 2011 2015 2019
Interest burden (left-hand scale)
1) Projections for 2016 Q2 – 2019 Q4 (broken lines).
Sources: Statistics Norway and Norges Bank
High household debt
11
Household debt ratio, debt service ratio and interest burden.
Percent. 1987 Q1 − 2019 Q4
10 50 100 150 200 250
0 5 10 15 20 25
1987 1991 1995 1999 2003 2007 2011 2015 2019
Debt service ratio (left-hand scale) Interest burden (left-hand scale)
1) Projections for 2016 Q2 – 2019 Q4 (broken lines).
Sources: Statistics Norway and Norges Bank
Rising debt burden across all age groups
Debt to disposable income ratio by age of main income earner Percent. 1987 – 2014
0 50 100 150 200 250 300 350
0 50 100 150 200 250 300 350
0 - 24 25 - 34 35 - 44 45 - 54 55 - 66 67 - 76 76 - 1987 - 1989 1990 - 1999 2000 - 2009 2010 - 2014
Sources: Statistics Norway and Norges Bank
More households with a very high debt burden
13
Share of households with debt-to-disposable income above 500%.
By age of primary wage-earner. Percent. 1987 – 2014
1) Debt to disposable income.
Sources: Statistics Norway and Norges Bank
0 5 10 15 20 25
0 5 10 15 20 25
0 – 24 25 – 34 35 – 44 45 – 54 55 – 66 67 – 76 76 – All
1987 – 1989 1990 – 1999 2000 – 2009 2010 – 2014
Possible macroprudential policy responses
14
Addressing high growth in property prices and household debt
Capital requirements for banks
Requirements related to banks’ lending practice
Do lending requirements work?
15
Share of new loans. Percent
Source: Finanstilsynet
0 5 10 15 20 25 30 35
Interest-only Fails "stress test" of 5 pp interest rate increase
LTV above 85%
(house purchase incl.
additional collateral)
2015 2014
Change in first-time buyers’ LTV distribution
0 1 2 3 4 5 6
0 1 2 3 4 5 6
60 70 80 90 100
2011 2012
After introducing guidelines (2010) and making them stricter (2011)
Sources: Ambita Land Registry, Norwegian Mapping Authority, Statistics Norway and Norges Bank 16
Estimated path for consumption during recessions
8
Number of quarters from start of recession. Percent
1) Strong growth is defined as a rise of more than one standard deviation above the average. The rise is the average rise in the five years preceding the start of the recession.
Sources: BIS, Federal Reserve Bank of Dallas, OECD, Statistics Norway and Norges Bank
-4 -2 0 2 4 6 8 10 12
-4 -2 0 2 4 6 8 10 12
1 3 5 7 9 11 13 15
Average consumption path
Path after strong pre-recession rise in debt-to-GDP ratio
Stress test - Change in mainland GDP
18
Number of years from beginning of crisis. Percent
1) Percentage change from the beginning of the period.
2) "Banking crisis" shows the change in mainland GDP from 1987.
Sources: Statistics Norway and Norges Bank
-4 -3 -2 -1 0 1 2 3 4 5 6
-4 -3 -2 -1 0 1 2 3 4 5 6
1 2 3 4
Stress scenario 1 Stress scenario 2 Banking crisis²
19 0 2 4 6 8 10 12 14 16 18
0 2 4 6 8 10 12 14 16 18
2014 2015 2016 2017 2018 2019 2020
Stress test – Bank solvency
Common Equity Tier 1 (CET1) capital ratio in stress scenario 1
1) Projections for 2016 Q3 – 2020 Q4.
Sources: SNL Financial and Norges Bank
20 0 2 4 6 8 10 12 14 16 18
0 2 4 6 8 10 12 14 16 18
2014 2015 2016 2017 2018 2019 2020
Stress test – Bank solvency
Common Equity Tier 1 (CET1) capital ratio in stress scenario 2
1) Projections for 2016 Q3 – 2020 Q4.
Sources: SNL Financial and Norges Bank
21
22
EKSTRA
Households investment in housing
23
Sum of past four quarters. NOK billions. 2000 Q1 – 2016 Q2
Source: Statistics Norway
