Financial Stability 2/12

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Financial Stability 2/12

Charts

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Chart 1.1 Vulnerabilities in the Norwegian banking sector and external sources of risk to the banking sector

¹⁾

May 2012

November 2012

Structure of banking sector

Funding of banking sector

Capital and earnings in banking sector

Enterprises

Households Money and credit

markets Macroeconomic

conditions

2)

Vulnerability in banking sectorExternal sources of risk to banking sector

1) A value of 0, i.e. origo, denotes the lowest level of risk or vulnerability. A value of 10 denotes the highest level of risk or vulnerability.

2) The method used to estimate vulnerability related to capital and earnings has been adjusted.

The May 2012 estimate for capital and earnings in the banking sector has therefore been revised.

Source: Norges Bank

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0 2 4 6 8 10 12 14 16 18 20

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

Germany Spain France Italy Portugal

Chart 1.2 Ten-year government bond yields in European countries. Percent.

Daily figures. To 20 November 2012

Source: Thomson Reuters

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-30 -20 -10 0 10 20 30 40 50 60 70

Dec-03 Dec-05 Dec-07 Dec-09 Dec-11

Enterprises Households

Chart 1.3 Bank lending surveys in the euro area. Net share of banks that have tightened credit standards. Quarterly figures. To 2012 Q3

Source: ECB

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Chart 1.4 GDP for mainland Norway, the euro area and trading partners. Index (at constant prices). 2004 = 100. To 2015

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95 100 105 110 115 120 125 130 135 140

2004 2006 2008 2010 2012 2014

Mainland Norway Euro area

Trading partners

Norges Bank Finansiell stabilitet

1) Projections for 2012 – 2015.

Sources: Thomson Reuters and Norges Bank

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0 20 40 60 80 100 120 140 160

Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12

Chart 1.5 Oil price in USD. Daily figures. To 20 November 2012

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Chart 1.6 Domestic debt (C2). 12-month change. Percent.

To September 2012

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

des-88 des-92 des-96 des-00 des-04 des-08

Private and municipal sector Non-financial enterprises Households

1)

1) Households, non-financial enterprises and municipalities.

Source: Statistics Norway

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Chart 1.7 CDS prices 5-year senior bond debt. Weekly figures. Percent.

To 16 November 2012

0 1 2 3 4 5 6

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

BBVA

Danske Bank

iTraxx Senior Financials Deutsche Bank

Nordea DNB

1) 25 large European financial institutions.

Source: Bloomberg

1)

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Chart 1.8 Banks’ and mortgage companies’ qualitative assessment of access to and premiums on market funding.

¹⁾

Monthly data. To October 2012

1) Average reported by banks in Norges Bank’s liquidity survey.

Red indicates reduced access and higher premiums, grey indicates unchanged, green indicates increased access and lower premiums.

Source: Norges Bank Access funding

Short-term NOK

Short-term foreign curr.

Long-term NOK

Long-term foreign curr.

Risk premium funding Short-term NOK

Short-term foreign curr.

Long-term NOK

Long-term foreign curr.

2008 2009 2010 2011 2012

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9

0 50 100 150 200 250 300 350 400

2009 2010 2011

Chart 1.9 Volume of bonds and covered bonds issued by Norwegian banks and mortgage companies. In billions of NOK. To 20 November 2012

Sources: Stamdata and Bloomberg

0 50 100 150 200 250 300 350 400

Jan - 20 Nov 11 Jan - 20 Nov 12

Bank bonds - NOK

Bank bonds - foreign currency Covered bonds - NOK

Covered bonds - foreign currency

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Chart 1.10 Indicative risk premiums on 5-year Norwegian bank bonds and

covered bonds. Spread against swap rates. Percentage points. Weekly figures.

1 January 2007 – 20 November 2012

Source: DNB Markets

-0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

DNB Bank

Small banks with high rating Covered bonds

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0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

USD LIBOR EURIBOR STIBOR NIBOR

Chart 1.11 Spread between 3-month money market rate and market key rate expectations. Percentage points. 5-day moving average. Daily figures. To 20 November 2012

Sources: Bloomberg, Thomson Reuters and Norges Bank

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0 20 40 60 80 100 120

Weighted average

2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3

Chart 1.12 Banks’

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stable funding as a percentage of net stable funding requirement (NSFR). Consolidated figures. At end of quarter

1) Sample consists of 17 banks in Norway, primarily the largest.

Sources: Finanstilsynet (Financial Supervisory Authority of Norway) and Norges Bank

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Chart 1.13 Norwegian-owned banks’ net

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short-term market funding as a percentage of total assets. Quarterly figures. To 2012 Q3

-40 -30 -20 -10 0 10 20 30 40 50 60

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Gross funding

Deposits in central banks + government bonds < 1 year Other bonds

Net funding 1 (minus highly liquid bonds) Net funding 2 (also minus other bonds)

1) Net 1 is minus deposits with central banks and government securities maturing in one year or less. Net 2 is also minus other bonds.

Source: Norges Bank

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0 20 40 60 80 100 120

All banks DNB + commercial banks

Savings banks Total assets >

NOK 20bn

Savings banks Total assets < NOK

20bn

2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3

Chart 1.14 Banks’

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liquid assets as a percentage of liquidity requirement (LCR).

Weighted average for the group. Consolidated figures. As at end of quarter

1) All banks in Norway except branches of foreign banks.

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Chart 1.15 Funding costs for Norwegian banking groups

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. Percent. Monthly figures. To September 2012

0 1 2 3 4 5 6 7 8

2006 2007 2008 2009 2010 2011 2012

Average funding costs (estimated)

Short-term wholesale funding (estimated) Deposits

Long-term wholesale funding (estimated)

1) Covered bond mortgage companies and banks in Norway except branches and subsidiaries of foreign banks.

Sources: Bloomberg, Stamdata, DNB Markets and Norges Bank

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1) Difference against swap rates.

2) Covered bond mortgage companies and banks in Norway except branches and subsidiaries of foreign banks.

Sources: Bloomberg, Stamdata, DNB Markets and Norges Bank

Chart 1.16 Estimated average risk premium

¹⁾

on new and outstanding bond debt for Norwegian banking groups

²⁾

. Monthly average. Basis points.

To October 2012

-50 0 50 100 150 200 250

2006 2007 2008 2009 2010 2011 2012

Average risk premium outstanding senior bonds Average risk premium outstanding covered bonds

Risk premium new senior bonds

Risk premium new covered bonds

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-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0

2008 2009 2010 2011 2011 Q1 -

Q3

2012 Q1 - Q3

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

1) All banks excluding branches of foreign banks in Norway, but including branches of Norwegian banks abroad.

Source: Norges Bank

Chart 1.17 Banks

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pre-tax profits as percentage of average total assets.

Percent. Annual and figures for the year to Q3. 2008 – 2011 and

2011 Q1 – Q3 and 2012 Q1 – Q3

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-0.2 0.0 0.2 0.4 0.6 0.8 1.0

2008 2009 2010 2011 2011 Q3 2012 Q3

Impairment losses on loans Actual losses, non-provisioned Reversal of previous losses Loan losses

1) All banks excluding branches of foreign banks in Norway, but including branches of Norwegian banks abroad.

Source: Norges Bank

Chart 1.18 Components of banks

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loan losses as a percentage of gross retail lending. Percent. Annual and figures for the year to Q3. 2008 – 2011 and

as at end-2011 Q3 and end-2012 Q3

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0 2 4 6 8 10 12 14

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Common Equity Tier 1 capital / risk-weighted assets

Common Equity Tier 1 capital / risk-weighted assets without floor Common Equity Tier 1 capital / total assets

9% Common Equity Tier 1 capital / risk-weighted assets

1) All banks except branches of foreign banks in Norway.

Source: Finanstilsynet (Financial Supervisory Authority of Norway) and Norges Bank

Chart 1.19 Common Equity Tier 1 capital in banks

¹

) and residential mortgage companies. Percent. Annual and third quarter. 1992 – 2011.

2012 Q3 and 2012 Q3

Q3

Q3 2011 2012

0

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Handelsbanken Swedbank

Nordea SEB

DNB

Nordea Norge Danske Bank²⁾ Handelsbanken²⁾

0 10 20 30 40 50 60 70 80

Norway Sweden

1) Market shares for corporate and residential mortgage lending applied for Sweden, while lending to retail and corporate markets are applied for Norway.

2) Handelsbanken and Danske Bank are branches in the Norwegian market.

Sources: Norges Bank, Finansinspektionen, Swedbank, Statistics Norway

Chart 1.20 Largest banks in Norway and Sweden

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by lending market share.

Percent. End-2011

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4.5 2.5 1.5 2

5 2.5

0 2 4 6 8 10 12 14 16 18 20

2019

Countercyclical buffer (CET1)

Buffer for systemically important banks (CET1)

Tier 2

Hybrid Tier 1

Conservation buffer (CET1)

Minimum Common Equity Tier 1 (CET1) capital

1) Bank assuming maximum countercyclical buffer and maximum buffer for systemically important banks.

Sources: Basel Committee on Banking Supervision and Norges Bank

Chart 1.21 Potential capital requirement for a large bank

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in 2019. As a

percentage of risk-weighted assets

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Chart 1.22 Interest margins. Percent. 1 January 2010 – 20 November 2012

0 1 2 3 4 5 6 7

Jan-10 Jan-11 Jan-12

Key policy rate

Money market premium

Risk premium 5-year covered bonds

Bank lending rate, new residential mortgages Estimated funding costs, mortgages ¹⁾

0 1 2 3 4 5 6 7

Jan-10 Jan-11 Jan-12

Key policy rate

Money market premium

Risk premium 5-year bank bonds Average lending rate, corporate loans Estimated funding costs, corporate loans ²⁾

1) Estimated from weighted rate on covered bond holdings and weighted deposit rate.

2) Estimated from weighted rate on senior bond holdings and weighted deposit rate.

Sources: DNB Markets, Norsk familieøkonomi, Statistics Norway and Norges Bank

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9.9 11.0 11.2 11.3 12.8 13.3 16.0

94 95 95

78

55

103

57

0 20 40 60 80 100 120

SR-Bank SMN Nord- Norge

Vest DNB Bank 1 Nordea

Residential mortgage loans Corporate loans

1) Sum of specialised and other corporate lending for banks in SpareBank 1-alliansen.

2) SpareBank 1 Nord-Norge as at 31 December 2010.

Sources: Pillar 3 reports from the institutions and Norges Bank

Chart 1.23 Average risk weights for residential mortgage loans and corporate

loans

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for Norwegian IRB banks. Percent. At 31 Dec 2011

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Chart 1.24 Household debt burden

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and interest burden

²⁾

. Percent.

Quarterly figures. To 2015 Q4

³⁾

0 2 4 6 8 10 12

1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 0 50 100 150 200 250

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

1) Debt as a percentage of disposable income adjusted for estimated reinvested dividend income for 2000 – 2005 and redemption/reduction of equity capital for 2006 – 2015.

2) Interest expenses after tax as a percentage of disposable income adjusted for estimated reinvested dividend income 2000 – 2005 and redemption/reduction of equity capital for 2006 – 2015, plus interest expenses.

3) Projections for 2012 Q1 – 2015 Q4 from Monetary Policy Report 3/12.

Sources: Statistics Norway and Norges Bank

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Chart 1.25 House prices in selected countries. Indices. 1995 Q1 = 100.

Quarterly figures. To 2012 Q3

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0 50 100 150 200 250 300 350 400 450

1995 1997 1999 2001 2003 2005 2007 2009 2011

Norway Sweden Denmark UK

Netherlands Spain

25

1) For Denmark to 2012 Q2.

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Chart 1.26 Domestic credit to households (C2). 12-month change.

Contributions to growth in the retail market

¹⁾

by position in the housing market.

Percent. To September 2012

0 2 4 6 8 10 12 14 16

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

Non-homeowners

Owners not selling/buying Owners selling/buying First-home owners 12-month change

1) Households excluding self-employed.

Sources: Statistics Norway (tax assessment data) and Norges Bank

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95%

80%

62%

43%

28%

0 400 800 1 200 1 600

Debt

Gross financial wealth

Market value after 20 % fall in houseprices Loan-to-value ratio after fall in house prices

25 to 34 years 35 to 44 45 to 54 55 to 64 65 to 74 years

Chart 1.27 Debt

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, housing wealth and financial assets

²⁾

for indebted homeowning households

³⁾

. In billions of NOK. 2010

1) Total debt excluding student loans.

2) According to tax assessments, excluding insurance claims.

3) Excluding self-employed.

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Chart 1.28 Households

¹⁾

with a debt burden more than 5 times disposable income, by age

²⁾

. Percent. Annual figures. To 2011

³⁾

0 2 4 6 8 10 12 14

1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

0-24 25-34 35-44 45-54 55-64 65-74 75- All

2) Age of main income earner.

3) Estimates for 2011.

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Chart 1.29 Total household

¹⁾

debt and gross financial assets

²⁾

. Average.

In thousands of NOK. 2010

76% 22% 13%

0 500 1 000 1 500 2 000 2 500

All All in income deciles 2-9 with net debt

All in income deciles 2-9 with net debt and debt burden 5 to 10

times disposable income

Debt (average)

Gross financial assets (average) Debt to asset ratio

5) 4)

%

2) According to tax assessments, excluding insurance claims.

3) 2.19m households. 4)1.16m households. 5) 166 000 households.

3)

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Chart 1.30 Corporate debt by credit source. Stock. In billions of NOK. Monthly figures. To September 2012

0 200 400 600 800 1000 1200

jan-02 jan-04 jan-06 jan-08 jan-10 jan-12

Bank loans

Foreign debt (mainland enterprises)

Foreign debt (petroleum activity and shipping) Other finance companies

Notes and bonds

Source: Statistics Norway 30

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Norges Bank Finansiell stabilitet

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

-70 -50 -30 -10 10 30 50 70

des-07 des-08 des-09 des-10 des-11

Credit demand, index (left-hand scale) Credit standards, index (left-hand scale)

Bank lending (C2), 12-month change, percent

1) 1)

2)

Chart 1.31 Bank lending to enterprises – supply and demand. To 2012 Q3

1) A positive value implies an easing of credit standards/higher loan demand, a negative value implies a tightening of credit standards/lower loan demand.

2) The Norwegian standard for institutional sector classification was changed as from 1 January 2012 . For credit growth this implies a break in the series from March 2012.

Sources: Statistics Norway and Norges Bank’s lending survey

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0 20 40 60 80 100 120 140 160

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Issues by Norwegian enterprises of currency denominated bonds abroad

Bond issues by Norwegian and foreign enterprises in the Norwegian bond market ¹⁾

Chart 1.32 Corporate bond issues. In billions of NOK. Daily figures.

To 20 November

1) All bonds registered in VPS, the Norwegian Central Securities Depository. Including bonds denominated in NOK and foreign currency.

Sources: Stamdata and Bloomberg

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Norges Bank Finansiell stabilitet 33

-1.5 -1 -0.5 0 0.5 1 1.5 2 2.5

0 20 40 60 80 100

Jun-02 Jun-04 Jun-06 Jun-08 Jun-10 Jun-12

Debt-servicing capacity, limited companies. Percent Debt-servicing capacity, listed companies. Percent

Change in operating margins, regional network. Index (right-hand scale)

2)

3) 1)

1) Limited companies with debt to credit institutions.

2) OBX index excluding Statoil and financial enterprises.

3) Change in operating margins past 3 months compared with same period a year earlier. The index ranges from -5 to +5, where -5 indicates a sharp fall and +5 indicates strong growth.

Sources: Bloomberg and Norges Bank

Chart 1.33 Debt-servicing capacity and change in operating margins. Quarterly

and annual figures. To 2012 Q3

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Chart 1.34 Bank and OMF mortgage company lending by industry. Percentage of total corporate lending. As at end-2011

0 10 20 30 40

Oil and gas extraction and oil services Utilities Other transport Manufacturing Primary industries Retail trade, hotels and restaurants Shipping and pipeline transport Construction Services Foreign enterprises (primarily shipping) Commercial property

Source: Norges Bank

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Norges Bank Finansiell stabilitet 35

0 15000 30000 45000 60000 75000 90000

Jan-96 Jan-00 Jan-04 Jan-08 Jan-12

Container Oil tanker Dry bulk

Chart 1.35 Freight rates. USD per day. Weekly figures. To 16 November 2012

Source: Clarksons LTD

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-4 -3 -2 -1 0 1 2 3 4 5

0 10000 20000 30000 40000 50000

Dec-81 Dec-86 Dec-91 Dec-96 Dec-01 Dec-06 Dec-11

Market value

Employment growth (right-hand scale)

Chart 1.36 Market value of office premises in Oslo and employment growth

¹⁾

. NOK per square metre (at constant 2012 prices) and 12-month change in percent. Semi-annual and quarterly figures. To 2012 Q3

1) Annual figures in the period 1981–1995, quarterly figures from 1996 Q4.

Sources: OPAK and Statistics Norway

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Chart 2.1 Mainland GDP. Annual volume change. Percent. Annual figures.

2005 – 2015

¹⁾

-4 -3 -2 -1 0 1 2 3 4 5 6

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Baseline scenario

Adverse scenario 2013 Adverse scenario 2011 Adverse scenario 2009

1) Projections for next three years.

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Chart 2.2 Banks’

¹⁾

Tier 1 capital ratios. Baseline scenario and adverse scenario.

Percent. Annual figures. 2006 – 2015

²⁾

0 2 4 6 8 10 12 14

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Baseline scenario

1) DNB Bank, Nordea Bank Norge, Sparebank 1 SR-Bank, Sparebanken Vest, Sparebank 1 SMN and SpareBank 1 Nord-Norge.

Tier 1 capital ratio requirement in CRD IV

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Chart 2.3 Weighted growth in credit to enterprises (C3) and households (C2) . Year-on-year growth.

¹⁾

Percent. Annual figures. 2005 – 2015

²⁾

-6 -4 -2 0 2 4 6 8 10 12 14 16

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Baseline scenario

1) Change in stock of loans as measured at year-end.

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40

Chart 2.4 Bank

¹⁾

losses in adverse scenarios with different starting points for projections.

²⁾

In billions of NOK

1) DNB Bank, Nordea Bank Norge, Sparebank 1 SR-Bank, Sparebanken Vest, Sparebank 1 SMN and SpareBank 1 Nord-Norge.

Source: Norges Bank

0 20 40 60 80 100 120

Adverse 2009 Adverse 2011 Adverse 2013

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Chart 2.5 Banks’

¹⁾

problem loans as a percentage of gross lending. Annual figures. 1990 – 2015

²⁾

0 2 4 6 8 10 12 14 16 18

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Baseline scenario

1) All banks in Norway.

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Common Equity Tier 1 capital ratio

Marginal benefit Marginal cost

Optimal capital ratio

Chart 1 Analytical framework. Marginal benefit and marginal cost of a one percentage point increase in capital ratios from different levels.

Percent of GDP

Source: Norges Bank

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Chart 2 Scatter diagram for optimal capital adequacy ratios of Norwegian banks.

Common Equity Tier 1 capital without the Basel I transition floor. Percent

21 21

13

16 17

19

12 14 16 18 20 22

Cumulative cost of a banking crisis:

30 % of GDP

Cumulative cost of a banking crisis:

60 % of GDP

Average

From minimum to maximum

Source: Norges Bank