economic developments and financial markets in norway finn hvistendahl, london, 20 may 2008
TRANSCRIPT
The Norwegian economy
• Strong and broadly based growth in GDP• Low unemployment and tight labour market• Increasing inflation• Large current account and government surpluses• Substantial gains in terms of trade • High credit growth to households and enterprises• Declining growth rates of housing prices• High level of commercial property prices• Considerable growth of stock prices the last five years• Monetary policy tightened since 2005
Lower growth is expected for 2008 and 2009
Growth in GDP
Source: Statistics Norway
-2
-1
0
1
2
3
4
5
6
7
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Per
Cen
t
GDP GDP Mainland Norway Forecast GDP Forecast GDP Mainland Norway
Unemployment and inflation
Source: Reuters EcoWin
Source: Reuters EcoWin
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Pe
rce
nt
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
Unemployment rate
CPICPI-ATE
Government surplus
Source: National Budget
-10,0 %
-5,0 %
0,0 %
5,0 %
10,0 %
15,0 %
20,0 %
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Per
cen
t o
f G
DP
Overall surplus Oil adjusted surplus
Terms of trade
Source: National Budget
0
20
40
60
80
100
120
140
160
180
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Total Traditional merchandise
Source: EcoWin
8889 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Pe
r ce
nt
-10
-5
0
5
10
15
20
25
Households
Non-financial enterprises
Credit growth Households and non-financial enterprises
Source: Statistics Norway
0
5000
10000
15000
20000
25000
30000
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
NO
K p
r.sq
.met
er
Nominal prices Real prices (2007 Nok)
-5
5
15
25
02 03 04 05 06 07 08
Per c
ent
Sources: NEF, EFF, FINN.no and Econ Pöyry
Housing prices
Price level 12-month growth
0
5000
10000
15000
20000
25000
30000
35000
40000
1979 1983 1987 1991 1995 1999 2003 2007
Pri
ces
(NO
K)
pe
r sq
. m.
Nominal prices Real prices (1998 prices)
Price of office premises in Oslo
Sources: OPAK and Kredittilsynet
Stock markets
Source: Reuters EcoWin
Source: Reuters EcoWin
03 04 05 06 07 08
Ind
ex (1
Jan
ua
ry 20
03
= 1
00
)
50
100
150
200
250
300
350
400
450
500
Norway
USA
Euro area
Key policy rate in Norway
Source: Reuters EcoWin
Kilde: Reuters EcoWin
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Per cent
1
2
3
4
5
6
7
8
9
10
11
Norwegian Financial Markets
• Financial conglomerates and alliances with high market shares • Less concentrated banking market than in other Nordic countries• Foreign ownership of importance in banking and non-life insurance • Banks account for approximately 70% of domestic credit growth• Securities markets of increasing importance. Recent years larger
volumes issued on Oslo Stock Exchange than on other Nordic stock exchanges
• High profitability in banking for several years• No loan losses and low levels of non-performing loans • High lending growth, especially to the corporate sector
• High and stable tier-1 capital ratios
Structure of the Norwegian financial market (end 2007)
Per cent of total assets Banks Finance Mortgag
e
Life insuranc
e
Non life insuranc
e
DnB NOR (incl. Nordlandsbanken)
37 25 15 31 0
Nordea Bank Norway 14 8 4 6 0
Sparebank1 Group* 12 6 3 3 6
Storebrand 1 0 0 26 1
Terra-Group* 5 1 2 0 1
Total financial groups 69 40 23 66 8
Other companies **31 60 77 34 92
Total 100 100 100 100 100
- of which foreign branches in Norway
17 20 1 1 31
- of which foreign subsidiaries
17 46 8 6 2
*For Sparebank1 Group and Terra-Group, market shares include the owner banks.**Savings banks accounted for 10 per cent, and commercial banks (incl. branches of foreign banks) for 21 per cent of other banks.
Norwegian-owned banks’ assets
As of 31.12.2007
0 %10 %20 %30 %40 %50 %60 %70 %80 %90 %
NOK Foreign currency
% o
f to
tal a
sset
s
Net lending to customers Net lending to cred.instit. Securities
Cash + deposits Other assets
Banks’ loan losses and pre-tax profits
-3
-2
-1
0
1
2
3
4
1990 1993 1996 1999 2002 2005 Q1-08
Per
cen
t of
AT
A
Pre-tax profit Loan losses
Effect of the international turmoil
• Norwegian banks had no exposure to US subprime mortgages, structured credit products or off-balance investment vehicles
• Most noticeable effect of the international turmoil for the Norwegian banks has been less accessible and more expensive international funding for the larger banks
• Issuance of covered bonds has been important in banks’ liquidity management. New regulation came into force on 1 June 2007.
• Norwegian banks have a high level of long-term funding and deposit-to-loan ratios. Generous deposit guarantee scheme.
• More demanding liquidity management and pressure on long-term funding limits since summer 2007. Liquidity situation for Norwegian banks remained satisfactory during the market turbulence in 2007 and beginning of 2008
Lending growth by banks and mortgage companies
0
4
8
12
16
20
24
28
32
2003 2004 2005 2006 2007
Per
cen
t
Branches of foreign banks and mortgage companiesForeign-owned subsidiaries and mortgage companiesNorwegian-owned banks and mortgage companies
Banks’ non-performing loans
0 %
2 %
4 %
6 %
8 %
10 %
1990 1995 2000 2005
% o
f le
ndin
g
Corporate cust. Households
2007
Capital adequacy in banks*
* Figures for 31.12.07 combine Basel I and Basel II-banks, with additional capital ratios shown with Risk Weighted Assets calculated under Basel I-rules
0
2
4
6
8
10
12
14
16
31.12.91 31.12.93 31.12.95 31.12.97 31.12.99 31.12.01 31.12.03 31.12.05 31.12.07
% o
f RW
A
Tier 1 Tier 1+2Tier 1 (Basel I) Tier 1+2 (Basel I)
Norwegian-owned banks’ funding
-200
400600800
1 0001 2001 400
1 6001 800
NOK Foreign currency
Bil
l NO
K
Deposits from customers Net lending from credit institutionsShort term papers BondsEquity
As of 31.12.2007
Funding – Norwegian banks
50
60
70
80
90
100
110
Q42001
Q42002
Q42003
Q42004
Q42005
Q42006
Q12007
Q22007
Q32007
Q42007
Q12008
Deposit to loan ratio Long term funding
Long term funding: Funding with maturity in excess of 1 year as a share of illiquid assets
7 large Norwegian-owned banks
Main points• Banks results remained good in 2007. Return on equity 16 per cent.
• Limited effect of international financial turbulence on Norwegian banks in 2007.
• Q1 2008 results lowered by capital losses on foreign bond holdings and equities. Interest margins increasing, partly due to repricing of risk.
•The Norwegian economy is strong. Increasing risk in the housing markets and increasing vulnerability in parts of the household sector. High profitability in the corporate sector, but strong investment growth may lead to overcapacity in a downturn.
• Strong lending growth, increased uncertainty in the economy and in housing markets, as well as continued liquidity problems internationally, require sound and prudent risk management and capital planning.
• Prospects for financial stability in Norway in 2008 remain satisfactory.