Transcript GNP - Finanstilsynet.no

Economic developments and
financial markets in Norway
Finn Hvistendahl,
London, 20 May 2008
The Norwegian economy
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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
7
6
5
Per Cent
4
3
2
1
0
-1
-2
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
GDP
GDP Mainland Norway
Source: Statistics Norway
Forecast GDP
Forecast GDP Mainland Norway
Unemployment and inflation
11
10
9
8
7
Unemployment rate
Percent
6
5
4
3
2
1
CPI
0
CPI-ATE
-1
-2
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Source: Reuters EcoWin
Source: Reuters EcoWin
Government surplus
20,0 %
Per cent of GDP
15,0 %
10,0 %
5,0 %
0,0 %
-5,0 %
-10,0 %
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Overall surplus
Source: National Budget
Oil adjusted surplus
Terms of trade
180
160
140
120
100
80
60
40
20
0
1996
1997
1998
1999
2000
Total
Source: National Budget
2001
2002
2003
Traditional merchandise
2004
2005
2006
Credit growth
Households and non-financial enterprises
25
20
Non-financial enterprises
Per cent
15
10
5
Households
0
-5
-10
8889 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Source: EcoWin
Source: Statistics Norway
Housing prices
Price level
25
25000
20000
15
Per cent
NOK pr.sq.meter
30000
12-month growth
15000
10000
5
5000
0
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Nominal prices
Real prices (2007 Nok)
Sources: NEF, EFF, FINN.no and Econ Pöyry
-5
02
03
04
05
06
07
08
Price of office premises in Oslo
40000
Prices (NOK) per sq. m.
35000
30000
25000
20000
15000
10000
5000
0
1979
1983
1987
Nominal prices
Sources: OPAK and Kredittilsynet
1991
1995
1999
Real prices (1998 prices)
2003
2007
Stock markets
500
450
Norway
Index (1 January 2003 = 100)
400
350
300
250
Euro area
200
150
USA
100
50
03
04
05
06
07
08
Source: Reuters EcoWin
Source: Reuters EcoWin
Key policy rate in Norway
11
10
9
8
Per cent
7
6
5
4
3
2
1
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Kilde: Reuters EcoWin
Source: Reuters EcoWin
Norwegian Financial Markets
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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
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
Total financial groups
*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.
% of total assets
Norwegian-owned banks’ assets
90 %
80 %
70 %
60 %
50 %
40 %
30 %
20 %
10 %
0%
NOK
Net lending to customers
Net lending to cred.instit.
Cash + deposits
Other assets
Foreign currency
Securities
As of 31.12.2007
Banks’ loan losses and pre-tax profits
4
3
Per cent of ATA
2
1
0
-1
-2
-3
1990
1993
1996
Pre-tax profit
1999
2002
Loan losses
2005
Q1-08
Effect of the international turmoil
• Norwegian banks had no exposure to US subprime mortgages,
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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 depositto-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
32
28
Per cent
24
20
16
12
8
4
0
2003
2004
2005
2006
2007
Branches of foreign banks and mortgage companies
Foreign-owned subsidiaries and mortgage companies
Norwegian-owned banks and mortgage companies
Banks’ non-performing loans
10 %
% of lending
8%
6%
4%
2%
0%
1990
1995
Corporate cust.
2000
Households
2005
2007
Capital adequacy in banks*
16
14
% of RWA
12
10
8
6
4
2
0
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
Tier 1
Tier 1 (Basel I)
Tier 1+2
Tier 1+2 (Basel I)
* 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
Bill NOK
Norwegian-owned banks’ funding
1 800
1 600
1 400
1 200
1 000
800
600
400
200
NOK
Deposits from customers
Short term papers
Equity
Foreign currency
Net lending from credit institutions
Bonds
As of 31.12.2007
Funding – Norwegian banks
110
100
90
80
70
60
50
Q4
2001
Q4
2002
Q4
2003
Q4
2004
Q4
2005
Q4
2006
Deposit to loan ratio
Q1
2007
Q2
2007
Q3
2007
Q4
2007
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
Q1
2008
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.