Norges Bank has published its semiannual Financial Stability report, finding that the risk of severe disruptions has increased even as household debt vulnerabilities have eased and banks maintain substantial capital and liquidity buffers. Geopolitical tensions and cyberthreats, high and growing government debt in many countries, and uncertainty about the effects of artificial intelligence shape the risk outlook. Disruptions abroad can spread quickly to Norway through the interconnected financial system.
Household debt remains high but has grown more slowly than income, with debt burdens declining most among the most indebted households. Wage growth above inflation over the past two years has improved purchasing power and debt servicing capacity, even after accounting for higher interest rates. There are also signs that households’ aggregate liquid buffers are recovering after declining in the years following the pandemic.
Banks have substantial lending exposure to commercial real estate, where solvency has improved somewhat over the past two years but higher interest rates continue to weigh on property values. High construction and financing costs have weakened demand for new homes and commercial buildings, creating difficulties for property developers. Bankruptcies have risen sharply, and banks report increased default risk. Banks nevertheless have low losses and comfortably meet capital and liquidity requirements. At its Nov. 4 meeting, Norges Bank’s committee kept the countercyclical capital buffer requirement unchanged at 2.5%.