The Financial Supervisory Authority of Norway has published its latest Financial Outlook report, warning that geopolitical tensions and war, a high digital threat level, high household debt, elevated property prices and continued stress in property development are increasing the risk of financial instability in Norway. Banks and insurance companies remain profitable, solid and competitive, but the authority said resilience must be preserved because its 2026 stress test shows banks' capital adequacy could be materially weakened in a sharp downturn driven by escalating geopolitical unrest and a more fragmented global economy. The report links the external risk picture to the outbreak of war in the Middle East in late February and the subsequent closure of the Strait of Hormuz, which have increased uncertainty over international growth prospects. Bank profitability and return on equity declined over the past year as net interest income fell and operating costs rose, while loan losses increased slightly, particularly on corporate lending. Credit risk has risen in exposures to property development, construction, fisheries and aquaculture. Household debt relative to disposable income has fallen since the end of 2021 but remains high historically and compared with other countries, leaving households more vulnerable if the labor market weakens or interest rates rise. Residential price growth has been moderate, but new home sales, housing starts and housing investment remain low. Commercial real estate companies continue to face lower valuations, weaker earnings, high debt and weak interest coverage. The authority also described the cyber threat environment as severe, with artificial intelligence creating new vulnerabilities and heavy outsourcing and supplier concentration increasing the chance that cyber or operational incidents could disrupt critical functions and have systemic effects.

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