P.O. Box 2473 Solli N

0202 OSLO
Tel: +47 23 284 200

Norway’s banking sector: Facts & Figures

The Norwegian economy has in the last couple of years experienced low growth, primarily due to weak demand abroad and decline in the oil price. However, key figures suggest that the activity is increasing and that GDP growth will be considerably better in 2017 compared to 2016. Growth is stimulated by the continuance of expansionary monetary and fiscal policy. The key policy rate is currently at 0.5% and the central bank of Norway (Norges Bank) has expressed it will most likely not make any adjustments to the rate in the nearest future.

The Norwegian banking sector is characterised by a few large commercial banks and several small savings banks. At the end of 2016, the Norwegian banking sector consisted of 104 savings banks, 20 commercial banks and 25 covered bond companies. In addition, there were ten branches and subsidiaries of foreign banks operating in Norway which had a market share of approximately 26% based on gross lending in the retail and corporate market.

At year-end 2016, the aggregate assets of the entire banking sector (including foreign entities) amounted to around €764 billion, corresponding to 223% of Norway’s total GDP. However, given the large presence of foreign banks, total assets relative to the size of the economy is noticeably lower when only regarding Norwegian banks. The financial intermediation sector contributes approximately 7% of national GDP and employs around 2% (50,000 people) of the total labour force.

Norwegian banks have managed to limit losses and remain profitable despite the challenges in the petroleum industry. Return on equity was on average 10.9% in 2016 while losses were 0.36% of gross lending. Norwegian banks have strengthened their financial position in recent years by retaining a larger share of their profits and by issuing new equity. The overall common equity Tier 1 ratio for Norwegian banking groups was 16% by the end of 2016. The leverage ratio was on average 8%.

There were 953 branches by the end of 2016, and the overall number of inhabitants per bank branch was about 5,500. As more and more people are using banking services online, the number of branches has decreased significantly over several years. Mobile payment solutions have also been well received by Norwegian households and are becoming increasingly popular. More digital banking has given the banking sector large productivity gains and hence lower costs. In 2016, the cost/income ratio continued to decline and ended up at 45% for all Norwegian banks.

When it comes to funding, the most important sources are retail deposits and covered bonds. Large banks have a considerably larger share of market-based, international funding than smaller banks, which base their operations largely on depository funding and inter-bank loans. Bank deposits are guaranteed by the Norwegian deposit guarantee scheme and have thus proven to be a stable source of funding, also during the financial crisis. The guarantee provided by the Banks’ Guarantee Fund covers up to NOK 2 million (approx. €220,000) per depositor per bank, but could be changed in the future to the equivalent of €100,000 to be aligned with the EU. The deposit-to-loan ratio (deposits as a share of gross loans to customers) for Norwegian parent banks was 94% at year-end 2016. The high level is due to the transfer of mortgages to separate credit institutions (for the purpose of issuing covered bonds). By including these loans, the deposit-to-loan ratio was 57%.

Domestic credit growth has recently been more or less stable around 5%. Household credit growth however has remained at a high level, exceeding the growth in income. This development is linked to the growth in house prices which has continued to increase although economic activity has been below the long-term average. Credit demand from non-financial companies has been rather low and banks have been more focused on household lending because of lower risk weights and a desire to limit the growth in risk-weighted assets.

Norwegian banks strongly support the progress in the stability and governance of the European financial sector, as well as the increasing harmonisation of regulation and supervision throughout Europe, thus ensuring a level-playing field and improving the functioning of the market economy. The new regulatory framework in Norway is based on the EU’s Capital Requirements Directive, but the Norwegian supervisory practice in the capital area has been stringent from a European perspective.

Norway is not a direct member of the EU which has led to a need for clarification when it comes to the EU’s structure for supervision of financial markets. The Norwegian government, EU and other EEA-countries were able to find a solution to the problem during the fall of 2014. Under the agreed model, the EFTA Surveillance Authority (ESA) is responsible for decisions that are binding for Norwegian companies. The suggested solution was approved by the Norwegian Parliament on 13 June 2016 and the EEA joint committee on 30 September 2016.