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Norway’s banking sector: Facts & Figures

Updated December 2020 – For earlier editions of Facts & Figures click here

The Norwegian economy has performed rather well in recent years. Growth in GDP in 2019 ended at 2.3% for Mainland Norway, and 1.2% for Norway. Unemployment has been fairly stable at a relative low level (registered unemployment at 2.2%, 3.9% according to the Labor Force Survey). Growth has been supported by an expansionary monetary and fiscal policy. However, as the economic activity picked up after the large decline in the oil price in 2014, the Central Bank of Norway hiked the key policy (deposit) rate in 2018 and 2019. From (at the time) a record low level of 0.5% the Central bank increased the key policy rate on four occasions, bringing the rate up to 1.5%.

The Norwegian banking sector is characterised by a few very large commercial banks, some regional based and several small savings banks. At the end of 2019 the Norwegian banking sector consisted of 119 banks. In addition, there were three subsidiaries and 14 branches of foreign banks operating in Norway. The market share of the subsidiaries and branches of foreign banks were 24% and 38% in the retail and domestic corporate market, respectively.

At year-end 2019, the aggregate assets of the banking sector (including foreign entities) amounted to around €645 billion. The Norwegian banks’ return on equity was on average 12.5% in 2019, an increase of 0.4 percentage points from 2018. Losses were 0.19% of gross lending. The level of losses was influenced by the growth in consumer lending in recent years. The capital adequacy in Norwegian banks increased by 1.7 percentage points to 17.9% in 2019, particularly due to the capital regulation being amended to be in line with EU legislation. The leverage ratio was on average 8%.

As more and more people are using banking services online, the number of physical branches has decreased significantly over several years. Mobile payment solutions have 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 2019, the cost/income ratio in Norwegian banks was on average 44%.

The most important sources of funding are 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. 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. €200,000) per depositor per bank, but may 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 91% at year-end 2019. The high level is due to the transfer of mortgages to separate credit institutions (with the purpose of issuing covered bonds). By including these loans, the deposit-to-loan ratio was 56%.

Given the VAT exemption for financial services a financial tax was implemented in Norway in 2017. The tax comprises two elements. The first is a payroll tax of 5% and the second a maintained tax rate at 25 %, i.e. an extra tax of three percentage points relative to other corporates (22% tax rate in 2019).

The Norwegian financial sector supports the ESG agenda and is involved in and has launched several initiatives in this area. The Roadmap for Green Competitiveness in the Norwegian Financial Sector, developed by Finance Norway, is an example of a key initiative setting the vision of a profitable and sustainable Norwegian financial sector in 2030. The roadmap includes seven general recommendations for the industry in addition to several specific recommendations for banks, insurers and investors.

Norwegian banks also 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, to ensure a level-playing field and improve the functioning of the market economy. Norway is not a direct member of the EU but participates in the EU’s internal market under the European Economic Area Agreement (EEA). According to this agreement Norway is obliged to implement all EU directives and regulations that relate to financial institutions and markets, such as the CRR/CRD, MiFID, Prospectus Directive, Solvency II etc. This ensures that Norwegian financial institutions have the same rights and obligations as institutions established within the EU.

Contributor: Michael H. Cook michael.hurum.cook@finansnorge.no