Norway’s banking sector: Facts & Figures
Updated September 2019 – For earlier editions of Facts & Figures click here
The economic activity in the Norwegian economy has been positive in recent years after the downturn in the petroleum sector in 2014 due to the fall in oil prices. Unemployment has decreased and is currently at a low level (registered unemployment at 2.3%). Growth has been stimulated by the continuance of expansionary monetary and fiscal policy. However, given the increase in activity and inflation, the Central Bank of Norway has on two occasions hiked the key policy (deposit) rate from the bottom level of 0.5%. The current level of the key policy rate is 1% and the central bank expect an additional hike during the next six months.
The Norwegian banking sector is characterised by a few very large commercial banks, some regional banks and several small savings banks. At the end of 2018, the Norwegian banking sector consisted of 125 banks. In addition, there were 14 subsidiaries of foreign banks operating in Norway. The market share of the branches of foreign banks were 21% and 38% in the retail and domestic corporate markets, respectively.
At year-end 2018, the aggregate assets of the banking sector (including foreign entities) amounted to around €645 billion, corresponding to approximately 180% of Norway’s total GDP. However, given the large presence of foreign banks, total assets relative to the size of the economy are noticeably lower when only regarding Norwegian banks. The financial intermediation sector contributes approximately 6% of GDP and employs around 2% (50,000 people) of the total labour force.
The Norwegian banks’ return on equity was on average 11.5% in 2018. Losses amounted to just 0.08% of gross lending. Losses declined compared to 2017 due to losses in the petroleum sector being lower than estimated among the largest banks. The capital adequacy in Norwegian banks reached 16.2% by the end of 2018 and the leverage ratio was on average 7.9%.
As more and more people are using banking services online, the number of physical branches has decreased significantly over the last 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 2018, the cost/income ratio in Norwegian banks was on average 45.9%.
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 (approximately € 200,000) per depositor per bank but may be changed in the future, to the equivalent of €100,000, to align with the EU. The deposit-to-loan ratio (deposits as a share of gross loans to customers) for Norwegian parent banks was 93% at year-end 2018. The high level is due to the transfer of mortgages to separate credit institutions (with the purpose of issuing covered bonds). When 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 3 percentage points relative to other corporates (22% tax rate in 2019).
The Norwegian financial sector supports the environmental, social and governance agenda and is involved in, or, has launched several initiatives in this area. The Roadmap for Green Competitiveness in the Norwegian Financial Sector, developed by Finance Norway, is 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 Norwegian financial institutions the same rights and obligations as institutions established within the EU.
Contributor: Michael H. Cook firstname.lastname@example.org