Norges Bank Gov: Norway’s Banks Should Reduce Liquidity Risk

Svein Gjedrum

Svein Gjedrem, Governor of Norges Bank

Norway’s banks aren’t facing a solvency crisis but should reduce their liquidity risk so that they are better able to cope in case of future troubles, the governor of the country’s central bank, Svein Gjedrem, said Dec. 1.

“The financial crisis has demonstrated that heavy reliance on short-term funding is risky, particularly if Norwegian banks are overly dependent on funding in certain markets,” he said in a statement accompanying the Norges Bank’s twice-yearly Financial Stability report.

“One lesson to be drawn is that banks should reduce liquidity risk so that they are better poised to cope with future market failures,” he said.

The report said Norway’s banks will not experience a solvency crisis but that developments ahead could be demanding.

“Banks’ loan losses are likely to increase somewhat in the period ahead,” it said. “Loans to commercial property companies, shipping and borrowers in the Baltic countries still have the highest loss exposure.”

The steep decline in economic activity in other Nordic countries and in the Baltic region “entails high credit risk for banks with loan exposures in these countries,” it explained.

But if economic developments are broadly in line with projections, the Norges Bank said it expects the financial position of banks to remain satisfactory.

“Profitability at Norwegian banks has improved since the previous Financial Stability report (published in May), but developments ahead may still be demanding,” the report said.

“The activity level in the Norwegian economy is expected to pick up, albeit only gradually and from a low level. The activity level abroad is expected to be moderate ahead. This will influence the financial situation of banks’ borrowers. Weak activity levels may reduce profitability and debt-servicing capacity in the enterprise sector.”

The Norges Bank didn’t give any new information on its economic outlook, repeating the projections from its last Monetary Policy Report, published in October.

Source: Market News

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