Norway to unveil banking support package on Feb. 9

By Aasa Christine Stoltz and Camilla Knudsen

OSLO, Feb 5 (Reuters) – Norway’s planned banking support package, due out on Feb. 9, is expected to ease corporations’ access to refinancing but may fail to drum up much appetite for new credit for companies facing a sharp economic downturn.

The Norwegian package will follow Sweden’s $6 billion bank plan and Denmark’s $17 billion loan stimulus deal, as the Nordics seek to stave off the worst of the global crisis.

Norway’s main financial sector lobby has said it hoped the package would be worth up to 80 billion crowns ($11.6 billion), but the government has kept its cards close to its chest.

“We will present a package that will improve access to financing, I am sure of that,” Finance Minister Kristin Halvorsen told reporters on Wednesday.

Analysts said the Norwegian plan could be similar to the Danish package, where an injection of hybrid core capital from the state strengthened banks’ balance sheets and, in theory, will allow them to safely boost lending.

Many Norwegian corporations have struggled to maintain liquidity and to refinance credit as their sales markets weaken and as banks turn increasingly cautious due to recession fears.

“There is a need for refinancing which the Norwegian bank sector does not have capacity for,” said Leif Teksum, the head of corporate lending at Norway’s largest bank DnB NOR. “We expect initiatives that can solve this.”

Corporations’ demand for new loans is falling as firms turn down their investments, which could dampen the stimulus effect of the package, said analysts.

“The bank package will not prevent corporations from being more careful during an economic slowdown,” Nordea Markets chief economist Steinar Juel said. “But there are still projects waiting to get started if the credit situation normalises.”

Norwegian credit growth slowed to 9.9 percent year-on-year in December from 12.5 percent in August, before the credit crunch hit. Annualised credit for households grew by 7.1 percent in December, while credit for the non-financial sector expanded by 14.8 percent, down from 19.4 percent last August.

LIMITED OPTIONS

The options for raising new capital for Norwegian companies are increasingly limited. Issuing shares can trigger revolt by shareholders and the corporate bond market has effectively stalled, adding to the pressure on banks to extend loans.

A central bank survey showed that demand for household and corporate loans has been falling since mid-2008 and forecast further deterioration over the first quarter of 2009.

Interest rate cuts in Norway, including Wednesday’s 50 basis point reduction which took the main rate to 2.5 percent, have helped lower the barrier for gaining credit, but central bank Governor Svein Gjedrem said other measures were needed.

“It’s important to speed up the (revival on the corporate) bond market, so it is welcomed if one can find measures here,” Gjedrem told a news conference on Wednesday.

Some economists said further governmental stimulus may be needed if the economy weakens further in the face of the global crisis.

Source: The Guardian UK Online

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