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FINANCIAL STABILITY REPORT 2016
LOW INTEREST RATES AND
HIGH HOUSEHOLD DEBT
TORBJØRN HÆGELAND
EXECUTIVE DIRECTOR
NORGES BANK FINANCIAL STABILITY
22 NOVEMBER 2016
International interest rates have fallen Long-term interest rates. 14 OECD countries1). Percent
0
2
4
6
8
10
12
0
2
4
6
8
10
12
1984 1989 1994 1999 2004 2009 2014
Nominal interest rate
Real interest rate
1) US, Germany, France, Italy, UK, Japan, Netherlands, Austria, Belgium, Sweden, Denmark, Canada, Switzerland
and Norway. Unweighted average.
Source: OECD 2
3
Household deposit rates close to the zero floor
4
Percent. January 2011 – September 2016
0
0,2
0,4
0,6
0,8
1
1,2
1,4
1,6
0
0,2
0,4
0,6
0,8
1
1,2
1,4
1,6
2011 2012 2013 2014 2015 2016
Euro area
Sweden
Switzerland
Sources: Statistics Sweden, ECB and Swiss National Bank
5
Basis points, relative to German and US government bonds.
0
200
400
600
800
1 000
0
200
400
600
800
1 000
2012 2013 2014 2015 2016
High-risk enterprises - Europe
High-risk enterprises - US
Low-risk enterprises - Europe
Low-risk enterprises - US
Source: Thomson Reuters
Risk of sharp rise in risk premiums
Strong rise in commercial real estate prices
6
Index. Q4 1998 = 100. Q1 1982 − Q2 2016
0
50
100
150
200
250
300
350
400
0
50
100
150
200
250
300
350
400
1982 1986 1990 1994 1998 2002 2006 2010 2014
Commercial real estate (central Oslo) - nominal prices
Commercial real estate (central Oslo) - real prices
Sources: Dagens Næringsliv, Real Estate Norway, Eiendomsverdi, Finn.no, OPAK, Statistics Norway and Norges Bank
Strong rise in both CRE and house prices
7
Index. Q4 1998 = 100. Q1 1982 − Q2 2016
0
50
100
150
200
250
300
350
400
0
50
100
150
200
250
300
350
400
1982 1986 1990 1994 1998 2002 2006 2010 2014
Houses (Norway) - nominal prices
Commercial real estate (central Oslo) - nominal prices
Houses (Norway) - real prices
Commercial real estate (central Oslo) - real prices
Sources: Dagens Næringsliv, Real Estate Norway, Eiendomsverdi, Finn.no, OPAK, Statistics Norway and Norges Bank
Key vulnerabilities in Norway
8
High household debt
9
Household debt ratio, debt service ratio and interest burden.
Percent. 1987 Q1 − 2019 Q41
0
50
100
150
200
250
0
5
10
15
20
25
1987 1991 1995 1999 2003 2007 2011 2015 2019
Debt ratio (righthand scale)
1) Projections for 2016 Q2 – 2019 Q4 (broken lines).
Sources: Statistics Norway and Norges Bank
High household debt
10
Household debt ratio, debt service ratio and interest burden.
Percent. 1987 Q1 − 2019 Q41
0
50
100
150
200
250
0
5
10
15
20
25
1987 1991 1995 1999 2003 2007 2011 2015 2019
Interest burden (lefthand scale)
1) Projections for 2016 Q2 – 2019 Q4 (broken lines).
Sources: Statistics Norway and Norges Bank
High household debt
11
Household debt ratio, debt service ratio and interest burden.
Percent. 1987 Q1 − 2019 Q41
0
50
100
150
200
250
0
5
10
15
20
25
1987 1991 1995 1999 2003 2007 2011 2015 2019
Debt service ratio (lefthand scale)
Interest burden (lefthand scale)
1) Projections for 2016 Q2 – 2019 Q4 (broken lines).
Sources: Statistics Norway and Norges Bank
Rising debt burden across all age groups Debt to disposable income ratio by age of main income earner
Percent. 1987 – 2014
0
50
100
150
200
250
300
350
0
50
100
150
200
250
300
350
0 - 24 25 - 34 35 - 44 45 - 54 55 - 66 67 - 76 76 -
1987 - 1989
1990 - 1999
2000 - 2009
2010 - 2014
Sources: Statistics Norway and Norges Bank
More households with a very high debt burden
13
Share of households with debt-to-disposable income above 500%.
By age of primary wage-earner. Percent. 1987 – 2014
1) Debt to disposable income.
Sources: Statistics Norway and Norges Bank
0
5
10
15
20
25
0
5
10
15
20
25
0 – 24 25 – 34 35 – 44 45 – 54 55 – 66 67 – 76 76 – All
1987 – 1989
1990 – 1999
2000 – 2009
2010 – 2014
Possible macroprudential policy responses
14
Addressing high growth in property prices and household debt
Capital requirements for banks
Requirements related to banks’ lending practice
Do lending requirements work?
15
Share of new loans. Percent
Source: Finanstilsynet
0 5 10 15 20 25 30 35
Interest-only
Fails "stress test" of5 pp interest rate increase
LTV above 85%(house purchase incl.additional collateral)
2015
2014
Change in first-time buyers’ LTV distribution
0
1
2
3
4
5
6
0
1
2
3
4
5
6
60 70 80 90 100
2011
2012
After introducing guidelines (2010) and making them stricter (2011)
16 Sources: Ambita Land Registry, Norwegian Mapping Authority, Statistics Norway and Norges Bank
Estimated path for consumption during recessions
8
Number of quarters from start of recession. Percent
1) Strong growth is defined as a rise of more than one standard deviation above the average. The rise is the average
rise in the five years preceding the start of the recession.
Sources: BIS, Federal Reserve Bank of Dallas, OECD, Statistics Norway and Norges Bank
-4
-2
0
2
4
6
8
10
12
-4
-2
0
2
4
6
8
10
12
1 3 5 7 9 11 13 15
Average consumption path
Path after strong pre-recession rise in debt-to-GDP ratio
Stress test - Change in mainland GDP
18
Number of years from beginning of crisis. Percent
1) Percentage change from the beginning of the period.
2) "Banking crisis" shows the change in mainland GDP from 1987.
Sources: Statistics Norway and Norges Bank
-4
-3
-2
-1
0
1
2
3
4
5
6
-4
-3
-2
-1
0
1
2
3
4
5
6
1 2 3 4
Stress scenario 1
Stress scenario 2
Banking crisis²
19
0
2
4
6
8
10
12
14
16
18
0
2
4
6
8
10
12
14
16
18
2014 2015 2016 2017 2018 2019 2020
Stress test – Bank solvency Common Equity Tier 1 (CET1) capital ratio in stress scenario 1
1) Projections for 2016 Q3 – 2020 Q4.
Sources: SNL Financial and Norges Bank
20
0
2
4
6
8
10
12
14
16
18
0
2
4
6
8
10
12
14
16
18
2014 2015 2016 2017 2018 2019 2020
Stress test – Bank solvency Common Equity Tier 1 (CET1) capital ratio in stress scenario 2
1) Projections for 2016 Q3 – 2020 Q4.
Sources: SNL Financial and Norges Bank
21
22
EKSTRA
Households investment in housing
23
Sum of past four quarters. NOK billions. 2000 Q1 – 2016 Q2
Source: Statistics Norway
