With talk swirling about the Norwegian interest rate heading to zero, the nationâ€™s finance minister is confident its banks can withstand the added pressure to their balance sheets.
â€œThe Norwegian banking system is very robust and has been able to adjust quickly to the new demands in regulatory framework,â€ Siv Jensen said in Oslo. â€œThey are robust enough to face changing economic times in Norway.â€
That change may even mean negative interest rates, which have spread across the continent and are pressuring bank earnings. For banks in western Europeâ€™s biggest oil producer that would add to difficulties already faced from the worst crude plunge in a generation.
Norwayâ€™s banks already face tougher capital requirements as the regulator forces the industry to gird itself against stressed economic conditions. DNB ASA, the nationâ€™s biggest, saw its profit rise in the fourth quarter, while loan impairments increased. The regulator this year said thereâ€™s reason to fear that the proportion of bad loans might be higher than levels reported by the financial industry.
The central bankâ€™s main rate is now at a record low of 0.75 percent after three cuts since 2014 and policy makers in December signaled as many as two more reductions this year. But with Brent stuck in the $30s and the cracks in the economy becoming more pronounced, Nordea Bank AB expects policy makers will need to go all the way down to zero by year end.
â€œThatâ€™s probably needed to prevent the krone from strengthening too much,â€ said Erik Bruce, senior economist at Nordea. Negative rates in Sweden, Denmark and in the euro zone are dragging Norway along, he said.
Norway is already reaching into its $830 billion sovereign wealth fund for the first time to plug widening budget gaps as it copes with rising recessionary risks.
The government in January withdrew 6.7 billion kroner ($781 million) from the fund, according to the Norwegian Government Agency for Financial Management.