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Figur 1.1 Aksjemarkeder

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Figur 1.1 Aksjemarkeder Powered By Docstoc
					The Financial Market of Norway
  - Stability and Challenges

          Bjørn Skogstad Aamo
             Director General


   Sparebanken Møre’s Banking Seminar
          Ålesund, 3 June, 2004
                     Main Points

● Banks’ results in 2003 and Q1 2004
● Credit risk
   ● Home mortgage loans and loan-to-value ratio
   ● Households’ sensitivity to interest rate increases
   ● Business sector
● Results in non-life insurance
● Challenges for life insurance companies
                  Banks’ loan losses and profit

                 4
                 3
Percent of ATA




                 2
                 1
                 0
                 -1
                 -2
                 -3
                   1991   1993 1995 1997 1999 2001       2003
                            Pre-tax profit Loan losses
   Banks’ net interest income
     and interest spreads
           6,0

           5,0

           4,0
Per cent




           3,0

           2,0

           1,0

           0,0
              1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
                      Net interest income (as % of average total assets)
                      Interest margin
                 Banks’ loan defaults
                        (per cent of gross loans)

10
 9
 8
 7
 6
 5
 4
 3
 2
 1
 0
 1990        1992        1994         1996          1998     2000       2002

        Three largest           Other comm. banks          Other savings banks
                Banks’ results 1st quarter 2004
All Norwegian banks                                        Q1-2004                Q1-2003
                                                    NOK million % of ATA * NOK million % of ATA
Interest income                                         16 411      4,08       25 586      6,96
Interest expenses                                        8 919      2,22       17 916      4,87
Net interest income                                      7 493      1,86        7 670      2,09
Other operating income                                   3 533      0,88        2 530      0,69
of which net gain on FX and financial instruments          934     0,23           531     0,14
Operating expenses                                       7 198     1,79         6 256     1,70
Operating profit before provisions and losses            3 828     0,95         3 944     1,07
Losses on loans and guarantees                             507     0,13         1 774     0,48
Net gains on financial fixed assets                      1 311     0,33           (22)   -0,01
Pre-tax operating profit                                 4 632     1,15         2 148     0,58
Taxes                                                    1 220     0,30           532     0,14
Profit for the period                                    3 412     0,85         1 616     0,44
Return on equity (ann.)                                 13,0 %                  6,5 %

Core capital ratio                                        9,3 %                  9,5 %
Growth in gross lending to customers                      7,3 %                  6,6 %
Growth in deposits from customers                         3,7 %                  7,2 %

* ATA = Average Total Assets
     Growth in credit to households and non-
              financial enterprises
                17,5


                15,0


                12,5                                              Households, 11,4 percent

                10,0
     Per cent




                 7,5


                 5,0


                 2,5


                 0,0

                                                Non-financial enterprises, -1,1 per cent
                -2,5
                       96   97   98   99   00         01            02             03       04

                                                                                   Source: EcoWin
Source: Norges Bank
    Households’ debt and interest burden as
        percent of disposable income
                            160                                                                              12

                                                                                             Q4-2003         11
                            150
                                                                                             148 per cent
                                                                                                             10
                            140
                                                                                                             9
             Per cent




                                                                                                                  Per cent
                            130                                                                              8

                                                                                                             7
                            120
                                                                                              Q4-2003
                                                                                              6,2 per cent   6
                            110
                                                                                                             5

                            100                                                                              4
                             7

                                      9

                                               1

                                                       3

                                                               5

                                                                       7

                                                                                9

                                                                                         1

                                                                                                 3
                           .8

                                      .8

                                              .9

                                                      .9

                                                              .9

                                                                      .9

                                                                                .9

                                                                                        .0

                                                                                                 .0
                        ar

                                   ar

                                           ar

                                                   ar

                                                           ar

                                                                   ar

                                                                             ar

                                                                                     ar

                                                                                              ar
                        m

                                  m

                                           m

                                                   m

                                                           m

                                                                   m

                                                                           m

                                                                                     m

                                                                                             m
                                  Burden of debt (left axis)               Interest burden (right axis)

Sources: Norges Bank and Statistics Norway.
The figures for 2003 are estimated by Norges Bank.
           Households’ interest rate sensitivity

                          2001                          2005                          2005
                                                                              Interest rate at 2001 level
Interest        Number         Percentage       Number        Percentage      Number        Percentage
burden          (thousands)    of total debt    (thousands)   of total debt   (thousands)   of total debt



0.1–19.9%         1 304              59          1 421            74           1 132             43

20–30 %            188               24           108             16            257              27

Over 30 %           85               16            41              9            182              29

Sources: Statistics Norway and Kredittilsynet
Kredittilsynet’s home mortgage survey 2004:
             Loan-to-value ratios


50 %

40 %

30 %

20 %

10 %

0%
       below 60%     60-80%             80-100%   above 100%

                   2001   2002   2003   2004
Kredittilsynet’s home mortgage survey 2004:
             Loan-to-value ratios

50 %

40 %

30 %

20 %

10 %

0%
       Below 60%   60-80%                80-100%   Above 100%

                   Purchase/Self build     Other
Mainland enterprises’ debt and interest burden

                  750                                                                          75

                  700                                                                          70

                                                                                Q4 - 2003      65
                  650                                                           611 per cent
                                                                                               60
                  600                                                                          55
       Per cent




                                                                                                    Per cent
                  550                                                                          50

                  500                                                                          45
                                                                                Q4 - 2003      40
                  450                                                           41 per cent
                                                                                               35
                  400                                                                          30
                  350                                                                          25
                        1987   1989   1991     1993    1995   1997    1999    2001     2003

                               Burden of debt (left axis)     Interest burden (right axis)


Sources: Norges Bank and Statistics Norway
Kredittilsynet’s survey on exposure to
          selected industries
    Industry          Loan             Amount     High risk as per
                   commitments          drawn     cent of amount
                                                      drawn
                  NOK       Annual      NOK       30.09.02   30.09.03
                  billion   growth      billion
                            per cent

 Shipping         105.0       1.7       79.9        5.3        8.7
 Shipbuilding      6.8       -46.5       4.1       14.5       13.4
 Offshore         16.5       19.4        9.4       12.4        4.9
 Oil/gas          20.6       -34.6       8.8        3.2        4.3
 extraction
 Fish farming     17.7       17.9       15.8       38.6       44.5
 and hatcheries
 Property         136.3       7.4       120.0       6.2        7.9
 management
Increased credit risk in the medium term
● The Norwegian banking sector emerges from the
  recession without major problems
● Low interest rates reduce banks’ credit risk in 2004.
● Outlook for the Norwegian business sector improved,
  but some industries still vulnerable
● Persistent strong growth in households’ borrowing will
  substantially increase interest burden when interest
  rates start increasing
● With interest rates at 2001 level in 2005/2006, a
  sensitivity analysis shows that almost 450 000
  households will have interest expenses of more than
  20 % of income, and near 200 000 households more
  than 30 %
              Credit risk for banks (2)
● Renewed strong growth in residential property markets
  and very strong growth in home mortgage loans
● High and increasing loan-to-value ratios on banks’ new
  home mortgage loans
   ● Loan-to-value ratios in excess of 80 % for 40 % of new loans,
     compared to 30 % in March 2003
   ● More than 60% of loans, where the purpose is purchase of new
     houses, have a loan-to-value ratio above 80%
● Spillover effects to real estate markets and parts of the
  business sector may reinforce the banks’ problems if a
  large number of households must reduce their
  consumption
● Financial stability considerations call for a gradual
  increase in interest rates
a c c o u n t
o w n
           Non-life insurance companies’results
                                                    (three largest groups)
fo r
in c o m e




                 30

                 20

                 10
p r e m iu m




                  0

                -1 0
c e n t o f




                -2 0
                            2000                             2001                            2002                               2003
P e r




                       R e s u lt o f t e c h n ic a l a c c o u n t , e x c . a llo c a t e d in v e s t m e n t r e t u r n
                       N e t in c o m e o n f in a n c ia l a s s e t s , in c l. o t h e r r e v e n u e s / e x p e n s e s
                       R e s u lt o f o r d in a r y o p e r a t io n s
    Improvement in non-life insurance


● Substantial increase in financial revenues in
  2003 and 1st quarter 2004
● Improved technical accounts
● Technical accounts reflect strong premium
  growth in 2003. No further increase in premiums
  appears to be needed ahead
                                        Life insurance companies’ results
                                   12
Per cent of average total assets




                                   10
                                    8
                                    6
                                    4
                                    2
                                    0
                                   -2
                                   -4
                                        1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003


                                                  Value-adjusted    Accounting results
Life insurance companies’ buffer capital



                           12 %
Per cent of total assets




                           10 %

                           8%

                           6%

                           4%

                           2%

                           0%
                                   4Q   1Q     2Q   3Q     4Q   1Q       2Q   3Q      4Q     1Q   2Q     3Q   4Q     1Q   2Q     3Q   4Q
                                  1999 2000   2000 2000   2000 2001     2001 2001    2001   2002 2002   2002 2002   2003 2003   2003 2003

          Fluctuation Reserves                 Additional statutory allocations   Core capital (excess amount)
                       Per cent of total assets




                            0
                            5
                           10
                           15
                           20
                           25
                           30
                           35
                           40
             Shares etc.




31.12.1999
              (Current)



                Bonds
               (Current)




31.12.2000
                Money
                market
             instruments




31.12.2001
               Bonds to
               maturity


31.12.2002
             Real estate
                                                            composititon




31.12.2003




                  Loans




                  Other
                                                  Life insurance companies’ asset
                                  Life insurance companies’ equity
                                       holdings in the EEA area
                             60

                             50
  Per cent of total assets




                             40

                             30

                             20

                             10

                             0
                                             Belgium




                                                                                                                                       Luxembourg
                                                       Denmark




                                                                                     Germany
                                                                 Finland




                                                                                                                                                                                                               Total
                                                                                                                                                                             Portugal




                                                                                                                                                                                                          UK
                                                                                                                              Italy*
                                                                                               Greece*

                                                                                                         Iceland

                                                                                                                   Ireland*




                                                                                                                                                                                        Spain*
                                                                                                                                                                    Norway




                                                                                                                                                                                                 Sweden
                                                                                                                                                    Netherlands*
                                                                           France*
                                   Austria




                                  * Estimate as of 31.12.2002                                                                 31.12.1999                           31.12.2002



Source: National supervisory authorities
          Challenges in life insurance
● Profit improvement in 2003 and 1st quarter 2004. The
  low equity component has reduced the impact of equity
  market recovery on profits and buffer capital
● Continued growth in bonds held to maturity
● Low interest rates, and the combination of guaranteed
  annual minimum interest rate and profit allocation rules,
  imply a major challenge in terms of assuring a
  satisfactory long-term return on managed assets
● Priority should be given to building up of buffer capital
● The authorities should consider changes in the
  regulatory framework for long-term pension insurance
                        Summary
● Profit improvement for banks, but declining net interest
  revenues
● Reduced credit risk in the short term, but a build-up of
  credit risk in the medium term
● Lower liquidity risk in 2003, but low deposit growth may
  increase liquidity risk in the medium term
● Financial strength still satisfactory for the banking sector
  as a whole
● Markedly improved results in non-life insurance
● Continuing substantial challenges for life insurance
  companies

  Norwegian financial industry’s situation satisfactory in
  the short term. Problems might occur in the medium to
  longer term.

				
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