Financial Stability 2/2000
Strong growth in household and enterprise debt - increased vulnerability for banks?
Norges Bank: Financial stability 2/2000
Credit growth has been high and accelerating this past year. The domestic credit indicator shows
that households, enterprises and municipalities increased their debt by more than 12% in the period
from September 1999 to end-September 2000. Growth in bank lending has been particularly strong.
After several years of high employment and solid income growth, moderate borrowing and an interest
rate level that has been substantially lower than it was at the start of the 1990s, most households
have relatively sound finances. However, the analyses presented in this report show that household
debt as a percentage of disposable income is now rising more strongly than it has for several years,
albeit from a low level. At the same time, it appears that net lending is declining.
The debt burden of the enterprise sector has increased sharply in recent years as a result of
large-scale borrowing. However, the analyses in the report indicate that the risk associated
with loans to enterprises has declined over the past year, partly because a substantial portion
of banks' new loans has been extended to sound enterprises. A high level of activity in the
Norwegian economy is also helping to maintain earnings at a high level, thereby making it easier
for enterprises to pay interest and instalments on debt.
The sharp growth in lending and more moderate growth in bank deposits have prompted banks
to rely increasingly on funding through foreign money and capital markets. Much of this
financing is short-term.
So far, higher household and enterprise debt has not been reflected in an increase in
non-performing loans or loan losses. Banks' loan losses have been exceptionally low in
the past few years. Although loan losses are low and earnings sound at present, the
increase in bank customers' debt and the change in the financing pattern may have put
banks in a somewhat more vulnerable position, should the economic situation in Norway
or abroad deteriorate, or in the event of turbulence in international financial
markets.
Svein Gjedrem
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