Norwegian Regulatory UpdateFinance Norway’s Capital Markets Day, London 6 April 2018

Director General Morten Baltzersen

Norwegian economy

- GDP and unemployment

London 6 April 2018

Non-performing loans

London 6 April 2018

Source: Finanstilsynet,

Non-performing, >30 days past due

Profitability

London 6 April 2018

Source: Finanstilsynet

Pre-tax profit and RoENet interest income, operating

costs and loan losses

Source: Finanstilsynet

Capital in Norwegian banks

London 6 April 2018

Source: Finanstilsynet

Common Equity Tier 1 Capital requirements

Source: Finanstilsynet

Capital levels across Europe

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Common Equity Tier 1 Leverage ratio

Source: EBA, 30.09.2017Source: EBA, 30.09.2017

Norwegian requirement as of June 2017:

5 pct. for all banks + 1 pct for SIFIs

CET1 and Leverage ratio

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Source: Banks’ quarterly reports, 31.12.2017

Nordic banks

London 6 April 2018

Source: Banks’ quarterly reports and Finanstilsynet, 31.12.2017

6. mars 2018 9

Sources: Finanstilsynet and Statistics Norway

Households’ debt burden and interest burden

Households’ debt burden

London 6 April 2018

Source: Statistics Norway

0

5

10

15

20

25

30

2006 2008 2010 2013 2015

Per

cent

300 -< 400 % 400 -< 500 % 500+ %

Share of households by debt burden Share of new residential mortgages by

interest lock-in period

Sources:Finanstilsynet, Statistics Sweden and Statistics

Denmark

House prices

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House prices deflated by disposable

income per capitaHouse prices

Source: Thomson Reuters Source: OECD

Residential mortgage lending regulations

Present regulations (apply until July 2018):

• Affordability test (interest rate increase of 5 percentage points)

• Debt-to-income (DTI) requirement (five times gross annual income)

• Loan-to-value (LTV) requirement (85% and 60% for secondary homes in

Oslo)

• Amortisation requirement (Mortgage loans with LTV above 60%)

• Flexibility quota (10%, 8% for mortgages in Oslo)

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FSA recommendation to the Ministry of Finance:

• Present regulations prolonged with some adjustments

• No differentiation by geography or by primary/secondary homes

• Flexibility quota 8 %

Consumer credit

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Domestic credit growth Net interest income and loan losses

Source: Finanstilsynet and Statistics Norway Source: Finanstilsynet

Consumer credit – Government

measures

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• New regulation of consumer credit marketing (2017)

• Regulation of invoicing of credit card debt (2017)

• Debt Information Act (2017)

• FSA Guidelines for prudent consumer lending practices (2017)

• Debt-servicing capacity

• Maximum debt-to-income

• Amortisation

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BRRD/DGSD implementation I

• Parliament passed legislation implementing both directives on 15 March

2018

– BRRD was incorporated into the EEA Agreement on 9 February 2018

– DGSD has not yet been incorporated into the EEA Agreement

• Finanstilsynet appointed as Resolution Authority

– Decisions of significance for financial stability, on resolution plans for larger

institutions and bail-in are to be approved by MoF prior to implementation

– Operational separation between resolution and supervision

• MREL – Key issues

– MREL – level and scope

– Subordination

BRRD/DGSD implementation II

• DGS still to be managed by the Norwegian Banks’ Guarantee Fund

– Board appointed by Ministry of Finance

• Current fund constitutes 2.7 pct. of covered deposits as of 31.12.2017

• Fund to be split into Deposit Guarantee Fund and Resolution Fund

– 1.2 pct. and 1.5 pct. of covered deposits respectively (DGSG target level 0.8 pct.

and BRRD target level 1 pct. in 2024)

• Models for contributions to be decided upon

– Modest increase in total contributions compared to current level expected

– Risk based contribution regime to be developed

• Business model risk

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Life insurance – solvency

London 6 April 2018

Solvency coverage ratio• Solvency II capital

requirements met through:

• Retained profits

• Cost reductions

• Risk mitigating measures

Source: Finanstilsynet

Fintech

• The Norwegian financial industry early adopters of advanced

digitalisation

• Mixed experiences with financial innovation

• Neutral regulation: Similar product/risk should be treated

equally, irrespective of provider (ex. crowdfunding vs. banks)

• Regulation should not impede technological innovation in

financial services, however, consumer protection and financial

stability must be ensured

• Operational risk: Focus on secure and stable services

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Summary

• Norwegian banks are well capitalised, profitable and cost

efficient, giving them a good basis going forward

• Systemic risk: Household indebtness and elevated house prices

• Life insurance industry has adapted to Solvency II

• Technological innovation welcome, provided secure and stable

services

London 6 April 2018