Norway’s financial regulator said that banks exposed to oil-industry losses face a rise in impairments that will erode profits as the full effect of the slump in crude prices runs its course.
“Norwegian banks can expect to see somewhat increased losses and reduced earnings,” said Morten Baltzersen, director general of the Financial Supervisory Authority in Oslo.
However, banks will not see “a dramatic impairment of their solvency”, he added.
Shares in DNB, Norway’s biggest bank, fell as much as 3.2% at one point yesterday, its largest decline since July.
Norwegian banks have doubled their loan losses over the past year, writing down 0.34% of gross loans at the end of June.
At DNB, SR-Bank, and SpareBank 1 SMN, aggregate loan losses rose almost three-fold over the same period, according to Moody’s.
New accounting rules mean oil’s decline will continue to plague Norway’s banks even if crude rebounds, according to Geir Kristiansen, an equity analyst at Fondsfinans.
Revisions to international financial reporting standards “will make it more difficult to push losses forward”, he said.
Banks face a 2018 deadline to implement the rules and “will probably need to take losses up front to a larger degree if the market is still poor in 2018, which is not unlikely”.
MrBaltzersen said the FSA has “emphasised” to the banks it oversees the necessity of building adequate capital buffers to absorb losses on risky exposures.
“The banks have increased their capital ratios in the last years” and, as a result, “losses directly to the oil sector are expected to be manageable,” he said.
At DNB, chief executive Rune Bjerke said in July that the bank is “rebalancing” to reduce its exposure to shipping, commercial real estate and, “over time”, the offshore industry.
“However, in the event of a severe setback affecting the Norwegian economy on a broad front, the banks could suffer substantial losses across several parts of their loan books,” Mr Baltzersen said.
“This will be more challenging.”
Brent crude traded at about $47 a barrel yesterday, after falling 4% on Friday.
Despite a rally earlier in the year, oil is still down almost 60% from its June 2014 high of $115 a barrel.
Norwegian banks, which operate in western Europe’s biggest petroleum exporting nation, have been more exposed than most to the oil-market crash that started about two years ago.
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