MNI BRIEF: Norges Bank-High Household Debt Key Stability Risk

Many Norwegian households, particularly those with high leverage, are drawing down on savings in the face of higher interest rates, fueling financial stability risks, Norges Bank said in its latest Financial Stability Report.

The fact that many households are highly indebted and are spending a rising share of their incomes on debt interest payments "is the most serious vulnerability in Norway’s financial system," the report stated.

There is a rising risk of households becoming unable to service debt, with savings built up during Covid now being run down, and there is a higher risk that consumption will decline as higher debt interest costs bite.

On the monetary policy side, Norges Bank had previously indicated that it would hike again in December but it has left the door open to leaving policy on hold and the risk of consumption slowing will feed into the policy analysis. The Bank stressed, however, that Norway's commercial banks are well capitalised and could deal with potential losses from household and corporate defaults, with commercial real estate companies in particular vulnerable to higher interest rates if rent rises reverse.