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Financial Stability May 2005 Charts Summary Chart 1 Banks pre-tax profit, before and after loan losses, as a percentage of average total assets1) 1.6 1.6 1.4 Before loan losses 1.4 1.2 1 1.2 1 0.8 0.8 0.6 0.6 After loan losses 0.4 0.2 0 0 1998 1999 2000 2001 2002 2003 2004 1) 0.4 0.2 Excluding branches of Norwegian banks abroad Source: Norges Bank Chart 2 Household borrowing rate after tax deflated by consumer price inflation1) and inflation expectations.2) Per cent 8 7 6 5 4 3 2 1 0 -1 -2 1987 Deflated by consumer price inflation Deflated by inflation expectations 1991 1995 1999 2003 CPI excluding energy products until 1995, Norges Bank’s calculations for CPI adjusted for taxes changes and excluding energy products until 2000 Q2, after that CPI-ATE 2) Set equal to the inflation target of 2.5 per cent 1) Sources: Statistics Norway and Norges Bank 8 7 6 5 4 3 2 1 0 -1 -2 Chart 3 Credit to mainland Norway. 12-month growth. Per cent 28 Non-financial enterprises1) 24 20 16 Households2) 12 8 4 0 -4 1996 1997 1998 1999 2000 2001 2002 2003 2004 It is assumed that all credit from foreign sources to mainland Norway goes to non-financial enterprises 2) Households’ domestic debt 1) Source: Norges Bank 28 24 20 16 12 8 4 0 -4 Chart 4 Bankruptcies. Seasonally adjusted figures. Index, 1998 Q4 = 100 350 Turnover1) 300 250 200 Number employed1) 150 100 350 300 250 200 150 Number of bankruptcies 50 100 50 0 0 1999 2000 2001 2002 2003 2004 2005 Turnover and employment in last normal operating year for bankrupt entities 1) Sources: Statistics Norway and Norges Bank Chart 5 Prices for commercial properties in Norway. 12-month rise. Per cent 20 20 15 15 10 10 5 5 0 0 -5 -5 -10 1997 1998 1999 2000 2001 2002 2003 2004 Source: Statistics Norway -10 Chart 6 Banks’ holdings of gross non-performing loans to households and enterprises.1) Percentage of gross lending to municipalities, the non-financial sector and households 2.0 2.0 1.5 1.5 Enterprises 1.0 1.0 0.5 0.0 1999 0.5 Households 2000 2001 2002 2003 2004 0.0 2005 Excluding branches of Norwegian banks abroad. Including branches of foreign banks in Norway 1) Source: Norges Bank Chapter 1 Chart 1.1 Real GDP increase forecasts for 2005 and 2006 as of May 2005. Per cent Latin America Eastern Europe Asia ex Japan Japan 2005 2006 Western Europe North America World 0 1 2 Source: Consensus Forecasts 3 4 5 6 7 Chart 1.2 Moody’s Bank Financial Strength Index1) US UK Dec 04 Dec 03 Dec 02 Japan Germany Denmark Sweden Norway 0 20 40 60 80 100 The index is constructed according to a numerical scale assigned to Moody’s weighted average bank ratings by country. Poorest financial strength corresponds to 0, best to 100 1) Source: IMF Chart 1.3 International bank equity indices. Indexed, 01.01.2004 = 100 170 170 Norway 150 150 Japan 130 130 110 110 Europe 90 Jan 04 Apr 04 Source: EcoWin Jul 04 Oct 04 Jan 05 US Apr 05 90 Chart 1.4 International house price indices. Indexed, Q1 1995 = 100 300 300 UK 250 200 200 Norway 150 100 250 150 100 US 50 50 Australia 0 0 1975 1980 1985 1990 1995 2000 2005 Sources: EcoWin and Norges Bank Chart 1.5 Hedge funds. Number of funds and assets under management in billions of USD 10000 1000 9000 900 8000 Number of funds (left-hand scale) 800 7000 700 6000 600 5000 4000 1999 Source: IMF Assets under management (right-hand scale) 2000 2001 2002 2003 500 400 2004 Chart 1.6 Yield spread between corporate bonds1) and government bonds. Per cent 5 5 4 4 3 3 US 2 2 1 1 0 2002 1) Eurozone BBB rated Source: EcoWin 2003 0 2004 2005 Chart 1.7 International equity indices. Indexed, 01.01.2005 = 100 160 160 Europe Stoxx 140 140 Japan Topix 120 120 100 100 80 80 60 40 2000 Norway OSEBX 2001 Source: EcoWin 60 US S&P 500 2002 2003 2004 2005 40 Chart 1.8 Implied volatility in the US and Norwegian equity markets. Per cent 50 50 40 40 30 30 US 20 20 10 10 Norway 0 1994 0 1996 1998 2000 2002 Sources: EcoWin and Oslo Stock Exchange 2004 Chart 1.9 P/E based on earnings in the last five years. Monthly figures and periodic mean 45 40 35 30 25 20 15 10 5 0 US Europe Mean US Mean Europe Norway Mean Norway 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Sources: Thomson Datastream and Norges Bank 45 40 35 30 25 20 15 10 5 0 Chart 1.10 Sub-indices on the Oslo Stock Exchange. Indexed, 01.01.2000 = 100 250 250 Finance 200 150 200 Industrials2) Energy 150 100 100 OSEBX 50 50 ICT1) 0 2000 1) Average 2) Average 0 2001 2002 2003 2004 of the telecom index and the IT index of the industrials index and materials index Source: EcoWin 2005 Chart 1.11 Correlation between the oil price and equity indices since January 19961) Utilities Telecom IT Financials Health care Consumer staples Consumer discretionaries Industrials Materials Energy US Norway -0.2 -0.1 0 0.1 0.2 0.3 0.4 Total return indices of standardised sectors (GICS). Correlation coefficient for relative change over 20 days 1) Sources: EcoWin og Norges Bank Chart 1.12 New issues at the Oslo Stock Exchange last twelve months. Billions of NOK 20 80 Corporate bonds (right-hand scale) 70 15 60 50 10 40 30 5 20 Shares (left-hand scale) 0 Jul 02 10 0 Jan 03 Jul 03 Jan 04 Jul 04 Jan 05 Sources: Oslo Stock Exchange and Norges Bank Box: Risk premiums in the equity market Chart 1 Realised risk premium in the US and Norway 1909-2004. Moving ten-year geometric average measured against bonds. Per cent 20 20 US 15 15 10 10 5 5 0 0 -5 -10 1909 -5 Norway -10 1927 1945 1963 1981 1999 Sources: Norges Bank and Global Investment Returns Yearbook 2005 Chart 2 Risk premium in the Norwegian equity market, based on a three-stage dividend discounting model. Per cent 2.5 2.5 2.0 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 2002 2003 2004 2005 Sources: Norges Bank, Thomson Datastream og EcoWin JCF Chapter 2 Chart 2.1 Gross fixed capital formation in percentage of mainland GDP 30 30 25 25 20 20 15 15 10 10 5 5 0 1987 1990 1993 1996 1999 2002 0 Source: Statistics Norway Chart 2.2 Credit as a percentage of GDP 180 180 Total credit to mainland Norway2) 170 170 160 160 150 150 140 140 130 120 110 1987 1) 2) 130 Credit from domestic sources (C2)2) Total credit (C3)1) 120 110 1990 1993 1996 Percentage of GDP Percentage of mainland GDP Source: Norges Bank 1999 2002 Chart 2.3 Growth in household credit.1) Per cent 20 15 20 Domestic credit to households Mortgage loans 15 10 10 5 5 Other loans 0 0 -5 1997 -5 1999 1) Twelve-month 2001 2003 2005 growth in domestic credit. Four-quarter growth in mortgage loans and other loans Source: Norges Bank Mortgage loans as a percentage of GDP Chart 2.4 Housing indicators in selected countries in 2003 120 The Netherlands 100 UK Denmark 80 60 Germany Sweden2) 40 Norway1) Australia US Canada Japan Ireland France 20 Spain Italy 0 0 20 40 60 80 100 120 Ownership ratio (per cent) 1) Total 2) Total mortgage loans as a percentage of GDP household debt in Sweden as a percentage of GDP Sources: IMF, Eurostat, Statistics Norway and Norges Bank Chart 2.5 Household debt and estimated contributions from explanatory factors in the model. Contribution in percentage points to 4-quarter growth1) 14 14 10 10 6 6 2 2 -2 -2 02 Q1 03 Q1 House prices Interest rate Unemployment Debt 04 Q1 05 Q1 Housing construction Share of students Housing turnover Values for interest rate and housing construction in 05 Q1 are based on estimates from Inflation Report 1/2005 1) Source: Norges Bank Chart 2.6 Housing turnover and housing starts in thousands. 12-month change in house prices in per cent 55 55 Housing turnover 45 45 35 35 Housing starts 25 25 15 15 House prices 5 5 -5 1999 -5 2000 2001 2002 2003 2004 2005 Sources: Association of Norwegian Real Estate Agents (NEF), Association of Real Estate Agency Firms (EFF), Statistics Norway and Norges Bank Chart 2.7 Transactions in household gross debt and in financial assets1) by investment instrument. Total last four quarters. NOK billion 140 Transactions in gross debt 120 100 80 Other Insurance claims 80 60 40 40 Securities 20 1) Excluding 120 100 60 0 1997 140 Bank deposits 20 0 1999 2001 2003 estimated reinvested dividend payments since 2001 Source: Norges Bank Chart 2.8 Household debt after income groups.1) Proportion of total debt in each country. Percent 60 60 50 50 Norway 40 Sweden 40 30 30 20 20 10 10 0 0 1 2 3 4 1) Group 5 1 consists of the first 20 per cent of households in the population sorted by income. Group 2 the next 20 per cent etc.. Sources: Sveriges Riksbank, Norges Bank and Statistics Norway Chart 2.9 Household debt after interest burden. 1) In billions of NOK 2000 2000 1600 1600 1200 1200 800 400 Interest burden > 20 % Interest burden < 20 % 800 400 0 0 2) 1987 1990 1993 1996 1999 2002 2005 2008 1) 2) Interest paid in per cent of income after tax Forecasts for the period 2003 - 2008 Sources: Norges Bank and Statistics Norway Chart 2.10 Household debt burden1) 220 220 200 200 180 180 160 160 140 140 120 120 100 1987 100 1991 1995 1) Loan 1999 2003 2007 debt as a percentage of liquid disposable income (disposable income less the return on insurance claims) Source: Norges Bank Chart 2.11 Household interest burden1) and household borrowing rate after tax 12 12 Interest burden 10 10 8 8 6 6 4 4 Borrowing rate after tax 2 0 1987 2 0 1991 1995 1999 2003 2007 Interest expenses after tax as a percentage of liquid disposable income plus interest expenses 1) Source: Norges Bank Chart 2.12 Pre-tax return on equity for companies listed on Oslo Stock Exchange.1) Per cent 40 40 Total 30 30 20 20 10 10 0 0 Excl Statoil and Hydro -10 -10 -20 -20 2002 2003 2004 1) Companies registered in Norway with the exception of banks and insurance companies Sources: Statistics Norway, Statoil and Hydro 2005 Chart 2.13 Expected default probabilities for large Norwegian unlisted enterprises.1) Per cent 16 14 16 14 90 percentile 12 12 10 10 8 8 6 75 percentile 6 4 4 2 0 2000 2 Median enterprise 0 2001 2002 2003 2004 2005 Non-financial enterprises with turnover of more than NOK 70 million. Probability of default within a year 1) Source: Moody’s KMV Chart 2.14 Credit to mainland non-financial enterprises.12-month growth. Per cent 12 12 Domestic credit 8 4 8 4 Total credit 0 0 -4 -4 Credit from foreign sources -8 2002 -8 2003 Source: Norges Bank 2004 2005 Chart 2.15 Enterprises’ fixed investment and credit to non-financial enterprises. 4-quarter real growth. Per cent 40 30 Total credit to nonfinancial enterprises mainland Norway2) 40 30 20 20 10 10 0 0 -10 -10 -20 Fixed investment1) -20 -30 -30 1990 1992 1994 1996 1998 2000 2002 2004 Mainland fixed investment excluding public sector investment and households’ housing investment 2) Deflated by GDP deflator for mainland Norway 1) Sources: Statistics Norway and Norges Bank Chart 2.16 Non-financial enterprises’ financing and financial assets1) Stocks. In billions of NOK 1,000 1,000 500 500 0 0 -500 -500 -1,000 -1,000 -1,500 -1,500 -2,000 -2,000 -2,500 -2,500 1995 1997 1999 2001 2003 Loans Bonds/notes Paid-in equity Retained earnings Bank deposits Financial fixed assets 1) The figures do not include debt relationships between nonfinancial enterprises. Non-financial enterprises include both public sector and private enterprises Source: Norges Bank Chart 2.17 Total area of office premises in Oslo, Bærum and Asker in millions of square meters, and vacant premises in per cent of total area1) 10 Vacant premises (right-hand scale) Total area (left-hand scale) 8 12 10 8 6 6 4 4 2 2 0 0 1991 1993 1995 1997 1999 2001 2003 2005 1) As of February Source: Eiendomsspar AS Chart 2.18 Debt and interest burden in non-financial enterprises excluding enterprises in the oil and gas industry and shipping. Per cent of cash surplus1) 80 800 2) 70 Debt burden (right-hand scale) 700 60 600 50 500 40 400 30 20 Interest burden3) (left-hand scale) 10 300 200 100 0 0 1987 1990 1993 1996 1999 2002 2005 2008 The cash surplus is adjusted by estimates for reinvested dividends in the period 2001-2004 2) Cash surplus (computation of debt burden) = Value added – labour costs + net capital income 3) Cash surplus (computation of interest burden) = Value added – labour costs + capital income 1) Sources: Statistics Norway and Norges Bank Box: What influences the number of bankpruptcies? Chart 1 Annual percentage change in bankruptcies and calculated contributions from explanatory variables in percentage points. Measured in real terms 50 50 30 30 10 10 -10 -10 -30 -30 -50 -50 1st half 02 1st half 03 Bankruptcies Competitiveness Wage costs 1st half 04 Material costs Interest rate Demand (dom. and foreign) Sources: Statistics Norway and Norges Bank Q1 05 Debt Property prices Number of firms (new firms) Box: Small enterprises more exposed to risk than large enterprises Chart 1 Distribution of different variables between enterprises with different balance sheet totals at year-end 2003. 0 - 1 million 1 - 10 million 10 - 100 million More than 100 million 100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% 0% Number of Total assets Bank debt Risk-weighted 1) enterprises debt Risk-weighted debt = Bankruptcy probability multiplied by the bank debt of each enterprise totalled for all enterprises in the group 1) Source: Norges Bank Chapter 3 Chart 3.1 Banks’ profit/loss.1) Percentage of average total assets 4 3 2 1 0 -1 -2 -3 4 3 2 1 0 -1 -2 -3 1999 2000 2001 2002 2003 2004 Q1 Q1 2004 2005 Net interest income Operating expenses Write-down Other operating income Loan losses Pre-tax profit/loss Excluding branches of foreign banks in Norway and branches of Norwegian banks abroad 1) Source: Norges Bank Chart 3.2 Banks’ deposit and lending margins, and total interest margin.1) Per cent 4 3 Total interest margin Lending margin 2 1 4 3 2 Deposit margin 0 1998 1999 2000 2001 2002 2003 2004 1 0 Interest margin is defined as the average of lending rates (excluding non-accrual loans) minus the average of deposit rates. 3-month money market rate (NIBOR) is used to split the interest margin into lending margin and deposit margin. The chart shows a moving average over the last four quarters 1) Source: Norges Bank Chart 3.3 Moody’s rating for financial strength and financial groups’ Tier 1 capital ratio.1) As at 31.03.20052) Tier 1 capital ratio 10 10 9 8 97 6 85 4 73 2 61 E 0 Sp.b. Vest og Sp.b. Nord-N. 10 9 SR-Bank 8 SEB Fokus Nordea Norge DnB NOR Nordea FöreningsSp.b. Spb. Midt-N. C C+ B- B B+ Handelsbanken Danske Bank 6 A- A A+ Financial strength 1) Banks include results for Q1 2005 in their Tier 1 capital ratio to a variable degree 2) Fokus Bank’s Tier 1 capital ratio as at 31.12.2004 Source: Banks’ websites 7 Chart 3.4 Norwegian banks’ lending to households and enterprises.1) Percentage of gross lending to households, non-financial enterprises and municipalities 100 100 90 90 80 80 Households 70 70 60 60 50 50 40 40 30 30 Enterprises 20 20 10 10 0 0 Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 1) Non-financial enterprises. Including branches of foreign banks Source: Norges Bank Chart 3.5 Mortgage loans to households according to loan-to-asset value. Per cent 40 80-100 per cent Over 100 per cent 40 30 30 20 20 10 10 0 0 spring spring Feb 99 Mar 00 Mar 01 Mar 02 Mar 03 Nov 03 Sep 04 97 98 Source: Kredittilsynet (Financial Supervisory Authority of Norway) Chart 3.6 Growth of loans to the enterprise sector from the largest banks. Twelve-month growth. Quarterly figures. Per cent 15 10 15 3rd-5th largest banks1) 5 10 5 All banks 0 0 DnB NOR and Nordea -5 Dec 02 Apr 03 Aug 03 Dec 03 Apr 04 Aug 04 Dec 04 3rd-5th largest in the lending market: Fokus Bank, Handelsbanken (Swedish branch) and Sparebank 1 SR-bank 1) Source: Norges Bank -5 Chart 3.7 Percentage distribution of commercial loans.1) All banks Other Property management Services Manufacturing and mining Wholesale and retail trade 2004 Primary ind. (excl. fish-farm.) 2003 Construction 2002 Hotel and restaurant Fish-farming 0 5 10 15 20 25 30 35 Commercial loans comprise both lending to non-financial enterprises and households including the self-employed 1) Source: Norges Bank Chart 3.8 Turnover and liquidity in NBO. In billions of NOK (left-hand scale) and as a ratio (right-hand scale) 250 3 200 2 150 100 1 50 0 0 2000 2001 2002 Turnover Turnover/liquidity Source: Norges Bank 2003 2004 1.kv. 05 Liquidity (start of day) Chart 3.9 Banks’ financing.1) Percentage of gross lending 70 70 60 60 Deposits from nonfinancial sector 50 50 40 Deposits/loans from financial institutions 30 Bonds 20 10 1) 2000 2001 2002 Excluding branches of foreign banks Source: Norges Bank 30 20 Notes and short-term paper 0 1999 40 10 2003 2004 0 2005 Chart 3.10 Developments in banks’ liquidity indicator 110 110 DnB NOR1) 100 100 90 90 80 1999 1) 2) Other Norwegian banks3) 2000 2001 2002 2003 2004 80 2005 Nordlandsbanken included Excluding Nordea, Fokus Bank and branches of foreign banks Source: Norges Bank Chart 3.11 Banks’ short-term foreign debt.1) Percentage of gross lending 30 30 Nordea and Fokus Bank 25 25 20 20 15 10 15 DnB NOR2) 10 Other Norwegian banks 5 0 1999 5 2000 2001 1) Deposits 2002 2003 2004 0 2005 and loans from other financial institutions and shortterm paper. Excluding branches of foreign banks. 2) Nordlandsbanken included Source: Norges Bank Chart 3.12 Banks’ net debt to foreign lenders (liabilities minus assets). Monthly figures 350 300 30 Billions of NOK (left-hand scale) 250 20 200 150 100 Percentage of total assets (right-hand scale) 10 50 0 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source: Norges Bank Chart 3.13 Sum of the surveyed banks’ exposures to their 15 largest counterparties. By different types of exposure. In billions of NOK 160 140 120 100 80 60 30/06/01 31/12/01 30/06/02 31/03/03 31/03/04 31/03/05 40 20 0 120 100 80 60 40 20 0 Derivatives Securities Depsosits/ Guarantees/ FX 1) loans unused credit settlement 1) 160 140 The white areas illustrate FX settlement secured through CLS Source: Kredittilsynet (Financial Supervisory Authority of Norway) and Norges Bank Chart 3.14 Tier 1 capital ratio for the banks surveyed when either the largest, second largest or third largest counterparty fails to settle.1) Number of banks 10 9 8 7 6 5 4 3 2 1 0 4-7% < 4% 123 123 123 Over 8% 7-8% 123 123 123 Jun 01 Dec 01 Jun 02 Mar 03 Mar 04 Mar 05 1) All exposures, except FX settlement. It is assumed that there is no dividend from the estate Source: Kredittilsynet (Financial Supervisory Authority of Norway) and Norges Bank 10 9 8 7 6 5 4 3 2 1 0 Chart 3.15 Annual losses, depleting buffer capital over three years, measured as a percentage of gross lending. Seven largest Norwegian bank groups (A-G), and average for these groups in 2003 and 2004 5 5 Annual average loss in the period 1990-92 4 4 3 3 2 2 1 1 0 0 A B C With zero results Source: Norges Bank D E F G 2003 2004 With results as in 2004 Box: Loans to households other than mortgage loans Chart 1 Loans other than mortgage loans to households and wage-earners from banks and financial undertakings (including state lending institutions). In billions of NOK 350 300 250 200 150 100 50 0 350 300 250 200 150 100 50 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 Households Source: Norges Bank Wage-earners Box: Risk associated with loans to various industries Chart 1 The largest Norwegian banks’ lending1) and expected loan losses2) to selected industries. Per cent Expected loan losses 3 Agriculture & fishing 2 Increasing exposure and increasing risk Trade/ Hotel & rest. Construction/ Electr.& water 1 Transport Oil/gas 0 0 Commercial services Manufacturing/mining International shipping 10 20 Property management 30 40 Share of lending to the industry Per cent of total lending to the non-financial enterprise sector at 31.12.2004 2) Expected loan losses = Probability of bankruptcy * bank debt in the individual enterprise. Aggregated for all the enterprises in the industry. Per cent of total bank debt in the non-financial enterprise sector at 31.12.2003. Interpretation: Expected loan losses related to bankruptcy, excluding realisation of collateral 1) Source: Norges Bank Chart 2 The largest Norwegian banks’ Tier 1 capital ratio1) and risk weight2) 6 Risk weight 5 4 3 2 1 0 4 5 6 7 8 9 10 11 12 13 14 15 16 Tier 1 capital (%) Tier 1 capital ratio at 31.12.2004. Parent bank The individual bank’s share of lending to selected industries (at 31.12.2004) * expected loan-losses to the industry (at 31.12.2003). The sum of all industries is weighted with the bank’s total share of lending to the non-financial enterprise sector 1) 2) Source: Norges Bank Box: Banks’ financial position is more robust today than prior to the banking crisis Chart 1 Households financial assets1) and housing wealth as a percentage of debt 180 180 Housing wealth 160 160 140 140 Financial assets 120 100 100 80 1987 1) Break 120 80 1990 1993 1996 in the statistics for 1995 Q4 Source: Norges Bank 1999 2002 Chart 2 Risk indicators for non-financial enterprises excluding enterprises in the oil and gas industry and shipping. Per cent 5 1000 Debt burden1) (right-hand scale) 4 800 3 600 2 400 Risk weighted bankruptcy probability (left-hand scale) 1 0 1988 1) 200 0 1991 1994 1997 Debt as a percentage of cash surplus Source: Norges Bank 2000 2003 Chart 3 Risk indicators for banks. Per cent 11 9 3 profit1) Pre-tax (right-hand scale) 2 7 1 5 0 Equity ratio (left-hand scale) 3 1 -1 -2 -1 -3 1983 1986 1989 1992 1995 1998 2001 2004 1) As a percentage of average total assets Source: Norges Bank