The Norwegian ministry of finance on 22 March proposed stricter capital requirements for Norway’s banks – above the minimum set by CRD IV – and Moody’s yesterday (Thursday) said their implementation would be credit positive for Norwegian banks and covered bonds.

Norwegian ministry of finance

According to the rating agency the proposed requirements are that banks maintain a common equity tier one (CET1) ratio of more than 10% starting in July, while systemically important financial institutions – yet to be identified by the ministry – would have to comply with a CET1 ratio of more than 11% starting in July 2015 and rising to a minimum of 12% starting in July 2016. The ministry has also called for a countercyclical buffer of 0%-2.5% starting in July next year.

Moody’s noted that the proposed requirements would be credit positive because they would provide protection from unexpected losses in banks’ loan books, which are particularly vulnerable to a deterioration in the country’s export and real estate industries. Banks’ credit quality is sound, however, said the rating agency.

“The proposal would also be credit positive for Norwegian covered bonds because higher capital buffers would improve the creditworthiness of banks, which are typically obliged to provide some support to the covered bond issuing companies they own,” said Moody’s.

It noted that the proposed levels are higher and would go into effect sooner than the minimum levels set by CRD IV, which calls for the application of a 7% CET1 starting in 2019.

The Norwegian proposals are similar to those required by Swedish authorities, added Moody’s, which require CET1 ratios of 10% in 2013 rising to 12% in 2015 for the country’s four largest banks.

“Norwegian banks have already made good progress in meeting increased capital requirements by strengthening their capital bases with retained earnings and, in some cases, through rights issues,” said Moody’s.