Norwegian household debt drives Fitch to reassess credit rating
Norway’s household debt has hit an average level of 200% of disposable income, which has forced Fitch Ratings to reconsider the impact of external shocks such as higher unemployment on investors in covered bonds.
Levels of default in Norway are still relatively low compared to other European countries, and the country’s historic mortgage loan performance and macroeconomic outlook remain benign.
Unemployment remains low, affordability remains high, and there is a strong social safety net for Norwegian borrowers, Fitch said.
However, a shock, such as a sharp fall in the oil price, could lead to higher levels of unemployment, which in turn could create problems for those suffering high personal levels of indebtedness.
Fitch said it has also reviewed assumptions on house prices in the country. The low level of employment coupled with relatively easy access to credit has resulted in a house price boom, with prices up an average of 10% annually since 2008 – at a time when much of the developed world has experienced sharp house price corrections.
“As a result, the house price decline has been set at 50% for a ‘AAA’ scenario,” Fitch said.
The latest review of Norway does not imply an immediate threat to holders of debt from the country, particularly so-called covered bonds, which are linked to the strength of the local property market.
“Notably, issuers tend to maintain more overcollateralisation than the Fitch breakeven OC for the current ‘AAA’ ratings.