Norway's Government Cracks Down on Booming Consumer Loan Market - EcoFinBiz Blog

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Norway's Government Cracks Down on Booming Consumer Loan Market

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(Bloomberg) -- Norway stepped in to limit the growth of high interest rate consumer loans and credit card debt to protect the economy from ballooning household leverage amid rising interest rates.

The government announced new temporary regulations that banks and lenders will need to comply with by May 15. The rules will be in place until end of 2020.

The new limits won’t allow banks to give loans to people who can’t be deemed to handle a 5 percentage point rise in interest rates on their overall debt. Banks also can’t provide consumer loans to people whose debt exceeds five times their annual income. Five-year down-payment plans with monthly payments will be imposed on all debt.

Norwegian debt levels are at a record high after years of rock-bottom interest rates. The central bank in September raised rates for the first time in seven years and has flagged more increases will come this year.

Consumer loans have expanded twice as fast as overall debt levels, giving momentum to a string companies including Instabank ASA, Norwegian Finance Holding AS and Komplett Bank ASA. While consumer loans only make up 3 percent of total debt, they account for 14 percent of interest payments, the Finance Ministry said.

“The historically high household debt is one of the most crucial vulnerabilities for the Norwegian economy,” the ministry said.

Banks will be able to use some flexibility and credit card debt under a 25,000 kroner limit will not be affected.

To contact the reporter on this story: Jonas Bergman in Oslo at jbergman@bloomberg.net

To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net, Stephen Treloar

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