Norwegian Banks’ Capitalisation Fell Dramatically

Bank Under-Capitalisation in Norway first sign of not-so-good economy

by Mark Mage — Norway’s economy is widely seen as one of the most robust and wealthy, untainted by dollar weakness and mostly untouched by insecurity about European economies in general, let alone the Eurozone’s woes in particular.

Norway has maintained its own currency, the Norwegian krone, and the country is only a member of EFTA and the EEA but was never a member country of the infamous European Union. The Norwegian pension fund is largely seen as rock-solid and as a symbol of wealth and safety. The country has a number of bi-lateral trade agreements for preferrable trade conditions in precious metals, gems and watches with India and the Hong Kong special economic zone, something that the rest of Europe only can dream of.

Still, 2015 has been a mixed year for Norway’s overall economic outlook and saw the Norwegian krone fall dramatically against both the US dollar and against European currencies throughout the year. This may mostly be due to price decreases in crude oil as much of the Norwegian economy depends on the country’s oil riches around its coastlines and beyond.

Largely unnoticed has gone the fact that Norwegian banks, known to be among the best-capitalised in the world, have gone from best-in-class to average-among-ailing-ones in that same year. Formerly at over 6% — and hence recommended by many an investment newsletter and private banking adviser as relative “safe-havens” –, capitalisation rates have been falling and are now at only around 2.2% which is lower than neighbouring Sweden’s rates — and just about average even compared to some US banks. So far, this bit of news does not seem to have made it to those same advisories, and one might wonder if high-net-worth individuals are now receiving outdated investment advice from their sources. In light of developments during the second half of 2015, it appears at least doubtful why Norway should be a much better place for securing one’s capital, and investors would be well-advised to check thoroughly if the numbers still warrant to place their money there.