On Dec. 6, 2024, NOR GVT issued regulation on capital requirements for banks.
The changes, which have no in force date yet, include lower and more risk-sensitive capital requirements for residential and commercial property loans for smaller banks.
However, NORFSA's advice to also increase risk weight floor for commercial property loans from 35 to 45% was not followed.
Floor for commercial property loans maintained at 35% in line with input from industry.
Relief provided for IRB banks by removing scaling factor from risk weight formula.
Most significant change for Norwegian banks is introduction of the new standardized approach for credit risk, provides lower requirements, especially for safest mortgage loans, where so-called risk weight is reduced from 35 to 20%.
Ministry of Finance has not used scope to increase risk weight from this minimum requirement in CRR3 of 20%; yet decided to increase floor for mortgages from 20 to 25% in line with NORFSA recommendation (same level as Sweden); more details.
Floors for residential and commercial real estate loans contribute to sound risk weighting in IRB banks in Norwegian market, increased floor for residential loans will be introduced with effect from Jul. 1 2025, giving banks time to adapt to requirement.
The Ministry of Finance is working to ensure that CRR3 can enter into force in Norway as quickly as possible, recalls CRR3 will enter into force in EU on Jan. 1, 2025.
In Dec. 2024, NOR FA said increase can result in more expensive loans, see #236277.
In Feb. 2025, NORFSA consulted on proposed rules implementing CRD6 see #243166.
In Mar. 2025, NORFSA announced amended CRR3 to be introduced, see #247537.
Issued per Ministry of Finance's letter of Dec. 2023 on which was tasked with preparing consultation note on implementation of expected EEA rules that correspond to CRR3.
The note is based on texts published in Dec. 2023 on the basis of political agreement between EP and Council of EU on changes to the CRR.
As part of work on consultation memorandum, NORFSA has also assessed risk weights linked to exposures secured by mortgages in real estate.
This also includes floors for average risk weighting of exposures with mortgage security in residential and commercial property for IRB banks, found in note Part II.
National Choices
CRR3 has several national choices, most of which deal with the right to choose more relaxed rules when phasing in regulatory changes.
NORFSA proposes current valuation principles for real estate when calculating loan-to-value ratio (LTV) for collateral pool in OMF enterprises be continued.
Not allowed for new capital requirement floor for IRB banks to apply only at highest consolidation level, IRB banks cannot use transition scheme to calculate new floor.
Loans to customers with mortgages on four or more residential properties follow main rule of categorization as loans with mortgages on housing.
Any requirement for categorization as corporate exposure should be more investigated.
It is not allowed that, during transitional period, credit assessments be used which assume institution receives state aid in crisis situation.
Macroprudential Instruments Use
According to NORFSA, there are significant vulnerabilities and risks in the Norwegian economy that recommend the continued use of macro-supervisory tools.
Proposes to increase capital requirements for IRB banks' lending to residential and commercial property and to limit reduction in capital requirements for lending to commercial property according to standard method; more details in the note.
Re standard method: risk weights for lending secured by a mortgage on residential property to follow the main rule.
For loans with collateral in leisure properties, limit for LTV ratio 40% to be able to use risk weight of 20% (before 35% for LTV ratio below 60); risk weights for lending with mortgages in income-generating commercial property to apply to all same property.
Re IRB method: current LGD floor for IRB banks not continued; minimum requirement for average risk weights for lending with home mortgage of 25%, minimum for average risk weights for lending with mortgages on commercial property of 45%.
Other Aspects
CRR3 implementation is intended to increase Tier 1 capital requirement for EU banks.
Results for Norwegian banks deviate from average in the EU because mortgages make up larger proportion of portfolio, new floor requirement for IRB banks is less binding.
Difficult to conclude with certainty if implementation of CRR3 with proposed use of the national room for action will strengthen or weaken NOR banks' overall capitalization.
Proposal will reduce differences between IRB and standard method banks, reciprocity of instruments can also equalize differences between Norwegian and foreign banks.
Part of assignment re preparing consultation note that corresponds to changes in the CRD will be sent to the Ministry of Finance at a later date after further agreement.
Jun. 2024 Consultation Referral
On Jun. 5, 2024, NOR GVT Ministry of Finance submitted for consultation a proposal from NORFSA on implementation of expected EEA rules corresponding to CRR changes.
Consultation is open until Sep. 4, 2024 and the list of consultation bodies is provided.
The ministry's goal is that new standard method and other changes in CRR3 should apply in Norway at the same time as in the EU i.e. from Jan. 1, 2025.
It aims to implement CRD6 by EU's deadlines; in parallel with NORFSA investigation, ministry working with EEA-EFTA countries to get CRR3/CRD6 into EEA agreement soon.
Sep. 2024 NOR CB Response
On Sep. 4, 2024, NOR CB issued response to letter from Jun. re CRR3 implementation.
Recalls CRR3 will apply as Norwegian regs but in some areas national choices may be made; in consultation document national elections highlighted, assessed in 5 areas.
Re valuation of real estate as collateral for loans for covered bonds (OMF), it supports current nationally chosen valuation principle be continued and assessed in more detail.
Re capital requirement floor for IRB banks and level of consolidation, has no comment.
On lower risk weights for mortgages in transition period when calculating capital floor for IRB banks believes important not to delay introduction of ordinary capital floor and emphasizes is not expected floor will become binding for NOR entities before 2030.
Thus, no comments on proposal; re categorization in IRB method of exposures to customers with mortgage security in 4/more residential properties, supports proposal.
As for consideration of state aid in credit assessments of entities, it has no comments.
NOR CB then delves into macroprudential instruments and national elections to cover specific items and provide its views on each.
Sep. 4, 2024 NOR CMP Response
On Sep. 4, 2024, NOR CMP issued response on the consultation opinion re changes to the capital requirements reg (CRR3) and thinks it can lead to lower financing costs.
Also, the proposed changes can lead to more equal equity requirements for standard method and IRB banks, so that the reg itself becomes less of a cause for consolidation.
Competitive aspects must be considered when designing national requirements, so that competition in the market stays strong, otherwise financial stability won't be effective.
Dec. 2024 NOR GVT Decision
On Dec. 6, 2024, NOR GVT issued regulation on capital requirements for banks.
The changes, which have no in force date yet, include lower and more risk-sensitive capital requirements for residential and commercial property loans for smaller banks.
However, NORFSA's advice to also increase risk weight floor for commercial property loans from 35 to 45% was not followed.
Floor for commercial property loans maintained at 35% in line with input from industry.
Relief provided for IRB banks by removing scaling factor from risk weight formula.
Most significant change for Norwegian banks is introduction of the new standardized approach for credit risk, provides lower requirements, especially for safest mortgage loans, where so-called risk weight is reduced from 35 to 20%.
Ministry of Finance has not used scope to increase risk weight from this minimum requirement in CRR3 of 20%; yet decided to increase floor for mortgages from 20 to 25% in line with NORFSA recommendation (same level as Sweden); more details.
Floors for residential and commercial real estate loans contribute to sound risk weighting in IRB banks in Norwegian market, increased floor for residential loans will be introduced with effect from Jul. 1 2025, giving banks time to adapt to requirement.
The Ministry of Finance is working to ensure that CRR3 can enter into force in Norway as quickly as possible, recalls CRR3 will enter into force in EU on Jan. 1, 2025.
In Dec. 2024, NOR FA said increase can result in more expensive loans, see #236277.
In Feb. 2025, NORFSA consulted on proposed rules implementing CRD6 see #243166.
In Mar. 2025, NORFSA announced amended CRR3 to be introduced, see #247537.
