March 27, 2015 / 7:52 AM / 5 years ago

UPDATE 1-Norway keeps countercyclical capital buffer for banks unchanged

(Adds central bank statement, background)

OSLO, March 27 (Reuters) - Norwegian banks must continue this year building up reserves against a possible economic downturn, the Finance Ministry said on Friday in announcing unchanged financial buffer requirements for them.

A strong growth in housing prices and the prospect of a weaker economy mean the countercyclical capital buffer requirement - which forces banks to accumulate extra capital - should stay unchanged at one percent from June 30, it said.

Norway’s central bank recommended the rate remain unchanged, the ministry statement added.

“The ministry has among other things put emphasis on prospects of a weakening Norwegian economy,” it said.

In a separate statement, the central bank said: “If house prices continue to increase rapidly and credit growth rises, it will be appropriate to advise the Ministry to raise the level of the countercyclical capital buffer effective from summer 2016.”

Norwegian house prices continued to rise in February with year-on-year growth at 8.7 percent, while the latest data on household credit, from January, showed an increase of 6.2 percent from the same month of 2014.

The high household debt level was one of the reasons why the central bank surprised by not cutting rates in March.

The Financial Supervisory Authority (FSA), which also advises the ministry, has recommended raising the countercyclical buffer level to 1.50 percent from March 2016.

The Finance Ministry is currently evaluating proposals from the FSA on how to cool the housing market.

The buffer, set by the ministry, aims to force banks to accumulate extra capital during boom periods on top of buffers required by international authorities. (Reporting by Camilla Knudsen; Editing by Tom Heneghan)

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