World Economy

Oil Shocks Norway

Oil Shocks NorwayOil Shocks Norway

Banks in Norway should prepare for a potential economic shock brought on by lower oil prices, according to the country’s financial regulator.

“Even if the prognosis for the Norwegian economy is for a soft landing, banks should also keep in mind the fact that there could be a harder hit to the economy,” Emil Steffensen, director of banking and insurance supervision at the Financial Supervisory Authority, said, Bloomberg reported.

The regulator earlier in the week questioned bank assumptions on impairments. The FSA, based in Oslo, said there’s reason to fear that the proportion of bad loans might be higher than levels reported by the financial industry as western Europe’s biggest oil exporter gets dragged down by a plunge in crude prices. Brent traded as low as $32 a barrel this week, compared with a 2014 high of more than $115. The krone has fallen more than 30% against the dollar over the same period.

“Banks have to take into account the possibility of a broader impact to the macro-economy when they do the collective impairments and when they do the individual impairments,” Steffensen said in a phone interview on Wednesday.

“There is uncertainty related to the international economy, oil prices and the effects on the mainland economy ensuing from the lower demand from the petroleum sector,” he said. “We point to the importance of the possibility of a broader impact to the economy and ask the banks to be aware of that when they do their impairments.”

DNB ASA, Norway’s biggest bank, said last month that even though the oil market “has fallen off the cliff,” its direct exposure is “manageable” and a weaker currency will support the economy, limiting indirect effects.