Economic developments and financial markets in Norway

1. Economic developments and financial markets in Norway Finn Hvistendahl, London, 20 May 2008

2. The Norwegian economy • Strong and broadly based growth in GDP • Low unemployment and tight labour market • Increasing inflation • Large current account and government surpluses • Substantial gains in terms of trade • High credit growth to households and enterprises • Declining growth rates of housing prices • High level of commercial property prices • Considerable growth of stock prices the last five years • Monetary policy tightened since 2005 • Lower growth is expected for 2008 and 2009

3. Source: Statistics Norway Growth in GDP

4. Unemployment and inflation Source: Reuters EcoWin

5. Government surplus • Source: National Budget

6. Terms of trade • Source: National Budget

7. Credit growth Households and non-financial enterprises Source: Statistics Norway

8. Housing prices Price level 12-month growth Sources: NEF, EFF, FINN.no and Econ Pöyry

9. Price of office premises in Oslo Sources: OPAK and Kredittilsynet

10. 500 450 Norway 400 350 300 Index (1 January 2003 = 100) 250 Euro area 200 150 USA 100 50 03 04 05 06 07 08 Source: Reuters EcoWin Stock markets Source: Reuters EcoWin

11. 11 10 9 8 7 Per cent 6 5 4 3 2 1 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 Kilde: Reuters EcoWin Key policy rate in Norway Source: Reuters EcoWin

12. Norwegian Financial Markets • Financial conglomerates and alliances with high market shares • Less concentrated banking market than in other Nordic countries • Foreign ownership of importance in banking and non-life insurance • Banks account for approximately 70% of domestic credit growth • Securities markets of increasing importance. Recent years larger volumes issued on Oslo Stock Exchange than on other Nordic stock exchanges • High profitability in banking for several years • No loan losses and low levels of non-performing loans • High lending growth, especially to the corporate sector • High and stable tier-1 capital ratios

13. Structure of the Norwegian financial market (end 2007) *For Sparebank1 Group and Terra-Group, market shares include the owner banks. **Savings banks accounted for 10 per cent, and commercial banks (incl. branches of foreign banks) for 21 per cent of other banks.

14. 90 % 80 % 70 % 60 % 50 % % of total assets 40 % 30 % 20 % 10 % 0 % NOK Foreign currency Net lending to customers Net lending to cred.instit. Securities Cash + deposits Other assets Norwegian-owned banks’ assets As of 31.12.2007

15. 4 3 2 1 Per cent of ATA 0 -1 -2 -3 1990 1993 1996 1999 2002 2005 Q1-08 Pre-tax profit Loan losses Banks’ loan losses and pre-tax profits

16. Effect of the international turmoil • Norwegian banks had no exposure to US subprime mortgages, structured credit products or off-balance investment vehicles • Most noticeable effect of the international turmoil for the Norwegian banks has been less accessible and more expensive international funding for the larger banks • Issuance of covered bonds has been important in banks’ liquidity management. New regulation came into force on 1 June 2007. • Norwegian banks have a high level of long-term funding and deposit-to-loan ratios. Generous deposit guarantee scheme. • More demanding liquidity management and pressure on long-term funding limits since summer 2007. Liquidity situation for Norwegian banks remained satisfactory during the market turbulence in 2007 and beginning of 2008

17. 32 28 24 20 Per cent 16 12 8 4 0 2003 2004 2005 2006 2007 Branches of foreign banks and mortgage companies Foreign-owned subsidiaries and mortgage companies Norwegian-owned banks and mortgage companies Lending growth by banks and mortgage companies

18. 10 % 8 % 6 % % of lending 4 % 2 % 0 % 2007 1990 1995 2000 2005 Corporate cust. Households Banks’ non-performing loans

19. Capital adequacy in banks* * Figures for 31.12.07 combine Basel I and Basel II-banks, with additional capital ratios shown with Risk Weighted Assets calculated under Basel I-rules

20. Norwegian-owned banks’ funding As of 31.12.2007

21. Funding – Norwegian banks Long term funding: Funding with maturity in excess of 1 year as a share of illiquid assets 7 large Norwegian-owned banks

22. Main points • Banks results remained good in 2007. Return on equity 16 per cent. • Limited effect of international financial turbulence on Norwegian banks in 2007. • Q1 2008 results lowered by capital losses on foreign bond holdings and equities. Interest margins increasing, partly due to repricing of risk. • The Norwegian economy is strong. Increasing risk in the housing markets and increasing vulnerability in parts of the household sector. High profitability in the corporate sector, but strong investment growth may lead to overcapacity in a downturn. • Strong lending growth, increased uncertainty in the economy and in housing markets, as well as continued liquidity problems internationally, require sound and prudent risk management and capital planning. • Prospects for financial stability in Norway in 2008 remain satisfactory.