Capital requirements for property development financing

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Capital requirements for property development financing

The Norwegian Ministry of Finance has given an assessment of the definition of speculative immovable property financing under the standardized approach for banks. The Ministry’s conclusion coincides with the assessments put forward by Finance Norway.

In December last year, the Norwegian Financial Supervisory Authority (FSA) issued a circular assessing the types of commitments that are to be considered as high risk according to the European Capital Requirements Regulation for banks. Finance Norway, together with the banking industry, have stated that the FSA has expanded the EU regulations in this area, which affected banks’ competitive situation and ability to finance property development in Norway.

A key issue has been whether binding sales contracts may have an impact on the risk classification of loans for property development. According to the Ministry of Finance's assessment, a development project should not be considered as high risk if binding sales contracts have been entered into that cover more than half of the loan commitment.

– The Ministry of Finance's clarification in this case is important not only for the Norwegian banking industry, but also for housing development. The European Capital Requirements Regulation is a pan-European harmonized regulation, says Erik Johansen, Executive Director Banking and Capital Markets at Finance Norway.

The Ministry has placed great emphasis on assessments presented by the European Banking Authority (EBA) and practices in other EU countries. Reference is made, among other things, to statements from the German and Czech authorities that appear to be in accordance with the Ministry of Finance's interpretation of the regulations.

– The Ministry's conclusion coincides with the assessments that Finance Norway has put forward in this case, says Johansen.

Erik Johansen

Erik Johansen

Executive Director

922 82 616 erik.johansen@finansnorge.no
Sveinung Sleire

Sveinung Sleire

CCO, Banking and Capital Markets

942 85 285 sveinung.sleire@finansnorge.no