Loan intermediaries markets growth: What you need to know

Looking at why banks need to receive funding with a higher liquidity risk than they would find in bank deposits.

How good is your business bank account as a small business owner

How good is your business bank account as a small business owner

As of right now, the international economic outlook is shaky. For instance, in some countries like the UK and the US, there have been signs that activity levels are rising.

But, there are also some countries, like Russia, that are in a recession. Russia’s geopolitical situation represents a major uncertainty for the country’s future economic growth.

Some of the emerging economies, like China, saw things slow down in 2014, but their level of market growth is still higher than is seen in most industrialised countries.

For instance, China’s easy access to credit (through a large unscrupulous banking system) and their low interest rates have caused rapid credit growth but there is also a substantial risk of over-investment, especially in the real estate industry.

Because of this risk, experts expect this country to experience weaker growth that is set to dampen international demand.

Although the fall of oil prices has had a minimal impact on employment and output, a significant, lasting fall in oil prices may have major negative consequences for the Norwegian economy.

Petroleum suppliers and activities in this section are very important to the mainland, and non-oil related, economy.

Big profits in this industry has led to an increases in wages which has helped to feed other industries and contribute to a dramatic price increase that is specific to Norway itself.

Dependent on how you choose to look at it, whether as a negative or a positive, it is also important to note that these events have found some sort of equilibrium because of the recent depreciation of the krone.

The Norwegian economy ability to handle economic downturn is based on the viability of their banks. In other words, banks must accumulate capital when profits are increasing, like they have been recently.

More revenue also helps banks more robust when dealing with a downturn, which puts them in an excellent position to grant creditworthy borrowers new loans.

Generally, Norwegian banks get a large share of their short-term funding from the market outside of Norway.

This allows the bank to receive funding with a higher liquidity risk than they would find in bank deposits.

This covered bond funding has been proven to minimise the liquidity risk, but may also make banks more vulnerable if a housing market setback occurs.

Thus, it is necessary for Norwegian banks to continually increase their liquid reserves in order to guarantee long-term funding of their assets.

Doing so will fuel their loan intermediaries markets growth and stabilise their positions in the global market.

 

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