Europe’s Regulators See Resilience but Rising Risk as Debt, Property & Geopolitics Converge

Key Takeaways

• Household Debt Remains Elevated: Norwegian households are still highly leveraged by historical and international standards, with more new mortgages pushed toward the 90% LTV limit.
• Property Development Risk Is Rising: Highly leveraged developers with weak debt-servicing capacity now account for a growing share of debt and have already generated loan losses for some banks.
• Geopolitics and Cyber Risk Are Intertwined: Heightened international tensions and shifts in trade policy are driving both real-economy uncertainty and increased concern about systemic cyber incidents.
• Market Valuations Look Stretched: Record equity indices, AI-driven tech gains, low risk premiums, and rapid growth in stablecoins and other crypto assets increase the risk of abrupt price corrections.
• Banks and Insurers Stay Resilient but Under Scrutiny: Profitability and solvency remain strong, yet Finanstilsynet stresses the need to maintain capital buffers above regulatory requirements and support informed customer decisions.

Deep Dive

Norway’s financial system remains resilient heading into 2026, but beneath the strength sit familiar and growing fault lines. That’s what Finanstilsynet’s latest Risk Outlook and the EBA are telling us, with Norway's new Risk Outlook showing high household debt, stretched property values, and global instability are still Norway’s biggest vulnerabilities.

Economic growth has held up better than expected in 2025, both domestically and internationally, even as the world adjusts to rising tariffs and fracturing trade relationships. Yet the concerns are shifting from inflation and interest rates to the geopolitical cracks forming beneath them.

“Heightened international tensions and uncertainty about the impact of shifts in trade policy contribute to elevated geopolitical and real economic risks,” said Director General Per Mathis Kongsrud. “The higher level of tension has also raised awareness of digital vulnerabilities and the risk of systemic cyber incidents.”

Investors Ride the AI Wave

The report notes that global share indices keep setting record highs, thanks largely to tech, and especially artificial intelligence, companies inflating valuations. But low risk premiums and lofty asset prices come with a flipside: the potential for a rapid comedown.

It isn’t just mainstream markets. The boom in stablecoins and crypto assets is creating new channels for financial contagion should sentiment shift abruptly.

A Debt Hangover That Won’t Go Away

Norway’s households have dialed down their debt slightly over recent years, but remain among the most leveraged in the world. The 2025 mortgage lending survey shows that more borrowers are crowding up against the maximum 90 percent loan-to-value limit for new installment loans, a clear sign that financial cushions are getting thinner.

House prices have continued rising this year, powered partly by a busy resale market. But with new construction still subdued, the report warns that falling interest rates in the coming years could push debt and prices even higher, tightening the knot between household finances and economic stability.

Property Developers in the Pressure Cooker

Commercial real estate valuations have already slipped under higher interest rate pressures. Now property developers, especially those already tagged as high bankruptcy risks, are taking on a growing share of debt with shaky repayment capacity.

Some banks have already absorbed notable losses tied to the sector. And the banking system’s exposure here is significant: lending to property development is second only to real estate activities in overall corporate lending.

“Our analyses show that the risk within property development has increased,” Kongsrud said.

Banks Still Strong but Must Hold the Line

Despite the stress building in parts of the system, Norwegian banks remain a bright spot. Solid profits and high capital ratios continue to set them apart from peers across the Nordics and Europe.

Higher interest rates since 2022 have boosted net interest income, thanks to lending rates rising faster than deposit rates—widening banks’ deposit spreads to levels far above the pre-tightening era. Loan losses remain low.

Still, capital reforms under CRR3 have reshuffled risk weights and capital ratios, both easing requirements for standardized-approach banks but tightening slightly for those using internal models. Finanstilsynet is clear that banks should continue to maintain buffers well above the regulatory floor.

“Banks’ ability to bear losses and provide new loans to creditworthy customers during downturns requires that they have sufficient equity,” Kongsrud said.

The EBA has also recently stressed that governance and risk-management practices are now being tested by a more unstable global backdrop. Banks are increasingly adapting lending strategies, strengthening due diligence for politically exposed exposures, and embedding scenario planning that accounts for heightened geopolitical and cyber uncertainty.

With the Digital Operation Resilience Act (DORA) reshaping operational-resilience expectations across the region, supervisors expect banks to show stronger control over outsourcing chains, third-party dependencies, and concentration risks that could amplify disruption if a major incident hits the financial system.

Insurers and Pension Funds Sail On, For Now

Insurers and pension funds remain profitable and well-capitalized, though returns have dipped this year alongside lower investment income. A growing shift toward equity-heavy unit-linked products, more than double their equity exposure since 2019, may serve customers well over the long term, but could amplify shocks if markets hit turbulence.

As more Norwegians enter defined-contribution pension schemes, the watchdog stressed that consumers are taking on more investment risk and financial firms must help them navigate decisions responsibly.

The GRC Report is your premier destination for the latest in governance, risk, and compliance news. As your reliable source for comprehensive coverage, we ensure you stay informed and ready to navigate the dynamic landscape of GRC. Beyond being a news source, the GRC Report represents a thriving community of professionals who, like you, are dedicated to GRC excellence. Explore our insightful articles and breaking news, and actively participate in the conversation to enhance your GRC journey.