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Norway’s elevated property prices present risks, though buffers limit sovereign implications

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Norway’s elevated property prices present risks, though buffers limit sovereign implications

Norway’s house prices are rising again, focusing policy makers’ attention on property market and household debt dynamics. Proactive policies are vital in managing potentially overheated markets, though ample reserves minimise sovereign rating risks.

Scope Ratings believes Norway (AAA/Stable) has the strongest financial buffers among Scope’s rated countries, with the capacity to absorb economic shocks stemming from home or abroad.

This is underpinned by its sovereign wealth fund of USD1.04tn (about 295% of mainland GDP). In addition, according to central bank stress tests from 2017, Norway’s banks could endure a severe downturn without recourse to state aid, having rebuilt substantial capital reserves.

Scope highlighted in its latest rating assessment that house price inflation in Norway remains a risk. Measured relative to per capita disposable income, housing price levels are just under all-time highs. A recent modest correction facilitated by tighter lending regulations and increases in residential construction led to a cumulative 3% drop in prices at their trough, though this correction has reversed on a national basis with annual housing price changes up by 1.5% in June 2018.

“The average cost of a home as a ratio of median household income has risen since the mid-1990s, with the ratio in Oslo amongst the highest of the world’s major cities,” notes Dennis Shen, sovereign analyst on Norway at Scope. “Persistently low interest rates, while bolstering the recovery from the recent oil-price shock, could advance latent financial system imbalances, such as in the housing market.”

Average nominal housing prices have risen by more than 80% since 2008 lows. Moreover, commercial real estate prices have been rising for an extended time, especially in Oslo. Under this context, Scope viewed the recent temporary housing market correction in a constructive light, as a form of counter-cyclical reduction of prevailing imbalances while the Norwegian economy is growing near potential.

Renewed gains in home prices in recent months again raises concern that increases are matched with high and rising levels of household debt, even though mortgage lending standards have been tightened. Household debt stands at 230% of disposable income in Q1 2018, one of the highest ratios in OECD economies. Rising levels of household debt coupled with increases in corporate debt from domestic sources (particularly tied to commercial real estate enterprises) require close monitoring.

“That stated, even in the adverse scenario of a deeper property market correction, in Scope’s view, Norway has the buffers within the financial system and government balance sheet to bridge any such crisis,” adds Shen. “This assumed resilience is a credit strength underpinning Norway’s AAA rating.”

Having substantial reserves to counter downside scenarios does not rule out maintaining, and if needed, strengthening, a proactive policy approach, however. Even if a property bust might not threaten to create significant contingent liabilities from the banking system, it could exacerbate an economic downturn, with negative feed-through effects onto public finances.

Since the start of 2017, temporary measures tightening mortgage lending standards came into force, with borrowing capped at five times pre-tax annual incomes and a loan-to-value limit of 60%, reduced from 70%, for secondary home buyers. Recently, these rules were extended until the end of 2019.

Click here for Scope’s latest sovereign rating announcement on Norway.

Click here for Scope’s research on the sovereign implications of Nordic housing risks.

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Sunak to use budget to expand apprenticeships in England

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Sunak to use budget to expand apprenticeships in England 1

LONDON (Reuters) – British finance minister Rishi Sunak will announce more funding for apprenticeships in England when he unveils his budget next week, the government said on Friday.

Employers taking part in the Apprenticeship Initiative Scheme will from April 1 receive 3,000 pounds ($4,179) for each apprentice hired, regardless of age – an increase on current grants of between 1,500 and 2,000 pounds depending on age.

The scheme will extended by six months until the end of September, the finance ministry said.

Sunak will also announce an extra 126 million pounds for traineeships for up to 43,000 placements.

Sunak’s March 3 budget will likely include a new round of spending to prop up the economy during what he hopes will be the last phase of lockdown, but he will also probably signal tax rises ahead to plug the huge hole in the public finances.

Sunak is also expected to announce a “flexi-job” apprenticeship scheme, whereby apprentices can join an agency and work for multiple employers in one sector, the finance ministry said.

“We know there’s more to do and it’s vital this continues throughout the next stage of our recovery, which is why I’m boosting support for these programmes, helping jobseekers and employers alike,” Sunak said in a statement.

(Reporting by Andy Bruce, editing by David Milliken)

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UK seeks G7 consensus on digital competition after Facebook blackout

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UK seeks G7 consensus on digital competition after Facebook blackout 2

LONDON (Reuters) – Britain is seeking to build a consensus among G7 nations on how to stop large technology companies exploiting their dominance, warning that there can be no repeat of Facebook’s one-week media blackout in Australia.

Facebook’s row with the Australian government over payment for local news, although now resolved, has increased international focus on the power wielded by tech corporations.

“We will hold these companies to account and bridge the gap between what they say they do and what happens in practice,” Britain’s digital minister Oliver Dowden said on Friday.

“We will prevent these firms from exploiting their dominance to the detriment of people and the businesses that rely on them.”

Dowden said recent events had strengthened his view that digital markets did not currently function properly.

He spoke after a meeting with Facebook’s Vice-President for Global Affairs, Nick Clegg, a former British deputy prime minister.

“I put these concerns to Facebook and set out our interest in levelling the playing field to enable proper commercial relationships to be formed. We must avoid such nuclear options being taken again,” Dowden said in a statement.

Facebook said in a statement that the call had been constructive, and that it had already struck commercial deals with most major publishers in Britain.

“Nick strongly agreed with the Secretary of State’s (Dowden’s) assertion that the government’s general preference is for companies to enter freely into proper commercial relationships with each other,” a Facebook spokesman said.

Britain will host a meeting of G7 leaders in June.

It is seeking to build consensus there for coordinated action toward “promoting competitive, innovative digital markets while protecting the free speech and journalism that underpin our democracy and precious liberties,” Dowden said.

The G7 comprises the United States, Japan, Britain, Germany, France, Italy and Canada, but Australia has also been invited.

Britain is working on a new competition regime aimed at giving consumers more control over their data, and introducing legislation that could regulate social media platforms to prevent the spread of illegal or extremist content and bullying.

(Reporting by William James; Editing by Gareth Jones and John Stonestreet)

 

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Britain to offer fast-track visas to bolster fintechs after Brexit

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Britain to offer fast-track visas to bolster fintechs after Brexit 3

By Huw Jones

LONDON (Reuters) – Britain said on Friday it would offer a fast-track visa scheme for jobs at high-growth companies after a government-backed review warned that financial technology firms will struggle with Brexit and tougher competition for global talent.

Finance minister Rishi Sunak said that now Britain has left the European Union, it wants to make sure its immigration system helps businesses attract the best hires.

“This new fast-track scale-up stream will make it easier for fintech firms to recruit innovators and job creators, who will help them grow,” Sunak said in a statement.

Over 40% of fintech staff in Britain come from overseas, and the new visa scheme, open to migrants with job offers at high-growth firms that are scaling up, will start in March 2022.

Brexit cut fintechs’ access to the EU single market and made it far harder to employ staff from the bloc, leaving Britain less attractive for the industry.

The review published on Friday and headed by Ron Kalifa, former CEO of payments fintech Worldpay, set out a “strategy and delivery model” that also includes a new 1 billion pound ($1.39 billion) start-up fund.

“It’s about underpinning financial services and our place in the world, and bringing innovation into mainstream banking,” Kalifa told Reuters.

Britain has a 10% share of the global fintech market, generating 11 billion pounds ($15.6 billion) in revenue.

The review said Brexit, heavy investment in fintech by Australia, Canada and Singapore, and the need to be nimbler as COVID-19 accelerates digitalisation of finance, all mean the sector’s future in Britain is not assured.

It also recommends more flexible listing rules for fintechs to catch up with New York.

“We recognise the need to make the UK attractive a more attractive location for IPOs,” said Britain’s financial services minister John Glen, adding that a separate review on listings rules would be published shortly.

“Those findings, along with Ron’s report today, should provide an excellent evidence base for further reform.”

SCALING UP

Britain pioneered “sandboxes” to allow fintechs to test products on real consumers under supervision, and the review says regulators should move to the next stage and set up “scale-boxes” to help fintechs navigate red tape to grow.

“It’s a question of knowing who to call when there’s a problem,” said Kay Swinburne, vice chair of financial services at consultants KPMG and a contributor to the review.

A UK fintech wanting to serve EU clients would have to open a hub in the bloc, an expensive undertaking for a start-up.

“Leaving the EU and access to the single market going away is a big deal, so the UK has to do something significant to make fintechs stay here,” Swinburne said.

The review seeks to join the dots on fintech policy across government departments and regulators, and marshal private sector efforts under a new Centre for Finance, Innovation and Technology (CFIT).

“There is no framework but bits of individual policies, and nowhere does it come together,” said Rachel Kent, a lawyer at Hogan Lovells and contributor to the review.

($1 = 0.7064 pounds)

(Reporting by Huw Jones; editing by Jane Merriman and John Stonestreet)

 

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