Tighter mortgage underwriting standards proposed by Norway’s FSA are credit positive for Norwegian covered bonds and banks, Moody’s said yesterday (Monday), highlighting a cap on loan-to-income ratio limits and lower LTV ratios.

Jesper Berg joined the Danish FSA (Finanstilsynet) from Nykredit yesterday (Thursday) as its new director general.

Norwegian residential mortgage lending regulations will be tightened and the countercyclical buffer (CCB) for banks increased to 1.5%, the Ministry of Finance announced this week, while Norges Bank cut its key policy rate by 0.25% today (Thursday).

The Danish FSA (Finanstilsynet) set out proposals for a “Supervisory Diamond” for Denmark’s mortgage credit institutions on Thursday of last week (11 September) that aims to reinforce the Danish industry’s systemic stability, including moves away from one year ARMs and interest-only (IO) loans.

Norwegian banks have strengthened their credit underwriting standards, according to a survey by the Norwegian Financial Supervisory Authority (Finanstilsynet), Moody’s noted yesterday (Wednesday), saying this is leading to an overall improvement in the credit quality of covered bond collateral.

Moody’s considers a framework for systemically important financial institutions (SIFIs) proposed by Norway’s Financial Supervisory Authority last week to be credit positive for eight financial institutions designated SIFIs.

The new Norwegian government followed up on a pre-election pledge to ease mortgage standards by asking the country’s FSA to examine lending practices on Tuesday of last week (29 October), and Moody’s said on Monday that any loosening would be credit negative for Norwegian banks and covered bonds.

A proposal by the Norwegian Financial Supervisory Authority (Finanstilsynet) to tighten risk weights for residential mortgages is credit positive as it would press Norwegian banks to further strengthen their capital bases, Moody’s said on Monday.

Norway’s FSA appears to have come out in favour of a bank-by-bank approach to assessing risks associated with covered bond issuance, according to feedback given to the ministry of finance, while Norges Bank has opposed giving covered bond companies regular access to its liquidity facilities.

Any shift to more unsecured funding prompted by possible restrictions on covered bond issuance by the Norwegian FSA could prove challenging, Moody’s cautioned on Monday, although it said such a move could benefit senior bondholders.