Economic developments and financial markets in Norway Finn Hvistendahl, London, 20 May 2008

The Norwegian economy Strong and broadly based growth in GDP Low unemployment and tight labour market Increasing inflation Large current account and government surpluses Substantial gains in terms of trade High credit growth to households and enterprises Declining growth rates of housing prices High level of commercial property prices Considerable growth of stock prices the last five years Monetary policy tightened since 2005 Lower growth is expected for 2008 and 2009

Growth in GDP Source: Statistics Norway

Unemployment and inflation Source: Reuters EcoWin

Government surplus Source: National Budget

Terms of trade Source: National Budget

Credit growth Households and non-financial enterprises Source: Statistics Norway

Sources: NEF, EFF, FINN.no and Econ Pöyry Housing prices Price level12-month growth

Price of office premises in Oslo Sources: OPAK and Kredittilsynet

Stock markets Source: Reuters EcoWin Index (1 January 2003 = 100) Norway USA Euro area

Key policy rate in Norway Source: Reuters EcoWin Kilde: Reuters EcoWin Per cent

Norwegian Financial Markets Financial conglomerates and alliances with high market shares Less concentrated banking market than in other Nordic countries Foreign ownership of importance in banking and non-life insurance Banks account for approximately 70% of domestic credit growth Securities markets of increasing importance. Recent years larger volumes issued on Oslo Stock Exchange than on other Nordic stock exchanges High profitability in banking for several years No loan losses and low levels of non-performing loans High lending growth, especially to the corporate sector High and stable tier-1 capital ratios

Structure of the Norwegian financial market (end 2007) Per cent of total assetsBanksFinance Mortgag e Life insuranc e Non life insuranc e DnB NOR (incl. Nordlandsbanken) Nordea Bank Norway Sparebank1 Group* Storebrand Terra-Group*51201 Total financial groups Other companies** Total100 - of which foreign branches in Norway of which foreign subsidiaries * For Sparebank1 Group and Terra-Group, market shares include the owner banks. **Savings banks accounted for 10 per cent, and commercial banks (incl. branches of foreign banks) for 21 per cent of other banks.

Norwegian-owned banks’ assets As of % 10 % 20 % 30 % 40 % 50 % 60 % 70 % 80 % 90 % NOKForeign currency % of total assets Net lending to customersNet lending to cred.instit.Securities Cash + depositsOther assets

Banks’ loan losses and pre-tax profits Q1-08 Per cent of ATA Pre-tax profitLoan losses

Effect of the international turmoil Norwegian banks had no exposure to US subprime mortgages, structured credit products or off-balance investment vehicles Most noticeable effect of the international turmoil for the Norwegian banks has been less accessible and more expensive international funding for the larger banks Issuance of covered bonds has been important in banks’ liquidity management. New regulation came into force on 1 June Norwegian banks have a high level of long-term funding and deposit- to-loan ratios. Generous deposit guarantee scheme. More demanding liquidity management and pressure on long-term funding limits since summer Liquidity situation for Norwegian banks remained satisfactory during the market turbulence in 2007 and beginning of 2008

Lending growth by banks and mortgage companies Per cent Branches of foreign banks and mortgage companies Foreign-owned subsidiaries and mortgage companies Norwegian-owned banks and mortgage companies

Banks’ non-performing loans 0 % 2 % 4 % 6 % 8 % 10 % % of lending Corporate cust.Households 2007

Capital adequacy in banks * * Figures for combine Basel I and Basel II-banks, with additional capital ratios shown with Risk Weighted Assets calculated under Basel I-rules

Norwegian-owned banks’ funding As of

Funding – Norwegian banks Long term funding: Funding with maturity in excess of 1 year as a share of illiquid assets 7 large Norwegian-owned banks

Main points Banks results remained good in Return on equity 16 per cent. Limited effect of international financial turbulence on Norwegian banks in Q results lowered by capital losses on foreign bond holdings and equities. Interest margins increasing, partly due to repricing of risk. The Norwegian economy is strong. Increasing risk in the housing markets and increasing vulnerability in parts of the household sector. High profitability in the corporate sector, but strong investment growth may lead to overcapacity in a downturn. Strong lending growth, increased uncertainty in the economy and in housing markets, as well as continued liquidity problems internationally, require sound and prudent risk management and capital planning. Prospects for financial stability in Norway in 2008 remain satisfactory.