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Thursday, June 13, 2024

Anger rises over bank rate hikes

Several Norwegian banks, including the country’s major lenders, have been raising interest rates on home mortgages at a time when interest rates otherwise are at record lows. The banks are blaming the rate hikes on pending legislation, and that’s angering both borrowers and politicians alike.

DNB's chief executive is not especially popular right now with either his bank's mortgage customers or government politicians, after the bank raised interest rates on home loans. PHOTO: DNB
DNB’s chief executive Rune Bjerke is not especially popular right now with either his bank’s mortgage customers or government politicians, after the bank raised interest rates on home loans. The government, which has a major stake in DNB, claims the higher rates are unnecessary. PHOTO: DNB

In an example of a letter sent to some loan customers, large Nordic bank Nordea wrote that it was raising its lending rate on a home mortgage from 3.5 percent to 3.8 percent. The rate hike will take effect from April 25 and yield an effective annual rate of 3.97 percent. That’s because even though most Norwegian banks refuse to compound interest on savings accounts, they do so on loans.

Norway’s largest bank, DNB, is also raising rates even though Norway’s central bank, Norges Bank, announced just last week that it was keeping its key lending rate unchanged at 1.5 percent, and that it expected rates to remain at record lows for at least another year. DNB is citing the same reason that Nordea wrote in its unwelcome letter to borrowers: “A warning of new requirements from the authorities.” Nordea declined to specify in its letter, but the “new requirements” are tied to the amount of capital Norwegian banks are expected to maintain.

“It remains unclear what the final regulations will be and when they will be imposed,” the leader of Nordea’s consumer market, Tom M Nilsen, wrote in the letter. “But the banks’ costs tied to making home loans will increase.” He wrote that the higher interest rates, which he described merely as an “interest rate change,” is “part of the necessary adjustments to a higher cost level.”

Central bank boss Øystein Olsen (center) sitting in the front row at Thursday's annual gathering of Norway's elite, flanked by Prime Minister Jens Stoltenberg (left) and Finance Minister Sigbjørn Johnsen. PHOTO: Norges Bank / Ståle Andersen
Prime Minister Jens Stoltenberg (left) and Finance Minister Sigbjørn Johnsen (right) at the central bank’s recent annual presentation. Between the ministers, central bank chief Øystein Olsen. Stoltenberg is not pleased by DNB’s decision to raise mortgage rates.  PHOTO: Norges Bank / Ståle Andersen

Not only will borrowers face higher monthly payments, several politicians have begun harshly criticizing the banks. The complaints are loudest from politicians tied to the Labour Party, which has government control of the Finance Ministry. They feel strongly that the banks, most of which already have been reporting strong profits, are prematurely raising rates to collect even more money from customers, and blaming it on the government.

“The banks are asking customers to pay a bill the banks haven’t even received yet,” Torgeir Micaelsen, a Member of Parliament for the Labour Party who heads the parliament’s finance committee, fumed to newspaper Dagens Næringsliv (DN) on Wednesday. “I don’t know of other branches that allow themselves to do that. Think what would happen if a gasoline station raised prices for fuel because it thought a new tax might be imposed later. It’s not just upsetting, but proof that the banks have fingers that are much too long.”

Micaelsen is among the DNB customers who also has received an unwelcome letter from the bank, warning of the same interest rate hike that Nordea is imposing.

Prime Minister Jens Stoltenberg and Finance Minister Sigbjørn Johnsen, both from the Labour Party, have criticized the banks as well, with Johnsen saying he didn’t think it was necessary for DNB to be raising rates already, and Stoltenberg telling reporters that it shouldn’t be possible for banks to raise rates now on the basis of a demand from the government that hasn’t been put forward yet.

Stoltenberg’s criticism is especially noteworthy since he’s a personal friend of Rune Bjerke, chief executive of DNB, and Bjerke’s wife, Libe Rieber-Mohn, is a Labour Party politician on the Oslo City Council. Bjerke was even Stoltenberg’s best man when Stoltenberg married, but now there’s reportedly chilly relations between the government and the banks.

‘Just campaigning’
The banks, meanwhile, are accusing the Labour officials of political campaigning in advance of the fall elections. Bank officials claim they’re acting prudently and proactively on the basis of a new proposal from the finance ministry that will place tough new requirements on the banks to ensure liquidity and a strong capital base.

The banks thus claim they need to start building up more reserves now, to meet the requirements when they come, hence the need for higher payments from loan customers. The actual rules, though, aren’t yet in place and Stoltenberg stresses they will be imposed “over time” and be “reasonable” in comparison to the stricter rules facing banks in other countries.

Thomas Midteide, spokesman for DNB, refuted Micaelsen’s claim that the banks’ fingers are too long. “That’s not correct and Micaelsen knows that very well,” Midteide told DN. He said the finance ministry ordered DNB to increase core capital in 2013 “and that’s what we’re doing now, by among other things restricting dividends, cutting costs and raising interest rates.”

Views and News from Norway/Nina Berglund

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