Several of Norway’s major banks cut interest rates on home loans this week after months of customer and political protests. The country’s largest bank, DNB, cut rates by up to 0.25 percentage points on Thursday, but denied customers had been paying disproportionately high rates to bolster the bank’s equity and profits.
Norway’s second-largest bank, Nordea, dropped rates by up to 0.20 percentage points. Skandia Bank, Storebrand Bank, Sparebank Vest and Sparebank 1 SMN have also cut interest rates over the past week, reported newspaper Dagens Næringsliv (DN).
“We constantly consider our competitiveness in the market,” said DNB’s Trond Bentestuen. “Several banks have adjusted their rates, and we will at any time be confident that we are the best on price. We believe it was appropriate given the current market conditions.”
Crisis sparked rate rise
In the wake of the global financial crisis, banks were required to operate with more equity to be better placed to deal with economic fluctuations. Major banks were accused, though, of using the new equity requirements to raise interest rates, setting off criticism from politicians and customers. The criticism increased when the banks, especially DNB, ended up reporting huge profits and having to reveal large bonus payments to top executives at a time of staff cuts and higher costs for customers.
DNB Chief Executive Rune Bjerke apologized on Thursday for using the metaphor of “cost-sharing” last year to justify the increase. Meanwhile, the increased margins on mortgages helped deliver DNB its best year ever in 2013, with an operating profit of NOK 22.7 billion (USD 3.8 billion), up 27.8 percent on 2012.
Bjerke denied Thursday’s rate cut was an admission the bank had been too greedy, or that customers had been paying disproportionately high rates. “I am 100 percent clear on that everyone has contributed and that stricter capital requirements have consequences for customers, shareholders and staff,” he said.
Aftenposten reported DNB’s market share increased by 84 percent or NOK 58 billion since the end of 2011, while the interest income from customers increased by 20 percent or almost 5 billion in two years. Bjerke was asked whether the profits were nothing but a considerable redistribution of wealth from Norwegian bank customers to bank shareholders.
“This is very complicated, and it depends on what starting point you have,” he responded. “If you look at the most important key figures, such as the company’s market value compared with fiscal value, we have lower numbers than other Nordic banks. And even though we had a good share price development from 2012 to 2013, we have not had it afterwards.”
“The point is that it becomes impossible to gauge who has contributed most to the total because the starting points are so different,” explained Bjerke. “The shareholders are in a situation where they invest in us, while customers borrow from us. It therefore becomes impossible to compare.”
It’s unclear what impact the rate adjustments will have on margins, which are the difference between lending and borrowing interest rates, reported DN. Analysts believe the lower mortgage rates will lead to even higher housing prices just after new figures showed this week that the real estate market was picking up once again.