Interest Rates, Consumer Council | Analysis: Banks profit hugely from interest rate break – consumers miss out on about 700 million

Banks increase the interest rate on deposits eight times higher than the interest rate on loans. According to the Consumer Council, consumers lost NOK 700 million.

– Banks give milk to deposit customers. Banks’ profits from high loan rates and low deposit rates are causing a shortfall in the household budgets of many households in Norway, says Inger Lis Blivarket, director of NTB’s Consumer Council.

When the central bank sets the key interest rate, banks typically spend four working days raising interest rates on new mortgages. But as for deposit rates, they usually have to wait 34 days.

This is evident from a study by the Consumer Council on how long banks changed interest rates following the Norges Bank rate hike in June this year.

Analysis shows that banks take longer to adjust deposit interest rates than mortgage interest rates, or hold off on parts of interest rate changes. Consumers lose both.

This practice cost consumers with NOK 1,600 billion deposits in banks – an estimated NOK 500 to 700 million in lost interest earnings.

– These are funds useful for consumers in the animal age we live in, the leading company points out.

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Remaining on deposit

Only four out of ten banks adjust the deposit rate to the same extent as the change in the policy rate. This means that most banks in Norway withhold part of the interest rate increase for customers who have money in their accounts.

Many banks take more than 30 days to raise deposit rates. Here too, there is less than a 60 percent increase in the change in Norges Bank’s key interest rate.

– As a customer, you should react strongly to bad conditions in bank deposits such as mortgages. Use your consumer power, contact the bank and demand better conditions. If you get a negative response, you should think about switching banks. Bank deposits are also easier to move than mortgages, says Plyvergate.

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George Jensen, course director at the Consumer Council, emphasized to NTB that he believed the estimates and calculations in the analysis were careful and solid. They show that consumers miss out on a total interest gain of more than NOK 19 million every day they wait for banks to set the deposit rate.

All analyzes and ratings are based on statistics from finansportalen.no.

lost during epidemics

Finance Norge, the banks’ industry body, points to the pandemic and zero interest rate levels in 2020 and 2021. John Eric Fan, director of communications, insists banks’ profitability has been weakened by increased write-offs on loans and falling deposits. edge

According to Finance Norge, when interest rates were low, banks had an almost zero margin on deposits. Norwegian banks still have large deposits, and with low credit growth, they don’t need to attract as many deposits.

According to Fåne, the deposit margin has returned to a more normal level, while the credit margin is very low.

– Going forward, market players and authorities expect banks’ profits to fall, loan losses to rise, cost growth to accelerate and customers to eat up deposits. Eating up deposits will increase competition for deposits, he says, leading to higher deposit interest rates.

Banks’ net interest income in the first half of 2023 was NOK 62.4 billion. According to Statistics Norway (SSB), this is the highest net interest income measured in the first half of a year since statistics began in 2010. And interest income was at a record level in the first quarter of this year.

Consultant Carl Henrik Nordbakken pointed out that lending rates often increase faster than deposit rates.

Four in ten follow the bank

After 13 rate hikes in just two years, we may have finally reached the peak of interest rates — or at least it’s in sight. Admittedly, Norges Bank has left open the possibility of another interest rate hike in December, but the panel’s view is that normal mortgage interest rates should be around 6 percent when the peak is reached, whether the peak is 4.25 or 4.5 percent.

Jensen points out that we have only felt the full effect of the double interest rate hike of 0.5 percentage points in June. Subsequent interest rate hikes in August and September have yet to impact existing loans.

Analysis by the Consumer Council showed that 74 percent of the 245 mortgages tested changed with the same strength as the Norges Bank policy rate increase. The analysis is based on loans issued by 104 Norwegian banks.

In 51 of the 245 mortgages analyzed, customers were protected from some portion of the Fed’s June policy rate hike. The Consumer Council found no examples of what Jensen calls “piggy inflation” at banks.

– We did not find banks that set their lending rates higher than the policy rate would provide the incremental basis. It’s true that some have raised their interest rates more than the central bank, but there have been banks that have faced interest rate hikes before, Jensen says.

Home owners: – Switch banks

Consumer organization Huseierne believes switching banks should be easier and encourages households to use their consumer power:

Wait too long for interest rates to rise and move your money to a bank that will lower your deposit.

– It’s not always easy. Navigating the banking market in Norway is difficult, consumer and communications manager Karsten Henrik Bill told NTP.

Homeowners have approached the Finance Ministry and the Competition Authority to take the initiative to create better interest rates on loans and deposits. The organization works with authorities to facilitate loan transfer to another bank.

– Consumers should remember that even if it is convenient to have a loan and a deposit in the same bank, it should not be. Deposits can be easily moved, for example, to a bank with a higher deposit rate, but moving loans is a bit more complicated, he says.

(© NTB)