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Nordea reported an operating profit of 599 million euros in the first quarter of this year, an increase of 22 million compared to last year. The increase is due in part to the fact that net interest income increased by 53 million euros.
There was also a good first quarter for Nordea’s operations in Norway.
Snorre Storset, CEO of Nordea Bank Norway, explains the increase with a high level of activity and around 10,800 new private clients.
At the same time, he admits that his mortgage spreads have increased in recent weeks.
– Yes, isolated loan spreads have increased in recent weeks, Storset says.
Powerful Nibor case
Norges Bank cut its key rate by a total of 1.25 percentage points in March, which was a crisis cut of historic dimensions in an attempt to stem the decline of the Norwegian economy.
Nordea, like most Norwegian banks, cut its mortgage rates by 0.85 percentage points. The explanation for this was that the reduction in the Norges Bank interest rate had not had a full impact on the money market.
It has happened now.
Since Easter, the Nibor money market rate has fallen sharply, and the total decline since January is around 1.25 percentage points. This means that Nordea has significantly increased its loan margin during this period.
Nibor
Money Market Interest Rates Nibor is critical to the interest rates banks offer to their mortgage customers.
The level of floating interest rates is determined by the Nibor short-term interest rate, which in turn is closely tied to Norges Bank’s key policy rate.
Nibor is calculated as an average of what the largest banks require in interest rates on unsecured loans to other banks.
The level of Nibor is decisive for the mortgage rates that banks can offer their clients, since the cost of borrowing money from banks is closely related to this interest rate. Nibor is affected by Norges Bank’s key policy rate, but this spring it took Nibor a long time to come down. The reason for this was the increase in premiums due to low liquidity in the market, but this situation has improved considerably in recent weeks.
“Continuously evaluating”
Storset explains that Nordea’s mortgage interest rate is linked to both the market price of money and the competitive situation.
– Both we and our competitors have reduced the mortgage rate by 0.85 percentage points, so we make a continuous assessment of both the price of money and the competitive situation.
– You explained the interest rate cut of 0.85 percentage points with Nibor no longer falls in March. In the last few weeks it has dropped more than 40 points. Is there a good reason why you can no longer lower interest rates?
– That said, this is something we are constantly evaluating, says Storset, who emphasizes that banks cannot comment on fixing their planned interest rate.
I could fall even further
Lars Mouland, senior analyst at Nordea Markets, explains that the US Central Bank. USA It has taken a number of measures to improve liquidity in the US money market, and this is the main reason why interest rates in the Norwegian money market have fallen.
“There is a lot of liquidity in the money market in the United States now, it has become very fast,” says Mouland.
Furthermore, extraordinary crisis loans from Norges Bank have further reduced the Norwegian money market rate. Mouland expects a further improvement in the US money market, which could push Nibor further down.
– That’s why Nibor could be very low in the coming weeks. It could drop to 0.30 percent, says Mouland, who emphasizes that this is likely to be temporary, and that during the summer Nibor will likely return to the current level.
If Nibor falls further without banks lowering the mortgage rate, it will mean even better margins for banks.
Some have to sell before buying
Storset also explains that demand for loans from Norwegian private clients is still good.
– We see that there is still demand for loans. The property market is still moving fast, though the price level is somewhat lower, Storset says.
– Have you tightened your credit practice with mortgage clients in Norway?
“No, we have not changed our credit practice, but we are testing whether clients can pay double the mortgage for six months,” says the bank manager.
Due to lower turnover in the property market, several people spend more time selling the property, and if clients cannot sit on two mortgages for a period, Nordea recommends selling first.
“Extra vulnerable Norway”
Nordea had a credit loss of 154 million euros, corresponding to NOK 1.7 billion in the first quarter.
Of this, 120 million euros is an additional provision, in management’s opinion, to take into account a probable imminent increase in credit losses. Storset notes that provisions were also made in the third quarter of last year, which means that provisions total more than 300 million euros now.
A provision means that the money is set aside to cover future losses.
Of the provisions for losses of NOK 1.7 billion in the first quarter, NOK 930 million were related to Norwegian operations.
– Norway accounts for a large proportion of loss provisions. Norway is particularly vulnerable due to volatility and falling oil prices, Storset explains.
The loss provision of € 320 million is small compared to Nordea’s loss during the financial crisis. In 2009, the losses were 1,500 million euros. Storset explains that Nordea is difficult to compare these figures because Nordea used to have a lot of business in the Baltic countries, while business is now concentrated in the Nordic countries, where the risk is lower. (Terms)Copyright Dagens Næringsliv AS and / or our suppliers. We want you to share our cases using a link, which links directly to our pages. Copying or any other use of all or part of the content may only be made with written permission or as permitted by law. For more terms see here.
