High and Growing Consumer Loan Defaults – E24

Although growth in consumer loans continues to decline in the third quarter, defaults are high and on the rise. Finanstilsynet writes this in a summary after the first three quarters of the year.

At the end of September, the volume of consumer loans was 16% lower than the previous year. The proportion of consumer loans that are in default, on the other hand, has increased significantly in recent years.

In the case of Norwegian banks whose main activity is consumer loans, the proportion of defaults is up to 20%, compared with 19.6% in the second quarter.

By comparison, default at all Norwegian banks accounted for 1.1 percent of the total loan, writes the Authority.

Bank Norwegian and Komplett Bank are among the largest pure consumer loan banks in Norway.

The increase in losses due to the corona effect weakens bank results

The corona pandemic has weakened overall results in the Norwegian banking market. Finanstilsynet emphasizes that the results were particularly weak in the first quarter, but have improved in subsequent quarters.

“The increase in credit losses was the most important reason for the decrease in profits compared to the previous year,” the audit writes. For banks as a whole, losses increased after three quarters from 0.2% to 0.6% of average credit (annualized).

The banks’ return on equity fell by almost 4 percentage points to 9.2 percent.

Credit losses were particularly high at banks with significant exposure to oil-related industries, as well as consumer loan banks.

The reduction in deposit margins in the second quarter, as a result of the sharp cuts in interest rates, contributed in particular to a weakening of the net interest margin.

Also weaker for life insurance, stronger for non-life insurance

The corona pandemic has also weakened the profitability of life insurance companies. Life insurance companies had a value-adjusted return of 2.5 percent (annualized) in the first to third quarters of 2020, compared to 7.7 percent in the same period in 2019, according to the audit.

“Stock exchanges fell significantly in the first quarter and, despite the fact that markets have largely recovered, the fall in the value of stocks is still the main reason for lower investment income and weaker results for stocks. life insurance companies as a whole “.

In non-life insurance, on the other hand, the situation is more positive in the third quarter of the year than last year. The improvement is mainly due to strong premium growth, at the same time that a mild winter in much of the country and a decline in insured activities reduced claims costs.

The press release for Finanstilsynet can be found here.