Interest rates in banks and other financial enterprises, Q4 2006

Strong competition about market shares may have contributed to lower interest rate margins. Since the first quarter 2004, banks' interest rate margin has fallen continuously. During the fourth quarter 2006, the interest rate on loans from banks increased by 0.30 percentage point to 4.70 per cent, while the deposit rate increased by 0.39 percentage point to 2.60 per cent. The difference between the banks' average interest rates on loans and the average deposit rates, the interest rate margin, was consequently reduced by 0.08 percentage point to 2.10 per cent.

Banks' interest rates have increased, but not as much as Norges Bank’s sight deposit rates

Since the end of the second quarter of 2005, Norges Bank's sight deposit rate has increased by 1.75 percentage points while the average deposit rate in banks has increased by 1.30 percentage points and the average interest rate on loans has increased by 0.88 percentage point only. One reason why the increase in interest rates on loans was lower than the increase in the sight deposit rate in Norges Bank is a change from loans with fixed interest rates to loans with floating interest rates. Fixed interest rates are considerably higher than floating interest rates. Another reason is that the banks need to inform debtors six weeks in advance of interest rate increases on their loans. Hence by the end of 2006 the banks had not yet adjusted their interest rates to the December increase in the sight deposit rate.

Lower interest rates on credit lines secured on dwellings than on ordinary repayment loans

At the end of the fourth quarter 2006 the average interest rate on credit lines secured on dwellings was 4.09 per cent, while the average interest rate on ordinary repayment loans secured on dwellings was 4.40 per cent. Credit lines secured on dwellings are usually granted to people with good security. Another reason for the lower interest rate on credit lines secured on dwellings compared to repayment loans may be that a larger part of repayment loans has fixed interest. At the moment such loans have higher interest rates than loans with floating interest. Credit lines secured on dwellings is a new loan product that was reported specifically in the interest rate statistics from the third quarter 2006, and these loans now account for about 8 per cent of all mortgage loans.

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