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Higher interest rates and margins
statistikk
2008-02-28T10:00:00.000Z
Banking and financial markets
en
orbofrent, Interest rates in banks and other financial enterprises, interest rates, interest on loans, deposit rates, interest margins, banks, mortgage companies, state lending institutions, life insurance companies, Norwegian Public Service Pension FundFinancial institutions and other financial corporations, Banking and financial markets
false

Interest rates in banks and other financial enterprises, Q4 2007

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Higher interest rates and margins

Interest rates on bank loans increased more than the deposit rate in the fourth quarter of 2007, resulting in a higher interest rate margin. In relation to the money market rate, the interest rate margin on loans increased while the deposit margin fell.

Interest rates on loans and deposits in banks, Norges Bank's key policy rate and the NIBOR-rate. Q1 - 2004 - Q4 2007

Interest rate margin total and interest rate margin on loans and deposits. Q1 2004 - Q4 2007

Most banks increased their interest rate margins in the fourth quarter of 2007. The average interest rate on loans from banks increased by 0.54 percentage points to 6.65 per cent, while the deposit rate increased by 0.47 percentage points to 4.39 per cent. In total, the banks’ interest rate margin increased by 0.07 percentage points to 2.26 per cent. This is the highest level since the second quarter of 2006.

In the fourth quarter of 2007, the banks’ interest rate margin on loans increased for the first time since the first quarter of 2004, while the deposit margin fell for the first time since the fourth quarter of 2005. The banks have adjusted their interest rates to the increase in Norges Bank’s key policy rate in August and September, while interest rates on old loans will be adjusted in the first quarter of 2008 for the increase in the key policy rate in December. The money market rate (three-month effective NIBOR) only increased by 0.21 percentage points in the fourth quarter of 2007. The three-month NIBOR rate reflects all adjustments in the key policy rate and the expectations for the future development in interest rates for the next three months.

Strong competition for loans secured on dwellings

The banks’ average rate on repayments loans secured on dwellings increased by 0.57 percentage points to 6.35 per cent, while the interest rate on credit lines secured on dwellings increased by 0.62 percentage points to 6.10 per cent in the fourth quarter of 2007. The interest rate margin on these loans increased by 0.36 and 0.41 percentage points to 0.25 and 0.0 per cent respectively. This indicates that there is still strong competition in the market for housing loans although the margin increased somewhat from the third quarter. (For further information, see Norges Bank’s Financial Stability report number 2/2007 .)

Interest rates in financial corporations, 4. quarter 20071
 
  31.12.2007 30.09.2007 30.06.2007 30.03.2007 31.12.2006 Change
4th quarter		 Change last year
 
1. Total loans from banks 6.65 6.11 5.58 5.26 4.70 0.54 1.95
2. Total bank deposits 4.39 3.92 3.36 3.12 2.60 0.47 1.79
3. Banks' interest rate margin (1-2) 2.26 2.19 2.22 2.13 2.10 0.07 0.16
               
4. Lending rate, mortage companies 5.63 5.18 4.74 4.44 3.90 0.45 1.73
5. Lending rate, life insurance companies 5.82 5.42 5.08 4.79 4.37 0.40 1.45
6. Lending rate, state lending institutions 4.26 3.90 3.65 3.38 3.39 0.36 0.87
Total loans from financial corporations2 6.31 5.81 5.31 4.99 4.49 0.50 1.82
               
7. The Norwegian Public Service Pension Fund 5.09 4.83 4.31 4.06 3.54 0.26 1.55
               
8. Nibor (3 mos. effective)3 6.10 5.89 5.01 4.60 4.02 0.21 2.08
Deposit margin (8-2) 1.71 1.97 1.65 1.48 1.43 -0.26 0.28
Lending margin (1-8) 0.55 0.22 0.57 0.66 0.68 0.33 -0.13
               
9. Banks. Repayment loans secured on dwellings 6.35 5.78 5.26 4.95 4.40 0.57 1.95
10. Banks. Credit lines secured on dwellings 6.10 5.48 4.96 4.64 4.09 0.62 2.01
Banks. Lending margin repayment loans secured on dwellings (9-8) 0.25 -0.11 0.25 0.35 0.38 0.36 -0.13
Banks. Lending margin on credit lines secured on dwellings (10-8) 0.00 -0.41 -0.05 0.04 0.07 0.41 -0.07
 
1  Weighted average interest rates incl. commissions on NOK loans from banks and other financial corporations. Weighted average interest rates on deposits in banks from non-financial enterprises, households and local government 1). Weighted average interestmargins in banks. Per cent per annum.
2  Includes banks, mortgage companies, life insurance companies and state lending institutions. The Norwegian Public Service Pension Fund is not included.
3  Bank of Norway.

Largest increase in interest rates on loans from banks

The increase in interest rates on loans from mortgage companies, life insurance companies and state lending institutions was lower than the banks’ increase. This may partly be due to transfers of housing loans with good security from banks to mortgage companies. The increase in interest rates on loans from state lending institutions was slightly lower than in the other financial corporations. Possible explanations for this development may be changes in the share of loans with fixed interest rates and less frequent changes in interest rates in state lending institutions than in the other financial corporations.

The development in banks’ interest rates is affected by Norges Bank’s key policy rate and the NIBOR rate. Pursuant to the Financial Contracts Act, banks are obliged to give notice to customers of interest rate changes six weeks in advance. As a result, there is often a delay between changes in Norges Bank’s key policy rate and changes in the banks’ interest rates on loans and deposits.

 

In state lending institutions, the interest rates on loans are adjusted less frequently than in commercial financial corporations. The Norwegian State Housing Bank and the Norwegian State Educational Loan Fund’s interest rate on loans follows the market rates, but with a three to six-month delay. In addition, a higher share of loans from state lending institutions is fixed-interest loans.

 

The interest margin is the difference between banks’ average lending and deposit rates. The lending margin is defined as the difference between banks’ interest rate on loans and the NIBOR rate. The interest margin on deposits is defined as the difference between the NIBOR rate and banks’ interest rate on deposits. Banks’ net interest income is defined as interest income less interest expenses in the profit and loss accounts.

 

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