More and more niche banks have been established in recent years to hijack some profitable and rapidly growing markets for unsecured loans.
Following Bank Norway, banks such as Komplett Bank and Monobank have joined, in addition to Instabank, Easybank and the latest newcomer BraBank, started by travel and airline investor Per G. Braathen.
Banks have become engines of growth, but this year loan losses have also increased. All registered consumer banks have sent their financial statements for the third quarter, and figures show that they have significantly more loan losses.
From the third quarter of last year, provisions for loan losses have more than doubled in registered banks, while so far this year has also increased sharply (see table below).
There has been a surprise in the market, said bank analyst Odd Weidel at Sparebank 1 Markets.
When Norwegian Finans Holding released its figures, shares fell 16 percent, and fell 6 percent in the following weeks. Komplett Bank fell 13 percent at the reporting date, and then fell nine percent.
– Prices on the DNB dropped, Swedish banks dropped. But even if you are right for that, the mortgage bank has dropped. Fear of losing a loan that has torn it down. The market has become very intimidated, said analyst E24.
E24 +: Consumer loan investors fear the obvious
See two reasons for increasing loan losses
He pointed to several general rivals which made banks put more losses. Some specialized banks have taken a leap out of the country and invested in other Nordic markets, not least in Finland.
"There may be a market in Finland that is tougher than can be expected in the first place. It takes longer before loan losses fall to normal levels in Finland, analysts said.
According to Weidel, the introduction of the IFRS 9 accounting standard from 2018, which has a new loss model, also has an accounting impact on the calculation of losses.
According to the Danish Financial Oversight Authority, the new standard requires banks to allocate losses to new loans with write-downs of expected loan losses as a result of expected standards for the next twelve months.
"This is IFRS 9, which may be somewhat unexpected. One is an accrual problem. Say that the last day of each month ends on Saturday or Sunday, then there may be some customers who have not paid the bill. Under IFRS 9, losses will occur because of this "said Weidel.
When Norwegian Finance Holdings, the biggest player among niche banks, presented its quarterly report, it continued to show customer growth and revenue, but increased loan losses and costs ensured that the surplus stood on the site.
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– The other is that the Norwegian Bank must allocate for higher losses. This is due to the fact that they did not allocate too little in Finland in the fourth quarter of 2017 and in the first quarter of 2018 due to model errors, Weidel said that the recovery of low loss claims in the fourth quarter and first quarter had brought losses to others. and third quarter.
"The amount of losses in Finland and the blackout of the model have become too many markets," he said.
Tighten to Norway
The sharp growth in consumer loans has created concern with the authorities, including the Danish Financial Supervisory Authority, which has warned that many households increase loans with high interest rates and reputation risk for the industry.
The market for unsecured loans now reaches NOK 110 billion. This is a small amount of people's loans, but the growth is much higher than other types of loans.
Therefore regulations have been sharpened, including in marketing and how much bank capital must be set aside.
There are requirements that are tightened for repayment, ease of service, debt ratio and borrower ratings. The list of debts on the ladder must also provide a better credit rating.
However, the audit has not been satisfied with the fact that some offenders violate sharpened requirements, and have suggested that guidelines become regulations, which means that rules should not only be followed but must be followed, in practice, enforcing stricter consumer bank loan requirements.
Waiting for a lower loan decline
Weidel believes that the net effect associated with the list of debts will cause an increase in loan losses in Norway initially, before gradual tightening has the opposite effect.
"If you look at the next two years, after the debt list and with tighter regulations, sufficient loan losses will decrease as volume growth falls. More careful lending practices will help reduce loan losses as well.