More and more specialized banks have been established in recent years to occupy part of the profitable and strongly growing market for unsecured loans.
After the Bank of Norway, banks such as Komplett Bank and Monobank joined, besides Instabank, Easybank and the latest BraBank newcomer, launched by travel and airline investor Per G. Braathen.
Banks have become engines of growth, but this year loan losses have also increased. All listed consumer banks have now sent their financial reports for the third quarter and data show that they have put significantly more on loan losses.
Since the third quarter of last year, the provision for loan losses has more than doubled in listed banks, and so far this year has also increased significantly (see Table below).
There was a shock in the market, says bank analyst Odd Weidel at Sparebank 1 Markets.
When Norwegian Finans Holding released its data, the stock fell 16% and fell by 6% in the next few weeks. Komplett Bank declined 13% on the reference date and then declined by 9%.
– The price on DNB is low, Swedish banks have declined. But even if you fix it, mortgage banks have gone down. It is the fear of losing loans that has reduced that. The market became very intimidated, says analyst E24.
E24 +: Investors in consumer loans are afraid of the obvious
See two reasons for increased loan losses
It refers to several common opponents that make banks make more losses. Several of the specialized banks have taken the leap from the country and have invested in other Scandinavian markets, mainly Finnish.
"There is probably the market in Finland that was tougher than it would have expected in the first place. It took more time to reduce loan losses to a normalized level in Finland," says the analyst.
According to Weidel, the introduction of the IFRS 9 accounting standards from 2018, which has a new model of losses, also had an accounting impact on the calculation of the loss.
According to the Danish Financial Supervisory Authority, the new standard requires banks to break down losses on new loans by adjusting expected loan losses as a result of expected default in the next twelve months.
"It is IFRS 9, which may be somewhat unexpected, one of which is accrual income." Say that the last day of the month expires on a Saturday or Sunday, then there may be some customers who have not paid the bill. IFRS 9 will result in losses, "Weidel says.
When Norwegian Finance Holdings, the largest player among the banknotes, presented its quarterly report, it continued to show the increase in customer and revenue, but increased losses and loan costs ensured that the surplus was in place.
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– The other is that the Norwegian bank had to make available for bigger losses. This is because they did not allocate very little to Finland in the fourth quarter of 2017 and the first quarter of 2018 due to a standard error, Weidel said the recovery of low-loss losses in the fourth quarter and the first quarter brought losses to others and in the third quarter.
"The sum of the losses in Finland and the holiday of the models has become too much of the market," he says.
Tightening in Norway
The sharp increase in consumer loans raised concerns with the authorities, notably the Danish Financial Supervisory Authority, which warned that many households are receiving high interest rates and risk for industry.
The market for unsecured loans now stands at NOK 110 billion. This is a small number of loans, but growth was much higher than for other types of loans.
Therefore, the rules have been exacerbated, including with regard to marketing and the amount of funds that banks have to hold.
There have been stricter requirements for repayment, servicing, debt ratio and borrower rating. The debt register on the stairs should also provide better creditworthiness.
However, the audit was not satisfied with the fact that several factors violated the exaggerated requirements and suggested that the guidelines should be made regulations, which means that the rules should not only be followed but in practice the requirements of the consumer banks loans.
Wait for lower loan losses
Weidel believes that a debt-related clearing result will initially lead to increased loan losses in Norway, before the tightening process gradually yields the opposite effect.
"If you see two years ahead, after the debt record and tightened regulation, you will reduce enough loan losses because the volume increase is reduced. A more cautious lending practice will help reduce loan losses as well.