Following the financial crisis, increasingly stringent capital requirements have been introduced for banks. The Norwegian authorities have taken stricter action than in most other countries:
The largest Norwegian and foreign banks, so-called IRB banks, can use their own risk weights to calculate how much equity the bank needs to lend money. All other banks, so-called standard banks, must operate with a standard calculation, which means that for a mortgage, the interest rate will be around 0.25 percentage points higher for smaller banks to give the bank the same profitability as a major bank.
This could be why Bank Norwegian and Instabank were sold out of the country to Swedish Nordax and Danish Lunar: Foreign banks operating in Norway have lower capital requirements. DNB’s acquisition of Sbanken also makes more sense when DNB can calculate the risk differently than Sbanken.
The current government has, however stated: “We will emphasize that the regulation of the Norwegian banking sector will not impose unnecessarily strict regulatory requirements on smaller banks.”, but the banks are now announcing that change is needed as soon as possible:
- Nordic Corporate Bank despairs over “completely absurd” capital requirements in Norway Link
- Storebrand believes that differential treatment of Norwegian banks affects loan customers Link