The interbank rate (three-months Nibor) remains at roughly the same level as long-term interest rates. As usual, a good deal of uncertainty prevails about the trend for the latter. But ever-stronger signs indicate that Norges Bank has finished raising interest rates this time round. The interbank rate is therefore likely to have topped out.

Bank financing

UNION’s bank survey for the first quarter of 2020 shows that the bank margin remains stable. For new five-year loans with 65 per cent loan-to-value (LTV), the average margin is 203 bps – which is down only one bps from the fourth quarter. The bank margin is 42 bps under its peak in the fourth quarter of 2017, but 38 bps above the low point of 165 bps for the second quarter of 2015.

The bank margin has primarily moved sideways since the second quarter of last year, and it is a long time since we have had such a stable trend in the margin picture. The signs are that the financing market has calmed down after the violent ups and downs following the introduction of new capital requirements for Norwegian banks.

Another important reason for the stability is that bank borrowing costs have been relatively steady during the period. They remain at a low level, with the banks paying 54 bps on average for five-year loans today. That is not much above the lowest registered since UNION stated its bank survey 10 years ago. The record was set in the first quarter of 2018, when a level of 48 bps was registered.

The five-year swap rate has fallen by 15 bps since the bank survey was conducted in the fourth quarter of 2019. Total financing costs for five-year loans, with full interest-rate hedging throughout the period, has thereby fallen by 16 bps to 3.78 per cent. Since the interbank rate is on a par with both five- and 10-year swap rates, financing costs are virtually identical when opting for a floating interest rate.

Swedish banks are highly likely to face increased capital requirements in the course of the year, which could affect the willingness to lend and bank margins in the Norwegian market. Norway’s Ministry of Finance is also looking at opportunities to impose Norwegian rules on the activities of foreign banks in the country. In the event, that would mean these banks must hold more equity behind loans for Norwegian property acquisitions. The banks still have a relative good appetite for lending. Since a number of them are likely to face new capital requirements, however, an increase in bank margins during 2020 is more likely than not.