On a financial day sponsored by Norges Bank last week, banking analyst Joakim Svingen at Arctic Securities made the dramatic prediction, the newspaper said online. Today’s 93 savings banks could be reduced to less than 40 in ten years, why?
The key word is increased requests from the authorities, the so-called technical language ComplianceEnsure that banks act in accordance with applicable laws and regulations and any other provisions and/or internal guidelines. beloved.
Among other things, banks have been given more stringent requirements regarding anti-money laundering work. A recent example is Sandnes Sparebank, which this week received a 1 million NOK fine from PST. The bank did not freeze the account of Mulla Krekar client quickly enough in 2019.
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There are many motives in this work in addition to the traditional economies of scale. Finanstilsynet is becoming more active in field supervision in smaller banks, and there is increasing pressure on reporting requirements and follow-up on anti-money laundering and consumer protection work, Joakim Svingen tells Nettavisen Økonomi.
If you are a bank with 15 employees, it is much more difficult to advocate for an additional 1-2 years for this control business than for a bank with 40-50 employees.
Svengen says he has been at most savings banks and has seen how huge the differences are between the banks. This applies to both customer access and growth opportunities for banks, as well as getting the right employees.
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Some regions are struggling as a result of resettlement with both growth and access to qualified staff. In other areas, there is growth, and even small banks are doing very well, he says.
However, the shift has set a critical limit for banks to get NOK 10 billion in lending for banks to operate profitably with increased control and risk management requirements.
– We calculated a little about this and came to the conclusion that the banks should be at least 10 billion. We believe that 20-30 percent of the bank’s loan portfolio should be for the corporate market in order to achieve good diversification.
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– Then we talk about 2-3 billion loans to corporate clients. Quantities are hard to defend during this, in part because a very small bank should be able to make loans, for example, to good export firms. The analyst explains that if the bank is very small and the business is growing, you should quickly send it to a larger bank.
Below we have prepared an overview of the savings banks that at the end of 2020 had less than NOK 10 billion in lending, which is the critical limit for Svingen. The numbers apply to the parent bank, that is, excluding any subsidiaries, but they don’t mean much in this context.
As the overview shows, there are more than 70 smaller savings banks at risk, given Svingen’s criteria for scale.
Smaller banks, such as Gildeskål Sparebank and Cultura Sparebank, had lent as of December 2020 less than NOK 1 billion. The total lending of nine small savings banks was less than 2 billion NOK.
It must be said that many banks in general are already in alliances. It is unlikely that something will happen to these banks (see also below).
According to Svingen, size is fundamentally critical and challenging to deal with rising costs and reporting, and it is not hardness. Savings banks generally have a lot of stock and large hedge funds to amortize if things go wrong.
On the other hand, they struggle to defend the significant costs associated with increased reporting requirements. This is because they have relatively small lending volumes to spread out over the increased fixed costs.
This turn also highlights that there is less pressure on interest margins in the corporate market. Sometimes there may be less demand for mortgages, which are by far the most important part of savings banks.
So, it’s good to have corporate clients if the pendulum swings, but that requires competent bank employees who keep track of the portfolio, says the bank’s analyst.
The Norwegian banking system has undergone some major mergers. If we go back a hundred years, there were more than 600 savings banks in Norway. At the end of the 1990s, we got major alliances with savings banks such as SpareBank 1 Gruppen and Terra Gruppen, today Eika Gruppen.
Happened last year Local Bank Alliance, which consists of ten local savings banks. There are a number of medium-sized independent savings banks, including Haugesund Sparebank, Fana Sparebank and some smaller “individual” savings banks in the far south of the country.
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Where do you think small banks will end up, under the SpareBank 1 and Eika Group system?
– It is more rational to merge into alliances, because these banks have the same culture and the same product range. Svingen answers that it is also the most cost-effective.
On the other hand, he has less confidence in the smaller savings banks that foreign banks buy. This could have been the case for Sbanken, which may now lose DNB and BN Bank, but these are independent commercial banks.
– The savings bank is not a joint bank, and in thrift banks everything is not decided by the owners. They control 20-40 percent of the supreme body, the general meeting, the supervisory board or the board of trustees, says Svengen.
– What do you think will happen to the competition in the Norwegian banking market if 40 savings banks become a reality?
– I don’t really think that means that as long as there will be local actors. Banks could argue that there is a win-win situation:
– They have become a better bank for the business community, and at the same time customers do not lose service providers. In most regions, a DNB, a regional bank and a local bank will be present. It is a positive diversity of customers.
Do we have a lot of banks in the Norwegian banking system today?
– Yes, I say there are 93 savings banks and more than twenty commercial banks too many. The bank analyst answers that the savings banks and thrift bank model are very strong, but the figure is not sustainable.
slowly but surely
When do you think we will see the first savings banks to surrender?
This is a slow but steady development. In the past two years, the number of savings banks has fallen from seven to eight, as well as fewer commercial banks. It is quite clear that this is higher on the boards’ agenda, not least because of increased regulatory requirements. Svengen answers: I think we could see four or five mergers in the next year.
In his position during the financial day, he also touched on the competitive situation in the Norwegian and Nordic banking sectors.
Here, an Arctic analyst can, among other things, say that the wind has shifted to Nordea Norway in the retail market. The main Scandinavian bank now takes market shares here at home, unlike, say, Danske Bank
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Nordea is really on the offensive, but for Danske Bank the opposite is true. Danske Bank has been going strong since 2016 after they took over the deal AcademicsRecently, however, it has struggled with increased sales to customers.
– On the other hand, we note that savings banks, especially SpareBank 1 banks, have succeeded in benefit programs in favor of LO. They have succeeded in the resale, Svengen told the relevant association.
The bank’s analyst also expected continued price pressure on mortgages. Banks’ margins will steadily decrease.
“In addition, good customer satisfaction and good customer solutions are becoming more and more important,” Svengen said of the banks that will succeed in the future.
– More and more demands for commitment
One of Norway’s smallest savings banks, Rindal Sparebank, confirms the challenge.
– These are a little more difficult times for smaller banks, but we have good profitability and satisfied customers. This is the most important thing, says Magni Björnstad, bank manager at Rindal Sparebank.
We are one of the smallest banks ever, but we have a threat that we will. I also don’t think it would be aggressive scaling as the analyst suggests, as Bjornstad points out.
Sparebanken thinks it’s good to have an Eika alliance.
– We feel that the requirements of the government are more and more demanding to be complied with, but we have the ECA alliance behind us. As a small bank, we rely on the alliance behind us.
Especially since it is difficult to adhere to anti-money laundering, he adds.
But Bjørnstad feels they have good control and an overview.
It’s the advantage of being a small bank, he points out.
The bank, in association with Sunndal Sparebank, recently joined forces as owners of two local accounting firms. This will provide a basis for further growth.
We will definitely compete with the two big banks. We aim to strengthen our position and face the competition.
– It can be crucial for the little ones
Leif Ulriken, CEO of Sparebank 1 Nord-Norge, says the bank faces many regulatory requirements.
– It’s the cost of driving. It will take several years of work to deal with regulation, and there are costly years of work. It affects competition and could be crucial for even the smallest banks, Ulriken tells Nettavisen.
The logic is that it would be heavier to carry for a small bank. She adds that smaller banks may know this.
Sparebanken is not worried until today.
We see that you are likely to find more banks together. There are good processes that are often desired by both parties.
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