Some of those who come to the bank owe money to over 100 different players.
You’ve probably heard it before, but it doesn’t hurt to say it again: Norwegians are on top of the world in private debt.
In November alone, the consumer debt of Norwegian households increased by NOK 1.9 billion. This is highest height Since the start of the Corona pandemic.
Norges Bank has in Noted several years The extremely high debt of Norwegian households as the most significant weakness of the Norwegian financial system. Among those closest to people with desperate debt problems is bank manager Sven Ivar Forland at Bank Kraft.
The number and range of Norwegians with significant debt problems turned out to be much greater than the experienced banker had thought. The specialty of the bank is the refinancing of exorbitant debts for individuals with financial problems.
– We’ve had a lot more growth than expected, says Forland.
Three and a half years after its start-up, the specialist bank has secured loans of NOK 2.2 billion and 40 employees. The people making the call usually have between 20 and 50 creditors who need help paying it off. Some have more than 100 creditors when they seek help, Forland says.
– There is no mother Teresa’s bank
Since credit markets became less regulated in the 1980s, lending to households has increased sharply. According to the Norwegian Institute of Consumer Research (SIFO), total lending volume increased eightfold from 1981 to 2020. Large mortgages and a significant growth in expensive consumer loans contributed to the increase in debt in Norwegian households.
Kraft Bank CEO Forland says the coronavirus pandemic means more people need help dealing with financial problems. And many of them got a respite with the delay in payment from the authorities at the beginning of the epidemic. But it is now starting to rush for many to pay last year’s bills.
– Forland says those who initially had problems with the pandemic are already starting to struggle now.
Many are receiving help from Bank Kraft, which says they have been able to help 468 customers to be financially healthy. But it is not free, and the interest rates are higher than normal banks.
Is it unethical or unfair to lend money to indebted people at such high interest rates? It wouldn’t have happened otherwise, says Bjorn Macaeid, the largest owner and entrepreneur.
In order to lend money to these clients, investors must be able to expect higher returns. This may be unfair, but that’s how the world works. Like I said three years ago, we are not Mother Teresa’s bank. We won’t get investors, we can’t help clients, Maaseide tells Nettavisen.
Bank Manager Forland believes that there is a delicate balance between securing returns for investors and helping clients in an appropriate manner.
In regular banks, our customers get interest rates between 2 and 3 percent. With us, the interest rate is about six percent. But we’re helping them off a consumer loan where they pay off 19 percent and credit card debt of several hundred thousand kronor, which typically starts at 16 percent and quickly rises to more than 20 percent, Forland says.
– You are closer to Norwegians who have financial problems than most. What do you think is required system-wide for fewer people with problems?
Today we would like the debt register to contain more information. For example, a car rental is not part of the debt registry. Forland says many of our customers have borrowed 800,000 NOK to rent an expensive car.
- Offers refinancing of mortgages and unsecured loans to individuals who do not receive refinancing in a regular bank due to financial problems.
- The bank aims to help restructure high interest rates and loans to individuals. In short, customers get a more manageable loan.
- When the company was to raise money in a private placement in 2018, sports celebrities such as Thor Hoshofd, Alexander Kristof, Ron Almining Garsten and Mats Zuccarello Asen flocked to invest. Well-known big investors such as Yohung Hermansen, Arne Friedley and Christian Reingis wanted to join.
- A year ago, in December 2020, Bank Kraft entered the Oslo Stock Exchange – its value amounted to 504 million NOK.
- The bank only helps those they see as capable of helping them. Nine out of 10 who reach out do not receive help, according to bank manager Sven Ivar Forland.
Think more will enter the restructuring market
Lene Drange is a financial advisor, and is known to many as the host of Luksusfellen on TV 3.
Together with colleague Luksusfellen Hallgeir Kvadsheim, they are on the way to creating such an overview as Kraft Bank’s Førland calls: a debt collection registry where it should be possible to get a complete overview of individuals’ debts. According to the plan, the registry will be launched in the first quarter of 2022.
Drang does not believe that loan repayments or restructuring loans such as Kraft Bank’s offer are the answer to an unmanageable situation.
She says many of the Luksusfellen participants have tried to restructure the banks, talking about high fees, interest rates and other costs.
– I don’t know anyone who managed to get their mortgage back into a “normal” bank. The Luksusfellen host says that few of the banks I’ve consulted with are willing to take back clients from these banks.
However, Norway’s high level of debt means that many players are interested in the niche bank that Kraft Bank specializes in, according to Dring.
– Rumor has it that many major banks also want to enter this market, she says.
Drange believes prevention at a young age and more openness about personal finances in the long term can contribute to fewer people who end up with a financial disability. She believes that today there is a taboo about talking openly about one’s finances.
In addition, it must be more difficult to amass large amounts of unsecured debt. We received new loan regulations a few years ago, but it is still possible to borrow beyond our means. For example, a consumer loan with a 15-year repayment period can still be obtained at an interest rate of 15 percent or more, says Dring.
- Domestic household loan debt totaled 3,966 billion NOK at the end of October.
- Unsecured debt stands at NOK 149.4 billion, and consists of repayment loans (81.4 billion), overdrafts (66.6 billion) and bill cards (1.4 billion).
- 3.2 million Norwegians have unsecured debt in the form of overdrafts, repayment loans and bill cards.
Source: Credit Index and Norwegian Debt Information
Debt researcher: – Bank restructuring is part of the solution
Researcher Christian Popp at SIFO conducted research on how things are going with the Norwegian economy in times of Corona. The pandemic has strengthened the financial resources of some groups, and weakened the resources and ability to pay of others. He believes that specialized banks such as Bank Kraft are contributing to an increase in the number of Norwegians with financial problems.
Bank restructuring is part of the solution. They serve debtors who can put a guarantee, or put a guarantee in the property of others, usually the home of the parents or the spouse’s parents. It’s a solution that isn’t necessarily cheap, but rather cheaper. In some cases, the researcher says, this price may be worth paying.
The debt registry was introduced in 2019, and Bob believes the action has had the desired effect from the point of view of the banks and authorities. He believes that creditors have a way to go when it comes to communicating with vulnerable clients.
This applies not least to people with mental health challenges, but also those who have been laid off and lost their jobs due to layoffs, as well as those who have a poor connection to working life, says Pope.
He pointed out that banks – especially consumer loan banks – started exceptional measures during the Corona pandemic to help vulnerable families.
– If these are good measures for customers, and perhaps also profitable for banks, then there is reason to wonder whether these measures will continue after Corona. And if not, why not? Bob says that’s something we’ll look at in next year’s project.
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