The number of savings banks may be more than halved in the next ten years. The online newspaper has an overview of the banks that are at risk.
It was at a financial day under the auspices of Norges Bank last week that bank analyst Joakim Svingen of Arctic Securities made a dramatic prediction. Today’s 93 savings banks can be reduced to less than 40 in ten years. Why?
The key word is increased demands from the authorities, what is called in the technical language compliance: To ensure that the banks act in accordance with applicable laws, regulations and any other provisions and / or internal guidelines. It’s expensive.
Among other things, the banks have been given much stricter requirements for anti-money laundering work. A recent example is Sandnes Sparebank, which this week received a fine of NOK 1 million from PST. The bank did not freeze Mulla Krekar’s client account quickly enough in 2019.
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More supervision
– There are many drivers in this work in addition to traditional economies of scale. Finanstilsynet has become more active in on-site supervision in small banks, and there is increasing pressure on requirements for reporting and follow-up of anti-money laundering work and consumer protection, says Joakim Svingen to Nettavisen Økonomi.
– If you are a bank with 15 employees, it is tougher to defend one to two man-years extra for such control work compared to a bank with 40-50 employees.
Svingen says he has been around most savings banks and experienced how big the differences are between the banks. This applies to both access to customers and growth opportunities for the banks, as well as getting the right employees.
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Relocation
– Some regions are struggling as a result of relocation with both growth and obtaining competent employees. In other areas, there is growth, and even small banks are doing very well, he says.
The turnaround has nevertheless set a critical limit for the banks to have NOK 10 billion in lending for the banks to operate profitably with the increased requirements for control and risk management.
– We have calculated a little on this and have come to the conclusion that the banks should be at least 10 billion. We believe that 20-30 per cent of a bank’s loan portfolio should be for the corporate market in order to achieve good diversification.
Losing customers
– Then we are talking about 2-3 billion in loans to corporate customers. It is difficult to defend volumes during this, partly because a very small bank should be able to provide loans to, for example, good export companies. If the bank is very small and the business is growing, you must very quickly release it to a larger bank, the analyst explains.
Below we have set up an overview of savings banks that at the end of 2020 had less than NOK 10 billion in lending, Svingen’s critical limit. The figures apply to the parent bank, ie excluding any subsidiaries, but they mean little in this context.
As the overview shows, there are over 70 smaller savings banks that are at risk, given Svingen’s criteria for size.
Under billions
The very smallest banks, such as Gildeskål Sparebank and Cultura Sparebank, had as of December 2020 lent less than NOK 1 billion. Another nine small savings banks had total lending of less than NOK 2 billion.
It should be said that many of the banks in the overview are already in alliances. It is less likely that something will happen to these banks (see also below).
According to Svingen, it is primarily the size that is critical and challenging to cope with increased costs and increased reporting, not the solidity. The savings banks generally have a lot of equity and large buffers to consume if things go badly.
On the other hand, they struggle to defend large costs associated with the increased reporting requirements. This is because they have relatively small lending volumes to distribute the increased fixed costs on.
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Less pressure
The turn also highlights that there is less pressure on interest margins in the corporate market. At times, there may be less demand for mortgages, which is by far the savings banks’ most important segment.
– Then it is fine to have corporate customers if the pendulum swings, but it requires competent bank employees who follow up the portfolio, says the bank analyst.
The Norwegian banking system has undergone some major consolidations. If we go back a hundred years, there were over 600 savings banks in Norway. At the end of the 90s, we got large savings bank alliances such as SpareBank 1 Gruppen and Terra Gruppen, today Eika Gruppen.
Last year occurred The 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 “single” smaller savings banks in the far south of the country.
Same culture
– Where do you think the small banks will end up, under the SpareBank 1 system and the Eika Group?
– The most rational thing is to merge within the alliances, because these banks have the same culture and the same product range. It is also most cost-effective, Svingen answers.
On the other hand, he has less faith in the smaller savings banks being bought up by foreign banks. This could have been the case for Sbanken, which may now miss out on DNB and BN Bank, but these are independent commercial banks.
– A savings bank is not a share bank, and in savings banks the owners do not decide everything. They control 20-40 percent of the supreme body, the general meeting, the supervisory board or the board of trustees, says Svingen.
Win-win
– What do you think will happen to the competition in the Norwegian banking market if 40 savings banks become a reality?
– I do not really think it means that much as long as there will still be local actors. Banks can argue that there is a win-win situation:
– They become a better bank for the business community, and at the same time customers do not lose service providers. In most areas, DNB, a regional bank and a local bank will be present. It is a diversity that is positive for the customers.
– Do we have too many banks in the Norwegian banking system today?
– Yes, I would say that 93 savings banks and over twenty commercial banks are too many. The savings banks and the savings bank model are very strong, but the number is not sustainable, the bank analyst answers.
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Slowly but surely
– When do you think we will see the first savings banks that have to give up?
– This is a development that is going slowly but surely. In the last two years, there have been seven to eight fewer savings banks, plus two fewer commercial banks. It is quite obvious that this is higher on the agenda of the boards, not least as a result of increased regulatory requirements. I think we can see four or five mergers a year ahead, Svingen answers.
In his post during the financial day, he also touched on the competitive situation in the Norwegian and Nordic banking sectors.
Here, the Arctic analyst could, among other things, say that the wind has turned for Nordea Norway in the retail market. The major Nordic bank is now taking market shares here at home, in contrast to, for example, Danske Bank
Nordea on the offensive
– Nordea is really on the offensive, but for Danske Bank it is the opposite. Danske Bank was strong from 2016 after they took over the agreement with The academics, but has recently struggled with additional sales to customers.
– On the other hand, we experience that the savings banks, especially the SpareBank 1 banks, have had success with benefit programs in favor of LO. They have succeeded with resale, Svingen told the competent assembly.
The bank analyst also predicted that price pressure will continue on mortgages. Margins for banks will fall steadily.
“In addition, good customer satisfaction and good solutions for customers are becoming more and more important,” Svingen said of the banks that will succeed in the future, Svingen told those present.
– More and more demanding to comply with
One of Norway’s smallest savings banks, Rindal Sparebank, confirms the challenge.
– These are a little tougher times for smaller banks, but we have decent profitability and satisfied customers. That is the most important thing, says Magne Bjørnstad, bank manager at Rindal Sparebank.
– We are one of the absolute smallest banks, but we have a threat that we will make it. I also do not think it will be such a violent scaling as the analyst suggests, Bjørnstad points out.
Sparebanken thinks it is good to have the Eika alliance.
– We feel that the government requirements are more and more demanding to comply with, but we have the Eika alliance behind us. As a small bank, we depend on having the alliance behind us.
– Especially that with anti-money laundering is difficult to comply with, he adds.
But Bjørnstad feels they have good control and overview.
– It is the advantage of being a small bank, he points out.
The bank, in collaboration with Sunndal Sparebank, has recently joined 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 meet the competition.
– Can be decisive for the little ones
Liv Ulriken, CEO of Sparebank 1 Nord-Norge, also says that the bank is experiencing several regulatory requirements.
– It is cost-driving. It will require several man-years to handle the regulatory, and there are costly man-years. It affects competition and for the smallest banks it can be decisive, says Ulriken to Nettavisen.
The logic is that it will be heavier to carry for a small bank. The small banks probably know that, she adds.
Sparebanken is not worried as of today.
– We see that it is likely that more banks will find together. There are good processes that are often desired by both parties.
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