Banks Face Scrutiny Over Delayed Interest Rate Cuts

Customers Wait Months for Savings While Banks Profit

Following the first interest rate cut in five years, many mortgage holders are facing a frustrating wait. Banks are taking their time, leading to questions about fairness and the financial incentives at play for borrowers across the board.

Delayed Savings

Customers with existing loans are facing a two-month wait to see the interest rate cut reflected in their mortgage payments. Both major banks and smaller savings institutions have set the date for the changes between August 25 and 27. The delay contrasts with how quickly banks provide new, lower rates for new customers.

“They can give the interest rate cut right away if they want. Banks earn a lot from retaining all customers at the old interest rate as long as they can. Many will not bother to check,”

—Guro Sollien Eriksrud, Head of Consumer Economics in the Consumer Council

Banks are permitted to provide a two-month notification period for any loan price increases. However, no similar rule exists that dictates a timeframe for interest rate reductions. According to a recent report by the Financial Stability Board, banks globally generated an estimated $1.5 trillion in net interest income in 2023 (Source 2024).

A Consistent Practice

The finance expert, Hallgeir Kvadsheim, notes that no bank seems to be taking advantage of the ability to give customers the interest rate cut sooner than their competitors. Kvadsheim thinks the lack of action might be a sign of insufficient competition, especially since the current practice allows these institutions to postpone savings for customers.

Julia Stelzer Norberg, a communications advisor at DNB, states that this practice has always been the policy. Kvadsheim estimates that banks could save over a billion kroner by waiting to apply the new interest rates.

Business Model

DNB’s 23 percent market share indicates that the total interest rate gains across the banking sector could exceed 1 billion kroner. The bank has clarified that they are a commercial entity and that their business model is about the balance between interest expenses and income.

This situation echoes similar practices from the last time interest rates were lowered, about five years ago, the bank explained.