Interest rates in banks and other financial enterprises, Q2 2007

The lending and deposit rates increased by 0.32 percentage points to 5.58 per cent and by 0.24 percentage points to 3.36 per cent respectively in the second quarter. In the same period, Norges Bank’s sight deposit rate increased by 0.50 percentage points, while the 3 month NIBOR rate increased by 0.41 percentage points. Thus banks’ interest level increased less than the sight deposit rate and money market rate during the second quarter.

Banks normally have to inform debtors six weeks in advance of interest rate increases on loans with a floating interest rate. Therefore, banks adjusted their interest rates to match the increase in the sight deposit rate on 16 March 2007, while the increases in Norges Bank’s sight deposit rate on 31 May and 28 June will not affect the interest rate level until the third quarter 2007.

Interest rate margin rise in the majority of banks

Banks’ interest rate margin has dropped every quarter from the end of first quarter 2004 to the end of fourth quarter 2006. This is a consequence of increased competition in the banking market and less loan losses. In the first quarter this year, the increased interest rate margin was due to structural changes. Corrected for these factors, the interest rate margin would have decreased by 0.05 percentage points in this quarter. In the second quarter, the majority of banks increased their interest rate margin.

Banks’ interest rate margins on loans decreased by 0.09 percentage points and have decreased every quarter since the end of first quarter 2004. The interest rate on deposits increased by 0.17 percentage points and has increased every quarter since the end of fourth quarter 2005.

Interest rates increase in the other financial corporations

The interest rate increased by 0.30 percentage points in mortgage companies, by 0.27 in state lending institutions, by 0.29 in life assurance companies and by 0.25 percentage points in the Norwegian Public Service Pension Fund.

Banks’ interest rate margin and net interest income

While the banks’ interest rate margin has decreased every quarter from the end of first quarter 2004 to the end of fourth quarter 2006, banks’ net interest income has increased in the same period. One explanation is that the losses of income due to decreased interest rate margins have been offset by the growth in loans, which has been stronger than the growth in deposits. In 2007 the growth of the interest rate margin also contributes to the major increase in net interest income, as seen in the profit and loss account statistics ;