Bank margins in Norwegian real estate financing may increase in the coming year

Average margin among the largest banks in the Norwegian market is reported to be 204 bps for a 5-year 65% LTV loan, as it was in Q3 19. Average margins may however increase in the coming months as response to an expected increase in capital requirements for foreign banks and their branches in Norway.
6. januar 2020

Author: Partner, Stein Hegdal

The Norwegian real estate broker group UNION published its quarterly review of interests and loan practice in the Norwegian commercial real estate market a few days before ChristmasBasis for the review is questions to the seven largest banks in the Norwegian market. The review is generally considered to give a fairly accurate picture of the situation in the market. 

What is the average bank margin now? 
The bank margins seem to have stabilized for the time being. The average for a new “standard loan” (5 year loan within 65% of market value, average turnaround of leases 7 years) was 204 bps, as it was the quarter before.  

                                             Bank margins for a new standard loan (5yrs, 65 % LTV) 

Source: UNION 

The margin has decreased 41 bps since the top in Q 4 2017. It is 39 bps above the bottom of 165 bps in Q2 2015. Today’s margin is about on the average since 2010. The spread around the mean value is considerably smaller than it was when the margins were on the top level two years ago. 

What are the lowest margins offered? 
The average of the lowest margin offered by each of the banks, regardless of loan to value ratio, was 145 bps.with 120 bps reported as being the very lowest the last three months. This average is slightly above (6 bps) the average lowest margin last quarter.  

What is the total interest cost in the Norwegian market? 
Long interest rates – the 5-year swap-rate - have increased by 26 bps the last quarter, and is back on the level from mid 2019. The average total loan cost for a standard loan is thus now 3.94%. 

                                         Total interest cost for a new standard loan (5yrs, 65 % LTV) 


Source: UNION 

Increased capital requirements for the Norwegian branches of foreign banks (Nordea, Danske Bank, Handelsbanken, SEB and Swedbank) are expected during 2020. This may have consequences for the margins these branches are able to offer in the Norwegian real estate market, where some of those banks have marked themselves as eager competitors, who have been pressing the average margin level down.    

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Stein Hegdal
Stein Hegdal
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