Norway: Proposed Capital Mandate Raises Small Bank Ire

New capital requirements could reduce the mortgage loan lending capacity for Norway’s small and medium-sized banks by up to $17.3 billion.

Norway’s finance minister, Trygve Slagsvold Vedum, faces an open rebellion by savings banks incensed over a government proposal to impose higher capital requirements on banks in 2023. The backdrop for the change is Norway’s desire to bring bank capitalization rules into line with EU norms. 

The proposal would lift capital requirements on small to midsize banks by 1.5 percentage points, to 21%. Bank chiefs accuse Vedum of pursuing capital changes that will advantage big banks while forcing savings banks to increase loan interest rates further. 

A consortium of 81 small to midsize savings banks assembled in mid-December to force the government to reverse course. However, time is running out for smaller-size lenders. In a bid to pacify the rebels, Vedum has told banks that a final decision on raising capital requirements will not happen before a consultation process and a vote on the issue in the Storting, Norway’s legislature.

The dissenting bankers estimate that the plan, should it proceed, could reduce the mortgage loan lending capacity for Norway’s small and medium-sized banks by up to $17.3 billion.

“Small banks already have higher capital requirements compared to the major lenders. It costs small banks in Norway 70% more than big banks to lend 3 million kroner ($304,000) for a home loan. If the change goes ahead, the difference will be 86%. Small banks now find themselves in limbo. We do not know what the future holds,” says Arild Bjørn Hansen, chief executive at Sparebank 1 Østfold Akershus.

The capital requirement proposal blindsided savings banks. As shadow finance minister, Vedum opposed burdening small banks with higher capital requirements.

“We initially thought this was a fight we could easily win. We had assumed that since Vedum opposed higher capital requirements on small banks when in opposition, he would retain this opinion in government. Vedum even advocated for greater support for local banks because of their importance in lending to rural communities,” says Bente Haraldson Syre, chief executive at Haugesund Sparebank.