Higher demand for fixed-rate loans
- Series:
- Survey of Bank Lending
- Number:
- 3/2024
In 2024 Q3, household credit demand increased slightly. At the same time, banks report a considerable rise in fixed-rate loans. Corporate demand remained approximately unchanged. Banks expect both household and corporate demand to remain broadly unchanged in Q4. Overall credit standards were approximately unchanged. Banks also report slightly stronger competition.
Households
Overall, banks reported that residential mortgage demand increased slightly in 2024 Q3 (Chart 1). Demand for first-home mortgages was approximately unchanged in Q3. Demand for fixed-rate loans increased substantially and more than expected in Q2 (Chart 2). In Q4, Banks expect approximately unchanged demand for fixed-rate loans and no change in overall mortgage demand.
Credit standards and the use of interest-only periods were broadly unchanged for households in 2024 Q3 and banks expect no change in Q4 (Chart 1).
Residential mortgage demand, credit standards and lending spreads
Household residential mortgage demand
Overall, banks reported a slight decrease in residential mortgage lending spreads (Chart 3). As in 2024 Q2, banks reported slightly stronger competition in Q3 and they also expect slightly stronger competition in Q4.
Banks’ operating environment, lending spreads and lending rates. Residential mortgage loans
All banks report that new loans are largely issued as annuity loans and most banks report that they require principal payments on new loans (Chart 4). A number of the banks report generally weak demand for serial loans among their customers.
Banks’ practices regarding principal payments and distribution between annuity and serial loans
Updated version of chart 4 was published 24 October at 10.45.
Corporates
For non-financial corporates, banks as a whole reported unchanged credit demand in 2024 Q3 (Chart 5). Credit line utilisation was also broadly unchanged while demand for fixed-rate loans increased slightly. Demand for CRE loans was approximately unchanged in both Q2 and Q3 after falling slightly in Q1. In Q4, banks expect broadly unchanged credit demand from both non-financial corporates overall and CRE firms. Banks reported unchanged credit standards in Q3 and expect no change in Q4.
Credit demand, credit standards and margin on lending to non-financial enterprises
Banks’ funding costs on lending to non-financial corporates fell slightly in Q3, as did both lending rates and spreads (Chart 6). Banks expect no change in funding costs in Q4 and a slight decline in both lending rates and spreads. As in Q2, banks reported slightly stronger competition in Q3, and they expect broadly the same in Q4.
Banks’ operating environment, lending rates and lending spreads. Lending to non-financial enterprises
About half of the banks report somewhat increased CRE sales among borrowers where sales are motivated by improving their financial position (without there being any significant risk of breach of the terms of loan covenants or of a lower credit rating) or by avoiding default (Chart 7). Half of the banks report somewhat higher risk that CRE borrowers will breach interest coverage ratio terms. Four out of ten banks report a somewhat higher risk that CRE borrowers will breach the terms of loan covenants related to equity ratios (Chart 8). The share of banks that report an increased risk in response to these questions is broadly the same as when they were previously asked, in 2024 Q1.
Four out of ten banks report a somewhat higher risk that real estate developers will breach the terms of loan covenants relating to debt-servicing capacity in 2024 Q3, while two banks report a large increase in this risk (Chart 9). By comparison, in Q1, six banks reported somewhat higher risk and one bank reported a substantially higher risk. In Q3, five out of ten banks reported a somewhat increased risk that real estate developers will breach terms related to equity ratios in loan covenants, up from four banks in Q1.
Banks’ assessments of changes in CRE sales among borrowers related to various reasons
Banks’ assessments of developments in CRE segments
Banks’ assessments of real estate developers
Eight out of ten banks report a somewhat increased use of hedging among CRE firms, and the remaining two banks report a substantial increase (Chart 8). This is an increase from Q1, when this question was last asked and when nine out of ten banks reported that the use of hedging had increased somewhat.
From 1 January 2025, the EU will implement extensive changes to the Capital Requirements Regulation (CRR III). The Ministry of Finance’s aim is for corresponding EEA rules to enter into force in Norway from the same date. The changes are expected to reduce current differences in the capital requirements for large and small banks. In addition, the proposal from Finanstilsynet (Financial Supervisory Authority of Norway) also suggests that minimum risk weight requirements for loans secured on residential and commercial real estate rise somewhat with the internal ratings-based (IRB) approach.
Half of the banks report that the introduction of CRR III, as currently proposed, is likely to widen lending spreads somewhat for corporate loans. As regards banking sector mergers, the banks are more divided in how they expect this to impact lending and deposit spreads. Two banks expect spreads to widen somewhat, while three expect spreads to narrow somewhat. The rest of the banks expect spreads to remain approximately unchanged.
In its work on monitoring financial stability in Norway, Norges Bank uses extensive statistics on developments in credit and financial markets. In order to expand the information base, Norges Bank conducts a quarterly survey of bank lending. The survey provides information on changes in the demand for and supply of credit and on changes in banks’ loan terms and conditions. Objective of the Bank Lending Survey