Some of those who come to the bank owe money to over 100 different players.
You have probably heard it before, but it does not hurt to say it again: Norwegians are at the top of the world in private debt.
In November alone, Norwegian households’ consumer debt increased by NOK 1.9 billion. That’s it highest rise since the start of the corona pandemic.
Norges Bank has in several years pointed out the sky-high debt to Norwegian households as the most important vulnerability in the Norwegian financial system. Among those closest to people with desperate debt problems is bank manager Svein Ivar Førland at Kraft Bank.
The number and scope of Norwegians with major debt problems turned out to be far greater than the experienced banker had thought. The bank’s niche is to refinance expensive debt with private individuals who have financial problems.
– We have grown much more than expected, says Førland.
Three and a half years after the start-up, the niche bank has NOK 2.2 billion in loans and 40 employees. The people who make contact usually have somewhere between 20 and 50 creditors that they need help to pay. Some have over 100 creditors when they ask for help, according to Førland.
Read more: Norges Bank strikes alarm about Norwegians’ debt
– No Mother Teresa bank
Since the credit markets became less regulated in the 1980s, lending to households has increased sharply. According to the Norwegian Institute for Consumer Research (SIFO), the total lending volume has increased eightfold from 1981 to 2020. Large mortgages and large growth in expensive consumer loans have contributed to increased debt in Norwegian households.
Kraft Bank CEO Førland says that the corona pandemic has meant that more people need help to deal with financial problems. Many were given a respite with payment deferrals from the authorities at the start of the pandemic. But now it’s starting to rush for many to pay last year’s bills.
– Those who initially had problems due to the pandemic are really starting to struggle now, says Førland.
Many get help from Kraft Bank, which says they have managed to help 468 customers to be completely financially healthy. But it is not free, and interest rates are higher than in a regular bank.
Is it immoral or unfair to lend money to already indebted people with such high interest rates? It would not have happened if not, says largest owner and entrepreneur Bjørn Maaseide.
– In order to lend money to these customers, investors must be able to expect higher returns. Maybe it’s unfair, but that’s how the world works. As I said three years ago, we are not a Mother Teresa bank. Then we will not get investors, nor can we help customers, Maaseide says to Nettavisen.
Bank manager Førland believes that there is a delicate balance between securing returns for investors and helping customers in a proper way.
– In an ordinary bank, our customers have two to three percent interest rates. With us, the interest rate is around six percent. But we help them get rid of a consumer loan where they pay 19 percent and credit card debt of several hundred thousand kroner, which typically starts at 16 percent and quickly rises to over 20 percent, says Førland.
– You are closer to Norwegians with financial problems than most. What do you think is needed at a system level for fewer people to have problems?
– Today we would like the debt register to contain more information. For example, leasing a car is not part of the debt register. Many of our customers have borrowed NOK 800,000 to lease an overly expensive car, says Førland.
The seas: Finanstilsynet warns against the high debt
Kraft Bank
- Offers refinancing of mortgages and unsecured loans to private individuals who due to financial problems do not receive refinancing in an ordinary bank.
- The bank aims to help restructure away the high interest rates and loans to private individuals. In sum, customers get a more manageable loan.
- When the company was to raise money in a private placement in 2018, sports celebrities such as Thor Hushovd, Alexander Kristoff, Rune Almenning Jarstein and Mats Zuccarello Aasen flocked to invest. Well-known heavy investors such as Yuhong Hermansen, Arne Fredly and Christian Ringnes wanted to join.
- A year ago, in December 2020, Kraft Bank went public on the Oslo Stock Exchange – and was valued at NOK 504 million.
- The bank only helps those they see they are able to help. Nine out of ten who make contact do not receive help, according to bank manager Svein Ivar Førland.
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Think more will enter the restructuring market
Lene Drange is a financial advisor, and for many known as the host of Luksusfellen on TV 3.
Together with Luksusfellen colleague Hallgeir Kvadsheim, she is well on her way to creating such an overview as Kraft Bank’s Førland calls for: A debt collection register where it should be possible to get a full overview of private individuals’ debt. According to the plan, the register will be launched in the first quarter of 2022.
Drange does not believe that restart loans or restructuring loans such as Kraft Bank offer are the solution to an unmanageable situation.
She says that several of the Luksusfellen participants have tried restructuring banks, and talks about high fees, interest rates and other costs.
– I do not know anyone who has managed to move their mortgage back to a “regular” bank again. Few of the banks I have consulted with want to take back customers from these banks, says the Luksusfellen host.
However, Norwegians’ high debt level means that several players are taking an interest in the niche Kraft Bank specializes in, according to Drange.
– Rumor has it that several of the larger banks also want to enter this market, she says.
Drange believes that prevention at an early age and more openness about personal finances in the long run can contribute to fewer people ending up in a financial disability. She believes that today there is a taboo around talking openly about one’s own finances.
– In addition, it should be more difficult to raise large amounts of unsecured debt. We received new loan regulations a few years ago, but it is still possible to borrow far beyond our means. For example, it is still possible to take out a consumer loan with a 15-year repayment period with an interest rate of up to 15 percent or more, says Drange.
The Norwegian debt
- Households’ total domestic loan debt amounted to NOK 3,966 billion at the end of October.
- Unsecured debt amounts to NOK 149.4 billion, and consists of repayment loans (81.4 billion), overdrafts (66.6 billion) and invoicing cards (1.4 billion).
- 3.2 million Norwegians have unsecured debt in the form of overdrafts, repayment loans and invoicing cards.
Source: Credit indicator and Norwegian Debt Information-
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The seas: The “luxury trap” profiles develop debt collection registers: It will be easier to become debt-free
Debt researcher: – The restructuring banks are part of the solution
SIFO researcher Christian Poppe has researched how things have gone with Norwegians’ economy in corona times. The pandemic has strengthened the finances of some groups, and weakened the resources and ability to pay of other groups. He believes that niche banks such as Kraft Bank contribute to more Norwegians having financial problems.
– The restructuring banks are part of the solution. They serve debtors who can provide a guarantee, or offer a guarantee in the property of others, typically the parents’ or parents-in-law’s home. It is a solution that is not necessarily cheap, just cheaper. But that price may be worth paying in some cases, says the researcher.
The debt register was introduced in 2019, and Poppe believes the measure has had a desired effect from the banks ‘and the authorities’ point of view. He believes creditors have a way to go when it comes to communicating with vulnerable customers.
– This applies not least to people with challenges related to mental health, but also those who are laid off and lose their jobs due to layoffs, as well as those who have a weak connection to working life, says Poppe.
He points out that the banks – and especially the consumer loan banks – have initiated extraordinary measures during the corona pandemic to help vulnerable households.
– If these have been good measures for customers, and perhaps also profitable for the banks, there is reason to ask whether these measures will be continued after the corona. And if not: Why not? This is something we will look at in a project next year, says Poppe.
The seas: Kills the tenacious myth of debt: – It’s just nonsense
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