Norwegian Consumer Debt: Acid Test Awaits in Summer Holidays and Beyond, Warns Bank Officials

So far, there are few signs that Norwegians are struggling to repay consumer debt. This could turn around as early as June, bank top officials warn.

Juicy jumps in interest rates and strong price growth have slimmed the wallets of most Norwegians.

In barely a year, the mortgage has become two or three times as expensive, while the prices of everything from food to electricity and fuel have skyrocketed.

This week, DNB’s short figures for April showed a significant drop in consumption, the first since before the pandemic. The same cold shower showed turnover in the retail trade, which fell more than expected from March to April.

– Spent

The Swedish-owned consumer loan bank Bank Norwegian, the largest pure consumer loan bank in the Norwegian consumer loan market, is currently little concerned about Norwegians’ ability to pay.

– We are very excited about how this will go. We will get the first acid test in June with the holiday money, which customers normally use to pay down the debt heavily, says Bank Norwegian CEO Merete Gillund to E24.

At the same time as costs have increased, Norwegian consumers have also booked trips to the south like never before.

The question is whether all or a larger part of the holiday money than normal has been advanced to pay the gild, and what the final bill will be as the weak krone will make the holiday abroad significantly more expensive this year, the bank chief points out.

– Acid test number two, comes when payment is due on 15 August, and number three on 15 September, says Gillund.

Does not see a change in ability to pay

The consumer loan bank Santander Consumer Bank also does not notice any particular change in its customers’ ability to pay.

– As of today, we are not experiencing any drastic changes in our customers’ ability to pay, even though the macroeconomic situation is demanding, says communications director Eskil Pedersen at Santander to E24.

He adds that the bank experienced an increase in requests for payment postponement from October 2022 until February this year. From May this has returned to normal levels.

– We follow along and are keen to give good advice to our customers in what for many is a worsening financial situation, says Pedersen.

Smaller consumer loans

Santander has become a significant player in car financing in the Norwegian market. The company’s lending portfolio consists of 85 per cent of secured loans, while the remainder is consumer loans and credit cards.

Santander’s portfolio of consumer loans was reduced by around seven per cent in the first quarter of the year compared to the fourth quarter last year.

– This is partly due to strong competition within the market, but also reduced appetite among consumers due to the economic situation, says Pedersen.

More collection

Debt collection giant Intrum is experiencing a gradual and modest rise in the number of debt collection cases, but the level is still lower than it was before the pandemic.

At the same time, there are signs that the interest rate increases are beginning to bite for some, both in terms of car loans and mortgages, says chief analyst Morten Trasti at Intrum to E24.

– Now we are almost where we were before the pandemic on mortgages that go to collection, after it halved during the pandemic, and for car loans we are where we were in March 2020, he says.

He adds that collection proceedings are only initiated after 2-3 installment defaults, and that the banks first try to resolve the situation together with the customer.

At the same time, it takes time from Norges Bank’s announced interest rate increases until the commercial banks set their interest rates for customers.

Thus, the full effect of recent interest rate increases has not been seen, according to the analyst.

He believes that account must be taken of the fact that collection figures will increase in the second half of the year.

– The debt becomes successively more expensive to service for each interest rate increase, and it is reasonable to believe that the default will continue in the future, says Trasti.