Norway, a very different bank country

Over the last few years around 10 new banks have launched in Norway, in a country with 5 million people. This in itself is extraordinary; it is not like there are not enough banks already. What makes this even more extraordinary is that all of these banks do one thing, they lend out high interest loans to people who are turned down by the high street banks. Getting a loan in Norway is easy, if you are prepared to pay 15–30% interest (the standard interest is more like 2–4%).

The development is sad in many ways. In rest of Europe new banks compete to offer the most innovating banking solutions, and to lower fees. This is the future of banking, which is being totally ignored by Norwegian bank founders and investors. It is easy to see why, sky high interest generate massive returns to the shareholders and the founders, today. What about the future?

What is taking place in Norway is self-destruction. When we are hit by the next financial crises people who should not be lent money in the first place will not be able to pay back these high interest loans. Which mean these banks will do what it takes to secure their outstanding balance, take your car, house, whatever holds any value. But there is a big problem, your typical high interest loan client already have debt on all their assets. This means that some of these banks will start to file for bankruptcy, and now we are entering the self-destruction face. With the combination of people not being able to pay back their loans and the first banks starting to go under we have the perfect storm of a financial crises.

I am not saying that Norway will trigger the next financial crises; the economy is way too small to do that. But with its strong economy Norway was hardly hit by the last financial crises, it will be different this time. Rather than to sit out the storm Norway will be hit as hard as the rest of the world, if not harder.

The saddest part of this situation is that Norwegians don’t have to lend money to cover basic costs. Contrary to countries like the US, even Sweden, the Norwegian work force is being paid very well. They don’t have to lend money to survive; they can easily get by on what they earn. In fact, people spend less of their salary on essential expenses, like food, than ever before. The real estate market has been going up for as long as people can remember; they after all barely felt the last financial crises.

If you drive around in Norway you will meet a Tesla on every street corner. Most cars are brand new. People live in nice houses or stylish apartments. Many have boats. Many more have cabins by the sea or in the mountains. 10% of Norwegians are considering buying property abroad. 5% has probably already bought real estate abroad. Yes they love to lend money, as much as they can afford too and then some. It will not end well.

As a side note, I feel I have to point out that Norway has poverty as well, not everyone has a job, and not everyone can get a mortgage. As in the rest of the world there are big differences. But contrary to the rest of the world the middle class in Norway has never had better days; most of them think they are all millionaires. Millionaires in debt I would say.

For now the banking industry in Norway is in a golden age. It will not last.

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