Finnish banks still benefit unilaterally from high loan margins

Some 4 years ago Finnish banks somehow managed to increase their lending margins by forcing housing loan customers to pay at least the margin when Euribor interest rates fall below zero.

The practice has been accepted by the banking authorities or at least they have not forbidden this unhealthy practice.

Banks then stopped housing loan customers from enjoying negative interest rates even though banks have that advantage when they fund their loan portfolios with negative interest rates from say the ECB. 

The banks counter this argument by saying that they are not charging customers negative interest rates when they keep their deposits at the bank. But this is a bogus claim. Most banks are already not paying any interest on deposits kept by private customers. They are actually charging customers monthly fees, so the effect is the same. Also banks must pay more than zero interest rates for long-term funding. It is only the best governments that are able to secure long term funding at a rate of interest below zero. The min exception is the generous funding that banks get from the European Central Bank! 

In other words, the banks want to impose unilaterally an interest rate floor on clients, the result of which effectively gives them a much fatter lending margin.

There are 2 results coming from this ridiculous situation:

  1. Banks are not allowing customers access to market rates. They talk about their need to have free access to the markets but not for their customers!
  2. Banks are unilaterally increasing their profits and that is what is normally called an abuse of market power Every bank knows that the creation of an interest rate floor is simply the creation of an option on which they have a benefit without any downside. In any professional market any bank or any company would have to pay for receiving such an option. In this case they are trying to force housing loan clients to give them such an option for free. It is the same as robbing a bank, except the bank is robbing the customer…

Another aspect that is also worrying is that 2 banks enjoy a market share of over 70% of all housing loans. Such a duopoly is certainly unacceptable especially when the same banks and their big owners are generous with funding for the various political parties, directly and indirectly.

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