Transactions with a negative interest rate accounting. The Bank of Japan introduced a negative interest rate. So negative interest rates are good
The Russian banking community came up with the idea to introduce negative interest rates on foreign currency deposits. The Central Bank did not support the initiative. As a result, banks may refuse to accept euro deposits from the public.
Why is the Central Bank against
Commenting on its decision, the Central Bank gave two arguments. Firstly, “the practice of setting negative rates exists only in certain countries of the eurozone and for certain transactions”; secondly, it can “lead to the accumulation of large volumes of foreign exchange liquidity outside the banking system”, that is, to the growth of the shadow foreign exchange market.
The Central Bank may have other reasons to object to the introduction of negative rates on client foreign currency, bankers say. “In addition to the business component, there is an image component. Many clients, especially individuals, may take negative rates negatively,” said Andrei Stepanenko, deputy chairman of the board of Raiffeisenbank. Mikhail Matovnikov, chief analyst at Sberbank, agrees that "the appearance of negative rates is a rather serious negative."
The banking community can solve the problem on its own. It is easier for bankers to stop attracting liquidity in euros by removing the corresponding deposits from their product line for individuals, market participants point out. “As for individuals, the way out may be to stop attracting new deposits in euros,” Stepanenko told RBC, adding that Raiffeisenbank is considering such a possibility. In his opinion, other players can choose this strategy as well. As a result, Russians' ability to diversify their savings will shrink.
However, while in the banking community there is no consensus on this matter. Sberbank and Citibank declined to comment on rates plans. “As for VTB24 and the retail business of VTB Bank, there are no plans to adjust the yield on foreign currency deposits in the short term,” said a representative of the VTB Group.
It will be more difficult for banks to go the same way with respect to legal entities. “Good corporate clients are critical for most banks, and no one will refuse them because of losses on borrowed euros. Banks will have to solve this problem by improving the work of their treasuries, ”a manager of one of the top 30 banks in terms of assets told RBC.
In his opinion, the problem did not appear yesterday, but with proper management of liquidity flows, it can be resolved. “Most likely, the appeal of the association to the Central Bank was caused by a surge in liquidity inflows in euros from clients of some specific banks, which they quite reasonably backed up with a reference to the general, not the most simple situation on the market.”
It is possible, RBC's interlocutor notes, that in recent months the situation has been aggravated by the accumulation by Russian companies in their accounts of foreign currency, including euros, to pay for external debts. In the first quarter of 2017, according to the Central Bank, these payments should amount to more than 15 billion in dollar terms.
Save00:00 — REGNUM The Western economy at the beginning of the 21st century faced a new phenomenon - negative interest rates on bank operations. This phenomenon is still poorly understood, the attention of financiers and economists is concentrated only on its short-term consequences. Meanwhile, negative interest rates on active (credit) and passive (deposit) operations of banks in a number of Western countries can hardly be considered a random phenomenon. This, in our opinion, is a long-term trend, indicating that the model of capitalism that existed for several centuries is becoming obsolete. And it is replaced by something else.
Let me remind readers that two concepts are used in the theory and practice of banking - nominal and real interest rates. The first (nominal) is the level of interest that is officially fixed by the bank and appears in documents on credit and deposit operations. The second (real) is the nominal rate, adjusted to the current macroeconomic and market situation. First of all, price changes (inflation, deflation) are taken into account; if necessary, the change in the exchange rate of the currency used to determine the interest can also be taken into account. The real interest rate of banks on both active and passive operations could go negative in the past, and even in the century before last. But this, as they say, was considered an extraordinary event, "force majeure." For capitalism, this was a departure from the norm. Negative nominal interest rates were not even discussed.
But at the beginning of the 21st century, nominal interest rates began to go into the red. True, so far only on passive (deposit) operations. And there is no need to talk about negative real interest rates for both passive and active operations. Banks and their clients began to face this constantly. For the first time, negative interest rates were introduced by the Swedish Central Bank after the 2008 crisis. The Swedish Central Bank set a fee for commercial banks to place funds on correspondent accounts for amounts that exceeded the required reserves. The motive for such a policy was to force banks to lend to the real sector of the economy, to make it inconvenient for banks to keep non-performing funds. In 2012, the Central Bank of Denmark also ventured to go negative.
When the debt crisis began in the European Union, which provoked a weakening of the euro, banks, companies and individuals of the EU member states and especially the eurozone began to look for financial instruments denominated in more stable currencies than the euro. Especially attractive were the deposits of Swiss banks in Swiss francs. A powerful influx of funds into the Swiss banking system (by the way, not only from the EU, but also from other countries) created problems. Firstly, for credit institutions in Switzerland (where can I find profitable markets and instruments for active operations?). Secondly, for the entire Swiss economy (excessive growth of the Swiss franc exchange rate began). Swiss banks have decided to protect themselves from an excessive influx of money from troubled foreign markets by introducing negative interest rates on deposits. This happened in 2012. And in December 2014, the Swiss National Bank (SNB) also introduced a negative interest rate on deposits (0.25%). He motivated his decision by the fact that this measure will prevent further excessive strengthening of the national currency, as well as create incentives for investment in the Swiss economy.
The actions of the Central Banks of Sweden and Denmark were closely watched not only by the Central Banks of other EU countries, reflecting on the possibility of using such a tool of monetary and economic policy in their own countries, but also by the European Central Bank. In 2013-2014 it has already set interest rates on deposits to zero. Last summer, he lowered the rate below zero for the first time, in the fall it was at minus 0.2%. In addition, in February, the ECB announced that it was launching a quantitative easing program similar to the US one. In fact, this means that the European "printing press" will work at full capacity. Even 20-30 years ago, any economist would have said that, according to the canons of financial science, this should lead to inflation or even hyperinflation. However, Europe fears the opposite - deflation. How does this compare with traditional economic dogmas? - Very simple.
The products of the "printing press" do not enter the commodity markets, but either go to the financial markets (creating "bubbles" there) or get stuck in the banking system in the form of deposits. Swelling deposits, in turn, lower the value of money. Real interest rates on loans go negative. Moreover, negative interest rates in the banking system have a downward effect on the yield of securities traded on the stock market. Many stocks have negative yields. According to JPMorgan Chase, about a quarter of government bonds in the euro area today have negative yields. Over the past two years, European governments, including Austria, Finland, Germany and Sweden, have issued government bonds with negative nominal yields. With this in mind, it becomes clear that against the background of European securities, US Treasury bonds with their, as they say, "symbolic interest" look very attractive.
The US Federal Reserve System (FRS) with its policy of "quantitative easing" also brought many American banks to the point that they were in the red both in deposit and lending operations. If American banks earn billions, it is not on traditional deposit and credit operations, but on investments, but, in fact, speculation. Many of them are de facto investment banks.
Classical capitalism is characterized by the so-called overproduction of goods (K. Marx wrote about this in Capital). For the capitalism of the 21st century (at least for the countries of the West), the main thing has become the so-called overproduction of money. If during the "overproduction of goods" there is a fall in the prices of goods, then during the "production of money" - a fall in the prices of money.
Leaving interest rates in the negative - a manifestation of the specified fall in money prices. If money "worked", i.e. fulfilled their function as a medium of exchange, there would be no negative interest and the constant threat of deflation. Money turned into a "treasure" (the function of money as a means of accumulation) and ceased to serve the real economy and the vital needs of society. One cannot but agree with those authors who call this phenomenon the “death of money”. The “dead man” begins to cool down, the decrease in interest rates and their withdrawal into the minus zone becomes a manifestation of the decrease in its temperature.
Some economists believe that money and capitalism are still alive, but are indeed in a highly critical phase. Various means of their resuscitation are offered. In the same US, there are calls for the Federal Reserve to set negative interest rates on deposits, as did the Central Banks of Sweden, Denmark, Switzerland and the ECB. Someone thinks that it is enough to limit ourselves to having only real interest rates in the red, and for this it is necessary to make inflation stimulation as the main goal of monetary policy. How amusing to hear this against the backdrop of constant statements by the Central Bank of Russia that its main task is to “fight inflation”!
Here is a "recipe" for revitalizing the US economy from Goldman Sachs Chief Economist Jan Hatzius. Since the regulator does not have the opportunity to reduce the nominal rate below 0%, he proposes to unwind inflation to 6%. How? - By aggressive quantitative easing (QE), in other words, by issuing new unsecured dollars. In other words, he is against curtailing the CC program, but he is a supporter of its continuation and expansion. At the current nominal level of the federal funds rate (0-0.25%), the real key rate will be minus 6%. This, according to Jan Hatzius, is the minimum value of the value of money, which will allow reanimating the American economy. A paradoxical situation arises: the chief economist of a leading Wall Street bank proposes to bring the patient out of a coma using means that are the negation of capitalism.
The American and world media write quite a lot about the fact that at the beginning of this year the CS program in the USA will be finally curtailed. Allegedly due to the fact that its goals have been achieved, the macroeconomic situation in the country has stabilized, unemployment has been reduced to a safe level. But this is conscious or unconscious misinformation. As the situation at the beginning of 2015 shows, the operation of the printing press practically did not give any visible results: lending volumes did not grow, and the savings rate continued to grow. Thus, we have to state that even with a strong desire today, the Federal Reserve System can very little influence the inflation rate and the overall economic situation in the country. If we draw an analogy with the cooling body of a patient in the intensive care unit, then the recommendation of Jan Hatzius (further "unwind" the CS program) resembles a proposal to fight for the patient's life with a heating pad, which should stop the decrease in body temperature.
More radical in his recipes is another representative of the financial world - former economist at the European Bank for Reconstruction and Development (EBRD) Willem Boiter. He proposes to act straightforwardly, discarding complex and unrealistic methods of "treatment" with the help of inflation and traditional monetary policy instruments. The state should simply decree the establishment of negative nominal interest rates in the banking system - both at the level of central banks and commercial banks, both for passive and active operations. The idea is downright revolutionary. But we must save capitalism!
True, if the “patient” can be returned from the next world, then it will already be a different person. If Western society switches to such a model of the economy, then it will no longer be capitalism, but something else. A century and a half ago, the classic of Marxism in Capital wrote that the rate of profit under capitalism would steadily decline, he even elevated this provision to the rank of law. Consequently, the profit of money capitalists in the form of interest will also decrease. Thus, on a "scientific basis" Karl Marx predicted the death of capitalism, which, as he promised, would be replaced by socialism. As for the death of the classical model of capitalism, I agree with the "classic". But there are strong doubts about the automatic arrival of socialism.
The current “masters of money”, by which I mean, first of all, the main shareholders of a private corporation called the “Federal Reserve”, are beginning a planned dismantling of the former model of capitalism and its planned replacement with another socio-economic model. I would venture to call this alternative model the "new slavery." This possible metamorphosis has already been speculated in the last century by some astute politicians, writers and economists. Banks from traditional deposit-credit organizations will turn into centers of "control and accounting". But not financial flows and financial assets, but labor and production. To be more precise - the control of human behavior and his thoughts. The world will be arranged according to the principle of one big barracks, in which the role of money in its traditional sense will be minimized.
The well-known German socialist and financier Rudolf Hilferding (the author of the well-known book Financial Capital) wrote about such a post-capitalist model of society at the beginning of the last century. He called such a society "organized capitalism", which, in his opinion, will already have signs of socialism (in particular, the spontaneous nature of economic development will disappear). Bankers, in his opinion, are the main driving force of modern history, they provide an evolutionary transition from "wild" capitalism to socialism through the stage of "organized capitalism". Hilferding's socialist ideal is a totalitarian society ruled by bankers. It was Hilferding who coined the term "totalitarianism", but gave it a positive meaning. Already after Hilferding, some of the bright details of such a post-capitalist society were completed by such writers and futurologists as George Orwell (Animal Farm, 1984) and Aldous Huxley (Brave New World).
Recall that since October 27, 2014, this interest rate has been at a historically low level in Sweden: 0%. Now she is on the downside.
At the same time, Riksbanken is buying government bonds worth 10 billion crowns and is ready to buy more, according to a press release from the central bank.
Riksbank analysts suggest that low inflation, which in December was at minus 0.3% - in terms of the pace of development for the year, may have already reached, so to speak, the "bottom" and will now begin to rise. In any case, the goal of 2% inflation per year is still far away.
Analyzing the situation in the outside world, the Riksbank concludes that the global economy is "recovering" after the financial crisis, but slowly. Since December last year, however, the risk of a downturn in the economy has increased. In particular, the fall in oil prices, which may have a positive effect on production growth, on the other hand, leads to low inflation on a global scale. The situation in Greece also does not add confidence in the development trends of the world economy.
With regard to Sweden specifically, the Riksbank believes that both low oil prices and the weak exchange rate of the Swedish krona and the low interest rate of the bank contribute to the growth in production. According to the bank, Sweden's GDP will grow faster and the labor market will strengthen.
What will this "minus rent" entail for the people of Sweden: What will happen to bank loans? What will happen to the money that people put aside "in reserve" in their deposit bank accounts? What will happen to our mortgage loans?
The negative refinancing rate means banks have to pay to deposit money into their Riksbank accounts. And they are obliged to do this if, as a result of all banking operations of the current day, they have money in the cash desk (overnight/overnight deposits).
But will this mean that banks will want to cover these costs at the expense of their customers? And will they start charging us for wanting to deposit our savings into a savings bank account?
In principle, the interest rates on our accounts or mortgages should not be affected by this negative rent. Because the level of interest on deposit accounts and on loans is determined by each bank individually, and not by the Riksbank.
But for the banking system as a whole, the level of this short-term refinancing rate is of great importance.
This rate determines the interest that banks pay when they borrow money from each other. It can also lead to enterprises being able to borrow at lower interest rates. And this, in turn, can lead to an increase in investment, that is, to exactly the stimulation of the Swedish economy, which the Riksbank is striving for by lowering the interest rate. And the growth of production usually "launches" the mechanism of rising inflation. This is what the Riksbank is trying to achieve.
Experience of other countries with "negative" interest rate shows that if this minus is small, then this does not affect small clients who habitually save money in bank accounts. In Denmark, FIH announced in March last year (following a rate cut by the central bank) that for every 1,000 kroner a customer holds in the bank, they will have to pay 5 Danish kroner. According to the Wall Street Journal, customers have already begun to leave this Danish bank. What will happen if other banks follow the FIH, the newspaper Svenska Dagbladet rhetorically asks in its economic supplement today.
Anticipating today's move by the Central Bank, two directors of large Swedish private banks have already spoken out on this subject and assured their clients that they - that is, all of us - will not have to pay to keep their money in the bank.
These two directors are Annika Falkengren from Svensk Enshild banken/ SEB and Mikael Wolf from Swedbank.
Mikael Wolf from Swedbank assured (in an interview with the Ekot newsroom) Swedish Radio that banks will do everything to protect their small depositors. Because otherwise, they - these depositors - will simply take their money from the bank and hide it, as they say, "under the mattress." However, neither he nor his colleague Annika Falkengren can give any guarantees. No one can guarantee that "negative rent" for banks will not turn into equally negative rent for small depositors.
Expert in private economic affairs (microeconomics) Annika Creutzer, for example, believes that "negative rent" will affect not only how and where people save their money, but also the level of wages. Here is how she explains the impact of this interest rate cut:
This means that when banks borrow money from the Riksbank, it (the Riksbank) charges for it. 0.1 percent. This means that banks will want to give us, customers, even more loans and credits, and these loans will cost us less. But there will be no interest on savings at all, this is a new situation for us. We may also have to pay to open a savings account in some bank, says Annika Kreuzer, expert and journalist.
She describes inflation as a kind of "lubricating oil" of the economy and explains its necessity by the fact that you need to pay for goods and services. The aim of the Riksbank is to keep inflation low and stable. But now, with increased anxiety and turbulence in the global economy since December last year, the Riksbank is cutting interest rates and buying 10 billion crowns worth of government bonds. The situation, however, is not unique to Sweden, says Annika Kreuzer:
This is an international problem. Sweden is a small country with an open economy, large exports and imports. We are influenced by what is happening in the world. What is happening now in Sweden has already happened in Denmark and Switzerland.
Falling oil prices, troubles in the Eurozone, limping US production growth and the economic crisis in Greece are all affecting the Swedish economy. And it could be years before things change, she says.
How will today's interest rate cut affect ordinary people? She answers this question:
I don't think there will be any change in mortgage loans. But savings in the bank lose all meaning, because there is no interest on them. But it’s better to keep money in the bank, even if it doesn’t grow there, than at home under the mattress. Just for security reasons, Annika says, implying that you should not expose yourself to the risk of robbery, home theft, if you hide money at home.
Annika Creutzer suggests that banks may increase fees for savings accounts. It is hardly worth hoping that interest on deposits will increase. But what is important, she emphasizes, is to check: does the bank have state guarantees for deposits? So that this money does not "melt" in the account, over time.
As for the impact of a negative interest rate on the level of wages, it suggests the following scenario:
It is likely that employers will say: since we are not paid more for our goods (ie there is no inflation), then we cannot raise wages either. It is possible that for some categories of workers this will mean lower wages, said Annika Kreutzer in an interview with our colleague Isabelle Swahn
Russians who complain about high mortgage rates can only envy the Europeans, some of whom are paid extra by banks "in gratitude" for taking a loan. The first bank to switch to negative interest rates on loans was Nordea Bank. It was in Denmark at the beginning of last year. Since then, at least two other banks in Belgium - BNP Paribas and ING - have paid extra to their customers. This, in particular, was reported not so long ago by Het Neuwsblad. The banks in question claimed that the negative rates applied only to "a limited number of contracts."
These situations arise for loans with a floating interest rate (these are mainly mortgage loans), depending on key and interbank rates, explains Natalia Pavlunina, Head of Retail Products, Loko-Bank's Retail Business Department.
When, for example, the key rate reaches negative values, the interest rate on the loan also becomes negative. The current values of the European interbank offer rate Euribor and a number of others have become negative and, depending on the term, range from -0.348% per month to -0.012% per year, the CEO notes. Accordingly, if at the same time a number of banks in their loan agreements tied client rates to Euribor, it turns out that it is no longer the client to the bank, but the bank that must pay the client for giving him a loan.
Negative values of rates in the interbank market and the whole phenomenon of negative rates as a whole are a consequence of the super-soft monetary policy pursued (as well as by the central banks of other developed countries). “In the last five years, the central banks of most developed countries have been pursuing an accommodative monetary policy, lowering interest rates on loans to a minimum and introducing negative rates. The European Central Bank and the Bank of Japan are trying to stimulate the economy with negative rates. Central banks in European countries (Switzerland, Sweden, Denmark) use negative deposit rates to reduce capital inflows and adjust course national currencies against the euro,” notes the chief analyst of the analytical department.
The European Central Bank undertook a new round of weakening its policy at a meeting on March 10 this year. He lowered the key rate from 0.05% to zero, the deposit rate was lowered from -0.3 to -0.4%. In addition, the volume of repurchase of assets from the market was expanded from €60 billion to €80 billion per month. The head de facto did not rule out the introduction of a negative key rate. “Looking ahead, given the current outlook for price stability, the Governing Council expects ECB key interest rates to remain at or below current levels for an extended period of time,” he said.
A negative rate (on deposits) should ideally encourage commercial banks to lend more, rather than save money in accounts with the Central Bank. The population, for which the yield on deposits is declining, should spend more, which, coupled with emission pumping, should accelerate inflation to the target 2% and increase the income of the corporate sector.
In practice, things don't go so smoothly. The population does not spend, but saves, but increasingly prefers to keep money in demand accounts (this requires banks to have a large amount of liquidity, which is unprofitable) or generally keeps it at home in the form of cash. Inflation is not rising (deflation has already been recorded in the eurozone several times this year), as cheap energy carriers pull consumer prices down.
Analysts believe that "so far, negative interest rates have not been able to raise inflation expectations in the eurozone, Switzerland and Japan, and have shown only marginal effectiveness in this regard in Sweden."
The ex-head, in one of his interviews, noted that negative rates lead to a reduction in capital expenditures, and low investments do not allow increasing labor productivity. The result is low economic growth. Banks are forced to invest in highly liquid government bonds, but their yields are often also negative. provides such data. There are currently €2.6 trillion in negative-yielding bonds in circulation in the euro area. When buying seven-year government bonds in Germany every year, the investor will lose €2 from every thousand. It turns out a vicious circle, which leads only to a drop in income in the banking system.
Dangerous experiment
American analysts called negative ECB rates "a dangerous experiment." “We believe that the potential decline in the profitability of the banking business due to low base and negative deposit rates will be one of the main risk factors for European banks in 2016,” Morgan Stanley said. Russian analysts also see nothing good in negative rates. Konstantin Petrov believes that the current financial policy of artificial economic stimulus through ultra-low rates and an increase in the money supply in the face of a decline in real production does not lead to inflation, but to deflation and continued speculative growth in stock markets, where excess liquidity is concentrated. This may negatively affect the stability of banks and, instead of stimulating economic growth, lead only to prolonged stagnation. “As a result, this can lead to big problems in the financial infrastructure and the next round of the financial crisis,” he said.
, an analyst at Alfa Capital Management Company, believes that stories with negative client rates are one-time anomalies and such loans will not be of a mass nature, therefore, these particular cases do not pose a threat to the banking system. But globally negative rates create certain risks, including forcing banks to adjust their risk management approach, increasing exposure to risk in order to offset the decline in income from falling rates and to place excess liquidity, he notes.
“As a result of this, bubbles may inflate in the markets, which in the end will at least complicate the process of normalizing monetary policy, and in a bad scenario, they can provoke new waves of crisis,” Andrey Shenk fears.
At the same time, analysts believe that banks will not put up with negative rates. “It is unlikely that banks will allow this phenomenon to become widespread,” Konstantin Petrov believes. Dmitry Monastyrshin draws attention to the fact that since banks in developed countries have the opportunity to raise funds from clients and regulators at negative rates, banks manage to maintain margin on client agreements, even if the rate on them goes negative. At the same time, it should be noted that even with negative loan rates, the client will most likely have to pay a small amount to the bank in addition to the principal debt due to the presence of service fees. “However, the situation when the lender pays the borrowers is inherently absurd and the bankers of the respective countries are already taking measures to protect their capital,” notes Natalya Pavlunina. According to her, a number of European banks have already supplemented their terms of mortgage lending, fixing the lowest possible rate on loans, and also turned to regulatory authorities for clarification and the possibility of changing the law. The only question still unanswered is how the financial system will survive if the ECB and other regulators continue to ease their monetary policy and inflation and the economy do not recover.
Dane Hans-Peter Christensen, instead of paying interest on a mortgage loan taken 11 years ago, received 249 Danish kroner ($38) from the bank in the last quarter. The fact is that at the end of 2015, the interest rate on his loan, excluding commission fees, was -0.0562%. “My parents said I should frame this receipt to prove to future generations that this really happened,” Christensen says.
About four years ago, the Danish Central Bank set negative interest rates, and lenders and borrowers are still trying to get used to it. Denmark is not the only place where central banks are conducting such experiments. The European Central Bank and the Bank of Japan use negative rates to stimulate the economy, while Switzerland and Sweden, like Denmark, use them to adjust the exchange rate of their national currencies against the euro. But Denmark, where the key interest rate is now -0.65%, made it negative before others. In neighboring Sweden, the central bank cut rates below zero in February 2015, while Norway's central bank has yet to do so, but is considering such an idea to stimulate an economy hit by low oil prices.
The Scandinavian experience gives economists a chance to examine the implications of negative interest rates, a phenomenon long thought unthinkable. And there are already worries about side effects: people can't earn interest on bank deposits; banks have margin problems; the boom in the mortgage market raises concerns about the negative consequences if rates rise. “If you had said a few years ago that this would happen, you would have been taken for a lunatic,” says Torben Andersen, a professor at Aarhus University and one of the government's economic advisers.
In both Denmark and Sweden, authorities are concerned that households will take on loans that they cannot repay if rates suddenly rise or property prices fall. “This is dangerous,” Stefan Ingves, chairman of the Swedish Central Bank, said in an interview. “Our population takes a lot, a lot. This has to change sooner or later."
How many Danes have negative mortgage rates is unknown, as banks rarely disclose such information. It had 758 such borrowers last year, according to Realkredit Danmark, one of the country's largest mortgage lenders. Hans-Peter Christensen, who works as a financial consultant, bought his home in the Aalborg area for 1.7 million crowns ($261,000) in 2005. He then repeatedly negotiated to change the terms of the mortgage after lowering rates. The interest rate on his loan dropped below zero for the first time in the summer of 2015, but due to fees, Christensen still paid a small amount on top of the principal.
The flip side of this situation is that banks do not pay interest on most deposits. Therefore, the Danes are using real estate investment as an alternative option, says Christensen. In 2013, together with three other investors, he bought 10 small apartments for 9.7 million crowns, borrowing 8 million crowns. The mortgage rate was not negative, but very low. Investments like this have revived Aalborg's housing market, which has been dormant since the 2008 crisis. "People feel they should use the money because it's so cheap," says Nordjyske Bank's Mikael Soubigge. But he warns that some investors are overestimating their options and will not be able to repay loans if rates rise to 2-3%.
The central banks of Denmark and Sweden fear a financial crisis if too much investment floods into the real estate market. According to the Association of Mortgage Lenders in Denmark, real estate prices in Copenhagen rose by 5.5% year-on-year in Q4 2014 and by 14.5% in Q4 2015. According to Svensk Maklarstatistik, real estate prices in Stockholm rose by 10% in 2014 and by 17% in 2015
In Sweden, the ratio of household debt to disposable income has reached about 175%, according to Ingves. Some of Sweden's largest banks were already on the verge of collapse when the local real estate bubble burst in 1992. The Swedish central bank asked parliament for powers to bring the situation under control, says Ingves, but in 2013 the Swedish Financial Conduct Authority got them. Its chief executive, Eric Thedeen, argues that central bank action, not lax regulation, was the main reason for the real estate boom: “Low interest rates are risky because they encourage lending and can increase risk-taking.”
Translated by Alexey Nevelsky