Small Finnish banks accept challenge from Icelandic rivals

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Challenged by Icelandic banks last autumn, the small Finnish banks, including Hypo Bank (the Mortgage Society of Finland Group), Tapiola Bank, Nooa Savings Bank, and the Swedish Handelsbanken have all raised their interests payable on deposits over the past six months, according to a comparison conducted by Helsingin Sanomat.
     
The comparison involved only accounts without any withdrawal limits or fees.
      The best Finnish bank in the comparison was Hypo Bank, with an interest rate of 4.7 per cent. This rate is coming close to the level of 5 per cent that has previously been paid only by Icelandic rivals such as Kaupthing Bank (currently 5.05 per cent).
      Last autumn, the rate of interest paid by the Icelandic banks completely unnerved the Finnish financial circles. Moreover, Markku Pohjola, the Deputy Group CEO of Nordea Bank, even insinuated in December that the invaders would have to file for bankruptcy in a few months.
     
However, the Icelandic banks are still operating in Finland, while particularly smaller Finnish banks have been forced to respond to their offers in similar fashion.
      Last Friday Hypo Bank raised its prime rate, which means that from the beginning of July it will pay a higher interest on deposits than will the Icelandic Glitnir. Another reason for the change in 2nd place is that Glitnr lowered its interest offer from 5.00 per cent to 4.25 per cent.
      The tiny Nooa Bank raised its interest rate by 0.43 percentage points, while both Tapiola Bank and Handelsbanken improved their interests by 0.25 percentage points.
     
The large merchant banks Nordea and Sampo are found at the tail of the list with their per mil rates (0.15% and 0.1% respectively), as they have refused to raise the interests payable on deposit accounts without withdrawal limits or fees.
      ”The Finns would have approximately EUR 500 million more money available, if the deposits were paid a proper interest of a couple of per cent. I have tried to make a fuss about this, as I find it upsetting that the rates of interest payable on deposits are so undervalued”, says Tapiola Bank head Harri Lauslahti.
      While the new banks have complained about zero-interest accounts, the large merchant banks have responded that they are focusing on better service and the total customer relationship management.
     
The debate on interest rates gives the new players an opportunity to incease their market shares, while the established large banks are unwilling to discuss the matter, as they gather large profits by lending out money from low-interest accounts to their other customers.
      For example short-term consumer loans give the bank a hundredfold profit compared with the interest they pay on deposits.


Previously in HS International Edition:
  Finnish households now placing money in investment accounts (10.3.2008)

Helsingin Sanomat