REDEFINING GLOBAL FINANCE INTERNATIONAL TRENDS & LOCAL CONSEQUENSES

Transcription

1 REDEFINING GLOBAL FINANCE INTERNATIONAL TRENDS & LOCAL CONSEQUENSES Idar Kreutzer Managing Director Finance Norway BI Centre for Asset Pricing Research

2 Loss of confidence in the Financial Industry No industry has a comparable talent for privatizing gains and socializing losses. Martin Wolf, Financial Times,

3 Global challenges 1. The financial vs. the real economy The stock market exists to provide companies with equity capital and to give savers a stake in economic growth. Over time that simple truth has been forgotten. The existing system has become far more complicated than it needs to be to discharge its functions and dangerously unstable John Kay (professor at LSE, columnist at Financial Times) 3

4 Global challenges 2. Protecting the tax payer Substantial direct and indirect economic costs from the financial crisis: Direct: Bailing out banks by public money (i.e. tax payers money), stock market downturn Indirect: Loss of GDP, unemployment, declines in consumer wealth Ordinary people was left with the bill 4

5 Global challenges 3. Globalisation vs. multipolarization The current international order based on US hegemony is shifting to a multi polar system led by several pillars including the European Union (EU), Russia, China, and the US 5

6 International trends 1. The rise of the consumer Technological progress has opened up for new possibilities New technology in the financial industry is targeted directly at consumers Increased focus on consumer protection and consumer interests 6

7 International trends 2. New entrants Technological development is also enabling various types of companies to enter the banking industry More than one-third of the market share in the U.S. could be up for grabs in the future due to digital innovations New banks: Starbucks Google full service banks, as a group, could lose about 35 percent of their market share by Who gains this market share? Digitally oriented disruptors that are far more agile and innovative 7

8 CRD IV: Capital requirements Liquidity, higher capital adequacy, funding structure BRRD: Crisis management Bail-in, resolution fund Banking union: Singe supervision, single resolution, single rulebook Structural reform No proprietary trading for the biggest banks? Solvency II: Capital requirements and insurance 8 International trends 3. New regulations

9 Capital requirements do have economic consequenses Norges Bank Watch 2014 on capital requirements:...a sizeable body of international research ( ) suggests significant effects on the cost and availability of credit 9

10 Source: Financial Times ,000 34,000 33,000 32,000 31,000 30, Deleveraging Total aggregated assets for all banks in the eurozone. Bn. euro Source: ECB

11 Progress with caution Uncertainty regarding the economic development and consequences from new requirements More emphasis on economic growth in the EU Continuously observing and evaluating Economic growth Premature implementation of new requirements 11

12 Large increase in capital requirements Norwegian capital requirements. Percent Prev. Tidligere min 1. juli juli juli juli 2016 minstekrav requirement Min. CET1 capital requirement, AT1 capital and tier 2 capital, Capital conservation buffer, Systemic risk buffer, Buffer for SIFIs, Countercyclical capital buffer. Source: Ministry of Finance 20 % 18 % 16 % 14 % 12 % 10 % 8 % 6 % 4 % 2 % 0 % Different rules when calculating RWA Med With særnorsk the Norwegian Basel I version of gulv the Basel 1 floor Med With Basel the EU I gulv version etter of the EUs Basel regler 1 floor NO. risk weights: mortgage: 20 percent, businesses: 55 percent SE. risk weights: mortgage: 7 percent, businesses: 40 percent Source: A large Norwegian bank 12

13 Effect on lending and the housing market Banks are the main source of lending for businesses New regulation decrease banks willingness to lend out Large corporations with access to the bonds market vs. SMEs 30 % 25 % Credit to non-financial corporations. Twelve-month change. 2010M M07 New homes. Change in sales and housing starts each month. Twelve-month change. 20 % 15 % 10 % 5 % 0 % -5 % -10 % 2010M M M M M M M M M05 Banks and credit institutions 2012M M M M M M11 Bonds and certificate debt 2014M M05 Sales Housing starts Jan. Feb. March April May June 13 Source: Statistics Norway, Boligprodusentenes Forening, Prognosesenteret

14 We need a comprehensive industrial policy for the Financial industry Norway has to focus on knowledge intensive and sustainable industries The financial industry in Norway can make important contributions to the Norwegian economy Knowledge intensive and productive industry Capital abundance nation provides the basis for a broader investment environment Can provide capital for infrastructure Should develop a concrete and forwardlooking industrial policy for the Norwegian Financial industry 14

15 The Norwegian banking sector Small and diversified 700 Banking group. Assets as a percentage of GDP ,000 Assets in Norwegian parent banks and average*. Mill. NOK , , , , ,000 0 Estland Latvia Romania Tsjekkia Slovakia Bulgaria Litauen Polen Ungarn Finland Slovenia Belgia Norge Italia Hellas Gjennomsnitt Fastlands-Norge Luxembourg Irland Portugal Østerrike Tyskland Frankrike Danmark Spania UK Sverige Nederland Kypros Sveits Source: The Riksbank, The Norwegian FSA, Statistics Norway 60,000 40,000 20,000 Source: The Norwegian Bank s Guarantee Fund, Nordea *DNB and Nordea are excluded from the figure but included in the average As of 12/31/13 Total assets in DNB were bn. NOK, Nordea 523 bn. NOK 15

16 The Norwegian Financial industry - High growth in productivity and unutilized potential Growth in productivity and employment for industries in Mainland Norway, (measured as deviation from average for all industries) Employment growth 300 % 250 % 200 % 150 % 100 % 50 % Information and communication 0 % 100 % 50 % 0 % 50 % 100 % 150 % 200 % 50 % Finance and insurance 100 % Retail sector etc. Productivity growth 16 Source: Victor Norman (NHH - Norwegian School of Economics)

17 Increased efficiency benefits the customers Cost/income is declining Decreased interest rate margins Cost/income for Norwegian banks Interest rate margins. Banks and credit institutions. 1990Q1 2014Q Percent Large Medium sized Small 1H H.2014 Source: The Norwegian FSA K1 1991K1 1992K1 1993K1 1994K1 1995K1 1996K1 1997K1 1998K1 1999K1 2000K1 2001K1 2002K1 2003K1 2004K1 2005K1 2006K1 2007K1 2008K1 2009K1 2010K1 2011K1 2012K1 2013K1 2014K1 Banks Banks and credit institutions Source: Statistics Norway 17

18 Transparent 137 banks operating in Norway Finansportalen makes it easy to compare prices. Example on search results: Mortgage loan of 2 Mill. NOK for 25 years. 80 % LTV 178 offers! 18

19 Responsible lending and higher solvency Losses on lending Development in capital adequacy. Norwegian banks Percent Percent Business segment Retail market CET1 CET1 without the Basel 1 floor (NO.version) Leverage ratio 19

20 Liable and trustworthy AFR A nationwide authorization scheme for financial advisers in Norway Competence, credibility, reputation, customer experience, confidence in the financial industry Currently authorized advisers 20

21 Requirements for future businesses Knowledge based Customer driven Environmentally robust Global 21

22 REDEFINING GLOBAL FINANCE INTERNATIONAL TRENDS & LOCAL CONSEQUENSES Idar Kreutzer Managing Director Finance Norway BI Centre for Asset Pricing Research