Frontpage News 2014 Bank charges follo...

Bank charges follow historical trend

30 January 2014

The Danish banks' income from fees has since the mid-90s increased by approximately ½ bn Danish Kroner per year, but has over the years since the financial crisis remained at the same level.

The Danish banks obtain most of their revenue from net interest and fee income. Over the past 15 years, the net interest income and net fee income grew on average, with respectively 0.9 and 0.5 bn Danish Kroner per year concurrently with a growing business volume.

This has led to fee income taking up a relatively large share of banks' income, which – according the Danish Bankers Association’s Chief Economist Niels Storm Stenbæk - is a natural progression.
"The interest rate environment has in recent years moved closer to a level of around 0 percent. It has pressured banks' revenue potential through interest margin down since the opportunity to lower deposit rates further is limited, just like a great share of loans are tied to the low money market rates. Furthermore, the low demand for bank loans also led to lower lending and thus less earnings basis, "explains Niels Storm Stenbæk and elaborates:
"The banks' services range widely. For example, it has become more popular to reschedule loans and invest own savings in securities. It costs resources for the banks, which the clients who use the services pay for."

Figure 1. Developments in banks’ interest- and fee income as well as balance
Source: The Danish Financial Supervisory Authority and the Danish Bankers Association’s calculations.
Note: The slope of the trend lines correspond to the average annual increase.
The figures are calculated at constant 2012 prices using the consumer price index from Statistics Denmark.

Total fees have declined since the crisis

The figures also show that since the crisis there has been a decline in net interest income while net fee income has remained at a stable level, which i.a. can be explained by a decline in business volume measured by the balance.
"Net interest income is currently at a lower level compared to the balance sheets of banks, while the fees' share historically has been constant. The total income will be less pronounced compared to the volume of business," says Niels Storm Stenbæk.

Fees are here to stay

The Danish Bankers Association’s Chief Economist expects that the use of fees will gradually increase in the coming years. "It is," says Niels Storm Stenbæk, "not necessarily a development that Danes have to be upset about."
"A greater use of fees contribute to create greater transparency in the price of financial services. Customers can then better assess what they get and what they pay for, "explains Niels Storm Stenbæk.

Figure 2: Interest- and fee income in percent of the balance
Source: The Danish Financial Supervisory Authority and the Danish Bankers Association’s calculations. 
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