Frontpage News 2014 Companies borrow h...

Companies borrow historically cheap

6 May 2014

Danish companies can now borrow 1m Danish Kroner for an average price of 15,000 Danish Kroner per year, which is four times lower than in 2008. Today's new interest rate statistics from Danmarks Nationalbank (central bank of Denmark) confirm this. 
Today's figures from Danmarks Nationalbank confirm the downward trend in banks' interest rates on new loans. The Danish Bankers Association believes that it is partly due to increased competition for customers. 

"There is competition for customers among the country's banks and that presses the price down. Additionally, the low-interest-rate environment of course affects the underlying price level, as lower credit risk may be involved too, "says Chief Economist at the Danish Bankers Association, Niels Storm Stenbæk, with reference to Danmarks Nationalbanks lending survey for the first quarter of 2014 and a recent analysis from the FSA.
The interest rate on new loans for the business sector was 1.5 percent in March. This gives a total interest payment of 15,000 Danish Kroner annually on a loan of 1m Danish Kroner. This corresponds to one fourth of the level in 2008, when the average interest rate on new loans was 5.85 percent.

Temporary supply excess

However, this trend may indicate that companies currently do not take the financing which the banks want to lend out. 
“From a real-economic perspective, the low level of interest can reflect a weak demand for loans from companies, which is confirmed by the low level of investment. However, we expect that demand will return when the willingness to invest once again increases, and when the companies have used the extra self-financing, which they have saved up since the crisis,” says Niels Storm Stenbæk.

The arrow points upward

The new lending figures confirm the image of a weak development in bank lending to the business sector. However, the figures show that there have been small, positive growth rates in the banks’ lending to the business sector in recent months after a long period with negative growth.
Figure 1. Annual interest expenses on loans for the business sector of 1m Danish Kroner.
Source: The Danish Bankers Association’s calculations are made on the basis of Danmarks Nationalbanks interest statistics.
Note.: It is assumed that no loan repayments are made


Figure 2. Interest rate development on new loans for the business sector, 2003-2014.  
Source: Danmarks Nationalbank
Figure 3. Annual growth in loans of financial institutions to the business sector based on index  
Source: Danmarks Nationalbank




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