Nordic country boasts largest surplus of AAA-rated nations
Norway – Norwegian bankers are touting the world’s safest deposits in their chase for cash from companies, pension funds and international investors.
Bankers in the Nordic country, which boasts the biggest budget surplus of any AAA-rated nation and has no net debt, are giving investors the chance to park deposits with the central bank to tap demand for safety. Norwegian government debt has the lowest perceived risk as measured by credit default swaps of any developed nation, according to data compiled by Bloomberg.
CIK AS, a Norwegian investment and holding company, announced plans this month to start the Safe Deposit Bank of Norway after getting Finance Ministry approval. The bank will offer accounts deposited with Norges Bank that pay interest based on the central bank’s reserve rate, currently at 0.5 per cent, Chief Executive Officer Danckert Mellbye said.
“What we’re trying to set up is a safe product with high liquidity,” he said. “We’re targeting large public and private companies and institutions that are cash rich.”
While offering scant returns, the deposits may attract companies that put preservation of capital above all else. The Nordic region emerged as a haven from the debt crisis in the euro bloc, even driving Danish deposit rates to below zero.
The new bank will offer an alternative for oil companies, pension funds and international investors to the Norwegian Treasury bill market, which struggles with poor liquidity, Mr. Mellbye said.
“We’re more liquid than any Treasury bill because in our set-up you’d be able to withdraw your money immediately,” he said. “You don’t have any duration risk or price risk.”
Norges Bank announced a plan in 2011 to wean lenders off its reserves as it sought to improve liquidity in its interbank market. The central bank, whose key deposit rate is now 1.5 per cent, pays 1 percentage point less on deposits that exceed a daily quota.
“You could view this as an insurance for your money with a positive premium because you actually get some performance,” Mr. Mellbye said. “High security and liquidity is the goal.”
DNB ASA, Norway’s biggest bank, doesn’t see accounts backed by deposits at the central bank as commercially interesting due to limited krone holdings among foreign corporates and the low rates offered by Norges Bank, spokesman Thomas Midteide said. The weakening of the krone over the past two months may also hamper demand.
The krone has depreciated 3.9 per cent against the dollar since 19 June, the day before Norges Bank signalled interest rates may be cut later this year amid slower than projected inflation. It’s the worst performing of 31 major currencies versus the dollar since 18 June, the day before the US Federal Reserve signalled it may reduce stimulus measures in the world’s largest economy, according to data compiled by Bloomberg.
“I don’t think the Norwegian krone is strong enough to be a safe haven for international capital,” Trade Minister Trond Giske said on 2 July. “Investments in Norway have to be based on other premises than that.”
Investors will also need to be convinced that the reduced risk and lower returns of central bank-held deposits are worth moving funds from other Nordic banks such as DNB, said Per Groenborg, an analyst at Danske Bank A/S.
“How willing are people to place deposits with this bank with no track record rather than placing them with DNB?” he said. The lender “is probably the bank in Europe that has the strongest home finances to lean themselves up against and it benefits from an implicit state guarantee,” he said.
Safe Deposit Bank of Norway will offer its customers rates based on the central bank’s reserve rate minus a margin, Mr. Mellbye said. He didn’t specify the size of the margin. The bank targets being fully operational in the fourth quarter. Funds placed by companies in current accounts at DNB have interest rates of 0.1 per cent. Three-month Treasury bills yielded 1.45 per cent this week.
“If they can get the clients to perceive them as lower risk than any other bank and clients are willing to pay for that perception, there might be business case,” Mr. Groenborg said.
© 2013, Bloomberg News