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Nykredit’s commitment regarding its administration margin

30. november 2011

The Danish Competition Council has on 30 November 2011 decided that commitment (#5) proposed by Nykredit in 2003 in connection with the merger with Totalkredit is not to be repealed. At the same time the council accepted a new commitment (#5a) proposed by Nykredit.

As a condition for approval of the merger with Totalkredit in 2003, Nykredit proposed a commitment (# 5) which reduced the administration margin for private customers to 0.50 percent for new mortgage loans at maximum mortgage ratio.

On 23 June 2010 the Competition Council decided that commitment (#5) has no time limit. However, the decision announced that the Competition and Consumer Authority would assess whether the market and regulatory conditions have changed to such an extent since 2003, that the commitment should be amended or repealed.

The Competition Council has found that commitment (#5) can not be repealed. The concerns about increased concentration and removal of Totalkredit as a competitor in the market – which formed the basis for the assessment in 2003 – still exist. In 2010 Nykredit had a market share of 40-50 percent. At the time of the merger Nykredit’s market share was 40.2 percent. HHI in 2010 is estimated at 3,300, which indicates a highly concentrated market.

The competitive pressure to innovate and streamline production that the commitment put on Nykredit and on other market players will disappear if the commitment is repealed. There is a risk that lack of price competition between mortgage lenders and the market structure with high concentration and only a few players would eventually lead to higher prices without the commitment.

Nykredit has proposed a new commitment (#5a), with the effect that administration margins for private customers in Nykredit Realkredit A/S for a period of 5 years can be raised to 0,55 percent for fixed-rate loans with repayments and to 0,60 percent for other loans.

The Competition Council has accepted commitment (#5a). Regulatory and structural changes since 2003 have resulted in increased capital costs for Nykredit. Considered the increased costs Nykredit’s commitment (#5a) satisfies the regulatory purpose almost as efficient as commitment (#5). Nykredit will still have the lowest administration margins in the sector and there is still a pressure on Nykredit and other mortgage institutions to innovate and streamline production.

From 1 April 2017 commitment (#5) will apply again, unless the Competition Council on the initiative of Nykredit has decided otherwise.