Competition in the Danish banking sector – Subreport: Are there signs of abnormal returns on equity in the sector?

Competition in the Danish banking market has been the subject of much scrutiny over recent years. In light of this, Copenhagen Economics has been asked to assess the competition in the Danish banking market, thereby providing a solid foundation for the continued debate.

Looking at typical indicators such as price, earnings, return and efficiency, we find no indications for insufficient competition. On the contrary, the Danish banking sector seems quite competitive in comparison to international standards.

More specifically we find that:

• Financial products have special characteristics: they are complex and based on relations and trust.
• Mobility in the danish banking sector is high compared to other European countries. This goes for all larger banking and mortgage markets (such as investments, payroll accounts and mortgage loans).
• In an international comparison, the Danish banking sector is relatively efficient. This is reflected in low prices for Danish consumers, who pay the lowest interest rates on mortgage loans in Europe.
• Actual return on equity in the banking sector during the last 10 years corresponds to the required return, implying no over-normal rate of return.
• Finans Danmark finds a wage premium in the Danish banking sector of around 3-5%. Kraka Advisory finds a wage premium up to 9%. In the context of the highly specialised labour force associated with the sector, this suggests no significant wage premium is present.

The study is commissioned by Finans Danmark.

The contribution to the study from Copenhagen Economics comprises three subreports and one summary report:

• Konkurrencen I den danske banksektor – Delrapport: Hvad karakteriserer konkurrencen på bankmarkedet?

• Konkurrencen I den danske banksektor – Delrapport: Hvordan ser konkurrencen ud blandt banker i et internationalt perspektiv?

• Konkurrencen I den danske banksektor – Delrapport: Er der tegn på overnormale afkast på kapital i sektoren?

• Konkurrencen I den danske banksektor – Sammenfatningsrapport