ACM: Dutch National Mortgage Institution potentially harmful to entry into banking market

The current Dutch administration is planning to create the National Mortgage Institution (NHI). The Nhi could stimulate investments in mortgage packages from large investors. The returns on these investments are guaranteed by the state. The Netherlands Authority for Consumers and Markets (ACM) points out that the creation of the NHI could make entry into the Dutch banking market less attractive. Only a few major banks are currently active in the market, and competition has decreased since the outbreak of the financial crisis. This has led to higher mortgage interest rates. New entrants could stimulate competition. That is why ACM recommends that the potential negative effects on entry and competition should be taken into consideration in the decision-making process concerning the NHI.

If the NHI were to be set up in such a way that the benefits of the state guarantee will be primarily enjoyed by incumbent mortgage providers, the NHI could put new entrants at a disadvantage. Incumbent mortgage lenders could then get higher ratings from the credit ratings agencies, enabling them to attract funds at lower rates on the capital market. New entrants do not enjoy this benefit. That could make entry into the Dutch banking market less attractive, which, in turn, could lead to reduced competition in the long run. Eventually, it could result in higher mortgage interest rates and/or lower savings interest rates.

ACM is working on a study exploring different options for improving competition in the banking industry, which includes a study into barriers to entry for new entrants. In advance of the final results of this study, ACM identified the possible effects of the NHI on entry into the market.