The Nykredit Group, being one of the largest financial institutions in Denmark, has committed to changing the exclusivity terms imposed on independent banks as part of a nationwide partnership on distribution of mortgage loans to private customers. 

The Danish mortgage market is one of the most sophisticated and unique housing financing systems in the world, dating back more than two centuries. The mortgage market plays a pivotal role in the Danish society and economy, providing private individuals access to affordable house financing. 

The Danish mortgage market for private customers is also highly concentrated with only four competitors: Nykredit/Totalkredit, Realkredit Danmark (part of the Danske Bank Group), Nordea Kredit (part of the Nordea Group), and Jyske Realkredit (part of the Jyske Bank Group). 

Mortgage loans to private customers are in general provided through banks, which are by far the most important sales channel for mortgage institutions, accounting for more than 95% of all new mortgage loans. For this reason, it is crucial for mortgage institutions to get access to a nation-wide distribution network of banks. 

Since 2003, when Nykredit merged with Totalkredit (hereafter Nykredit/Totalkredit), a large number of banks entered into a partnership agreement with Nykredit/Totalkredit in relation to the distribution of Totalkredit mortgage loans to their customers. The Danish Competition and Consumer Authority (DCCA) approved the merger and the partnership agreements subject to commitment. The DCCA found that the combined entity would obtain a dominant position in the mortgage market. 

Today, the Totalkredit partnership comprises 41 independent banks. The other three mortgage institutions in Denmark only have distribution agreements with their group-related banks. As a result, all banks distribute mortgage loans to only one Danish mortgage institution.

These market characteristics have resulted in Nykredit/Totalkredit taking significant market shares from their competitors, and the DCCA estimated the market shares measured by lending to private customers in 2022 to be: 

• Totalkredit/Nykredit: 51.7%. 
• Realkredit Danmark: 22.5%. 
• Nordea Kredit: 15.5%. 
• Jyske Realkredit 9.8%. 
• DLR Kredit 0.5% (DLR is primarily active within mortgages to businesses and agriculture, but has a very small ancillary portion of private mortgages) 

The Totalkredit partner banks are contractually obligated to distribute mortgage loans exclusively for Totalkredit. In case they breach the exclusivity, Totalkredit has the right to terminate the partnership contract with the consequence that the partner bank will no longer be able to distribute mortgage loans for Totalkredit, and that the bank will lose all future commission payments on mortgage loans that have already been distributed. Also, if the partner banks merge with one of Nykredit/Totalkredit’s competitors, they will face the same consequences as for breaching the exclusivity. 

Since most partner banks have built a long-lasting relationship with Totalkredit, the loss of future commission payments and the loss of the possibility to distribute Totalkredit loans will lead to a very large financial loss for the banks, for which they will have to seek compensation elsewhere. 

In October 2020, the DCCA sent a statement of objections to Nykredit/Totalkredit addressing the concerns that these exclusivity provisions raise. In July 2021, Jyske Bank also filed a complaint to the DCCA arguing that Nykredit/Totalkredit are abusing their dominant position by imposing its exclusivity terms on the partner banks. 

The DCCA conducted several market hearings as part of their investigation, and in September 2024 the case was finally settled with a commitment decision whereby Nykredit/Totalkredit offered to amend the partnership contract in several material aspects, including namely: 

1. No exit penalty: the partner banks will not incur a loss of future commission payments on already distributed mortgage loans for Totalkredit if they switch to another mortgage supplier (i.e. if they exit the partnership). 
2. No merger penalty: the partner banks will be able to participate in mergers/acquisitions with banks that distribute mortgages for competing mortgage institutions without incurring a loss of future commission payments on already distributed mortgage loans for Totalkredit (i.e. they can merge with Danske Bank, Nordea and Jyske Bank).
3. Limited parallel distribution: the partner banks will be able to simultaneously distribute mortgages for Totalkredit and competing mortgage institutions that are not vertically integrated with any of Nykredit/Totalkredit’s competitors (i.e. the partner banks are still prevented from distributing mortgage loans from the current competitors of Nykredit/Totalkredit, so this will require entry of a new mortgage institute on the Danish market, or that DLR Kredit starts being active on the market for private customers).

Since the commitment decision does not open for new partnerships and parallel distribution with existing mortgage institutes, it remains to be seen whether the commitments will increase competition in the mortgage market. Given that the commitment decision has removed the exit penalties or merger penalties on the Totalkredit partner banks, it will be interesting to see whether this will spark the consolidation of the Danish banking market, which has many smaller local and regional banks. 

The commitment decision, which is only published in Danish, can be found here. 

If you need more information or further guidance in this area, please contact Stefan Brkic and Morten Nissen.

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