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Categorized | Capital Markets

Few Danish lenders grab state lifeline

Posted on March 30, 2012

Danish banks borrowed just DKr18.9bn ($3.4bn) from the country’s central bank in the first of two operations designed to smooth funding issues and offer a lifeline to lenders that are due to pay back state aid in the next year or so.

The figure was just a fraction of the amount many had expected banks to borrow under the three-year loan programme offered by Danmarks Nationalbank. Analysts had predicted Danish banks would borrow at least $20bn.

The funding injection mimics measures taken by the European Central Bank to stave off a liquidity crisis in Europe’s banking system when hundreds of eurozone banks borrowed more than €1tn in December and February under the ECB’s longer-term refinancing operations.

Nils Bernstein, governor of Danmarks Nationalbank, pointed out in a statement that there were “no success criteria” attached to whether Danish banks used the facility or not. However, he reiterated that banks could take advantage of the cheap, three-year loan facility “on identical conditions” in September.

Lenders using the facility pay the central bank’s benchmark lending rate, which stands at 0.7 per cent.

Copenhagen was forced to provide state aid to a number of Danish lenders after the 2007-08 crisis, when rising interest rates and sharp increases in food and energy prices hit household incomes, dented consumer demand and led to a correction in property prices. Danish banks have until 2013 to pay back about DKr150bn of state aid.

Denmark’s banks – many of which are very small and operate low-margin businesses – are dealing with a weak domestic economy and the fallout from the wider sovereign debt crisis in Europe. Many are purely domestic lenders and would not have been able to take advantage of the ECB facility, because Denmark is not part of the eurozone.

Lenders have also found it harder to tap the public debt market to raise funds after the collapse of Amagerbanken a year ago, when many senior creditors were forced to accept losses on the money they were owed.

Danske Bank, Denmark’s largest lender, said on Friday that it had borrowed DKr15bn under the programme, using assets from its bond portfolio as collateral.

“We have chosen to avail ourselves of the Danish central bank’s new facility purely on the basis of business considerations,” says Peter Rostrup-Nielsen, Danske Bank’s chief risk officer. “We see the facility as a positive element in banks’ opportunities to support economic growth.”

Analysts said Danske was simply taking advantage of the cheap funding.