Danish state’s refusal to extend guarantees on bank debt beyond 2013 means even healthy lenders will suffer the fallout of a liquidity squeeze that could be avoided, the head of the Local Bankers Association said.
“There’s nothing wrong with helping banks out with their liquidity, it won’t cost the taxpayer,” Bent Naur, the chairman of the Copenhagen-based group, said yesterday in a phone interview. “The state should prolong the guarantee, not for troubled banks, but for those that meet solvency requirements. That will avoid a liquidity squeeze when everybody needs to refinance at the same time.”
Banks in Denmark, home to the European Union’s toughest resolution laws, need to refinance about $35 billion in state- guaranteed debt in the next two years. The government has rejected calls to extend its backing, arguing the industry should instead consolidate. Lenders already face higher funding costs as two regional bank failures since February triggered senior creditor losses. Moody’s Investors Service warned in May borrowing costs for Danish lenders will increase “long-term.”
“When we look at the calendar, 2013 isn’t far away,” said Naur, whose association represents 88 lenders in Denmark, Greenland and the Faroe Islands. Helping healthy banks access liquidity won’t prop up insolvent lenders, he said.
The difference between the three-month Copenhagen interbank offered rate and the equivalent rate for the euro area grew to 8.3 basis points today, the widest since April 20. The spread has averaged 4.4 basis points since June 1.
‘Could Default’
Central bank Governor Nils Bernstein and Financial Supervisory Authority Director General Ulrik Noedgaard have both said lenders shouldn’t expect rescue programs to be extended.
Debate on the need for additional bank support measures has flared in Denmark following the Feb. 6 failure of Amagerbanken A/S and the subsequent collapse in June of Fjordbank Mors A/S. Standard & Poor’s said July 28 a further 15 banks in the Nordic country “could default,” costing as much as 12 billion kroner in the next three years.
Denmark’s first bank rescue package, which provided state guarantees on all interbank lending and deposits, expired in October. Guarantees on debt issued before then apply until 2013.
Nykredit Markets, the investment banking unit of Denmark’s biggest mortgage lender Nykredit Realkredit A/S, is looking into arranging combined debt sales for some of the country’s roughly 120 banks. The plan will help diversify risk and attract investors reluctant to give funds to individual regional lenders, according to Nykredit.
New Bank Bill
The government will this month hammer out the details of a bill that will make it easier for healthy banks to take over their troubled peers after legislation passed in June failed to spur consolidation, Torsten Schack Pedersen, a spokesman for the ruling Liberal Party, said Aug. 2.
In an effort to protect taxpayers, the government will probably ask banks to contribute any further funds needed to stabilize the industry, Schack Pedersen said.
“It’s a shame there hasn’t been more consolidation happening voluntarily,” said Naur. “With funding becoming more difficult, I think it makes a lot of sense” for banks to merge.
The country’s biggest lenders, Danske Bank A/S, Jyske Bank A/S, Nykredit and Sydbank A/S all passed the EU’s stress tests last month. The four exceeded a 5 percent minimum capital requirement, European Banking Authority tests showed on July 15. Results for the Danish lenders ranged from 9.4 percent to 13.6 percent, the EBA said.
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