(Updates with bankers association comment in seventh paragraph, central bank lending survey in 10th.)
Oct. 10 (Bloomberg) -- Denmark’s bank crisis is taking its toll on the economy’s recovery prospects as companies struggle to find lenders willing to provide loans, the Confederation of Danish Industry warned.
Banks in the worst-performing Scandinavian economy have been slow to respond to government efforts to shore up the industry through consolidation. That may deepen a crisis that’s dragged on since Amagerbanken A/S in February triggered the European Union’s first senior creditor losses in a resolution framework. This weekend, Max Bank A/S became Denmark’s first insolvent lender to be bought under the government’s takeover bill, narrowly escaping a bail-in.
The country’s banking crisis is choking lending and stifling business. The Confederation of Danish Industry, which represents 10,000 companies, expects to release a survey this week showing lending tightened in the third quarter from the second as banks deleverage, said Klaus Rasmussen, the group’s chief economist. Denmark’s economy will grow only 1.4 percent this year, less than a third the 4.5 percent expansion rate in neighboring Sweden, the two countries’ central banks estimate.
Businesses in Denmark “cannot make the investments they want, maybe they simply can’t survive,” Rasmussen said in an interview. “It is frustrating that you set up new rules that should help getting the necessary mergers, and you don’t see them.”
The government last month passed Denmark’s fourth bank rescue package since 2008. The bill seeks to spur consolidation and help banks sidestep the country’s bail-in laws by subsidizing takeovers before a troubled lender collapses. The specter of senior creditor losses has cut off most of Denmark’s roughly 120 banks from international funding markets. About 75 regional lenders need either to be wound down or bought up, according to Henning Kruse Petersen, the chairman of the Financial Stability Company.
Max Bank was yesterday bought by regional peer Sparekassen Sjaelland A/S in a last-minute arrangement. The acquiring bank will be able to subsidize its purchase by tapping Denmark’s Depositor Guarantee Fund.
Still, there’s no guarantee that the consolidation bill can be deployed successfully again in future, said Joergen A. Horwitz, the director of the Danish Bankers Association, in a note.
An index of Danish bank shares lost 0.5 percent today at 10:46 a.m. in Copenhagen. That compares with a 0.6 percent loss in the 46-member Bloomberg index of European financials.
A quarter of Danish companies surveyed for a June report by the confederation said they had limited, or no, financing options in the second quarter. Lending to businesses has slumped 25 percent since the start of the credit crisis in 2008, the confederation said.
Banks tightened credit standards in the third quarter as writedowns rose and lenders forecast more losses through the end of the year, the central bank said in a quarterly survey published today.
To survive the credit drought, Denmark’s farming council said last month it will create a fund to try to avert a collapse in the agricultural industry. The fund plans to go directly to institutional investors and raise start capital of as much as 1 billion kroner ($180 million) to avoid a “complete crash” of the industry, said Lone Saaby, a director at the Danish Agriculture and Food Council Business.
Banks have cut off lending to businesses as they themselves struggle to generate funds. Moody’s Investors Service lowered the ratings of Danske Bank A/S, Denmark’s largest lender, and five other banks in May, citing an absence of state support. Lenders are also under pressure to pay back about 158 billion kroner in state-backed loans coming due by 2013, forcing the industry to dump assets and deleverage to stay afloat.
“It has a negative impact on the Danish economy if healthy firms are restricted because the banks have to cut down on lending,” Rasmussen said. Businesses may be forced to cut jobs and even close as credit dries up, he said.
Industrial production fell 4.3 percent in August from a month earlier, led by declines in the manufacture of capital goods and export orders, the statistics agency said last week. The number of bankruptcies has risen 4 percent since January to 466 in September, the statistics office estimates, citing seasonally-adjusted figures.
A worsening debt crisis in Europe has exacerbated the funding freeze in Denmark, Morten Frederiksen, a director at the Danish Bankers Association, said in an interview last week.
“You really can’t issue senior debt,” he said.
If Denmark’s latest bank rescue fails to spur mergers, the crisis is likely to deepen, Rasmussen said.
“The problem is, it sends a very bad signal when a bank is going down, so it should go into a merger before being driven out of the market,” he said.
A number of Danish banks continue to hold “vulnerable loans” on their books and face “large” writedowns, Denmark’s financial watchdog, the Financial Supervisory Authority, said last month. A 400-billion-krone liquidity line announced by the central bank last month won’t help banks that face solvency problems because of deteriorating asset quality, an official at Moody’s said, declining to be identified by name because of company policy.
While the liquidity lifeline is helpful, Denmark’s banking crisis won’t ease until there is consolidation in the industry, according to Rasmussen.
“We haven’t seen very much merger activity, and that would be the best thing,” he said. “What we need is a healthier banking sector.”
--Editors: Tasneem Brogger, Christian Wienberg.
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