Bloomberg News

Danish Banks Attack Impairment Rules Amid Credit Crisis

March 08, 2012

Danish banks are lashing out at the country’s financial regulator for imposing stricter impairment requirements that the industry warns will choke lending and hamper an economic recovery.

The rules will inflate the financial industry’s loan losses and prompt banks to retrench to protect capital buffers, said Poul Kjaer, head of regulation at the Danish Bankers Association in Copenhagen. The Financial Supervisory Authority argues tighter rules are needed to restore confidence in the industry.

“Banks won’t be able to loan as much,” Kjaer said in an interview. “That is something the government and members of parliament have to be aware of and look very closely at.”

Denmark last week presented its fifth bank rescue bill since 2008 as lawmakers struggle to end a crisis that claimed three lenders last year and forced losses on senior creditors. The bank regulator has tightened standards in an effort to restore credibility to an industry burnt by a property bubble that burst in 2007. Banks and business groups say regulatory measures now risk exacerbating the crisis rather than ending it.

The Danish Bankers Association has taken its case to Business Minister Ole Sohn in an effort to prevent the FSA from implementing its proposal.

The FSA says more stringent rules will help prevent a repeat of the accounting abuses that spurred Denmark’s regional banking crisis. The proposal requires lenders to write down the value of their property portfolios to match market declines, the FSA said Feb. 6.

Housing Collapse

Danish house prices slumped an annual 8.7 percent in December, the statistics office said on Feb. 29. Property values will have lost 25 percent by 2013 since the crisis started in 2007, the government-backed Economic Council said in November.

Still, writing down loan portfolios to match sliding market values will deplete balance sheets just as businesses are crying out for loans to fund investment needed for growth, Kjaer said.

“They say we have to stimulate the economy on the one hand and then say something else on the other hand,” Kjaer said. “We have talked with banks, and they say that impairments will increase and when impairments increase, that means they won’t have as much liquidity -- they can’t make loans to companies, farmers, private people.”

Job Cuts

In a December survey, two thirds of the Confederation of Industry’s 10,000 members said they had limited access to financing, and one in five said an absence of funds is the main obstacle to growth. The situation has deteriorated since then, the confederation’s head Karsten Dybvad said in February.

A total of 29 Danish companies last month announced 1,433 job cuts, according to Danske Bank A/S (DANSKE) data. Adjusting for seasonal swings, the number reached about 1,770 in February compared with 1,100 in January, according to Danske analyst Jens Naervig Pedersen.

“This is evidence that there continue to be a lot of companies that are struggling to make ends meet,” Pedersen said in a note to clients today.

The government said last week it will create an agency to handle bad farm loans and also set up a unit under Denmark’s bank resolution agency to take over some property loans. The measures are designed to free up bank capital and encourage the industry to provide more credit to businesses.

The FSA is seeking responses from the industry before it adopts the new rules. The financial regulator won parliamentary approval last year to clamp down on writedown practices after a series of audits found lenders took what FSA Director General Ulrik Noedgaard has called an “optimistic approach.”

Bank Failures

International Financial Reporting Standards gave banks too much leeway, leading small and medium-sized lenders in particular to understate loan losses and paving the way for the collapse of Amagerbanken A/S and Fjordbank Mors A/S, Noedgaard said in August. Those failures closed funding markets to most of Denmark’s 120 banks and triggered a swath of ratings downgrades by Moody’s Investors Service.

“We are now processing the comments from the industry and other stakeholders, so right now the FSA won’t comment,” said Soeren Christensen, a spokesman for the regulator.

Noedgaard said in January he wants lenders to get their “risks on the table” to get rid of “zombie banks.”

To contact the reporter on this story: Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net


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