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Denmark’s central bank won’t provide extra liquidity support to the country’s lenders amid signs that flagging demand, not the financial industry, is holding back economic growth, Governor Nils Bernstein said.
“As the situation looks now, we don’t have any plans to take any initiatives,” Bernstein said. “It’s first and foremost a problem of demand.”
The central bank expanded its collateral base last year and in March offered its first ever three-year loans to support a bank industry struggling to emerge from a burst real estate bubble. Moody’s Investors Service this week downgraded nine Danish lenders, including Danske Bank A/S (DANSKE) and Nykredit A/S, and warned that declining house prices are hurting asset quality.
Five banks have collapsed since last year, and the Financial Supervisory Authority says more failures may follow as it tells lenders to adhere to stricter write-down rules. Industry groups have warned the development risks choking access to credit as banks trim their balance sheets to comply with the more rigorous standards.
“Our experience is that well-run businesses can get the loans they need,” Bernstein said. “Not so well-run companies may face bigger hurdles,” he said.
Danske Bank A/S declined to its lowest in more than a week in Copenhagen trading, falling 1.5 percent to 78.40 kroner. Jyske Bank A/S and Sydbank A/S, Denmark’s second- and third- largest listed lenders, lost 1.3 percent and 1.2 percent, respectively.
Lending to companies fell an annual 8 percent in April, while loans rose close to 2 percent on the month, according to central bank figures released May 29. The annual decline slowed from 10 percent in March.
“For small companies, it depends on their business model and whether they can present healthy projects to their banks,” Bernstein said. “There are some that may have difficulties getting loans.”
His bank has planned a second offering of three-year loans for September after lenders borrowed 19 billion kroner from the facility in March.
Danish lawmakers agreed in March to provide at least 36 billion kroner ($6 billion) in loans and guarantees to businesses through state agencies as part of the country’s fifth bank rescue package since 2008.
As government support measures continue, stricter regulatory requirements are appropriate, Bernstein said.
“It’s sensible that the FSA tightens up, based on the experiences they’ve harvested from the financial crisis,” he said. “It’s natural that the banks react. There should be an exchange of opinions. But we don’t have any reservations about the policies that the FSA is carrying out.”
Denmark emerged from a recession in the first quarter, the country’s statistics agency said yesterday. Gross domestic product expanded 0.3 percent in the three months through March, after contracting in the third and fourth quarters. Denmark’s gross unemployment rate was unchanged in April at 6.2 percent, the agency said today.
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