Danish Banks Set for More Failures Amid Debt Woes, S&P Says

Five to 15 more banks may fail in Denmark amid “lingering economic imbalances,” Standard & Poor’s Rating Services said.

The insolvencies may cause an industry loss of 6 billion kroner ($990 million) to 12 billion kroner, S&P said today in a Banking Industry Country Risk Assessment report ranking the Nordic country’s banking system alongside the U.S. and the U.K. There have been 12 bank defaults since 2007, S&P said.

“Major economic fundamentals underpin the banking system,” Per Tornqvist, Stockholm-based director of S&P’s European financial services unit, said by phone. “The high personal debt and quite high reliance on the capital markets weigh negatively in the equation.”

Two regional banks, Amagerbanken A/S and Fjordbank Mors A/S, failed last year after a real estate bubble burst. The collapses led to Europe’s first senior creditor losses under a government framework, locking most of the country’s more than 110 commercial lenders out of capital markets.

Banks responded by cutting lending to close the gap between deposits and loans, after writing down 36 billion kroner in 2010 and another 24 billion kroner last year, according to Financial Supervisory Authority figures. The FSA imposed more stringent writedown regulations in April.

“We expect there to be potentially 30 billion kroner in further impairment provisions in Denmark over the coming four years,” S&P said in the report. “While this represents a meaningful further adjustment of the banking system, our view is that the majority of the deleveraging process has already taken place.”

The ratings company gave Denmark a 3 in its so-called BICRA system for ranking banking systems on a scale from 1 to 10, with 1 being the healthiest.

“The blend of strengths and weaknesses makes us continue to see Denmark as a BICRA 3, quite high in the echelons of Europe,” Tornqvist said. “The gross savings ratio, the current account surplus, the low government debt, the net wealth position of Danes -- all these underpin stability.”

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

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net

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