Danish lawmakers agreed on a rescue package targeted at businesses and farms after measures aimed at banks failed to stem a credit squeeze threatening the economy.
The government will provide at least 36 billion kroner ($6.2 billion) in loans and guarantees to businesses through state agencies and create a lending facility for farmers, under the tentative agreement presented by Business and Growth Minister Ole Sohn.
The government also will buy the real estate portfolio of FIH Erhvervsbank A/S to prevent a potential avalanche of bankruptcies as the Copenhagen-bank cuts lending, and it opened up the possibility of buying other banks’ loans to ease the funding crunch. Danish insurer Alm. Brand A/S, whose bank reported widening fourth-quarter losses, has indicated interest, the ministry said today in a statement on its website.
“It’s recognition from the government that this is a serious challenge,” Thomas Soerensen, director of small and medium-size businesses at the Confederation of Danish Industry, said by phone. “The crisis has been going on for three, four years. We’re talking about losing jobs if we’re not helping the small and medium-sized companies get the necessary financing.”
Banks are tightening lending, calling loans and raising fees to meet stricter capital requirements set by regulators and a 2013 deadline to refinance about $30 billion kroner in state-backed debt. Most of Denmark’s 120 lenders can’t tap funding markets after the 2011 failure of Amagerbanken A/S triggered the European Union’s first senior creditor losses within a resolution framework.
The rescue package allows Denmark’s bank resolution agency to copy the FIH deal and buy other banks’ loan portfolios on a “case by case basis” to pave the way for a merger or ease pressure on banks to cut lending.
“The depth of the financial crisis indicates that smaller companies’ difficulties getting financing will be relevant for years to come,” the ministry said.
Under the agreement, the agency will pay 2 billion kroner for FIH’s 16 billion-krone portfolio of property loans and 1 billion kroner of related financial instruments. That will reduce failure risks and ease pressure on the bank to cut lending to repay 42 billion kroner in state-backed debt, the ministry said.
“It’s positive the focus of the new package is directly on small and medium-sized businesses that, in the end, will pull Denmark out of the crisis,” Christian Ingemann, director at the Danish Chamber of Commerce, said in a statement.
The measures targeted at banks largely failed to improve conditions, Ingemann said.
Denmark had passed four bank rescue bills, including state-backed guarantees of 194 billion kroner, since 2008 when loan loss impairments hit a four-year high.
A consolidation bill passed in September that subsidizes mergers by allowing banks to extend those guarantees has largely failed. The government last month broadened the bill to allow two struggling lenders to consolidate.
Unemployment has hovered at about 6 percent or higher since 2010 as companies closed or fired employees. Corporate bankruptcies rose to a 14-month high in January as the Confederation of Danish Industry warned ever more businesses were reporting difficulty getting financing.
“This is supportive for credit in Denmark and should provide support to bonds” in Danske Bank A/S, the country’s biggest lender, Prateek Datta, an analyst at Royal Bank of Scotland Plc, said in a note. “There are a number of headwinds in Denmark. However, the difference here is that Denmark has a lot more flexibility to assist the economy compared to its more indebted European peers.”