Denmark’s central bank provided lenders with 18.9 billion kroner ($3.39 billion) in three-year loans, less than a sixth the amount analysts contacted by Bloomberg estimated would be drawn.
There were “no success criteria” for the facility, Governor Nils Bernstein said in a statement. “The lending window will be open again on identical conditions in September and the utilization of the facility should be viewed as a whole.”
Denmark’s banks have faced higher funding costs than their rivals elsewhere in Scandinavia since the failure of Amagerbanken A/S in February last year triggered senior creditor losses. Lenders in the Nordic country, which sank into a recession in the second half of 2011, need the central bank’s cash to help them repay 146 billion kroner in state-backed debt due next year.
The number was “well under consensus expectations,” said Rune B. Kristensen, an analyst at Nykredit Research, in a note. “This must, all things being equal, be taken as a disappointment for the market.”
Banks participating can borrow at the central bank’s benchmark lending rate, at 0.7 percent since December, Copenhagen-based Nationalbanken said in a statement. Danske Bank A/S, Denmark’s biggest lender, said it drew 15 billion kroner.
“We have from a purely commercial point of view decided to use the central bank’s new facility,” Danske Chief Risk Officer Peter Rostrup-Nielsen said in a statement. “Danske Bank has recently obtained liquidity via senior debt and covered bond sales, which underlines the bank’s strong liquidity position.”
Danske will use assets from its bond portfolio as collateral for the loan, it said. A Bloomberg poll published March 20 predicted Denmark’s banks would tap a total of 116 billion kroner from the facility.
“This is cheap money and Danske faces no reputational risk by doing this,” Claus Groen Therp, an analyst at Enskilda Securities in Copenhagen, said by phone.
Danske rose 5 percent in Copenhagen trading to 94.50 kroner, marking its biggest gain since Feb. 15.
The Danish central bank first published its decision to provide the loans on Dec. 8, following a similar announcement from the European Central Bank the same day. The Frankfurt-based ECB has injected more than 1 trillion euros ($1.3 trillion) into Europe’s banks since December in an effort to stem the region’s debt crisis.
The Danish credit lifeline doesn’t offer banks the same carry-trade opportunities as the ECB’s facility because the difference in rates on the three-year loans and Denmark’s sovereign bonds is much narrower than the equivalent spread for troubled eurozone members, said Jesper Berg, senior vice president of regulatory affairs at Nykredit A/S in Copenhagen.
“In relative terms, they had less to gain here in Denmark,” he said in a phone interview.
The yield on Denmark’s two-year government note rose less than one basis point to 0.3 percent today. The 10-year yield slipped 1.2 basis points to 1.83 percent. Yields on Italian and Spanish 10-year debt traded above 5 percent this week.
‘Good Business Reason’
Denmark’s central bank uses monetary policy to maintain the krone’s peg to the euro. It plans to hold a second offering of the three-year loans at the end of September. Bernstein yesterday encouraged Denmark’s banks to draw on the facility.
“From the central bank’s perspective, we have nothing against using it if there is a good business reason,” he said at an annual gathering hosted by the Danish Mortgage Bankers’ Federation in Copenhagen.
The central bank has said it may add a premium to the interest rate it charges on the loans should financial markets improve.
Denmark is struggling to emerge from a housing bubble that burst in 2007, triggering a regional banking crisis that choked lending. House prices will have slumped 25 percent by next year since the crisis started, the government-backed Economic Council said in November.
Denmark’s economy entered a recession in the third quarter of last year as investments and government spending shrank, according to revised data published today by the national statistics agency. Gross domestic product contracted 0.1 percent both the third and fourth quarters of last year.