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Danish Banks Borrow $6.39 Billion in 3-Year Emergency Loans

Sept. 28 (Bloomberg) -- Denmark’s central bank said three-year loans to the country’s lenders almost doubled in the second and last offering of the emergency cash.

Loans amounted to 37 billion kroner ($6.39 billion) compared with 18.9 billion kroner tapped in March, when the longer-term refinancing operations first were offered. The Copenhagen-based central bank also today said lenders repaid 2.8 billion kroner of the amount borrowed in March. Danske Bank A/S, Denmark’s biggest lender, said in an interview it was planning to borrow 20 billion kroner today.

The three-year loans, which carry the central bank’s key lending rate of 0.2 percent, are being offered as Denmark’s financial regulator warns more regional banks may face insolvency. Analysts surveyed by Bloomberg had estimated that as much as 100 billion kroner may be drawn, matching the amount in government-guaranteed debt due next year. Use of the facility was probably curbed because banks lacked the necessary collateral, according to Steen Blaafalk, head of group treasury at Danske.

“The collateral is fairly restrictive to get to the high numbers,” Blaafalk said in an interview yesterday.

Credit Squeeze

Danish banks are still struggling to emerge from a regional funding crisis after two bail-ins last year locked most lenders out of wholesale markets. That spurred a credit squeeze that plunged the nation into a recession, putting further pressure on bank balance sheets. The central bank only accepts the safest bank loans as collateral for the facility.

“It was more or less in line with market expectations,” Jacob Skinhoej, a chief analyst at Nordea Bank AB in Copenhagen, said by phone. “This relatively low draw-down indicates that most banks have their funding covered and don’t need funding from the central bank.”

Danske Andelskassers Bank A/S said today it would borrow 500 million kroner from the central bank to shore up liquidity amid continued turbulence in the global economy.

“We don’t have any need to tap the facility,” Jan Pedersen, chief executive officer of the regional bank that’s based in Tjele, Denmark, said in a statement. Still, given market conditions, “it’s our assessment that it’s always sensible to strengthen liquidity when it’s possible to do so under sensible terms.”

No Goals

FIH Erhversbank A/S, which in March was allowed to transfer some of its bad loans to the government, planned to apply for 3 billion kroner in the LTRO, Chief Financial Officer Palle Nordahl said in an e-mailed reply to questions today, before the results were published.

“The central bank provides a string of facilities which the country’s lenders can use,” Karsten Biltoft, spokesman for the central bank, said in a reply to questions seeking comment on the amount of loans being sought. “We don’t have any goals as to the use of the specific facilities, except that they must contribute to a well-functioning financial system.”

Denmark has yet to recover from a burst real estate bubble that has led to a dozen bank failures since 2008 and threatens to tip the economy into its second recession in less than a year. The risk remains that more banks could “run into troubles eventually,” Kristian Vie Madsen, deputy director at the Financial Supervisory Authority, said in an interview.

Shunned Loans

This week Vestjysk Bank A/S, the country’s six-largest listed lender, fired its chief executive officer after more than doubling its writedowns. The industry’s continued troubles show banks need the extra liquidity the central bank is offering.

Decisions by Jyske Bank A/S and Sydbank A/S, Denmark’s second and third largest listed lenders, not to use the facility limited the total amount lenders sought. Jyske said it shunned the central bank’s loans to avoid subordinating existing creditors. At Danske, the decision to use the cash was commercial, Blaafalk said.

“We want to have this in our tool kit,” he said. “The arrangement from the central bank is just as good as it was in March, and it makes economic sense. It’s actually at a lower rate today. This one gives me an extra option when it comes to liquidity management.”

The central bank cut its benchmark lending rate to 0.2 percent in July, compared with 0.7 percent in March, as the bank fought to defend the krone’s peg to the euro from a capital influx.

Danske Bank has begun funding itself for next year. The lender needed 50 billion kroner to 60 billion kroner for 2012 and has so far raised 72 billion kroner, Blaafalk said in a Sept. 11 interview.

The FSA has urged the banks to use the facility to build up liquidity buffers and ignore concerns that investors might perceive its use as a sign of weakness.

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

To contact the editors responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net; Christian Wienberg at cwienberg@bloomberg.net

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