Brexit Fallout Has Danske CEO Bracing for Longer Negative Rates

  • Danske CEO pledges to continue shielding retail clients
  • CFO says pressure on lending margins is abating somewhat

The chief executive officer of Denmark’s biggest bank says Britain’s decision to leave the European Union risks prolonging an era of negative interest rates that started four years ago.

Danske Bank A/S’s official forecast is for Danish rates to stay below zero until “at least” 2018, CEO Thomas F. Borgen said in a phone interview on Thursday. “Generally, the U.K. vote on leaving the EU may have an impact so we’ll have lower rates for a longer time and we may have negative rates longer,” he said.

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No other bank has operated in a market dominated by negative rates longer than Danske, with Denmark’s central bank holding the world record in keeping its benchmark interest rate below zero after first trying the policy in July 2012. Borgen’s chief financial officer, Jacob Aarup-Andersen, says Danske is coping by relying more on other revenue streams besides lending, such as fee income from asset management.

The bank has so far absorbed much of the cost of negative rates itself, rather than risk alienating retail clients by asking them to pay for their deposits.

“We are managing these negative rates and are shielding our personal clients for the time being,” Borgen said. ‘It’s a very difficult environment to operate in for a bank, but then you have to adjust your business accordingly.”

Aarup-Andersen says there are some signs that the pressure from negative rates on lending margins is abating, an observation that Casper von Koskull, the CEO of Nordea Bank AB in Sweden, made a day earlier.

Though Borgen characterizes negative interest rates as an emergency central bank tool, the fact that banks and businesses have been living with the policy fear years and years means executives need to build their strategies around the reality of life below zero.

“We now have long practice in working with low or negative rates and we will continue to adjust to whatever environment we’re working under,” Borgen said. “So for us, we’re getting well trained in it.”

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