-- Denmark's central bank to provide long-term funding for banks to bridge maturing state loans
-- Analysts expect Danish banks to borrow DKK40 billion-DKK50 billion on Friday
-- Mainly smaller banks are expected to use the central bank facility
By Gustav Sandstrom
Of DOW JONES NEWSWIRES
Denmark's central bank is expected Friday to provide the country's smaller lenders with well-needed long-term financing to help bridge maturing state loans and ease some of the funding problems facing the country's fragmented banking sector.
On Friday and again in a second round in September, the National Bank will offer unlimited amounts of three-year loans to Danish banks against collateral including government and mortgage bonds, through a facility much akin to the European Central Bank's long-term refinancing operation to European banks that recently helped revitalize the Continent's funding markets.
"I think this is a welcomed facility for primarily the smaller banks," analyst Simon Christensen at Nordea said. "It will win time and help avoid an uncontrolled deleverage of banks' assets."
Many of the banks in Denmark--which has well over 100 lenders to serve a population of around 5.6 million--have struggled to finance themselves through the bond markets after a number of smaller banks including Amagerbanken and Fjordbank Mors went down last year in the wake of the financial crisis.
Meanwhile, the banks will this year and next need to pay back an estimated 100 billion-150 billion Danish kroner ($18 billion to $27 billion) of state-backed loans under an earlier guarantee scheme.
The National Bank's facility will serve as a bridge when the state-backed loans fall due, spokesman Karsten Biltoft said. The central bank has no target for how much to lend, and it remains to be seen how much the banks will borrow, he added.
In total, Danish banks are likely to borrow some DKK40 billion-DKK60 billion in Friday's operation--mainly smaller banks aiming to replace their maturing state loans, said analyst Christian Hede at Jyske Bank.
There should be less than DKK70 billion in state-backed loans to replace in the near term, he said, as many banks have already taken action to ramp up their funding, and some have taken government loans that aren't callable until next year.
"We welcome the new loan facility," Director Jan Kondrup at Lokale Pengeinstitutter, which represents local banks in Denmark, told Dow Jones Newswires on Tuesday. "I have heard from many of the banks that they will use it," noting that the initial interest rate of 1.7% would be favorable.
Spokesman Kenni Leth at Danske Bank A/S (DANSKE.KO), Denmark's largest bank by market capitalization, Monday said his company is still undecided on whether to make use of the central bank loans.
The other major listed banks in Denmark--Jyske Bank A/S (JYSK.KO), Sydbank A/S (SYDB.KO), Spar Nord Bank A/S (SPNO.KO) and Sweden-listed Nordea AB (NDA.SK)--won't use the facility, as they already have good access to funding, representatives told Dow Jones Newswires.
Still, the loan facility will be useful as it will win additional time for the participating banks to ramp up funding or reduce their loan books over a prolonged period of time, said Jyske Bank's Hede, adding that market conditions will hopefully improve until 2015 when the three-year loans mature.
Without the National Bank's bridge loans, many banks would have needed to offload assets in a short period of time as their government loans fall due, and that would have hit small and midsize companies, which are important for creating jobs in Denmark, said Nordea's Christensen. "I think this will give an easier exit from the crisis than what we would otherwise have had," he added.
- By Gustav Sandstrom, Dow Jones Newswires; +46-8-5451-3099; firstname.lastname@example.org
(END) Dow Jones Newswires
March 27, 2012 11:06 ET (15:06 GMT)
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