Danish banking sector needs more capital – a new banks’ stress test show Wednesday, 11 January 2012
Denmark's central bank sees the need for more capital in a Danish bank, according to new stress tests.
Danish banking sector has been struggling since 2007 with the consequences of a sharp decline in property prices, which led to a series of smaller bank collapsing.
Banks must continue to adapt to a situation without government guarantees, so that they look after themselves, write the Danish central bank.
The Danish Central Bank Governor, Nils Bernstein, notes in a written comment that the large and medium-sized Danish banks in recent years have improved their levels of capitalization.
He warns that there may be situations that require more supplementation.
"Both the current uncertainty and the tightening of capital requirements in future years tells us that monetary institutions must continue to be focused on improving the capital situation," he writes.
He also writes that a very hard negative development for the Danish economy would mean that more banks would need to strengthen their capital base.
Last Tuesday announced Danske Bank, Denmark's largest banking group and number five in the Swedish financial market that it will take up a loan with bonds of Dkr5.9 billion.
"We avoid banks with a significant exposure to Denmark," writes the French major bank BNP Paribas analyst, Andreas Håkansson in a recent report on the Nordic banking sector.
In the report Hakansson lowers the target price for Nordea shares with respect to the Bank's Danish operations.
"The size and state of the Danish market for mortgage loans and bonds, even if the probability is small, under adverse conditions, it could end with a full-blown Danish banking crisis," he writes.
The Danish property prices which in principle has been constantly decreasing since 2007, is expected in 2011, to have plummeted by 10 percent. This trend is expected to continue during 2012, driven by rising unemployment and negative GDP growth.
A contributing factor to the banking problem in Denmark is a credit bubble. In 2000, household debt relative to income stood at 158 percent. Ten years later, the levels shifted up to 310 percent, "world record", according to Andreas Håkansson.
Danish banks are also grappling with the high risk of further setbacks for the Danish farmers, who sits on a mountain of debt of Dkr360 billion.
The financial problems among farmers led to Vestjysk Bank, Denmark's eighth largest bank to be knocked out cold. In December Vestjysk Bank was forced through an external audit which resulted in a write down of the value of assets linked to agriculture with nearly half a billion Danish kroner.
By Scancomark.se Team
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