Danish banks benefit from negative rates
For banks operating in the country to have endured negative interest rates longer than any other place on earth, last year was actually pretty good.
We're talking about Denmark, where rates have been mostly negative since mid-2012. The governor of the central bank, Lars Rohde, says markets may well be right to assume they won't go positive until 2019. So how does a financial industry cope with a negative interest rate policy for the better part of a decade?
While the Danish Financial Supervisory Authority has yet to release aggregate figures, Rohde says it's already clear that in 2015, his country's banking system "had its most profitable year since 2008."
Danske Bank A/S, Denmark's biggest lender, delivered its best annual result on record. This year, its shares have outperformed most major European peers, helping it surpass Deutsche Bank AG in market value.
And though there are concerns - most recently articulated by UBS Group AG Chief Executive Officer Sergio Ermotti - that banks will develop laxer credit standards because of negative rates, the Danish experience suggests that's not an immediate issue. Jesper Berg, director general at the Danish FSA, says "we're not seeing it yet." Here's what's helping: ? Though lending income has suffered, lower rates mean borrowers are less likely to get into trouble with their loans. Danske has written back once impaired loans every quarter since March last year.
? Banks are earning fees as customers move savings out of deposit accounts and into asset management services. Danske last year combined functions to create a $130 billion wealth management unit.
? The central bank has a tiered deposit system, meaning the negative rate only affects funds that can't be accommodated in a current account facility that pays zero.