Dan­ish banks ben­e­fit from neg­a­tive rates

The Pak Banker - - MARKETS/SPORTS -

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.

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