Danske Bank is reported by Danish newspapers to want to use the Euro stability fund granting cheap credit to banks for up to three years due to the disturbance Greece has caused.
The Danish contribution, though not a part of the Euro-zone, has been reported to be 40 billion DKK.
The move is somewhat surprising as a similar facility is available in the Danish Central Bank (Nationalbanken). Nationalbanken extends credits – for a similar period – but at a lower interest rate. Where the ECB rate has been reported to be 1% the present Central Bank lending rate is 0.7%.
The explanation percolating in Danish papers (unattributable to Danske Bank sources – neat huh?) is that it is easier to hide among 500 odd banks in the Euro-zone, than to disguise an emergency advancement of 20-30 billion DKK from the public figures of Nationalbank.
Being a small country such amount does tend to attract attention. There simply is not other banks with of such size. As some – with attention spans higher than the average nematode – might recall:
On the last banking day of 2011 pensioners and salary earners did not get their money on their accounts on time. Strangely it was only Danske Bank costumers that suffered that indignity.
Furthermore the Central Bank extended short term credits to the tune of 24 billion DKK.
Be that as it may; but it is more problematic than that:
- If Danske Bank takes up a credit with the Euro fund through their foreign branch subsidiaries – in the Euro-zone – Danske Bank will in effect be speculating against the Danish currency with money indirectly advanced from the Nationalbank. How well that ploy sits with the Government and the Central Bank remains to be seen.
- This use of branch offices raises another question: It is claimed that around 200 billion DKKs “worth” of Danish variable real estate bonds are in foreign possession. Now it is known that Danish banks are the main costumers to these bonds. Furthermore the Central Bank has publicly stated that they will not accept own issues of bonds as collateral for extended credit – before announcing increasing collateral base to “good” loans – albeit with a haircut.
- There is NO credit squeeze on Denmark: The sovereign bonds are scraping the bottom – interest wise – and short term deposits in the Central Bank is a whopping 180 billion DKK. So this is a question of lack of credit worthiness in one or more Danish banks.
This leads to the rather interesting question: How much of these real estate bonds abroad is in reality bought by the issuer themselves. There must be an explanation for the huge reserve of foreign currency the Danish Central Bank is toting: 500 billion DKK.
Is that currency reserve a safeguard against a huge sellback of short term real estate bonds? These short term papers are not liable to be ditched appreciably under par due to their short maturity. Long term bonds are fairly safe from panic sales, as they normally always find buyers – at a price.
The seriousness of Danske Banks circumstances is getting still more frightening.
The nearest competitor (Nordea) surmises that the official Danish interest rates are to be lowered in the near future. How likely is that?
Well considering the record low Central Bank on deposit interest rate and abundant liquidity there is an argument – but a false one.
The problem is that the lending rate is below ECB’s with ¼% – so all things considered it seems more likely that the lending rate will be raised.