Danish credit package in place

The Danish government and a broad majority of the political parties represented in Folketinget, the Danish parliament, reached agreement on January 18 on a package that provides capital for banks and mortgage lenders in Denmark. The aim is to minimise the negative consequences of the international economic crisis for the Danish economy.

The loan limit under the agreement is DKr100bn, with DKr75bn made available to banks and DKr25bn to mortgage lenders. The state carries the risk of this recapitalisation and earns interest on market terms – at an average rate of 10%. The banks and mortgage lenders will not be given capital for free – they will have to borrow it and must make repayments and pay interest.

The agreement divides Danish banks into three categories according to their ratings, and the rates of interest payable by the banks in the three groups vary from a good 9% to nearly 12%. The higher the rating, the lower the rate of interest to be paid.

The Danish state also extends the government’s rescue package introduced in the autumn of 2008 (bank package I). The current guarantee, which will expire on September 30, 2010, is replaced by a new three-year state guarantee. Participants must pay a premium on market terms to use the guarantee.

Peter Straarup: a sensible solution
Peter Straarup, Chairman of the Danske Bank Executive Board, considers the political solution well thought-out and sensible, although a bit expensive for the banks.

“Looking forward, the banks will have to be cautious when granting credit – despite the package – to minimise the negative consequences of the downturn. But there is no doubt that, other things being equal, the new package will open up for the financing of healthy projects,” says Peter Straarup.

Danske Bank will now study the elements of the new credit package, which is likely to be passed by the Danish parliament at the end of January.

“If we decide to use the facilities of the package, our articles of association require that we consult our shareholders. We can do that at the annual general meeting on March 4. As matters stand, we are sympathetic to the intentions of the package and are generally positive despite the costs. We will present our financial results for 2008 on February 5, and at that time we plan to say whether we will make a recommendation to the general meeting”, says Peter Straarup.

Published on January 18, 2009

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See press release from the Danish Ministry of Economic and Business Affairs of January 18 2009

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