Bank profits plunge in Denmark as negative rates take toll
Banks in Denmark have seen their aggregate profits sink this year, according to calculations by the industry's main lobby group, which has repeatedly urged monetary policy makers to provide relief from long-term negative interest rates.
Industry profits fell 20% in the first half of this year, Finans Danmark said on Monday. Denmark's 17 biggest banks and mortgage lenders reported after-tax profit of 15.6 billion kroner ($2.3 billion), it said in a statement. That compares with profit of 19.4 billion a year earlier.
"Banks continue to earn money, but since that peaked in 2017 the trend is clear: banks' profits are falling," Ulrik Nodgaard, who heads the Copenhagen-based organization, said in a statement. "A precondition for banks to meet their obligation to society by supporting growth and development in the economy is robust profits."
Denmark's banking industry has lived with negative rates since 2012. Last week the central bank lowered its key rate to minus 0.75%, matching a crisis low. It also rebuffed industry pleas to provide relief, citing the potential adverse effects on monetary policy, tax coffers and even banks' profitability.
The fallout of negative rates isn't all bad for banks. The policy has so far helped reduce the stock of bad loans. But Nodgaard says that's unlikely to continue given an expected slowdown in growth. He also says that income from bank fees hasn't been enough to offset the decline in interest income.
Finans Danmark wants the central bank to expand a facility that allows banks to park excess cash at no less than 0%. But the central bank has argued deposits — including the facility, which is currently capped just under $5 billion — depend on the size of currency reserves needed to maintain the krone's peg to the euro; it shouldn't be used as a tool to support bank profits. Last week, it advised banks to use their excess liquidity to buy securities or reduce their debt. Another option, it said, would be to provide more loans.