Danish banks pass EBA test, but ratings remain challenging

Finanstilsynet, the Danish FSA, has said that local banks remain strong after the European Banking Authority published the final results of its EU-wide capital exercise.

The objective was to test whether banks had met the Core Tier 1 minimum ratio requirement of 9% by the end-June 2012 deadline imposed by the European banking regulator.

Finanstilsynet said that the four participating Danish banks came out of the exercise well with the following ratios:

• Danske Bank: 14.3
• Jyske Bank: 13.1
• Nykredit: 14.5
• Sydbank: 12.8

Furthermore, the data published by the EBA suggested that none of these banks had any significant exposure to weak sovereign debt, either directly in sovereign bonds or through the CDS market.

Ulrik Nødgaard, director general of Finanstilsynet, said: “The report confirms that the largest Danish banks are still well positioned to withstand potential future credit losses. Furthermore, the largest Danish banks have limited exposures towards countries with a strong impact from the euro crisis.”

Nils Bernstein, governor of Danmarks Nationalbank, said: “The final results of the capital test are consistent with Danmarks Nationalbank’s analyses showing that the largest Danish banks are well-capitalized and robust.”

However, ratings agencies are yet to respond as positively about the position of Danish banks.

All Danish banks apart from Jyske, Sydbank and Nordea Bank Danmark were downgraded by Moody’s in early 2011 following the collapse of Amagerbanken on fears that there was a weakening in “systemic support” to the Danish banking industry.

Subsequent credit events include Jyske Bank being downgraded by S&P in December 2011, and S&P cutting Danske Bank’s rating in May 2012. Moody’s lowered its rating on Sydbank in May 2012.

Nykredit completely severed its relationship with Moody’s in April 2012 because of disagreement over the rating agency’s methodology. Meawhile, S&P, which picked up the contract to rate Nykredit’s debt instruments, assigned a AAA/Stable rating to the covered bonds issued by the company.


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