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Danish banks boost profit forecasts on mortgage boom, low rates

Kitco News

COPENHAGEN (Reuters) - Danish lenders Vestjyske Bank (VJBA.CO) and Spar Nord (SPNO.CO) raised their profit guidance on Tuesday, saying they expect a boost from high activity in the country’s mortgage business, which has been fueled by negative interest rates.

The two banks followed similar hikes to profit outlooks on Monday by rivals Skjern Bank (SKJE.CO) and Kreditbanken (KRE.CO), as well as last week by the country’s fourth-biggest bank, Ringkjoebing Landbobank (RILBA.CO).

Earnings at banks across Europe have been hit by negative rates set by central banks. In Denmark, lower borrowing costs have cushioned the blow for some banks and spurred a record number of Danes to try to improve their mortgage loans.

Spar Nord said it raised its full-year guidance because of strong activity in its mortgage business and “positive value adjustments on bonds due to the persistent decline in interest rates.”

At the end of July, Danish homeowners took advantage of ultra-low interest rates to pay down mortgages worth 137 billion Danish crowns, the biggest refinancing wave yet.

On Monday, lender Kreditbanken also revised its full-year guidance upward, citing strong activity in the housing market, as well as fewer impairments than expected.

Its chief executive, Lars Frank Jensen, said interest rates had a “clear advantage” for banks’ earnings in the short term due to higher fee incomes and yields on rising bond prices.

“It will clearly be net-negative for banks in the long term,” Jensen told Reuters.

Denmark’s central bank governor said last month that large banks continue to see “high earnings” despite negative interest rates.

According to the central bank, Danish lenders lost 1 billion Danish crowns ($146.86 million) on their deposits in the central bank in 2018, but generated earnings of about 40 billion crowns in the same period.

Separately, the Danish banking lobby Finance Denmark said in a statement on Tuesday that banks’ earnings were declining despite extraordinary income from refinanced mortgages.

“Among the driving factors are low interest rates,” it said.

Last week, Spar Nord became the third bank in Denmark this year to start charging wealthy clients on large deposits in a bid to transfer some of the costs of negative rates to private clients.

Reporting by Nikolaj Skydsgaard; Editing by Jacob Gronholt-Pedersen, Bernadette Baum and Dan Grebler

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