Negative Rates Have Danish Banks Snapping Under Pressure

Seven years of negative central bank rates in Denmark have financial institutions in a tailspin, Bloomberg reported on Wednesday (Aug. 28).

Sydbank and Jyske Bank both said a rate of minus 0.6 percent would be imposed on retail deposits bigger than $1.1 million. 

“I thought it would be over quickly. It wasn’t,” Sydbank Chief Executive Karen Frosig said regarding how long negative rates have lasted. 

Denmark’s run of negative central bank rates is now a world record. Jyske Bank CEO Anders Dam told the news outlet he was prepared for eight more years. 

Another record was marked in Denmark with bank deposits. About 930 billion kroner, or $140 billion, was deposited in banks in July. Banks can put excess cash reserves in a central bank account at minus 0.65 percent or invest it in negative-yielding securities.

Jyske CFO Birger Krogh Nielsen said he hopes it won’t be necessary to affect a broader group of depositors. “But we can’t rule out the risk” that ordinary depositors might also be affected. “The negative interest-rate environment could turn even more negative. We monitor the situation continuously.”

Regardless, Danske Bank said it would not impose negative rates on any retail clients.

Nykredit Realkredit CFO David Hellemann said his firm “doesn’t foresee negative interest rates on the current accounts of normal household customers.” 

But when it comes to depositors with very large accounts, like those being targeted at Jyske and Sydbank, Hellemann says Nykredit will take a “look at how things evolve.”

The financial industry in Denmark said it doesn’t want any political interference. “It would work against sound competition and a prosperous society,” said Niels Arne Dam, chief economist and executive director at the Danish bankers’ association, Finans Danmark.

The first negative interest rate mortgage was announced by Jysek Bank earlier this month. The interest rate on the 10-year mortgage equates to negative 50 basis points per year. The borrower makes monthly repayments and the balance gets paid down by more than those payments.