Saturday 20 January 2018

Danske's Irish loans helped put Danish system at risk - report

Danske Bank's headquarters in Copenhagen, Denmark
Danske Bank's headquarters in Copenhagen, Denmark
Donal O'Donovan

Donal O'Donovan

Danske Bank's aggressive expansion into Ireland and other markets during the boom put the entire Danish financial system at risk, according to a hard-hitting official report published in Copenhagen yesterday.

The bank's action put the wider Danish system in danger because the cross-border growth through mergers and takeovers was financed on the markets instead of from traditional deposit taking, according to the report.

Denmark's biggest bank, Danske Bank arrived in Ireland in 2004 when it bought the old National Irish Bank – just in time to become caught up in the worst of the bubble.

In Northern Ireland, it bought Northern Bank around the same time and both rapidly stepped up its lending to property developers and property-backed small businesses as well as making an aggressive push into the Irish mortgage market.

Like other banks active here at the time it has racked up huge losses on many of the loans. Despite making up a relatively small part of the overall size of the bank, impairments on Irish loans ultimately cost Danske more than €3.5bn, second only to losses in its home market where the bank is the biggest single lender.

The bank has been in the news in recent weeks after the bank agreed terms with the minister for small business John Perry over settlement of a €2m loan.

The new report says the expansion here and elsewhere made Danske vulnerable because of the way it was financed.

Before the expansion abroad, Danske was financed mainly through customer deposits, according to the report by the country's Business Ministry.

However, like other international banks during the boom, it began tapping market financing.

In the space of a few years, the gap between deposits and the bank's total funding increased from nothing to DKK350bn (€47bn), the report said.

It was half of the total deposit deficit in the entire Danish banking sector.

Like other Danish lenders, Danske ultimately benefited from a government guarantee on deposits in 2008 that is credited with saving the country's financial system.

The bank has been in the headlines this week after it effectively sacked its chief executive Eivind Kolding for failing to meet targets set when he took control of the lender.

In Ireland, it has radically contracted operations since the crash – shutting its branch network, no longer handling cash and running down its existing loan portfolio.

Irish Independent

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