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Denmark to inject capital into banks: govt

Following on from a clutch of governments in and outside Europe that have announced support measures for their banking sectors in recent weeks, Minister Lene Espersen said Denmark was putting together an intervention package.

Danish media reported the package could be presented to parliament before Christmas.

“We are ready to take the necessary steps,” Espersen told the Danish Bankers Association in a speech.

“The government is looking into how a capital injection from the state can strengthen the capital base of Danish financial institutions. We are looking at the experience of other countries.”

Espersen added the government wanted to strengthen healthy banks but also to make a profit when the financial crisis abates.

Prime Minister Anders Fogh Rasmussen said in an interview published in financial daily Borsen on Monday that a decision on a capital injection plan will be taken within weeks.

Central bank governor Nils Bernstein told the bankers’ association that some banks are finding it almost impossible to obtain new financing because of the turmoil on international markets.

“This is happening just as there are signs that Danish banks will need extra capital because of rising (credit) losses,” Bernstein said.

In an attempt to shore up confidence and unfreeze lending between banks, Denmark in October offered an unlimited government-backed guarantee on deposits and on banks’ debt to creditors other than from covered bonds.

In the return, Danish banks agreed to pay up to 35 billion Danish crowns ($6.03 billion) over two years into a liquidation fund to take over distressed institutions.

Bankers Association head Peter Schutze said that package worked as intended, but banks have been forced to keep higher capital reserves and curtail their loans.

A state injection of funds into Danish banks to make more room for private and corporate loans could be in Denmark’s interest, he said.

“If it comes with significant restrictions, I think we will nicely say ‘no, thank you’,” Schutze said.

“But if the government and parliament see a possibility to halt the downturn in the next few years by offering growth capital at market rates, then the Danish banks will play along constructively.”