S&P says 15 more Danish banks could fail and that Denmark’s banking crisis not over

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Rating agency Standard & Poor’s said on Thursday that Denmark’s banking crisis is not over and up to 15 more banks could default, due mainly to boom-year loans made to the commercial property and farm sectors.

Eleven banks have failed in Denmark since the start of the financial crisis in 2008, nine of them falling into the hands of state administrators and two taken over by stronger entities.

“In our view, as many as 15 Danish banks could default,” Standard & Poor’s credit analyst Per Tornqvist said in a statement.

Worries about Denmark’s numerous small banks spread after the failure of small local bank Fjordbank Mors last month.

Moody’s said on July 12 that some of Denmark's roughly 100 banks were under stress but that the financial system could cope with the failure of even several banks.

S&P said in a new report entitled “Further Bank Failures Likely In Denmark” that more Danish banks were likely to go under due to loans made to the commercial property and agricultural sectors during 2005-2007.

“We think, however, that the likely cost to the country’s remaining banks through direct exposure and a system-wide deposit insurance scheme is manageable within our current rating expectations,” S&P’s Tornqvist said.

S&P said its base-case assumption was that gross losses due to additional bank failures would reach 6 billion to 12 billion Danish crowns ($1.16 billion - $2.31 billion) over a three-year period.

The rating agency said that although the banks that have failed in Denmark so far have been small, “it is nevertheless an unusually high number for a developed market where bank defaults are generally rare events and extraordinary government support mostly averts losses to senior creditors.”

Denmark removed a general government guarantee to banks at the end of September 2010, and the government has repeatedly said it will shield taxpayers from the costs of bank failures by making banks, their shareholders and creditors bear the burden.

Officials at the Danish Bankers Association, the main lobby for the country’s financial industry, could not be reached immediately for comment.

($1=5.189 Danish Crown)