August 11, 2017 / 10:22 AM / a year ago

Denmark says its lenders could be hit too hard by new Basel rules

COPENHAGEN, Aug 11 (Reuters) - Denmark’s biggest mortgage lenders will need to raise capital requirements by an additional 27 to 39 percent if the most likely recommendations from the Basel committee is adopted, fresh numbers from the business ministry showed on Friday.

The country has previously asked the Basel Committee to reconsider a ‘one-size-fits-all’ model and take into consideration specifics of the Danish mortgage system, one of Europe’s largest.

Denmark says the proposals would hit its mortgage sector unfairly because they do not adequately factor in the low risk of holding Danish mortgage bonds. The $400 billion mortgage bond market has not had a default in its 220-year history.

Denmark would use the new estimates, prepared by an expert group under the business ministry, in its dialogue with the European Union, it said.

“The government will continue its work to ensure that Danish institutes are not to be hit as hard by the new requirements as the preliminary estimates could indicate,” said business minister Brian Mikkelsen in statement.

“Such requirements are considered to be higher than what the risks imply,” he added.

The capital requirements for the biggest mortgage and credit institutions would increase by between 64 and 92 billion Danish crowns ($10.1-$14.5 billion), which is a 27 to 39 percent increase compared to already known future requirements.

The Basel discussions have stumbled over the construction of a ‘floor’ or minimum level of capital a big bank must hold. Basel members such as the United States want a floor equivalent to 75 percent, while Europe wants a figure nearer 70 percent.

How much between 27 and 39 percent the Danish requirements would increase is based on where this floor is set.

The Basel negotiations are being closely watched by thousands of lenders, even though the rules, aimed at tightening capital requirements after the 2007-09 financial crisis, would not come into force until 2024 or 2025.

The new Danish estimates are based on data from the five biggest credit lenders which include Danske Bank, Nordea and Nykredit.

Last year, banks in the three Nordic countries and the Netherlands sent a joint warning to the European Commission that a capital floor would mean European banks’ costs for lending to financially weak clients and to financially stronger clients would be roughly the same.

This would mean a large increase in capital requirements for banks in the Nordic region and the Netherlands, which on average have relatively low-risk portfolios, it said. ($1 = 6.3294 Danish crowns) (Reporting by Stine Jacobsen, additional reporting by Teis Jensen; Editing by Jacob Gronholt-Pedersen and Matthew Mpoke Bigg)

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