Having endured negative interest rates longer than anyone else, Danish banks are now finally buckling under the pressure.
This week, a second systemically important financial institution in Denmark said it will impose a rate of minus 0.6 per cent on retail deposits bigger than US$1.1 million ($1.7m). The announcement by Sydbank came roughly a week after Jyske Bank said it would do the same.
Sydbank's chief executive, Karen Frosig, says she never expected negative rates to last this long. "I thought it would be over quickly. It wasn't," she said.
The development follows roughly seven years of negative central bank rates in Denmark, marking a world record. The CEO of Jyske, Anders Dam, says he's bracing for another eight years. Until this month, banks had balked at the suggestion that any retail depositors might be asked to share the pain. But with Danes placing record amounts of money in deposit facilities, the financial industry is slowly deciding enough is enough.
In July, savers had about 930 billion kroner ($218.1b) in bank deposits, marking a record. The money represents a huge cost for banks, which either place excess cash reserves in a central bank account at minus 0.65 per cent or invest it in negative-yielding securities. Even so, there are still some banks pledging not to drag retail depositors into the mix, for fear of losing them. They're also worried about the risk of mass withdrawals, which would, among other things, delay progress toward a cashless society.
Danske Bank has made clear it has no plans to impose negative rates on any retail clients. Asked earlier this month whether that constitutes a guarantee, the bank said yes.
David Hellemann, chief financial officer at Denmark's biggest mortgage bank, Nykredit Realkredit, says 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."
Jyske is already hinting it may need to spread the pain to a broader group of depositors. Birger Krogh Nielsen, its chief financial officer, says he still hopes that won't be necessary. "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."
Soren Mortensen, the CEO of Alm Brand, one of Denmark's smaller banking groups, says he would like to see his larger peers set a lower threshold for passing on negative rates to retail clients. That would take the pressure off banks like his, which are reluctant to take the first step. He says not that many depositors hold more than 100,000-200,000 kroner, and "that's at the high end."
In Germany, the government has said it will look into whether it might be possible to prevent banks from charging most retail-banking clients for deposits, after such a measure was proposed by the leader of Bavaria. In Denmark, the financial industry has made clear 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.
Danish banks that have refrained from passing on negative rates have nonetheless cut rates close to zero. Fresh central bank data show longer-term deposits now pay only 0.22 per cent, down from about 1.32 per cent in January 2015. So-called transferable deposits, which can be tapped more easily, pay just 0.07 per cent. But deposits have continued to swell, in large part because other short-term investment options are mostly loss-making.
"The best product that can be found is the deposit account, because it has an interest rate of zero," Mortensen said.
While it doesn't want government intervention, Finans Danmark says it wants the central bank to help the industry by expanding a facility that lets financial firms deposit excess cash at no less than 0 per cent.
But Jyske said that even if such a step were to be taken by the central bank, whose primary goal is to keep the krone pegged to the euro, it wouldn't do much to change the underlying pressure of negative rates.
"That could be a tool," said Krogh Nielsen, the bank's CFO. "But overall it doesn't change the more fundamental issue that we have a growing deposit base and we have a negative return on this type of business."