Scandinavia’s biggest banks have failed to curb funding risks linked to financial innovation and will probably only avoid downgrades if national regulators force through stricter measures, according to Standard & Poor’s.
Steps taken to date by lenders including Denmark’s Danske Bank A/S (DANSKE) and Nykredit A/S, as well as Nordea Bank AB (NDA) and Svenska Handelsbanken AB (SHBA) in Sweden, aren’t enough, said Per Tornqvist, a Stockholm-based analyst at S&P. As competitive pressure “forces banks to maintain short-term funding,” regulators need to step in and help banks extend their funding maturities, he said.
AAA-rated Scandinavia’s biggest banks are more vulnerable to funding shocks than their peers in the U.S., France and Italy, according to a July analysis by S&P, which measured liquidity risks five years after the collapse of Lehman Brothers Holdings Inc. paralyzed the global financial system. The rating company criticized Nordic lenders’ practice of using funds as short as one year to finance loans as long as 30 years, as well as a reliance on short-term offshore borrowing.
Swedish banks are more dependent on market funding than banks in most other countries, according to the Financial Supervisory Authority in Stockholm.
In Denmark, home to the world’s largest mortgage bond market per capita, banks refinance as much as $228 billion annually, spread over quarterly auctions. About 50...