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More banks in Denmark are likely to collapse

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Denmark’s banking crisis has seen five regional lenders collapse over the last year and, while the larger institutions are “robust”, we should expect more small and medium sized players to collapse in the near future.

The likes of Danske Bank and Jyske Bank have been announced a slew of redundancies over the last year, and at one point in 2011 it was thought that 75 of the country’s 90 banks would need to either merge or shut up shop entirely.

Earlier this year, Sparekassen Oestjylland collapsed and was rescued by the state, while Spar Salling Sparekasse was taken over by rival Den Jyske Sparekasse. Smaller banks are failing to meet regulatory capital requirements and are reeling from tougher funding conditions, and flailing agricultural and real estate sectors.

A new study by Danmarks Nationalbank, the central bank in the country, insists that its stress tests demonstrate that “the largest banks are robust” but that the smaller players need to strengthen their capitalisation. The number of banks in Denmark is declining and the “downward trend” is likely to continue, according to Nils Bernstein, governor of the central bank.

“This is a structural trend, and Danmarks Nationalbank has no target for the number of banks in Denmark,” he said. “The decisive factor is that the individual bank – no matter how large or small – has a viable business model and contributes to efficient provi-sion of capital and financial services.”

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