Nordic Banks heading into the darkest phase of negative rate cycle

Bloomberg

If you want to know what long-term negative interest rates are doing to banks, watch Denmark in the coming months.
Danes have lived with subzero rates longer than anyone else, after the central bank resorted to the policy in 2012 to defend its currency peg. But according to the country’s financial watchdog, it’s only now that the real cost of the regime will make itself felt.
In fact, the Danish Financial Supervisory Authority says the worst is yet to come. Kristian Vie Madsen, deputy director general at the FSA in Copenhagen, says, “Now is the time that you, to a larger extent, will be able to see the problem in the profits of the banks.”
Negative rates have made a mockery of some of the basic tenets of banking, namely: holding deposits and lending money at a profit. Across Europe, lenders are stepping up calls for an end to a regime that was originally intended as a short-term fix to an economic crisis. Some, such as Deutsche Bank AG CEO Christian Sewing, are worried Europe has “missed the exit.”
In Denmark, banks have so far relied on “a lot of one-offs” to offset losses, Madsen says. He points to historically low loan impairments, high bond-portfolio valuations and record rates of mortgage refinancing.
But those effects are petering out, Madsen said in an interview. “There are not that many one-offs that can save the results for the next year,” he said.
The FSA is speaking out as Danish banks prepare to report their annual results, which may be the last time they benefit from the one-offs Madsen lists. Danske Bank A/S, the country’s biggest financial group, will release its numbers on February 5.
An extreme policy used to fight sudden pressure on the Danish krone has now shaped a whole decade, with most economists predicting years more of the regime in
Denmark.