A new package of government support measures in Denmark that will ease asset quality and deleveraging pressures is credit positive for the country’s banks, according to Moody’s, but market participants do not expect the move to reverse the rating agency’s recent negative stance.

The package, announced on 2 March, includes three parts, comprising: allowing FIH, and other banks who request it under certain circumstances, to transfer commercial property portfolios to The Financial Stability Company (Finansiel Stabilitet), thereby reducing the banks’ refinancing needs; setting up a new funding vehicle (Landbrugsfinansieringsinstitut, or LFI) to which banks can transfer agricultural loans; and a range of export credits and other types of growth credits supported by the government and to be facilitated by Danish banks.

Financial Stability has taken over Dkr17bn (Eu2.29bn) of exposure from FIH Erhvervsbank in an agreement whereby FIH provides a loss guarantee covering any downside to Financial Stability.

Moody’s said allowing other banks to sell commercial real estate portfolios to Financial Stability would also foster sector consolidation by making it easier for a stronger bank to purchase an ailing bank, provided the stronger bank is able to give a loss guarantee.

“We see this as support for Denmark’s Bank Package IV and a credit mitigating factor to Bank Package III that allows haircuts to be imposed on senior creditors and depositors,” said the rating agency.

It noted that setting up LFI would also improve a key problem area for Danish banks, reducing the risk of Banking Package III being used to impose haircuts on senior creditors and depositors. Moody’s added that the details were still being developed and the legislative proposal still had to go through parliament, but said overall LFI would reduce banks’ overall exposure.

Market participants in Denmark agreed the move was good news for the country’s banks.

“The major positive to take away is that the Danish government is to take an active role,” said Michael Sandfort, chief analyst at Nordea Markets. “It’s too early to draw a full conclusion but based on information available today, the measure is credit positive.

“The Bank Package V is going to have a moderately positive effect on ratings because it shows willingness to support Danish banks, and that the Danish government is perfectly able to help its banks, unlike some euro-zone countries.”

Morten Baekmand, head of investor relations at Nykredit, also said the measure was positive.

“Being a mortgage lender, we believe it will relieve some of the pressure of the property market,” he said. “It’s no secret that a lot of banks were concerned about what would happen if lenders to commercial real estate would need to reduce lending.”

But he added he did not think the package was positive enough to change Moody’s perspective on the Danish market.

Moody’s on 16 February placed on review for downgrade covered bond programmes of Danske Bank, DLR Kredit, and Nykredit’s Realkredit and Totalkredit, while Danish issuer ratings were caught up in a series of actions by Moody’s a daily earlier.

Henrik Arnt, senior analyst at Danske Markets, also doubted the package would have an impact on the ratings of Danish banks.

“It’s very focused on FIH, so I don’t think it will affect other banks,” he said. “For FIH it could be helpful, but it will not affect overall ratings of other banks.

“You could argue that perhaps authorities are willing to look for solutions for troubled banks more than they were previously,” he added, “but I would think that rating agencies would need more than that.”

Baekmand at Nykredit said Moody’s had probably over-interpreted the Danish government’s hands-off approach.

“I think the point has obviously gotten through to Danish politicians that there are serious ramifications if you let banks fail,” he said.

An official at Moody’s said the rating agency does not speculate on future rating actions.