No takers yet for state bank support package
Aki Palo
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Carl-Johan Granvik
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Reijo Karhinen
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Martti Hetemäki
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A package of state support to aid Finnish banks in trouble has proven to be a theoretical exercise.
The state is offering a combined EUR 50 million in guarantees for banks’ revenue acquisition, and up to EUR 4 billion in capital loans to secure the banks’ liquidity.
The State Treasury has been ready to provide banks with the funding, but so far no banks have indicated a desire to take the guarantees or capital loans.
This would seem to give credence to the suggestion that has been repeated so often that the Finnish banking sector is in exceptionally good shape. In many other countries, guarantees are in very extensive use, and the state has also recapitalised banks that are in trouble.
The situation may change, however. While no banks have asked capital loans, at least the OP-Pohjola Group might need guarantees later this year, when it renews its deposits worth two billion US dollars.
Carl-Johan Granvik, head of Finnish operations of the Swedish-owned Nordea Bank, concedes that the bank does not need assistance right now, but adds that the package should not be dismantled. There are so many uncertainties in the economic situations in the world, and in Finland, that help may be needed in the autumn.
Late April is seen as an opportune time to re-examine the support package. That is the time of the expiration of the decree which defines the present conditions of support. A new decree with new conditions can be set through a decision by the government. The funding, based on a decision by Parliament, is available through the end of the year.
Banks have criticised the present system for a number of reasons. It targets 80 per cent of guarantees toward short-term acquisition of funds, which banks practice by selling investment certificates on the market of no more than one year.
“That market operates excellently. Money is available even without state guarantees, and at a low price”, says Reijo Karhinen, director-general of the OP-Pohjola Group, and chairman of the Federation of Finnish Financial Services.
“Short-term money is available every day without state guarantees, and much cheaper than with a guarantee”, Granvik observes.
Healthy banks can also get as much short-term funding as they need from the Bank of Finland, at a 1.5 per cent interest rate for six months.
Guarantees would be needed for loans of more than one year - that is, for bonds sold by banks.
Even their markets have started opening up. For instance, the Swedish Handelsbanken issued a five-year bond last week under very generous tarms. However, Sampo Bank director Aki Palo notes that “the market for long term loans remains thin, and prices are rather high”.
Finnish banks hope that a larger portion of state guarantees would be directed toward long-term raising of funds. However, they have not wanted to take the 20 per cent of the money available for guarantees, which would cover EUR 10 billion in deposits.
The banks hope that the state wuild guarantee bonds of up to five years. Under the present rules, the time limit without a real estate security is three years.
Ministry of Finance official Martti Hetemäki says that he is “surprised” that the guarantees, especially for long-term capital acquisition, have not caught the interest of Finnish banks.
He notes that the conditions have been set at the EU level, and that Finland cannot alter the terms.
Helsingin Sanomat
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| 20.3.2009 - TODAY |
 No takers yet for state bank support package |
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