May 30, 2012 / 9:30 PM / 8 years ago

Moody's downgrades Danske, other Danish banks

NEW YORK, May 30 (Reuters) - Moody’s Investors Service on W ednesday downgraded nine Danish financial institutions, pointing to sluggish economic growth, risks from the euro zone debt crisis and structural changes to the covered bond market, a reliable source of cash.

The Moody’s cut comes the same day that Standard & Poor’s lowered Danske Bank, Denmark’s biggest financial institution, one notch to A-minus/A-2 from A/A-1.

However, Moody’s cut Danske Bank’s long-term rating two notches, to Baa1 from A2, with a stable outlook - still within investment grade. Moody’s rating is now one step below S&P’s rating.

Other banks hit by downgrades include Jyske Bank, Spar Nord Bank, Ringkjobing Landbobank and Sydbank.

Moody’s is in the middle of a wider review of European banking systems and has recently cut the credit ratings of banks in Italy, Spain and the Nordic region.

“Danish financial institutions face sluggish domestic economic growth, weakening real estate prices and higher levels of unemployment, as well as the risk of external shocks from the ongoing euro area debt crisis,” Moody’s said in a statement.

The agency highlighted the risks to the financial institutions from relying on markets for their funding.

“Most market funds are in the form of covered bonds which have historically been a stable funding source. But structural changes to that market have increased refinancing risk, posing a particular concern for mortgage credit institutions whose access to alternative funding is limited.”

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