March 12, 2020 / 3:53 PM / 23 days ago

UPDATE 2-Denmark takes steps to help businesses, banks cushion effect of coronavirus

(Adds central bank details)

COPENHAGEN, March 12 (Reuters) - Denmark will take steps to help banks maintain their lending power and will compensate businesses with employees who have fallen ill from the coronavirus, the government and central bank said on Thursday.

In a two-pronged move, the government and the Danish central bank eased monetary policy by releasing banks’ emergency buffer and offering cheap loans to banks to give the lenders more leeway during the coronavirus crisis.

Large parts of the Nordic country was in lockdown on Thursday after emergency measures by the government to shut all schools and universities and send home all employees in the public sector with non-critical jobs to curb the spread of the coronavirus.

The government said it would release banks’ so-called counter-cyclical capital buffer immediately, which is designed to ensure banks have the means to lend out money in difficult financial times.

The release of the capital buffer will mean an additional 200 billion Danish crowns ($30 billion) will be available for lending, the government said.

Additionally, among other fiscal measures worth 2.8 billion Danish crowns ($416 million), the government said it would compensate companies for salary payments to employees who have fallen ill or been quarantined due to the coronavirus.

“The measures we present here will entail potentially large expenses for the treasury,” Finance Minister Nicolai Wammen said at a news conference.

“It’s important for me to state that the government will allocate the money needed to get Denmark safely through this difficult situation,” he said, adding that the government will draw on the country’s sound public finances.

Earlier this week, the government said it would temporarily postpone payment deadlines of tax and VAT for Danish companies.

In a widely expected move, the Danish central bank also kept its policy rates steady on Thursday, mirroring a similar move by the European Central Bank earlier in the day, but also said it would offer banks 1-week loans at a negative interest rate.

“The new lending facility will ensure the banking sector’s access to liquidity at favorable terms,” it said in a statement.

Earlier on Thursday, the supervisory arm of the European Central Bank also said it would temporarily drop capital requirements for lenders in the euro zone struggling with the effects of the virus. ($1 = 6.7291 Danish crowns) (Reporting by Nikolaj Skydsgaard and Jacob Gronholt-Pedersen; Editing by Kevin Liffey and Alison Williams)

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