Trends in the Competitive Structure of Banking in Denmark

Summary

This review covers the statutory rules which have governed banking operations in Denmark. There is a description of the restrictions to which savings banks were subject until 1975 and which prevented them — unlike the commercial banks — from adjusting to the rapid changes experienced in social conditions, notably as a result of the emergent internationalisation which began in the late fifties. These restrictions were reflected in a heavy decline in the savings banks’ share of total deposits, which fell from around 50 per cent in the forties to about 30 per cent in 1975.

The review goes on to describe the consequence of the new Commercial Banks and Savings Banks Act which, as from 1 January 1975, placed commercial banks and savings banks on a completely equal footing as regards the scope of their operations.

Sections II and III explain the dissimilar approaches of savings banks to the opportunities arising from the new Act. Special attention is given to the problems to be considered in the establishment of an organisation to cope with new fields of operation. This discussion is based on the experience gathered by the SDS Savings Bank - Denmark’s largest savings bank — as an active party to the process of adjustment following the decision to expand its organisation within the framework of the new statutory provisions. Finally, there is a description of the effects of the new Act on savings bank balance sheet patterns, customer deposits and lending structures. In this context it is pointed out that the loss of market shares sustained by the savings banks appears to have been halted and superseded by gains as from the end of 1977 and that savings banks have in-creased their engagements in business and industry.

Section IV contains a summary description of the developments anticipated on the Danish money and credit market. The point of departure is the prospects of persistent economic imbalance in the Danish economy. On this assumption a continuing deterioration is foreseen in the banking system’s traditional position on the capital market, acting as intermediaries in the transformation of deposits into advances. On the other hand, commercial banks and savings banks are expected, by virtue of their expertise in credit rating, to consolidate their role as intermediaries in the channelling of capital between lenders and borrowers.

The banking system is expected to lose market shares as a result of growing supplies of government bonds issued to eliminate the impact of the budget deficit on money supply. It is also expected that borrowing operations on foreign capital markets will increase in order to meet growing needs to finance the deficit on the balance of payments. This leads to the conclusion that there is an increasing risk of selectivity on the credit market which, in turn, will inevitably entail a further weakening of the banks’ position on the organised money and capital market.

In conclusion, the review discusses the substantial shifts expected in saving and investment patterns and their impact on the market for banking business in the eighties — a process which will probably coincide with extended regulations governing the earnings of commercial banks and savings banks.