COPENHAGEN, May 24 (Reuters) - Danske Bank is raising mortgage fees by up to 29 percent on some products to beef up liquidity levels before tougher regulations come into force, Denmark's largest financial institution said on Tuesday.
Under the so-called Basel III rules which will apply in full from 2019, Danish banks will have to count mortgage-backed bonds as less liquid instruments and instead supplement their new liquidity buffers with cash or top-rated government bonds.
The new liquidity buffer aims to help banks ride short-term funding shocks without hitting their core capital holdings.
The Danish mortgage bond market is bigger than Denmark's gross domestic product and second within Europe only to the German mortgage-backed bond market.
Danske's mortgage lender Realkredit Danmark said the 2,567 billion crown ($386 billion) mortgage industry could face a situation where it would be impossible to sell all the bonds behind mortgage-backed loans due to a lack of investor interest.
"It is probably hard to imagine that situation becoming a reality. But should it arise, the sector would find it difficult to refinance many Danish homeowners loans," Realkredit Danmark said in a statement.
Realkredit Danmark Chief Executive Carsten Noddebo said the number of customers taking out short-dated variable rate home loans had risen over the last six months.
"We may have difficulty complying with regulations if that trend continues," Noddebo told Reuters.
Basel III stipulates that up to 60 percent of a bank's liquidity buffer must be in the form of cash or top-rated government bonds. Mortgage bonds can only be included, subject to a discount, in the other 40 percent of the buffer.
Top Danish mortgage lender Nykredit said in February it would press ahead with a much-criticised increase in mortgage fees for almost 500,000 customers to meet future capital requirements.
Realkredit Danmark booked fees of 5.7 billion crowns from mortgage loans in 2015, accounting for almost half of Danske Bank's total fees last year.
Noddebo declined to say how much more Realkredit Danmark expected to earn from the fee increases, which will come into force in September and hit about a third of its customers.
Danske Bank said it expected some customers with loans that need to be refinanced more frequently than every five years to move to loans with longer maturities.
$1 = 6.6513 Danish crowns Reporting by Ole Mikkelsen; additional reporting by Nikolaj Skydsgaard; editing by Jacob Gronholt-Pedersen and David Clarke