The largest banks in Denmark continue to maintain a strong liquidity position, but the challenges faced by specific foreign banks have highlighted the importance of sound risk management.
“Uncertainty surrounding a single bank can quickly spread throughout the entire financial sector and across national borders. This underscores the significance of banks prioritizing sound risk management practices, including ensuring adequate excess capital adequacy relative to regulatory requirements,” stated Peter E. Storgaard, Head of Financial Stability at Danmarks Nationalbank.
This year, the banks have the prospect of higher earnings, partly due to increased interest rates on loans compared to deposits. The improved earnings potential may help offset the impact of impairment charges resulting from a tighter monetary policy in the long term.
The rising interest rates in credit institutions and higher retail prices are placing strain on Danish homeowners’ resilience. Danmarks Nationalbank predicts that from 2021 to 2023, the number of homeowners with insufficient incomes to maintain a modest standard of living while meeting debt obligations will increase from 85,000 to 121,000. Although this poses a modest risk to banks, it affects nearly 1.1 million households with housing loans in Denmark.
Danmarks Nationalbank publishes its biannual analysis on Financial Stability, which summarizes the bank’s assessments and recommendations regarding Denmark’s financial stability. The latest edition is available on Nationalbanken.dk.