Demand for new loans from Danish banks is low. Combined with the low interest rates, this squeezes bank earnings. Conversely, bank profits are supported by low loan impairment charges.
The five systemic banks have ample liquidity. Furthermore, Danmarks Nationalbank's stress test shows that they have substantial excess capital adequacy in relation to the minimum requirements until 2017, even in a severe stress scenario. A robust and well-capitalised banking sector is the precondition for financial stability and hence stable economic development.
That is the assessment of Danmarks Nationalbank in Financial Stability, 2nd Half 2015, which is published today.
The vast majority of households are financially robust and resilient to a strong increase in interest rates. This applies even though they generally have a high level of debt, predominantly at variable rates of interest. But a small group of homeowners are vulnerable as they have high debt relative to both the value of their homes and their incomes.
The agricultural sector is burdened by high debts, and earnings are squeezed. Consequently, the banks' loan impairment ratios remain high for agricultural loans. The greatest part of this debt is at variable rates of interest so the banks' losses and loan impairment charges may increase substantially if interest rates rise strongly. Especially the smaller, local banks have large exposures to the agricultural sector. However, the very high loan impairment charges for agriculture are not assessed to pose a threat to the soundness of the financial sector overall.
Enquiries can be directed to Julie Holm Simonsen on tel. +45 3363 6022.