The largest banks and mortgage banks came out of the 1st half of 2017 with record-high profits. This has boosted optimism in the financial sector and is increasing the institutions' risk appetite.
That is the conclusion in Danmarks Nationalbank's Financial Stability analysis.
"Several banks are stepping on the accelerator by easing credit standards and granting loans to more vulnerable customers. That may lead to more losses," says Governor Lars Rohde, Danmarks Nationalbank, also pointing out that a rising share of homeowners have high debt-to-income ratios.
Several indicators suggest that risks are building up in the financial system. Against that background, Danmarks Nationalbank assesses that the conditions for activating the countercyclical capital buffer exist. The banks should build up this buffer and strengthen their capitalisation in good times.
The purpose of the buffer is to counter the considerable negative effects that excessive tightening of credit standards may have on the economy in periods of stress in the financial system. When the financial system becomes stressed, the buffer is to be released. In that way, the banks will have capital at their disposal which they can use to keep up their lending capacity.
See the full Financial Stability analysis at Danmarks Nationalbank's website.
Enquiries can be directed to Ole Mikkelsen, tel. +45 3363 6027.