Increasing risk appetite in parts of the banking sector

Authors Danmarks Nationalbank
Subject Press releases from Danmarks Nationalbank
Type Press Releases  
Year 2018
Published 31 May 2018
​The medium-sized banks have been easing credit standards for corporate customers for quite a while, and lending growth is high in some medium-sized banks. That is the conclusion in Danmarks Nationalbank's Financial Stability analysis.

Ten years have passed since the financial crisis erupted. The times are good for the Danish banking sector, but some banks are beginning to behave in the same way as they did in the period leading up to the crisis. The medium-sized banks have been easing credit standards for corporate customers for quite a while, and lending growth is high in some medium-sized banks.

That is the conclusion in Danmarks Nationalbank's Financial Stability analysis.

"At a time when the economy is growing, it is natural that competition to offer loans intensifies, but that creates a basis for the banks to lower their credit quality and ease credit conditions," says Governor Lars Rohde, Danmarks Nationalbank, adding that the low level of interest rates and rising asset prices increase risk appetite among financial sector participants.

When the banks ease their standards for granting loans and the credit quality deteriorates, risks may build up in the banking system. Such risks are not immediately reflected in lending growth and current losses. The problems do not materialise until the cyclical position changes.

This development emphasises the importance of having well-capitalised banks and of building up the countercyclical capital buffer so that the effects can be mitigated when the economy reverses.

See the full Financial Stability analysis at Danmarks Nationalbank's website.

Enquiries can be directed to Ole Mikkelsen, tel. +45 3363 6027