27 May 2021
There are signs of increased risks in the institutions' housing lending. Danish homeowners' gross debt relative to their income is among the highest in the world, and lending to homeowners is still increasing. The credit institutions have also granted more home buyers deferred amortisation. In 2020, loans with deferred amortisation constituted just under half of all new lending to highly indebted homeowners.
"The booming housing market gives cause for concern. There's consequently reason to look at a tightening of the lending rules to limit vulnerability to a subsequent drop in house prices. A higher down payment requirement and an amortisation requirement for highly indebted homeowners are among the measures that should be considered," says Karsten Biltoft, Assistant Governor of Danmarks Nationalbank.
A new analysis from Danmarks Nationalbank shows that the banks are ready for the ongoing economic recovery. The banks' lending to hard-hit corporations is limited, and provisions have been made to handle losses. Expectations of continued recovery and the ongoing risk build-up mean that the requirement for the banks' capital should be re-established by raising the countercyclical capital buffer.
A new stress test from Danmarks Nationalbank shows that if the economy were to be hit by a severe recession, a few banks may lack capital. On this basis, some institutions should consider their capitalisation.
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