Rising interest rates and prices can challenge banks' customers

Authors Danmarks Nationalbank
Subject Press releases from Danmarks Nationalbank
Type Press Releases  
Year 2022
Published 9 June 2022

9 June 2022

Danish homeowners are increasingly opting for more risky loans. Housing lending is thus still driven by loans with deferred amortisation, and variable rate loans have become more widespread according to the findings of a new analysis of financial sector stability.

The many loans with deferred amortisation are a structural problem because they make homeowners more vulnerable to a later drop in house prices. A requirement for a larger down payment and an amortisation requirement for homeowners with a high loan-to-value ratio are both measures that may contribute to a more resilient housing market.

"We need to be aware of the risk involved in the increase in loans with deferred amortisation and variable rate. We're seeing rising interest rates on housing loans, and we know that housing prices may also fall," says Peter E. Storgaard, Head of Financial Stability at Danmarks Nationalbank.

"Rising interest rates and prices can also challenge some corporate customers. Although the banks are ready to handle this, it's important that they stick to a thorough credit assessment," says Peter E. Storgaard.

The analysis shows that the large systemic credit institutions' earnings increased in 2021. The outbreak of war in Ukraine has not led to a fall in institutions' earnings expectations for 2022. For a number of institutions, core earnings have shown progress in the 1st quarter of 2022, and several institutions have revised their profit expectations upwards.

Danmarks Nationalbank's stress test of the banks shows that some large credit institutions come close to breaching the capital buffer requirements in a severe recession. They therefore need their current excess capital to withstand stress.

Journalists can contact Communications and Press Officer Teis Hald Jensen on tel. +45 3363 6066 or at tehj@nationalbanken.dk.