1 December 2022
These are turbulent times with considerable market fluctuations, high inflation and higher interest rates. This calls for strong liquidity management throughout the financial sector, according to a new analysis from Danmarks Nationalbank.
"The banks have reasonable liquidity buffers right now. However, obtaining liquidity via the market has become more expensive, and customer demand for liquidity and loans may change rapidly in the present situation. The banks must be prepared for this," says Peter E. Storgaard, Director and Head of Financial Stability.
Increases in capital requirements since the financial crisis have strengthened the banks' ability to absorb credit losses. There are currently no clear signs of borrowers increasingly defaulting on their loans. However, rising costs of loans, energy and consumer goods are making some homeowners vulnerable, especially if they lose their jobs. This increases the risk of loans defaulting. Combined with falling property prices, this will lead to credit losses for the banks.
In particular, some small-sized companies may be challenged by rising costs and falling revenue from decreasing consumer demand. This may result in losses for medium-sized banks, which have granted many loans to companies of this type. The prospects of higher credit losses come after a long period characterised by low credit losses in banks.
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. The weakened economic outlook underlines a need for prudence in the institutions' capital planning.
On Thursday, Danmarks Nationalbank published its biannual analysis of the stability of the financial sector. In the case of questions, journalists are welcome to contact Teis Hald Jensen, Communications and Press Officer, on telephone +45 3363 6066 or by email at tehj@nationalbanken.dk.