The banks' earnings are squeezed by limited demand for new loans and increased price competition. At the same time, the continued low level of interest rates puts the deposit business under pressure.
Danmarks Nationalbank's most recent lending surveys point to a slight easing of credit standards for loans, particularly to corporate customers. The banks' high lending growth in the pre-crisis period took place at the expense of credit quality. It is important that this pattern is not repeated.
The interest rates in Denmark are currently low, volatility is low and prices of financial assets have risen substantially. By taking excessive risks market participants may become vulnerable to an abrupt reversal of the global search for yield. Hence, the current market conditions could entail financial stability risks.
There are currently no indications that major systemic risks have built up in the Danish financial system. But credit institutions should ensure that they are able to withstand both direct losses due to price adjustments for financial assets and the derived effects of the potential market turmoil triggered by such adjustment – e.g. because market access becomes more difficult.