Foreign bank problems in the spring underline the need for solid buffers

1 June 2023

The largest banks still have a solid liquidity position, but challenges faced by specific foreign banks have highlighted the importance of sound risk management for the banks.

"Uncertainty about one bank can quickly spread to the entire financial sector and across national borders. This underlines the importance of the banks focusing on sound risk management, including ensuring sufficient excess capital adequacy relative to the regulatory requirements," says Peter E. Storgaard, Head of Financial Stability in Danmarks Nationalbank.

This year, the banks have prospects of higher earnings, one reason being that they have raised interest rates more on loans than on deposits. The increased earnings may counter the effect from impairment charges, which may be the result of the tightened monetary policy in the long term.

Rising interest rates in credit institutions and higher retail prices are draining the resilience of Danish homeowners. Danmarks Nationalbank expects that, from 2021 to 2023, there will be an increase from 85,000 to 121,000 in the number of homeowners whose incomes will not be high enough to maintain a modest consumption level while also meeting their debt obligations. Out of almost 1.1 million households with housing loans in Denmark, it poses a modest risk for the banks.

Danmarks Nationalbank publishes the biannual analysis Financial Stability, which summarises Danmarks Nationalbank's assessments and recommendations regarding financial stability in Denmark. The latest edition is available on Nationalbanken.dk.

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 [email protected].