Danish Banks Are Robust and Highly Resilient (Finans Danmark)

Summary

• Total capital in Danish credit institutions increased from 12 pct. of risk-weighted exposures in 2007 to 25.5 pct. in 2021.p.2
• At the end of 2021, total equity in credit institutions was DKK 348 billion, and DKK 445 billion including mortgage credit institutions.p.2
• Common equity tier 1 capital rose from 8.1 pct. of risk-weighted exposures in 2007 to 20.9 pct. in 2021.p.3
• SIFI groups' profit after tax for Q1-Q3 2022 was around DKK 16.8 billion against around DKK 22.6 billion a year earlier, adjusted for Danske Bank's extraordinary DKK 14 billion cost.p.7
• Loan impairments based on management estimates currently amount to over DKK 13 billion.p.8
• Impairment reversals amounted to DKK 90 million in the first three quarters of 2022 against DKK 280 million a year earlier.p.7
• The largest Danish SIFI groups could absorb loan losses estimated at DKK 355 billion in a three-year downturn without conflicting with solvency requirements.p.10

Key insights

1. The minimum capital requirement is still 8 pct. of risk-weighted exposures (Pillar I), with a capital conservation buffer of 2.5 pct.p.3
2. Danish bank deposits have substantially exceeded lending for the last nine years.p.4
3. The LCR requirement ensures banks hold enough liquidity to withstand 30 days of intense stress on financial markets.p.5
4. The LCR requirement was met with a considerable margin by all Danish banks throughout the period.p.5
5. The lower profit in 2022 is mainly due to sharply rising interest rates, which reduced gains on bond holdings.p.7
6. Banks granted corona loans and loan commitments of more than DKK 100 billion to companies.p.8
7. Expected base earnings over three years of around DKK 95 billion and a capital excess of DKK 115 billion add to loss capacity.p.10