- Worries grow over Scandinavian markets. The Danish central bank sees rising risks in its banking system. Some banks appear to have insufficient capital after a stress test to meet the most stringent European buffer requirements.
The central bank is particularly concerned about the situation in the housing market. These concerns are also present in Sweden where house prices of records come back.
The central bank of Denmark did not mention any names of private banks that might have problems with the results of the stress test on Wednesday.
After its largest mortgage banks, such as Danske Bank, showed record profits for the first half of the year, they took more risks in issuing loans to private individuals and companies in recent quarters. This also applied to more vulnerable customers, emphasizes Lars Rohde of the central bank on Wednesday.
A number of Danish banks, for example, increased their loans to companies in cyclical sectors and to households with high debts, warns Rohde.
Despite the large profits of the banks, the corrected earnings have been declining since 2015, according to the central bank. The low interest rate is due to this. The central bank also had to use negative interest rates for deposits for five years. Rohde currently holds that interest at 0.75%.
The central bank also sees that the low interest rates that savers and investors yield little leads to the need for riskier products with higher yield percentages. Rohde refers to the source of the credit crisis, when investors borrowed too much with too complex products.
The Danish economy is growing 2.3% this year, the strongest increase in more than ten years and more than the eurozone average.
The warning comes when the Swedish authorities warn of a housing bubble. The largest economy in Scandinavia, with a tight labor market, reported growth figures of 0.8% of GDP in the past quarter, while Riksbank had anticipated a 1% increase. On an annual basis, Sweden grows by 2.7%, where the consensus forecast is 3.5%.
Real estate experts fear that the housing market exploding for some time will cool too quickly. House prices are falling at the fastest pace since 2008.