Risks rise in fi­nan­cial sys­tem: Dan­ish cbank

The Pak Banker - - FRONT PAGE - -REUTERS

COPEN­HAGEN: Den­mark's cen­tral bank said Wed­nes­day that sev­eral in­di­ca­tors sug­gest risks are build­ing up in the fi­nan­cial sys­tem, and a few of the coun­try's largest banks do not have suf­fi­cient cap­i­tal to meet buf­fer re­quire­ments. The warn­ing echoes sim­i­lar con­cerns of some pun­dits, although the Euro­pean Cen­tral Bank has been play­ing down wor­ries that risks are build­ing in the fi­nan­cial sys­tem.

Den­mark's largest banks and mort­gage banks, in­clud­ing top lender Danske Bank, saw record high prof­its in the first half of 2017, which boosted op­ti­mism in the fi­nan­cial sec­tor and helped in­crease risk ap­petite. "Sev­eral banks are step­ping on the ac­cel­er­a­tor by eas­ing credit stan­dards and grant­ing loans to more vul­ner­a­ble cus­tomers," cen­tral bank gover­nor Lars Ro­hde said in a state­ment. In par­tic­u­lar, sev­eral banks are in­creas­ing lend­ing to cycli­cal in­dus­tries and to vul­ner­a­ble house­holds with high debt ra­tios, the cen­tral bank said.

De­spite high prof­its among banks, their core earn­ings -ad­justed for tem­po­rary fac­tors such as high value ad­just­ments and low im­pair­ment charges -- have tended to de­cline since 2015, driven down by low in­ter­est rates, the cen­tral bank said.

Den­mark has had a neg­a­tive in­ter­est on bank de­posits for five years and cur­rently keeps its key rate at mi­nus 0.75 per­cent. It keeps its cur­rency, the Dan­ish crown, close to 7.46038 crowns per euro. Low in­ter­est rates com­bined with low risk per­cep­tion dur­ing the cur­rent eco­nomic up­swing has led to an in­crease in de­mand for ad­vanced prod­ucts with com­plex risk pro­files in in­ter­na­tional mar­kets, the cen­tral bank said. With house prices ris­ing, the cen­tral bank warned against a re­peat of what hap­pened dur­ing the last fi­nan­cial cri­sis, when home own­ers raised new loans against home eq­uity as col­lat­eral.

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