May 27. 2024. 8:03

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Danish banks must prepare for more turbulence, warns Danish Risk Council

Danish banks are well equipped to withstand the current turmoil in the banking world but must prepare for possible turbulence when raising funds in the coming period, the Danish Systemic Risk Council warned on Tuesday.

Two weeks ago, turmoil in the banking world began in the US when Silicon Valley Bank and Signature Bank collapsed after many of their customers withdrew their money from the bank. In Europe, major bank Credit Suisse collapsed at the weekend and had to be taken over by rival UBS with billions in aid from the Swiss government.

In this context, the Danish Risk Council convened a meeting to assess the risks to the Danish banking system. The council, created in 2013, is tasked with determining the financial risk picture in Denmark and is chaired by Christian Kettel Thomsen, Governor of Danmarks Nationalbank.

“The Council assesses that the Danish banking sector is generally well placed to withstand the deterioration in financial market conditions. This reflects, among other things, that measures introduced since the financial crisis has increased the robustness of the financial sector in Denmark,” the Council wrote in a press release.

Despite the council’s belief in the resilience of banks in Denmark, it urges the sector to prepare for a situation where it may be difficult to raise money to remain liquid.

“The market turmoil can, among other things, pose challenges for issuing capital and debt instruments,” the press release reads, adding that “it is therefore important that institutions focus on their capital planning and liquidity management and take into account periods of limited refinancing opportunities.”

The council wrote that it would closely monitor developments in institutions’ refinancing needs to ensure that banks have their capital and liquidity under control.

In addition, the high-interest rates have created a higher core income for banks, which can only benefit their finances, the Council added.

With inflation still high in Denmark (7.6% in February), the Council also declared that there are prospects of lower growth globally and in Denmark.

However, it has not yet given rise to nervousness at the Risk Council, as Danish banks have not yet had large write-downs of their value, meaning that they are in a completely different situation than during the Global Financial Crisis of 2008-2009.

(Charles Szumski |