Denmark’s slowing economic growth would weigh on banks’ earnings, the central bank said Monday.
“A substantial dampening of economic growth would lead to higher loan impairment charges and consequently lower earnings in future,” the bank said in its financial stability report.
The central bank noted that banks have ample liquidity which they wish to lend. This could induce banks to take greater risks when lending.
If credit standards are eased, this could result in losses when the economy reverses, the bank noted.
Capital adequacy requirements for banks’ are likely to be tightened considerably in the coming years.
“This may put pressure on the systemic credit institutions’ excess capital adequacy if they fail to build up further capital adequacy beforehand,” the bank added
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