Denmark: Financial Sector Assessment Program-Technical Note-Financial Stability and Stress Testing of the Banking, Insurance, and Non-financial Corporate Sectors
August 12, 2020
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The Financial Sector Assessment Program (FSAP) work was conducted prior to the COVID-19 pandemic. This report, however, includes stability analysis and stress tests under updated illustrative scenarios to quantify the possible implications of the COVID-19 shock on bank solvency. An unusually high degree of caution must be exercised in interpreting the stress tests results and their implications or validity at the current juncture, due to heightened uncertainty around post COVID central projections and downside risks. Financial vulnerabilities were elevated on the eve of the COVID-19 pandemic. Key financial vulnerabilities included high household leverage amid high real estate valuations following a long period of loose financial conditions. There were also signs of risk taking in some sectors, such as commercial real estate (CRE), and in addition, there were downside risks to bank profitability amid the low-interest-rate environment.
Subject: Banking, Covered bonds, COVID-19, Credit, Financial institutions, Financial regulation and supervision, Financial sector policy and analysis, Health, Insurance companies, Liquidity requirements, Money, Stress testing
Keywords: banking sector, cash flow, Covered bonds, COVID-19, CR, Credit, credit risk, date of payment, financial system, Global, Insurance companies, ISCR, Liquidity requirements, liquidity risk, reinvestment risk, return on equity, risk capital, sensitivity analysis, short-term debt, sovereign bond, Stress testing, unemployment rate
Pages:
97
Volume:
2020
DOI:
Issue:
258
Series:
Country Report No. 2020/258
Stock No:
1DNKEA2020009
ISBN:
9781513553092
ISSN:
1934-7685
