## Denmark: Financial Sector Assessment Program-Technical Note-Financial Stability and Stress Testing of the Banking, Insurance, and Non-financial Corporate Sectors

_IMF Staff Country Reports, August 12, 2020_

## Source details

**Canonical URL:** [Denmark: Financial Sector Assessment Program-Technical Note-Financial Stability and Stress Testing of the Banking, Insurance, and Non-financial Corporate Sectors](https://www.imf.org/en/publications/cr/issues/2020/08/07/denmark-financial-sector-assessment-program-technical-note-financial-stability-and-stress-49668)

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## Bibliographic details
- Published: August 12, 2020
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781513553092.002

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### Summary and purpose
- The Financial Sector Assessment Program (FSAP) work was conducted prior to the COVID-19 pandemic.
- The report 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.

### Key financial vulnerabilities identified
- Financial vulnerabilities were elevated on the eve of the COVID-19 pandemic.
- High household leverage amid high real estate valuations following a long period of loose financial conditions.
- Signs of risk taking in some sectors, such as commercial real estate (CRE).
- Downside risks to bank profitability amid the low-interest-rate environment.

### Stress testing and analytical caveats
- Stress tests were updated with illustrative scenarios to assess possible implications of the COVID-19 shock on bank solvency.
- Results and implications of the stress tests require caution because of heightened uncertainty around post COVID central projections and downside risks.

### Subjects and keywords (as stated in the source)
- 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

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- **1dnkea2020009**
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_Source: https://www.imf.org/en/publications/cr/issues/2020/08/07/denmark-financial-sector-assessment-program-technical-note-financial-stability-and-stress-49668_