Summary – High earnings and increased risk taking
Danish banks are favoured by the current economic situation and in 2017 achieved further improvement in the financial results compared to the previous year.
-
The banks' annual accounts for 2017 showed a profit of DKK 40 billion before taxes, corresponding to an increase of approx. 20 percent compared to 2016.
-
The improvement was mainly driven by income from charges and fees, positive price adjustments and very low impairments on loans.
-
The core business is challenged by the low interest rate environment. Interest income dropped by approx. 7 percent compared to the previous year.
-
The combination of a good financial climate and low interest rates resulted in an increasing risk appetite, and there are indications of risk building, mainly based on the granting of credit and rising asset prices, e.g. in the housing market.
-
Although the growth in credit granting remained in overall decline, there was considerable spread among the banks, as well as significant growth in certain lending segments, e.g. lending for housing.
-
The banks' capital position was strengthened, mainly attributable to a growing capital base, while risk exposures have not risen accordingly.
-
Dividend payments and share buybacks rose. The banks’ capital targets should be sufficiently robust to counteract unforeseen events or cyclical backlashes.
-
In addition, Danish banks will experience increased capital requirements in the coming years as a result of international legislation, including the completion of Basel III and MREL.
In 2017, bank earnings were higher than in the years leading up to the financial crisis, see figure 1. However, the improvement was not driven by the core business in the form of net interest rates, as these have been pushed down by the very low interest rates, but mainly by income from charges and fees, price adjustments and historically low impairments on loans. See the banks' accounting figures in appendix.
Read the full report here: Market develpoment for banks in 2017