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Denmark’s Banking sector: Facts and Figures

Updated December 2021 – For earlier editions of Facts & Figures click here

Danish real GDP fell 1.5% in 2020 due to consequences of Covid-19. The economy rebounded during the summer and early fall, and at the end of 2020 employment was almost back to the levels before the outbreak of Covid-19 in March 2020. Now the employment is moving back to normal with an unemployment rate of 3.8% and increasing signs of shortage of skilled labor in some industries.

The number of employees in the financial sector is still decreasing, reaching 35,555 employed in 2020 compared with 40,907 in 2000. In 2020 there were 58 banks and seven mortgage banks in Denmark. Persistent consolidation has implied a large decline since 2000, where there were 185 banks and 10 mortgage banks, yet the trend has slowed since the aftermath of the financial crisis.

Since the beginning of the financial crisis, the Danish banks have gradually recovered. However, revenue in the banks continue to decline in 2020 from a record high in 2017. An analysis of the Danish banks and mortgage banks shows a decrease in revenue from €4.8 billion. to €2.6 billlion or 45% decrease in revenue. And the return on equity now amounts to 4.6% compared to an average over the last three years on 9.2%. The decrease in 2020 reflects the turbulence due to COVID-19 pandemic. The return of equity is significantly lower than other industries.

Overall, the Danish banking sector is robust, and banks have increased their capitalization since the beginning of the financial crisis. The Danish banking sector has also proved to be well-capitalized and resilient in the stress tests conducted by the EBA. The special Danish mortgage system is a defining component of the financial sector in Denmark. Danish mortgage bonds are securities with high credit quality and very high liquidity. Mortgage loans for companies and households constitute almost 80% of total lending in Denmark.

The joint declaration by the Danish government and Finance Denmark in March 2020 specified that the sector committed itself to help clients with liquidity problems due to the Covid-19 situation. Danish banks have offered credits to thousands of customers in temporary financial difficulties due to Covid-19. Finance Denmark tracked the number of customers, who were helped by five large banks with a market share of approx. 60% during the first six months of the pandemic. Of all cases handled where customers asked for credit or liquidity facilities, banks were able to help 94-98% of them (both business and retail clients). The total credit given or committed is approximately 105 billion DKK (€14 billion).

The reporting and payment deadline for companies subject to VAT reporting has been postponed and typically gives the companies up to 4-month extra credit. New tax measures aiming to increase corporate liquidity (Covid-19) was agreed in the Danish Parliament in 2020. The agreement was expanded in the beginning of 2021, and the measures include interest-free VAT and payroll tax “loans” to companies. Danish companies hit by the COVID-19 crisis also received generous public compensations for e.g. fixed expenses and salaries of employees on furlough. Hence, business demand for banks loans was subdued, and at the end of 2020 lending was lower than in March, just before the COVID-19 pandemic practically closed the society down. Thus, only a fraction of the more than 100 bn DKK committed by the Danish banks at the outset of the pandemic was actually extended as loan for Danish companies. The stagnation in loans to companies along with higher deposits are continuing into 2021 as some of the tax schemes have been extended.

Bank profitability is also challenged by the low interest rate environment in Denmark and globally. In Denmark, policy rates turned negative already in 2012, and in recent years net deposit surplus has increased markedly, in part due to the extensive Danish mortgage system. Hence, Danish banks were amongst the first to introduce negative interest rate on large deposits from private customers in 2019, and this tendency has increased during 2020.

At the beginning of 2019 Finance Denmark launched a Forum for Sustainable Finance consisting of leading persons from companies, think tanks and experts within climate and sustainability. The same year, 20 recommendations were presented to the financial sector, which Finance Denmark and its members have started implementing in 2020. Finance Denmark have now published the first sustainability report, where some of the main results are that more than nine out of ten financial institutions offered sustainable products. Following another of the 20 Forum recommendations, Finance Denmark has also developed a framework for financed emissions accounting for the financial sector, allowing members to measure the carbon emissions from their investment and lending, a first step in setting targets for future reductions in financed carbon emissions.

Contributor: Flemming Dengsø Nielsen fdn@fida.dk