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Denmark’s Banking sector: Facts and Figures

Updated September 2018 – For earlier editions of Facts & Figures click here

The Danish economy has been improving steadily during the last few years. The economy has entered an expansionary phase with mounting pressure on the labour market. The economy is well prepared for the expansion and is growing at a sound pace without any visible build-up of imbalances at the aggregate level.

The composition of Danish credit institutions has been evolving over the last decades. Primarily owing to the continuing consolidation of the Danish financial sector, the number of banks and mortgage institutions has declined from approximately 190 in 2000 to 74 in 2017, where 67 are banks and seven are mortgage banks.

In 2016, 37,155 people were domestically employed in the Danish banks compared to 40,907 at the end of 2000. The Danish banking sector is characterized by a few large international groups and many small institutions.

The Danish banks were managing assets of €512 billion at the end of 2017, while the Danish mortgage institutions manage assets of a similar amount; in 2017 these amounted to €529 billion. The total assets for the whole industry thus constituted €972 billion.

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.

Since the beginning of the financial crisis, the Danish banks have gradually recovered. They paid negative return on equity in 2008 (-2.6%) and in 2009 (-6.5%). The figure has since improved, and the return on equity was 14.2% in 2017 (excluding Nordea´s Danish banking activities and other foreign entities). The increase in earnings is primarily driven by lower costs, extraordinary income and lower levels of impairment, due to the fact that the economy has entered an expansionary phase.

Danish banks’ earnings are, however, challenged by low net interest income which is under pressure from subdued demand for new loans and the extraordinarily low level of interest rate. In the autumn of 2017 approximately 50% of deposits to businesses were on negative interest rates.

Overall, the Danish banking sector is robust, and banks have increased their capitalisation since the beginning of the financial crisis. The Danish banking sector had an overall solvency ratio of 23.8% in 2017, which was 10 percentage points higher than in 2008. In addition, the core capital ratio rose from 10.8% in 2008 to 21.3% in 2017. The Danish banking sector has also proved to be well-capitalised and resilient in the stress tests conducted by the EBA.

Banks and mortgage banks are not required until 2019, to meet a number of capital and liquidity requirements that have followed in the wake of the crisis. Nevertheless, many Danish banks and mortgage banks opted to fulfil the requirements already in 2014/2015. In doing so, the Danish financial sector has played an active role in making the financial system safer at a faster pace than was originally intended by the authorities.

The financial sector plays an important role in the digitisation of Denmark. Thus, in recent years, the Danish fintech community has been quite successful, and Copenhagen was ranked sixteenth in Deloitte´s global fintech hub review 2017, and seventh in Europe. The strong position was consolidated by the establishment of the Copenhagen FinTech lab in the autumn of 2016.  Denmark is recognized as a digital pioneer country in the financial sphere, a position that has in part been achieved through collaborations between the public and financial sectors.

Finance Denmark supports the EU´s transition towards a more sustainable economy. Already today, the Danish financial sector contributes actively to financing a sustainable transition in several areas. By international standards, Denmark has made great progress towards becoming a sustainable society, only Sweden ranks higher in the UN´s SDG Index, which shows how countries deliver on the 17 sustainable developments goals.

With Money Week, Finance Denmark and Danish banks put focus on personal finance in the municipal primary and lower secondary schools. The purpose of Money Week is to teach children and young people personal finance terms such as interest rates, loans and budgets and to prepare them to take responsibility for their own personal finances so that they avoid getting in financial trouble.

More than 16,000 pupils – or more than one in ten Danish pupils of the targeted age – participated in the Danish Money Week 2018. Sessions on financial literacy, how to budget and save and generally take care of personal finances were given by teachers and more than 700 guest lecturers.

Contributor: Flemming Dengsø Nielsen fdn@fida.dk

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