Denmark’s Banking sector: Facts and Figures
The Danish economy has been improving during the last year. The economic upswing is most visible in the labour market, while output is growing at a sound pace. Growth is predominantly driven by an increase in private consumption, supported by higher employment, rising disposable income and very low interest rates.
The composition of Danish credit institutions has been evolving over the last decades. Owing to the increase in the consolidation of the Danish financial sector, the number of banks has declined from 185 in 2000 to 101 at the end of 2016, whereas the employment figures have been much more stable. In 2000, 40,907 people were domestically employed in the Danish banks compared to 37,155 at the end of 2016. The Danish banking sector is characterised by a few large international groups and many small institutions.
The Danish banks were managing assets of €482 billion at the end of 2016. Furthermore, the assets of the Danish mortgage institutions manage a similar amount; in 2016 these amounted to €490 billion. The total assets for the whole industry were thus €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 extremely high liquidity. Hence, the government has for several years worked hard to ensure that Danish mortgage bonds’ liquidity will be accredited in line with government bonds in the EU’s new liquidity rules for credit institutions. The EC has published the final liquidity coverage ratio (LCR) requirement in which the Danish government’s view was accepted. The LCR of all credit institutions is currently comfortably above the statutory minimum requirements.
Since the beginning of the financial crisis, the Danish banks have slowly recovered. They paid negative return on equity in 2008 (-2.6%) and in 2009 (-6.5%). Today, the figure has improved, and the return on equity was 10.5% in 2016. The increase in earnings is primarily driven by low loan impairment charges, lower costs and higher net fee income.
Danish banks’ earnings are, however, challenged by low net interest income which is under pressure from subdued demand for new loans and the extraordinary low level of interest rate. Today over 40% of deposits to businesses are 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 23.2% in 2016, which is 9.1 percentage points higher than in 2008. In addition, the core capital ratio rose from 10.8% in 2008 to 20.7% in 2016.
The financial sector plays an important role in the digitisation of Denmark. Denmark is recognised as a digital pioneer country, a position that has in part been achieved through collaborations between the public and financial sectors. This has resulted in a number of key IT solutions, such as NemID and digital registration. Digital solutions are well established, from Betalingsservice (a Danish payment service) and Dankort (Danish debit card) to MobilePay (Danish mobile payment solutions).
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.