The risk outlook is shaped by geopolitical tensions, but several domestic factors also warrant attention. The global economy is still adjusting to the new geopolitical landscape, and there remains considerable uncertainty about future trade policy in the United States. At the same time, risk appetite in financial markets is high, increasing the risk of abrupt price corrections. High levels of public debt in the United States and some European countries make these economies vulnerable to unexpected shocks. Sovereign debt markets in major economies are central to global financial markets and can transmit stress to other markets. Domestically, rising house prices in Copenhagen call for increased attention. Banks also report fiercer competition for corporate clients, and the growing role of leveraged investment funds in Danish money markets remains in focus. Furthermore, the Danish financial sector faces a complex risk landscape, where the cyber threat to the sector remains high.
Credit growth to non-financial corporations has increased, driven primarily by lending from banks to the largest domestic firms. Earnings in credit institutions remain strong, and all institutions included in Danmarks Nationalbank’s stress test are currently able to withstand a severe stress scenario.
Looking ahead, activity growth in the Danish economy is expected to be moderate, according to Danmarks Nationalbank, with continued increases in employment. Globally, the International Monetary Fund, IMF, forecasts subdued growth, reflecting a weaker expansion in the United States, where the labour market is also showing signs of weakness, and in contrast strengthening growth in the euro area. Market participants expect policy rates in the euro area to remain unchanged, while rates in the United States are anticipated to decline, despite that the IMF expects a temporary rise in US inflation due to new tariff rates.
Strong momentum in the housing market in the capital region, but credit growth remains moderate. Prices for owner-occupied apartments in Copenhagen have risen by more than 16 per cent over the past year, according to numbers from Finance Denmark, which is significantly more than in the country’s other major cities. Homebuyers are making larger down payments, and households with high incomes increasingly account for home purchases. House prices in the country as a whole are broadly in line with income developments, and aggregate credit growth has remained moderate in recent months. In Copenhagen, credit growth is also moderate, but experience shows that sharp increases in house prices can lead to higher lending growth with some delay. At the same time, the housing burden in Copenhagen is at a high level, and capital gains are increasingly part of first-time buyers’ considerations. This underlines the importance of maintaining sound credit standards in banks, supported by lending rules that ensure an appropriate balance between indebtedness and income. The Council is closely monitoring developments in the housing market and has also noted recent political proposals aimed at making the housing market more accessible. The Council awaits specific details of these proposals but discussed at its meeting that soaring house prices are best addressed by increasing supply or reducing demand. It is unsuitable to increase demand by easing lending rules for some or all buyers.
Based on the current risk outlook, the Council recommends maintaining the countercyclical capital buffer rate at the current level of 2.5 per cent. Every quarter, the Systemic Risk Council assesses the adequate countercyclical capital buffer level. The Council stands ready to recommend a reduction of the buffer rate with immediate effect if stress occurs in the financial system and there is a risk of a severe tightening of credit granting to households and companies.
The Council was informed about the operational risks facing the financial sector. Cyberattacks and other hybrid threats, new technologies, and reliance on external providers make the threat landscape for Denmark increasingly complex. In particularly severe situations, operational incidents can pose a risk to financial stability. The financial sector in Denmark is generally very resilient, but the evolving threat landscape requires continuous adaptation. Hence, ongoing efforts are needed to strengthen resilience and minimize the consequences of disruptions in critical infrastructure or at key financial institutions. The Council was briefed on recommendations to enhance contingency planning, ensuring that citizens and businesses can continue to make payments and transfer funds even in a situation where key systems or data in the financial sector are unavailable.
The Council was informed about the current risk outlook for climate-related risks and their regulation. The Danish economy and the financial sector are well positioned to manage the green transition. Even if the transition requires significantly higher greenhouse gas taxes than currently planned, it is assessed not to pose major challenges for the economy. Banks face new EU sustainability regulations, while there is also a focus on simplifying reporting requirements to strengthen European competitiveness.