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Denmark: Financial Sector Assessment Program-Technical Note-Financial Stability and Stress Testing of the Banking, Insurance, and Non-financial Corporate Sectors

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  • International Monetary Fund

Abstract

The Financial Sector Assessment Program (FSAP) work was conducted prior to the COVID-19 pandemic. This report, however, includes stability analysis and stress tests under updated illustrative scenarios to quantify the possible implications of the COVID-19 shock on bank solvency. An unusually high degree of caution must be exercised in interpreting the stress tests results and their implications or validity at the current juncture, due to heightened uncertainty around post COVID central projections and downside risks. Financial vulnerabilities were elevated on the eve of the COVID-19 pandemic. Key financial vulnerabilities included high household leverage amid high real estate valuations following a long period of loose financial conditions. There were also signs of risk taking in some sectors, such as commercial real estate (CRE), and in addition, there were downside risks to bank profitability amid the low-interest-rate environment.

Suggested Citation

  • International Monetary Fund, 2020. "Denmark: Financial Sector Assessment Program-Technical Note-Financial Stability and Stress Testing of the Banking, Insurance, and Non-financial Corporate Sectors," IMF Staff Country Reports 2020/258, International Monetary Fund.
    • Handle: RePEc:imf:imfscr:2020/258
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