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Danish central bank sees signs of rising risk appetite in banking sector

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Danish central bank sees signs of rising risk appetite in banking sector

A financial stability report from Denmark's central bank has found that the lengthy low-interest rate environment and low loan demand have been causing banks to ease credit standards for corporate customers since 2013.

A Danmarks Nationalbank analysis, published May 31, noted that net interest margins at Danish banks continue to be constrained despite flourishing economic growth globally and in Denmark.

The central bank survey also found that more than half of all mortgage loans in the country have variable interest rates, which could be problematic as interest rates begin rising.

Meanwhile, Danish banking stress tests revealed that several small, non-systemically important lenders would struggle in a severe recessionary environment, however measures are in place should these banks need assistance, the central bank wrote, adding the liquidity is high in the sector.

Finally, the report showed how market conditions and possible regulations have dampened banks' enthusiasm for repo financing.