Categories: Economy

Denmark’s central bank urges tighter lending rules to homeowners

COPENHAGEN (Reuters) -Denmark’s central bank on Thursday renewed calls for a tightening of mortgage lending rules, saying some home owners are vulnerable to falling house prices and rising interest rates.

Separately, the bank said the result of a stress test showed that while Danish banks have sufficient capital to withstand a recession, some of the country’s six systematically important banks are close to reaching safety buffers.

The Danish government has so far defied recommendations made earlier this year by the central bank and expert advisers to curb mortgage lending amid soaring prices and more risky loans.

“In connection with the financial crisis, we saw how hard the individual homeowner, the financial sector and society as a whole can be hit by falling prices in the housing market,” the central bank’s Head of Financial Stability Peter Storgaard said.

“We believe that it will be due diligence to ensure that this vulnerability does not become too great,” he said.

The central bank said a larger down payment and an amortization requirement for highly indebted homeowners would contribute to a more resilient housing market.

It said in a separate statement that a bank stress test had shown lenders have sufficient capital to withstand a “severe recession scenario”.

However, in the most severe stress test scenario, the systemic banks would collectively fall about 13 billion Danish crowns ($1.98 billion) short of their buffer requirements, the bank said.

“It is important for banks to ensure during good times that they have a robust surplus relative to the minimum required eligible liabilities (MREL), a sufficiently diversified maturity profile of their MREL issuances, and that the issuances have a long maturity,” the bank said.

($1 = 6.5701 Danish crowns)

(Reporting by Jacob Gronholt-Pedersen; Editing by John Stonestreet, David Goodman and Jan Harvey)

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