Denmark: Financial System Stability Assessment with reports on - IMF

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8II. MACROECONOMIC SETTING, FINANCIAL STRUCTURE AND RISKSA. Macroeconomic Background and Risks8. <strong>Denmark</strong>’s macroeconomic performance has been strong, but the economy nowfaces the risk of overheating. 1 Economic growth reached 3.2 percent in 2005 and remainedstrong in early 2006, driven in part by rapidly appreciating house prices. Inflation—anchoredby the euro-peg—is close to 2 percent and unemployment reached record low levels in 2006.The general government balance realized a surplus of some 4 percent of GDP in 2005 and theexternal current account surplus reached 3.0 percent of GDP.9. Monetary and credit aggregates and asset prices have increased rapidly. In 2005,bank lending grew 21 percent and loans by mortgage credit institutions increased 12 percent.House prices in <strong>Denmark</strong> have outpaced those in the other Nordic countries (Figure 1),increasing by 22 percent on average during 2005, underpinned by low interest rates,increased demand, the property tax freeze since 2001, and new and more flexible forms offinancing. 2 To avoid unbalanced housing market developments, close monitoring of themarket, strict adherence to supervisory rules, and effective consumer information about therisks of over-borrowing are recommended Since 2002, the Danish stock market hasoutperformed most other Nordic indices (Figure 2).10. Trends in the debt structure of households suggest that they are becoming moresusceptible to interest rate changes. Household indebtedness increased to some 230 percentof disposable income—high by international comparison. The build-up largely reflectsfinancing of consumption, real estate purchases, investment in pension funds, and otherfinancial investments. The share of variable interest rate debt in total household debt hasincreased substantially and loans <strong>with</strong> variable rates accounted for about half of totalmortgage loans at the end of January 2006. Low income households are most vulnerable tointerest rate changes. Pockets of vulnerabilities remain in the corporate sector, although onthe whole the sector has benefited from favorable conditions and bankruptcies have declined.1 Macroeconomic developments and policies are discussed in detail in the accompanying Staff Report for the2006 Article IV Consultation (www.imf.org).2 See also the Selected Issues paper on housing market developments in <strong>Denmark</strong>.
9Figure 1. Nordic Countries: Residential Real Estate Prices, March 1995–March 2006(March 1995=100)26024022020018016014012010080Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06Finland <strong>Denmark</strong> Sweden NorwaySource: National statistical offices, Haver.Figure 2. Nordic Stock Exchanges: All Share Indexes, January 2003–June 2006(January 2003=100)500450400350300250200150100500Jan-03 Apr-03 Aug-03 Nov-03 Mar-04 Jun-04 Sep-04 Jan-05 May-05 Aug-05 Nov-05 Mar-06 Jun-06Stockholm Helsinki Oslo Copenhagen ReykjavikSource: Datastream.
Page 1: © 2006 International Monetary Fund
Page 4: 2ContentsPageGlossary .............
Page 7 and 8: 5ML/FTMLAMoEBMoUNAONPOOTCPEPROSCRSS
Page 9: 76. The payment and securities clea
Page 13 and 14: 11Table 1. Denmark
Page 17 and 18: 1518. Stress test results need to b
Page 21 and 22: 19Table 5. Financial</stron
Page 23 and 24: 21Table 6. Market Shares of Major <
Page 25 and 26: 23is hence higher than the EU minim
Page 27 and 28: 25Table 7. Nordic Capital Markets,
Page 29 and 30: 27coverage of such rules to key per
Page 31 and 32: 29 ANNEX IOBSERVANCE OF FINANCIAL S
Page 33 and 34: 31Mortgage financing5. Danish mortg
Page 35 and 36: 3314. Licensing and Structure (CPs
Page 37 and 38: 35Authorities’ responseWith a few
Page 39 and 40: 376. The life sector is dominated b
Page 41 and 42: 39may be subject to more frequent f
Page 43 and 44: 41Reference PrincipleRisk assessmen
Page 45 and 46: 43 ANNEX IVREPORT ON THE OBSERVANCE
Page 47 and 48: 459. The infrastructure for retail
Page 49 and 50: 47Main findings19. The assessment d
Page 51 and 52: 49SubjectMain Findings and Recommen
Page 53 and 54: 51Regarding the recommendation to f
Page 55 and 56: 53 ANNEX VREPORT ON THE OBSERVANCE
Page 57 and 58: 5510. All securities traded in the
Page 59 and 60: 57and a zero-hour rule does not exi
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59Table 2. Recommended Actions to I
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61 ANNEX VIIntroductionREPORT ON TH
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63negligible. Authorities recognize
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6521. STR reporting by Danish finan
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67FATF 40+9RecommendationsKEY RECOM
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69Declaration or for non-compliance
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71 APPENDIXStress Tests—Market Ri
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Denmark: Financial System Stability Assessment with reports on - IMF

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