Higher interest rates, inflation and risky loan types combined with declining property prices, are expected to lead to credit losses in Danish banks, Denmark's central bank said on Wednesday.
In a report on the financial health of Danish banks, the central bank warned that a weaker economic outlook underlined a need for "prudence in the institutions' capital planning".
Higher interest rates and energy prices for low-income homeowners and an increased share of variable-rate mortgage loans increase the risk of loan defaults and credit losses for banks, the central bank said.
In a biannual stress test on Denmark's lenders, the central bank said some banks would come close to breaching their capital buffers in a severe recession scenario.
The central bank also warned lenders against paying out large dividend payments or share buy-backs due to the weaker economic outlook. (Reporting by Stine Jacobsen and Nikolaj Skydsgaard, editing by Terje Solsvik)