Bank sector faces no systemic risk

After almost three months of corona lockdown measures, there are still no signs of systemic risks in the Faroese bank sector, according to the Faroese Systemic Risk Council (SRC).

Systemic risk is the possibility that an event at the company level could trigger severe instability or collapse an entire industry or economy.

The SRC says that the banks are well equipped to offer support to their business and private clients e.g. by deferring loan repayments.

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The loan growth remains slow. At the end of 2019, it was zero percent and remained at zero percent in the first quarter of this year. This figure rises to three percent when Danish financial institutions are taken into account.

Outgoing loans from Faroese financial institutions made up 89 percent of the GDP in 2019 and 96 percent in 2018. Ingoing loans have also been on a decline lately.

According to the SRC, with last year’s introduction of negative deposit rates, the industry and households are increasingly moving in the direction of repaying loans rather than depositing money.

Translated by prosa.fo