Danish banks are well-prepared to handle potential losses stemming from a global trade war, despite the risks to export-sensitive companies, according to the National Bank of Denmark’s latest financial stability assessment. The assessment, published Tuesday, highlights the resilience of the Danish financial sector due to sound liquidity and high equity.

The report, based on a stress test simulating the impact of an economic crisis, acknowledges growing uncertainty in the global economy and its spread to financial markets. The National Bank of Denmark emphasizes that the financial sector is well-equipped to manage challenges arising from the trade conflict’s impact on the Danish economy.

Peter E. Storgaard, head of Financial Stability at the National Bank of Denmark, states that strong liquidity and capitalization are crucial for banks in the current risk environment. Banks’ healthy finances are attributed to high earnings in recent years, driven by high interest rates, and limited losses on distressed customers.

However, the National Bank of Denmark cautions that this situation may change. Falling interest rates and earnings, coupled with the potential impact on export companies caught in a trade standstill, pose risks. The report advises against excessive deregulation of banks, emphasizing that simplification of regulations should not compromise financial stability.