Medium-sized banks assume more risky customers, credit risk limited
An analysis by Danmarks Nationalbank finds that the migration of risky corporate customers between banks currently poses a limited risk to financial stability. However, medium-sized banks take a larger share of these customers, requiring vigilance.
The hidden risk of customer migration
Danmarks Nationalbank's analysis reveals that banks often lack payment history for new corporate customers, potentially leading to a build-up of risk as credit-impaired customers switch banks.
Between 2022 and 2025, new lending to corporate customers previously identified as risky in the Credit Register amounted to DKK 3.4 billion.
While this volume is currently limited and does not pose an immediate systemic risk, the study warns that such migration could increase sector-wide risk if lending to these customers grows.
Corporate customers with prior credit impairment show a higher likelihood of bankruptcy, increasing credit risk for banks that grant them new loans.
Medium banks' higher risk appetite
Medium-sized banks show a higher propensity to extend new loans to corporate customers previously identified as credit-impaired, disproportionate to their market share.
This indicates they onboard more customers with elevated credit risk from other institutions than large banks.
The study, covering 2022-25 data from the Credit Register, identifies risky customers via indicators like stage classification and probability of default.
Despite this trend, the overall volume of such lending remains limited, ensuring it does not currently pose a systemic financial stability risk.
Vigilance, not alarm
This analysis offers a critical early warning about potential credit risk accumulation, demanding ongoing vigilance.
Though current migration volumes are manageable, the concentration in medium-sized banks signals a vulnerability.
Proactive monitoring is crucial to ensure risk-adequate pricing and prevent future systemic issues.