Danes managed their debts to a better degree with fewer registering negative remarks. Government aid packages have assisted in keeping unemployment under control. Moreover, paid holiday allowances when coupled with lockdown restrictions, which prevented households from spending, have resulted in improved savings rates and economic strength.
When we look at the businesses’ performance, there is an improvement in bankruptcy figures. Help packages and the deferral of taxes, among other things, certainly prevented the most vulnerable sectors from bankrupts. On the other hand, no one can assert that all the risks related to Covid-19 has faded away. The deteriorated asset quality within various bank portfolios, particularly SME’s, points to a risk of developing financial stress within economies. The postponed VAT repayments in March 2022 will expectedly have certain impact on future bankruptcies resulting in a rise in new bankruptcies.
SME portfolios in Danish financial sector require special attention and close monitoring. Early warning mechanisms needs to be in place to identify the financial difficulties of the customers at short notice and to offer customized solutions. It would reduce the transitions from performing loans, to non-performing loans and help financial institutions to keep under control their provisions. Good collections processes and strategies are also vital to improve the operational efficiency and the customer experience in these distressed conditions.