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Comparison of non-performing loans in the Nordic countries

Danes are 2-3 times less likely to repay their loans compared to other Nordic countries, the latest figures from the World Bank show. However, the figures show clear progress for Denmark, as it has been far worse in the past.

There can be many reasons why, as a consumer, you do not comply with your payment agreement with the bank. It may be a squeezed private economy due to unforeseen costs or you may have been struggling too financially in a home that you can only afford.

According to the latest figures from the World Bank, the Danes have the largest defaulted loan amount compared to our Nordic neighboring countries Sweden, Norway, Finland and Iceland. This is clearly shown in the graph below, which, based on the total loan amount in each country, documents how much a percentage is defaulted.

 

Definition of defaulted loans

Definition of defaulted loans

A loan is categorized as default if interest or repayments have not been paid within 90 consecutive days or future payments are not expected to be fully paid.

If a borrower starts repayment on a non-performing loan, the loan is no longer categorized as non-performing and the loan amount is based on the national statistics.

 

Significant Icelandic progress since 2010

Significant Icelandic progress since 2010

As shown in the above graph, the World Bank had registered a defaulted loan amount in 2016 corresponding to 3.4% for Denmark, while according to the World Bank it looked significantly better in both Norway (1.12%) and Sweden (1.1). The latest figures from Iceland are from 2015, when their percentage of the World Bank is stated to be 1.7%.

Based on these defaulted loan amounts, Denmark and, in particular, Iceland, have been markedly hit by the financial crisis that hit the international community in 2008. Back in 2008, only 1.2% of the total loan defaults in Denmark, while then rose steeply with the highest percentage forecast of 5.95% measured in 2012. Since the low point in 2012, Denmark has seen significant progress with progress each year. In four years (from 2012 to 2016), there has been an increase of 2.55%, while still lagging behind our Nordic brother countries.

However, Denmark’s progress is modest compared to Iceland, which in 2010 defaulted on a full 18.3% of their total lending. However, the curve has since reversed with just 1.7% non-performing debt in 2015, which means that they have managed to reduce the percentage by 16.6 in just five years.

Since the financial crisis began in 2008, the Swedes have managed to keep the percentage down to 1.24% in 2012 as the highest, while our Norwegian neighbors hit 1.68% as the highest back in 2011.

The World Bank has only data from Finland until 2012, however these indicate a strong Finnish economy based on their low defaulted loan amounts, which since 2008 reached their highest in 2009 and 2010 by 0.6%.

Despite Denmark’s status as the country with the most defaulted debt in the Nordic countries, our percentages for 2016 are better than the European Union average (5.16%) and the overall state across all nations of the world (3.91%).

 

Non-performing loans are a socio-economic weakness

Non-performing loans are a socio-economic weakness

The amount of a loan amount each country’s population defaults indicates how economically robust a given country is. According to the World Bank, a robust social economy can stimulate economic activity and welfare, while an unstable social economy can hamper activities and impose substantial costs on society. The percentage of non-performing loans can thus identify the health of the banking sector and give an assessment of the ability of the population to comply with repayment agreements with the financial sector.

This is exemplified by financially hard-hit Greece, which in 2008 had a defaulted loan amount of 4.67%, while in 2016 it had risen to a full 37%. Thus, an increase of 32.33% over eight years.

In 2016, the country with the largest defaulted loan amount was Cyprus, which has experienced an even steeper decline than Greece. As for Greece, the downturn also started for Cyprus 2008, where the percentage was just 4.67%, while in 2016 it was registered to be 46.95%. This means that almost half of the banking sector’s loans are in default.

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