17 Nov Interview with Ulrik Nødgaard, CEO, Finance Denmark
BF: Could you give us an overview of Denmark’s banking, mortgage, asset management, securities trading, and investment funds industries, and how Finance Denmark is involved in them?
Denmark is distinguished in two key areas within its financial landscape. The first revolves around its unique mortgage industry, which notably offers Danish households competitive rates, as evidenced by international comparisons. Discussions in the US housing reforms concerning Fannie Mae and Freddie Mac have included considerations of the Danish model, although the implementation remains speculative due to inherent differences. Denmark’s robust system indeed provides cost-effective mortgage solutions for households.
The second notable sector is the well-established asset management industry, particularly prominent in Copenhagen. This encompasses several significant facets, notably the substantial pension industry. Denmark, alongside the Netherlands, boasts the largest pension wealth compared to its GDP globally, largely attributed to its comprehensive occupational pension schemes. This success has fostered the growth of an extensive asset management industry, encompassing diverse stakeholders. Moreover, Denmark excels in sustainable investments, evident in the nation’s expertise and proficiency in green investments. The broader asset management community in Copenhagen exhibits strong competencies in environmentally conscious investment strategies.
In essence, Denmark’s financial landscape is characterized by a distinctive mortgage system offering affordability to households and a flourishing asset management industry with a significant focus on sustainability, notably demonstrated through their expertise in green investments.
BF: As the financial world encounters unforeseen challenges, what innovative strategies or tools does Finance Denmark employ in managing and mitigating financial risks to ensure stability in Denmark’s financial ecosystem?
We represent a trade association dedicated to advocating for regulatory frameworks that empower banks to contribute to societal prosperity. Our primary focus lies in fostering an environment where financial institutions can thrive while upholding a balanced approach. In response to the aftermath of the financial crisis, Denmark, as with many others, felt its impact significantly. Consequently, our efforts have been directed towards developing and refining regulatory measures.
While acknowledging the necessity and benefits of financial regulations, we are now equally concerned with striking the right equilibrium. We believe that there has been substantial progress in securing a robust level of protection; thus, our current emphasis pivots towards stimulating sustainable growth. Engaging in constructive dialogues, we are actively discussing this agenda with the Danish Parliament, seeking a path that ensures both stability and economic advancement.
BF: According to the National Bank’s analysis, inflation in Denmark is projected to hover at around 3.8% this year and remain at 3% the following year, with wage increases identified as a primary driver of this persistent inflationary trend. What is your take on this assessment, and what can associations such as Finance Denmark do to help navigate this issue?
In general terms, our economic outlook aligns with the government and Central Bank forecasts, albeit with a projected timeline for realization. Presently, we observe a considerable reduction in energy-driven inflation, contributing negatively to the economic landscape. However, there has been a noticeable upturn in wage growth. Achieving a return to the desired inflation rate of approximately 2% will require a few years, marking a critical target for us.
Regarding fiscal policy, it’s important to note that Denmark lacks an independent monetary policy due to its pegging of the Danish krone to the euro. Consequently, our interest rates move in tandem with the European Central Bank’s decisions. This currency tie confines the direct use of monetary policy in combating inflation. Comparatively, our labor market has faced slightly more pressure than the eurozone. While an argument could be made for higher interest rates in such a scenario, we remain steadfast in supporting the fixed exchange rate regime. This stance necessitates a cautious approach in handling fiscal policy, which stands as a key recommendation from our standpoint.
BF: In one of your reports, it’s mentioned that Finance Denmark and the Danish Investment Association are committed to contributing to making Denmark a green superpower. What steps are being taken by Finance Denmark, specifically, to make this a reality?
We have successfully financed green investments amounting to 700 billion in Denmark, encompassing housing and various other sectors. This significant achievement reflects a core focus of our initiatives. Within our industry, a pivotal step has been ensuring that professionals advising clients and banks possess adept competencies in green investment and lending. Our efforts have been directed towards equipping these advisors with the requisite training and skills to offer guidance, be it to corporate or private clients. They are proficient in suggesting alterations such as transitioning heating methods for homes or recommending the adoption of alternative energy sources for businesses. This strategic focus on expertise has notably catalyzed a notable surge in green lending deals.
BF: In August the Danish financial sector launched its third sustainability report. What are the main takeaways from this report, and what is Finance Denmark’s involvement in the development of a green and sustainable economy?
The primary aim is to provide investors with opportunities to allocate their savings towards environmentally conscious funds, such as green funds. This development represents a significant area of focus. Simultaneously, this approach extends advantages to households,
offering improved financing options. For instance, those opting for an electric car receive more favorable financial terms, including better interest rates, compared to traditional car buyers. These incentivizing structures are established by banks and have resulted in a notable 60% increase in loans directed towards such initiatives, encompassing a wide spectrum of financial products.
Another crucial aspect involves the engagement of banks and asset managers with entities that might currently operate with more environmentally detrimental practices (“brown” or “dark” entities). The aim is to encourage and guide these companies and clients toward aligning with the goals set by the Paris Agreement, thereby transitioning towards more sustainable practices.
This comprehensive strategy ranges from the formulation of credit policies to providing extensive client advice, with the overarching goal of gradually steering Danish society toward a more eco-friendly trajectory. This approach aims to usher in a shift toward a greener and more sustainable direction for society as a whole.
BF: In Global Finance 2023 Ranking of the World’s Most Technologically Advanced Countries and Territories, Denmark was ranked 4th. Amid the burgeoning fintech landscape, how is Finance Denmark navigating the digital transformation and embracing new technologies while balancing innovation and security in the financial sector?
Undoubtedly, Denmark stands out as one of the pioneering countries, a status affirmed by various assessments from the EU, recognizing the progressive strides made by the banking sector. A noteworthy achievement was the early adoption of comprehensive mobile banking services. Central to Denmark’s digital landscape is the e-ID system, seamlessly applicable in banking, municipal services, libraries, and healthcare facilities. This unified system, co-financed by banks, epitomizes a collaborative effort in developing a robust digital infrastructure, in partnership with the public sector.
Notably, Denmark boasts highly efficient payment solutions. Peer-to-peer mobile transactions are facilitated at no additional cost, marking a significant advancement. The country leads the domain with instant payment solutions, enabling funds to transfer within a minute with a simple tap on one’s mobile device—an innovation not widely available elsewhere. The diminishing reliance on cash transactions has been remarkable, evidenced by the absence of bank robberies last year due to the reduced presence of physical currency.
However, the transition to a predominantly digital economy has not been without challenges. Instances of digital and cybercrime, including fraudulent activities targeting the elderly, have unfortunately surged. Nevertheless, the country has reaped significant benefits from this digital transformation. Denmark’s leadership in mobile banking, payment solutions, and e-ID systems positions it at the forefront of digital innovation in Europe.
BF: What was the main purpose of setting up a European Policy office in Brussels, and what have been the main milestones reached because of this decision?
In the European context, the formulation of rules and regulations primarily transpires through the European Parliament and the Commission, delineating the operating framework for the internal market. Notably, a substantial portion, approximately 85% of the legislation governing the financial sector, is established in Brussels. This circumstance underscores the significance of our presence in Brussels, where much of the pivotal financial regulation occurs. Recognizing this, we’ve established an office in Brussels and successfully encouraged our Nordic counterparts to establish a collaborative presence there as well.
Our engagement in Brussels has led to impactful contributions on various fronts. One prominent instance is our role in the negotiations for the Basel capital requirements. Collaborating with numerous countries and backed by considerable support from the Danish government, we achieved a pivotal 10-year transition phase. This proactive step was instrumental in mitigating the significant impact these new requirements could have had on Danish mortgages. This negotiated transition period stands as a specific and crucial example of our influence and impact within the regulatory landscape.
BF: Are there any key objectives for 2024 you might like to mention?
The upcoming focal point is the transition toward a more sustainable economy, particularly emphasizing the importance of green initiatives. While strides have been made, there remains a notable challenge in garnering acceptance for financing activities that are inherently green or in the process of transitioning from environmentally detrimental practices to more sustainable ones. Financing such transitional activities is pivotal in effecting a positive change within society. However, skepticism persists in this regard. It is essential to recognize that for societal transformation to occur, financial support must also be extended to those endeavors seeking to evolve into more eco-friendly practices.
Acknowledging the current success of banks, marked by increasing interest rates and higher earnings, there is a certain level of resistance emerging. There remains a significant task at hand in elucidating the reasons behind this trend and why it is beneficial for society. Banks, after experiencing a period of relatively low earnings, are now beginning to align more closely with the earnings seen across other corporate sectors in Denmark. The challenge lies in effectively communicating the importance and benefits of this shift, despite the inherent complexities in conveying this message.