Danish Financial Supervisory Authority outlines expectations for managing geopolitical credit risk and loan impairments at credit institutions

The Danish Financial Supervisory Authority published a sector update summarising its dialogue with the largest credit institutions on how they identify and manage geopolitical credit risks. The Authority concludes that geopolitical turbulence has become a more structural driver of credit risk, requiring stronger monitoring, scenario analysis and stress testing, and greater use of management judgement in loan loss allowances where impairment models cannot fully capture the changed risk picture. Supervisory discussions focused on exposures to sectors and firms reliant on exports, global supply chains and stable energy and commodity prices, in practice often linked to China, the United States and the Middle East. The note highlights disruption following the United States and Israel’s attacks on Iran on 28 February 2026, including volatile energy prices and freight rates, and notes that a prolonged and intensive Iran conflict despite the recently agreed ceasefire could eventually necessitate tighter credit conditions, particularly if it has lasting effects on oil and gas extraction infrastructure. Larger institutions have increased monitoring and run regular macroeconomic scenario analyses and stress tests covering trade conflicts, sanctions, disrupted trade routes and energy crises, but continue to face data gaps, especially on customers’ indirect value chain exposures, while smaller institutions rely more on qualitative assessments and customer dialogue. Customer engagement is presented as central to understanding firm-level impacts, with some clients already generating material losses or elevated loss risk, including certain renewable energy producers affected by energy prices, inflation and interest rates or overly optimistic expectations.