Nonbanks, credit provision and the transmission of monetary policy in Denmark

This memo provides three insights into the inner workings of nonbank lending in Denmark. First, we show that nonbanks are an important source of funding for Danish firms and households, accounting for about 8 per cent of total unsecured corporate and consumer credit. Second, we show that the risk profiles of firms borrowing from banks and nonbanks appear similar. Instead, households borrowing from nonbanks appear to be riskier compared to those borrowing from banks. Third, we provide evidence on how the presence of nonbank lenders influences the transmission of monetary policy. We show that nonbanks increase their share of total credit when interest rates are hiked, attenuating the transmission of monetary tightening. This shift in the credit share away from banks during episodes of monetary policy tightening is not accompanied by riskier lending, as nonbanks tend to increase their lending mainly to exante safer firms and households.