Annual Report 2021
Our external environment
The macroeconomic environment has a significant impact
on any financial institution. For a traditional retail and
commercial bank such as BankNordik, the economic cycle,
affects the customers’ credit quality and ability to repay as
well as the value of the collateral the Bank holds.
characterise both countries. Both countries are considered
exotic destinations for many tourists, and the economic
opportunity for this sector is significant. BankNordik tracks a
number of economic indicators for both economies, and
trends are often similar. For example, both countries have
seen sharp rises in export values over the last decade or so,
and this has helped drive enviably high economic growth
rates. There has been a slight divergence since the onset of
the COVID-19 pandemic, however, in that Faroese exports
have largely recovered whilst exports from Greenland
remain 15% below their peak.
The Faroe Islands and Greenland are not immune to
economic developments on the global stage. Underlying
growth has rebounded well, with world GDP rising above
2019-levels in 2021 after a steep decline in 2020. Growth
will naturally start to taper in the coming years, but the
expectation is 4.5% rate of real economic growth in 2022 for
the global economy. Among Western economies, it is worth
noting that the economic decline in terms of GDP has been
less severe in the United States than in Europe, but
European employment has been better protected than in the
U.S. Many economies are still grappling with the effects of
COVID-19, but due to the ever-increasing vaccination rates
and potentially lower severity of new variants, economic
activity is not expected to be as affected in the coming year
as it was in 2020 and 2021.
In general, however, economic movements in Greenland
are more moderate than those seen in the Faroe Islands,
part of the reason being the decreasing reliance on the
Danish block grant in the Faroe Islands compared with
Greenland. The block grant now corresponds to less than
3% of Faroese GDP whilst accounting for almost 25% in
Greenland. The size of the block grant has a stabilising
effect on the Greenlandic economy, mitigating the effects of
both economic upturnes and declines. This particular
characteristic was illustrated in 2020 and 2021 when real
economic growth in Greenland came in at 0.9% and an
estimated 1.8%, respectively, compared to an inflation-
adjusted economic decline of 2.0% in 2020 followed by a
growth rate of 6.7% in 2021 in the Faroe Islands. For the
Faroese economy, the hope is that an increased
diversification between fisheries, aquaculture, tourism and
even IT will help stabilise future economic developments.
The picture of the overarching risks facing BankNordik and
the economies in which it operates has shifted somewhat in
recent years. Notwithstanding the current wave of COVID-
19 infections affecting both the Faroe Islands and
Greenland, the pandemic’s economic effects have not had
much impact on overall activity apart from a still-stifled
tourism industry, and its effects are expected to fade further
in 2022. The risk focus has instead turned to the
unexpectedly high and persistent inflation levels seen in the
past few months, in part caused by COVID-19-related
changes in demand and supply chain constraints. The
resulting potential for rising interest rates has also been a
big topic in financial markets. Whilst rate rises in the United
States have the potential to ‘spill over’ into the Eurozone,
rate hikes are likely to come at a more moderate pace and
level in Europe than in America. Rising interest rates are
seen as both a risk factor and a potential benefit for the
financial industry. Inflation means that people’s purchasing
power will decrease, house prices will face downward
pressure, and rate rises mean that borrowers with variable
interest rate loans will take a financial hit, potentially
threatening their ability to repay their debt. On the other
hand, higher interest rates mean that banks will, other things
being equal, earn more on their lending.
The level of economic self-reliance is one of a number of
differences between the Faroe Islands and Greenland. In
last year’s report, we noted the relative difficulty in building
Greenland’s infrastructure, which means that it lags
developed economies on parameters such as internet
speed, ease of travel as well as economic divergence
between central areas and provincial towns. There are a few
of the structural issues affecting Greenland, which one might
argue are reflected in the labour market participation rate,
which whilst world-leading in the Faroe Islands is slightly
below the Nordic average in Greenland, where it along with
educational attainment continues to be a focus area for the
government.
Looking ahead, BankNordik is optimistic about its future in
the two markets. The economies and the Bank’s customers
are healthy, and lending demand is stable. Our strategic
focus is solely on serving the North Atlantic market
competitively and sustainably, as we aim to retain our
leading position in the Faroese market and to grow
organically in Greenland.
Shifting the perspective to the two North Atlantic economies
on which BankNordik is now fully focused, we noted a
number of similarities between the two countries in last
year’s annual report. Strong economic growth, fisheries
exports accounting for a large share of GDP, small
populations, and close political ties with Denmark
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