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Contents
Management’s report
3
8
9
12
16
20
25
29
31
34
Foreword
Financial highlights - Danske Bank Group
Executive summary
Estonia case
Strategy execution
Financial review
Capital and liquidity managment
Investor Relations
Corporate responsibility
Organisation and management
Banking DK
Banking Nordic
Corporates & Institutions
38
43
47
53 Wealth Management
Northern Ireland
59
Non-core
62
Other Activities
64
Definition of alternative performance measures
65
Financial statements
69
70
71
72
73
77
78
Contents
Income statement
Statement of comprehensive income
Balance sheet
Statement of capital
Cash flow statement
Notes
Statements
230 Statement by the management
231
Independent Auditor’s report
Management and directorships
238 Board of Directors
242 Executive Board
245 Supplementary information
04
Danske Bank / Annual Report 2018
Foreword
Danske Bank is one of the largest financial services
providers in Denmark and one of the largest financial
institutions in the Nordics. As such, we have a particular
responsibility and an obligation to positively impact the
Nordic economies and societies by creating long-term
value for all our stakeholders.
Through our shortcomings and failures in Estonia,
including our late and inadequate handling of the issues,
we have failed to live up to this responsibility. Not only
have we disappointed our customers and our employees
but also our shareholders and society at large.
This has changed the way the world sees us and has
shaken the trust our stakeholders have in us. Many
people are asking themselves if we can be trusted to act
responsibly, ethically and lawfully.
No issue can be of greater importance than restoring the
trust we have lost.
Through all aspects of our day-to-day conduct of
business, a continuous and consistent effort is required
to demonstrate that we are committed to acting with
integrity and responsibility – and that we are determined
to create long-term value for all stakeholders.
We will strive to achieve this through a joint effort
between Danske Bank’s Executive Board and Board
of Directors in dialogue with you and with every other
stakeholder.
Your perspective and your interests are crucial. Only
a strategy that builds on the shared interests of all
stakeholders can guide us towards future long-term
success.
For more than 145 years, Danske Bank has created
opportunities and helped individuals and businesses in
the Nordic countries realise their ambitions. Enabling
businesses to finance new ventures and providing
opportunities for individuals to buy a home of their own
or save for retirement are examples of how we help our
customers achieve their ambitions, whilst also creating
wealth and prosperity for society as a whole.
Banking underpins most aspects of society by creating
funding and investment opportunities and by powering
the economy and the wheels and gears of everyday life.
This requires trust. Only with trust can we fulfil our
obligations as a financial facilitator and enabler, and
only as a trustworthy bank can we pursue a coherent
strategy to the benefit of all stakeholders.
Restoring trust will be a long-term effort, but the work
has begun and we are determined to succeed.
Karsten Dybvad
Chairman of the
Board of Directors
Jesper Nielsen
Interim CEO
Danske Bank / Annual Report 2018
05
Danske Bank 2018 at a glance
DKK
15bn
Net profit*
DKK
44.4bn
Total income
3%
Lending growth y/y
Changes to
Executive Board and
Board of Directors
Investigations
of Estonia case published
Nordic
Integrator
strategy launched
9.8%
Return on equity*
Acquisition of
SEB
Pension
Danmark
Donation 1.5bn
to combat
financial crime
* From financial highlights, see Definition of Alternative Performance Measures on page 65.
06
2018 was a challenging
year for Danske Bank
Danske Bank / Annual Report 2018 07
Danske Bank / Annual Report 2018 08
Danske Bank / Annual Report 2018
Financial highlights – Danske Bank Group
Income statement
(DKK millions)
Net interest income
Net fee income
Net trading income
Other income
Total income
Operating expenses
Goodwill impairment charges
Profit before loan impairment charges
Loan impairment charges
Profit before tax, core
Profit before tax, Non-core
Profit before tax
Tax
Net profit for the year
Attributable to additional tier 1 etc.
Balance sheet (end of year)
(DKK millions)
Due from credit institutions and central banks
Repo loans
Loans
Trading portfolio assets
Investment securities
Assets under insurance contracts
Total assets in Non-core
Other assets
Total assets
Due to credit institutions and central banks
Repo deposits
Deposits
Bonds issued by Realkredit Danmark
Other issued bonds
Trading portfolio liabilities
Liabilities under insurance contracts
Total liabilities in Non-core
Other liabilities
Subordinated debt
Additional tier 1 etc.
Shareholders' equity
Total liabilities and equity
Ratios and key figures
Dividend per share (DKK)
Earnings per share (DKK)
Return on avg. shareholders' equity (%)
Net interest income as % p.a. avg. of loans
and deposits
Cost/income ratio (%)
Cost/income ratio before goodwill impairment
charges (%)
Total capital ratio (%)
Common equity tier 1 capital ratio (%)
Share price (end of year) (DKK)
Book value per share (DKK)
Full-time-equivalent staff (end of year)
2018
2017
Index
18/17
2016
2015
2014
23,571
15,402
4,676
716
44,365
25,011
-
19,354
-650
20,004
-282
19,722
4,721
15,001
781
169,237
316,362
1,769,438
415,811
276,424
377,369
14,346
239,480
3,578,467
148,095
262,181
894,495
741,092
330,477
390,222
417,279
4,014
204,243
23,092
14,300
148,976
3,578,467
8.5
16.5
9.8
0.88
56.4
56.4
21.3
17.0
128.9
174.3
20,683
23,806
15,664
7,087
1,591
48,149
22,722
-
25,427
-873
26,300
-12
26,288
5,388
20,900
786
277,631
228,538
1,723,025
449,292
324,618
296,867
4,886
234,672
3,539,528
155,528
220,371
911,852
758,375
405,080
400,596
322,726
3,094
164,531
29,120
14,339
153,916
3,539,528
10.0
22.2
13.6
0.89
47.2
47.2
22.6
17.6
241.6
172.2
19,768
99
98
66
45
92
110
-
76
-
76
-
75
88
72
99
61
138
103
93
85
127
294
102
101
95
119
98
98
82
97
129
130
124
79
100
97
101
105
22,028
14,183
8,607
3,140
47,959
22,642
-
25,317
-3
25,320
37
25,357
5,500
19,858
663
200,544
244,474
1,689,155
509,678
343,337
285,398
19,039
192,046
3,483,670
155,085
199,724
859,435
726,732
392,512
478,301
314,977
2,816
149,641
37,831
14,343
152,272
3,483,670
9.0
20.2
13.1
0.86
47.2
47.2
21.8
16.3
214.2
162.8
19,303
21,402
15,018
6,848
2,343
45,611
23,237
4.601
17,773
57
17,716
46
17,762
4,639
13.123
607
75,221
216,303
1,609,384
547,019
343,304
265,572
27,645
208,431
3,292,878
137,068
177,456
816,762
694,519
363,931
471,131
285,030
5,520
140,640
39,991
11,317
149,513
3,292,878
8.0
12.8
8.5
0.88
61.0
50.9
21.0
16.1
185.2
153.2
19,049
22,198
14,482
6,895
1,755
45,330
23,972
9.098
12,260
2,788
9,472
-1,503
7,969
4,020
3,948
261
63,786
290,095
1,563,729
742,512
330,994
268,450
32,329
161,120
3,453,015
126,800
400,618
763,441
655,965
330,207
550,629
288,352
4,950
138,642
41,028
5,675
146,708
3,453,015
5.5
3.8
2.5
0.95
73.0
52.9
19.3
15.1
167.4
146.8
18,603
The financial highlights represent alternative performance measures that are non-IFRS measures. Note 3 provides an explanation of differences in the presentation between IFRS
and the financial highlights. For a description of the alternative performance measures used and definition of ratios, see Definition of Alternative Performance Measures on page 65.
Danske Bank / Annual Report 2018
09
Executive summary
“2018 was a challenging year for Danske Bank. The serious and demanding issue concerning the terminated
portfolio of non-resident customers in Estonia triggered justified criticism from our stakeholders and led to a
number of changes at management level. We must use the lessons learned from this case to prevent something
similar from ever happening again. That is why in coming years we will further strengthen our efforts within
compliance, financial crime and anti-money laundering activities to become best in class among our peers,”
says Jesper Nielsen, Interim Chief Executive Officer and continues:
“From a financial point of view, the year was characterised by continued growth in the Nordic economies,
and we saw good demand for loans, especially from commercial customers and within home finance. The
financial markets saw significant uncertainty throughout the year, however. This affected net trading income,
and combined with a rise in costs – related, among other things, to the Estonia case, the donation of 1.5 billion
kroner and our compliance activities - this meant that net profit for 2018 came out lower than estimated at the
beginning of the year”.
A challenging year
2018 was a challenging year for Danske Bank. The
serious issues related to the terminated portfolio1
of non-resident customers at the Estonian branch
required significant management attention and had a
negative impact on our business in a number of ways
as it caused considerable concern and criticism from
a wide range of stakeholders. We offer our sincere
apologies for our failures and the implications the case
has had. It is clear that we have failed to live up to our
responsibility in this matter, not only in not being able to
efficiently prevent suspicious activities and transactions
from taking place in Estonia, but also in our inability to
understand and address the issues efficiently as they
came to light.
These failures have placed us in a challenging position,
with stakeholders from customers and shareholders
to regulators and the general public not only criticising
past events but also questioning our ethics and culture
as well as our determination to handle the matter with
adequate levels of urgency and transparency. We
remain fully committed to taking all necessary steps to
understand what led to the failures and to make all the
changes needed, however big or small they may be, to
prevent something similar from happening again.
On the basis of learnings from the Estonia case and a
general review of our efforts and ambitions within AML,
we have decided to accelerate our AML improvement
efforts over the next three years through earmarked
investments of up to DKK 2 billion. The purpose is to
further accelerate our efforts to improve both the quality
and the efficiency of our controls as well as to integrate
the processes into our customer journeys as part of
our ambition to offer the best customer experience. We
acknowledge that we have a big task in fully restoring
all of our stakeholders’ confidence and trust in us, and
we will work tirelessly towards that goal in the years to
come.
During the year, our dedicated employees have done
a tremendous job, despite the difficult circumstances,
working hard every day to make sure that our
customers’ concerns were addressed, their needs met
and that they continued to receive the best service
possible.
Solid underlying business
Danske Bank ended 2018 with a net profit of DKK 15
billion, in line with our latest outlook announcement,
against DKK 20.9 billion the year before. We maintain
our dividend policy of paying out between 40% and 60%
of net profit, and we propose a dividend of DKK 8.5 per
share, corresponding to 51% of reported net profit. This
is compared to a total payout of 78% for 2017 including
the share buy-back programme of DKK 6.9 billion.
Our underlying business remained solid and saw
good developments. Economic momentum remained
1 Terminated portfolio as defined in the report by Bruun & Hjejle of 19 September 2018
10
favourable and despite intense competition, our strategy
of pursuing profitable growth in our Nordic business
led to good growth and lending activity with both new
and existing customers. Partnership agreements and
new mortgage products were some of the drivers of the
growth in lending. Impairments remained very low, with
reversals of DKK 650 million.
The decrease in net profit from 2017 was driven
mainly by difficult conditions on the financial markets,
which had a negative impact on trading as well as on
fee income. The results also reflect the donation of the
estimated gross income from the non-resident portfolio
in Estonia from 2007 to 2015 of DKK 1.5 billion.
The return on shareholders’ equity after tax was 9.8%,
against 13.6% in 2017 – 10.8% adjusted for the
donation.
As part of our response to the powerful structural
changes that shape the financial services market, we
launched our new Nordic Integrator strategy in the
second quarter of 2018. This will help us take an even
more active role in making our customers financially
confident and will contribute to societal growth and
stability. We want to become integral to our customers
lives, integrated closer into Nordic societies and more
integrated internally across our organisation. At the
same time, we launched a new organisational structure
in order to accelerate the execution of the strategy.
The customer development and satisfaction rates were
also impacted by the Estonia case. On a net basis,
approximately 11,000 core Danish retail customers
(NemKonto customers) left Danske Bank in 2018,
equivalent to 0.8% of our Nem Konto customer base
in Denmark. The number of commercial customers
in Denmark has been flat. We have taken every
opportunity to proactively reach out to our customers
and engage in dialogue with them. At our branches
across Denmark, we held around 150 dialogue
meetings with retail, commercial, corporate and
institutional customers. We will continue these efforts
in 2019 and remain committed to our target of being
number one in customer experience by 2020.
Despite our efforts, customer satisfaction has been
negatively impacted, especially among retail customers
in Denmark where satisfaction is significantly below our
target. We have also seen a negative impact among
corporate customers in Denmark, and, to a slightly lower
degree, in Sweden. Customer satisfaction remains a key
priority for Danske Bank, and we will continue to work
towards rebuilding customers’ trust in us.
In line with our Nordic strategy, Banking Nordic saw
continually good growth throughout the year in all
markets. Lending was up 5% year on year due to
our partnership agreements with unions and strong
business activity. In November, we renewed our
partnership agreement with Akademikerne in Norway
and entered into a new partnership with the Norwegian
engineers’ union, Tekna. At Banking DK, we saw stable
lending growth of 1% and increasing demand for our
new and improved value propositions within home
finance products.
While we saw lending growth in all our Nordic markets,
net interest income was slightly lower than the year
before due to adverse currency effects in Sweden and
Norway as well as some margin pressure.
Due to challenging market conditions throughout
the year, at DKK 4.7 billion, net trading income was
significantly lower than the year before, when trading
income was very strong. Rates trading at Corporates
& Institutions in particular was affected by the difficult
market conditions.
At Wealth Management, lower investment and risk
results in the health and accident business had a
negative effect on trading and other income. Despite
the difficult market conditions, Wealth Management
saw Assets under Management increase by 3% to DKK
1,575 billion. This was due mainly to the acquisition
of SEB Pension Danmark, which was finalised in June.
Danica Pension is now in the process of welcoming
more than 300,000 new customers from SEB Pension
Danmark and making sure that the transition is as
smooth as possible for our new customers.
Expenses were at DKK 25 billion, significantly higher
than the year before. This was due primarily to the DKK
1.5 billion donation related to the Estonia case, which
was booked in the third quarter of 2018. Expenses
were impacted by the cost of the Estonia investigations
Danske Bank / Annual Report 2018 11
higher activity level. The outlook includes costs of
DKK 0.3 billion specifically earmarked for AML
digitalisation efforts.
Loan impairments are expected to be higher.
We expect net profit for 2019 to be in the range of
DKK 14-16 billion. This excludes any potential gain on
the prospective sale of Danica Pension Sweden.
The outlook is subject to uncertainty and
macroeconomic developments.
We maintain our long-term ambition of being in the top
three among major Nordic peers in terms of return on
shareholders’ equity.
as well as continued costs for compliance, combating
financial crime and regulatory requirements. We also
saw integration costs and operating expenses related to
the acquisition of SEB Pension Danmark.
Credit quality remained strong across the business
units, with almost all units seeing a reversal of
impairments in 2018. In total, net reversals of DKK 650
million were recognised, against net reversals of DKK
873 million in 2017.
On 11 December, we announced the prospective sale
of our Swedish pension activities to a consortium of
investors. However, Danske Bank and the new owners
of Danica Pension Sweden will continue to cooperate to
the benefit of our customers in Sweden. The price was
DKK 1.9 billion, and the sale awaits final approval from
relevant authorities. This is expected in the first half of
2019. The sale did not have any significant financial
impact in 2018.
Our capital position remains strong, with a total capital
ratio of 21.3% and a CET1 capital ratio of 17.0% at 31
December.
Our regulatory CET1 requirement stands at 14.0% while
Danske Bank’s own CET1 capital target remains at
around 16% in the short to medium term.
At 31 December, DKK 6.9 billion of the announced DKK
10 billion share buy-back programme had been bought
back. The programme was discontinued on 4 October.
At 31 December 2018, our liquidity coverage ratio
stood at 121%.
Financial outlook for 2019
We expect net interest income to be at around the
level in 2018, as volume growth will be offset by higher
funding costs and margin pressure. This is subject to
changes in funding spreads.
Net fee income is expected to be higher, due mainly to
the effect of the acquisition of SEB Pension Danmark
and subject to customer activity.
Expenses are expected to be at around the level in 2018
including the donation of DKK 1.5 billion due to higher
costs related to AML, SEB Pension Danmark, VAT and a
Danske Bank / Annual Report 2018 12
Estonia case
The Estonia case has been a major focus point for Danske
Bank and all our stakeholders in 2018.
The findings from the investigation of the non-resident
portfolio at the Estonian branch, published in September,
showed that a series of major deficiencies in governance
and control systems in Danske Bank made it possible
to use Danske Bank’s branch in Estonia for suspicious
transactions.
The approximately 10,000 customers in the non-resident
portfolio carried out transactions for around EUR 200
billion in the period from 2007 to 2015, but only a small
number of these customers and transactions were
reported as suspicious to the authorities at the time. The
investigation includes additional customers with non-
resident characteristics. In September, it was reported
that most of the customers investigated by that time
(6,200 customers, starting with the customers hitting
the most risk indicators) should have been classified as
suspicious and reported to authorities.
It is clear that we have not lived up to our own
standards, our responsibility and the expectations
of our stakeholders in this case. We did too little too
late both in terms of closing the portfolio down and
realising the seriousness and scope of the problems.
We failed to grasp the magnitude of the case and to
adjust our response and communication accordingly.
This is disappointing and unacceptable, and we offer
our apologies to all of our stakeholders – not least our
customers, investors, employees, regulators and society
in general. We acknowledge that we have a big task
ahead of us in regaining their trust. We are working
hard to get to the bottom of the matter and to learn from
it, so that we can take all necessary steps to prevent
something similar from happening again. In this process,
we wish to be as transparent as possible and we share all
relevant findings with the authorities on an ongoing basis.
The case has led us to take a number of actions:
•
Several members of management as well as staff
connected with the case have left Danske Bank,
among these former CEO Thomas F. Borgen. On the
Board of Directors, the Chairman of the Board and the
Chairman of the Audit Committee were replaced in
December. Another two members will step down at
the upcoming Annual General Meeting.
•
•
As reported in September, eight former employees of
our Estonian branch have been reported to the police,
and a further 42 employees and agents have been
reported to the Estonian FIU.
We have strengthened our anti-money laundering
measures and financial crime compliance efforts
•
•
•
•
•
and continue to do so. We have also increased
the number of people working to combat financial
crime considerably. We are using this experience
to learn and to improve our efforts in financial crime
compliance in order to prevent something similar from
happening at Danske Bank again.
On the basis of learnings from the Estonia case and
following a full review at the end of the year of our
efforts and ambitions within AML, we have decided
to accelerate our AML improvement efforts over the
next three years through earmarked investments of
up to DKK 2 billion. The purpose is to improve both
the quality and the effectiveness of our controls and
to integrate the processes into the customer journey
as part of our ambition to offer the best customer
experience.
Our governance and control systems have also been
improved. Danske Bank’s new Chief Compliance
Officer is a member of the Executive Board and
reports directly to the Board of Directors and day-
to-day to the CEO. Furthermore, on top of basic and
mandatory AML training, our new AML Academy
provides specialised training in detecting and
combating financial crime for relevant employees.
We have also taken several steps to increase our
financial strength. We have increased our Pillar II
requirement by DKK 10 billion and have cancelled our
share buy-back programme, resulting in an additional
DKK 3.1 billion of CET1 capital. Furthermore, we will
not launch a share buy-back programme in 2019.
The estimated gross income from the non-resident
portfolio in Estonia in the period from 2007 to
2015 of DKK 1.5 billion has been set aside net of
confiscation as a donation for measures to combat
financial crime. The donation will be transferred to
an independent foundation, which will be set up to
support initiatives aimed at combating international
financial crime, including money laundering. The
foundation will be set up independently from Danske
Bank with an independent board.
It has been very important to us to engage with
our customers and address any concerns and
questions that they may have. At the end of 2018,
we had held around 150 town hall meetings at our
branches all across Denmark. We also encourage
our staff across the organisation to use all customer-
facing opportunities to talk about the issue and the
measures we have taken to prevent something similar
from happening again. Our customer satisfaction
scores have been adversely impacted, especially
among Danish retail customers. We remain
committed to regaining the trust of our customers, but
we acknowledge that this will not happen overnight.
Danske Bank / Annual Report 2018 The investigation into the customers in the terminated
non-resident portfolio of the Estonian branch continues,
and we keep the authorities informed of all progress on an
ongoing basis.
The timing of the completion of the investigations, the
outcome and the subsequent discussions with the
authorities are subject to uncertainty. It is not yet possible
to reliably estimate the timing or amount of any potential
settlement or fines, which could be material.
Below is a short summary of the key events related to the
Estonia case in 2018 and 2019:
•
On 3 May, the Danish FSA published its assessment
of the role of Danske Bank’s management and senior
employees in relation to the Estonian case. Danske
Bank received eight orders and eight reprimands
from the FSA and immediately launched measures to
comply with all requirements.
•
•
•
•
•
On 18 July, we announced that we do not wish to
benefit financially from suspicious transactions
in Estonia in the period from 2007 to 2015.
Consequently, we decided to donate the estimated
gross income from the non-resident portfolio in that
period to an independent foundation supporting
initiatives to combat international financial crime.
On 19 September, we published the findings of the
Estonia investigations. We also announced the
resignation of CEO Thomas F. Borgen, and on 1
October, he was relieved of his duties. Jesper Nielsen
was appointed Interim CEO as of the same date.
On 4 October, it was announced that we had
received requests for information from the US
Department of Justice (DoJ) in connection with
a criminal investigation relating to our Estonian
branch conducted by the DoJ. We also remain under
investigation by the Danish FSA and the Estonian
FSA, as well as the Danish State Prosecutor for
Serious Economic and International Crime (SØIK) and
the Estonian Office of the Prosecutor General (the
Estonian FIU). We cooperate fully with all authorities.
On 4 October, the Danish FSA ordered us to reassess
our solvency need with a view to adding an absolute
minimum of DKK 10 billion to our Pillar II requirement.
In addition to increasing our Pillar II requirement,
we revised our CET1 capital ratio target from 14-
15% to around 16% and our total capital ratio
target from above 19% to above 20%. At the same
time, the share buy-back programme for 2018 was
discontinued.
The Estonia case has also impacted our ratings.
Following the publication of the findings of the
investigations, Moody’s downgraded Danske Bank’s
issuer rating from A1 to A2 and changed the outlook
to negative, while Fitch and S&P both maintained their
issuer ratings of Danske Bank but also changed the
outlook to negative.
13
•
•
•
•
•
•
•
On 2 November, we published the results of the EU-
wide stress test conducted by the European Banking
Authority. In the adverse scenario, Danske Bank had a
CET1 capital buffer of almost DKK 10 billion. The test
took into account the capital need and assumed costs
in relation to the Estonia case, within the scope of the
Danish FSA decision of 4 October 2018.
On 19 and 21 November, Interim CEO Jesper Nielsen
participated in AML hearings at the Danish and
European parliaments, respectively. He answered
questions from politicians regarding the Estonia case
and our efforts to prevent something similar from
happening again.
On 28 November, SØIK presented Danske Bank with
a preliminary charge.
On 7 December, an Extraordinary General Meeting
was held to elect two new members to the Board
of Directors. These were Karsten Dybvad and Jan
Thorsgaard Nielsen. They replaced Ole Andersen
and Jørn P. Jensen, who both stepped down. Karsten
Dybvad is now Chairman of the Board of Directors.
On 9 January 2019, an action was filed in New York
by an alleged holder of Danske Bank’s American
Depositary Receipts, representing its ordinary
shares, against Danske Bank. The complaint seeks
unspecified damages on behalf of a putative class of
purchasers of Danske Bank’s American Depositary
Receipts between 9 January 2014 and 23 October
2018. Danske Bank intends to defend itself against
the claims. The timing of completion of the lawsuit
and the outcome are uncertain.
On 11 January, we announced that we had received
a letter from the French Tribunal de Grande Instance
de Paris summoning Danske Bank to an interview to
discuss matters relating to the ongoing investigation
into organised money laundering of tax evasion
proceeds. The letter states that the judge envisages
placing Danske Bank under formal investigation after
having previously changed Danske Bank’s status in
the case to that of an assisted witness.
On 16 January, we issued USD 3 billion worth of
new funding in non-preferred senior format. The
transaction demonstrated that despite the Estonia
case, Danske Bank retains good market access.
We acknowledge, however, that current spreads are
significantly wider than those applying to our NPS
issuance in June 2018 and that this is due partly
to the negative impact of the Estonia case on our
reputation.
As is clear from the above, the Estonia case has had a
substantial impact on Danske Bank, and the case will
probably continue to impact us in 2019. However, we
remain dedicated to learning from this case in order
to prevent anything like this from happening again.
Consequently, going forward we will continue our
efforts to get to the bottom of the case and will keep the
authorities informed of all progress and findings.
Danske Bank / Annual Report 2018 14
Closer to customers, colleagues
and the Nordic societies
Danske Bank / Annual Report 2018 15
Danske Bank / Annual Report 2018 16
Danske Bank / Annual Report 2018
Strategy execution
Strategy execution
Danske Bank is a Nordic universal bank with strong local
roots and bridges to the world. For almost 150 years,
we have played an important role in the communities
we serve and in the lives of our customers. Deeply
engrained in our Nordic home markets, we have a strong
position to help our customers meet their financial
objectives by providing banking services based on
our deep financial competence and dedicated focus
on developing leading and innovative solutions. Our
universal banking model provides a diversified platform
that allows us to be competitive across our core
markets.
offers consumers and businesses a coherent solution,
tailored to their needs, whenever and however it feels
most relevant to them.
In addition to integrating with our customers, we also
assume the role of integrating with society, which, given
the Estonia case, has become even more important
for us. There is a growing awareness of the role of
financial institutions in promoting sustainable growth
and a positive development in society. To us, that
means becoming better at utilising our assets and
competencies to drive sustainable progress and create a
positive impact on the societies that we are part of.
The financial services sector is, however, undergoing
significant changes. We believe that six drivers of
change in particular are likely to affect the financial
services landscape over the coming years:
•
A challenging macroeconomic environment
characterised by persistently low interest rate levels
Intensified competition and emergence of new
market entrants
Dramatically changing customer expectations and
behaviour
Continued digitalisation and emergence of new
technologies
Increasing regulatory requirements
Increased expectations from society and external
stakeholders
•
•
•
•
•
Become
integral to our
customers’
lives
To remain competitive and relevant for customers and
all other stakeholders in the future, we need to adapt to
these changes. This also offers significant opportunities.
For this reason, we launched our Nordic Integrator
strategy in May 2018, with the vision of becoming a
trusted financial partner and setting new ambitions for
the value we want to create for all our stakeholders.
The Nordic Integrator bank
With our new strategy, we are working towards
becoming a Nordic Integrator bank, taking an even more
active role in making our customers financially confident
and contributing to societal growth and stability. We
want to become integral to our customers lives, more
closely integrated into the Nordic societies and more
integrated internally across our organisation.
We know from our customers that financial decision-
making can be overwhelming, with a fragmented
landscape of solutions to choose from. We believe that
customers now have an even greater need for a trusted
partner that integrates the various solutions and helps
them navigate. Given our history in the Nordic markets,
we are uniquely positioned to be the integrator that
Integrate
with Nordic
societies
Integrate
internally
Finally, because we want to be the best possible Danske
Bank for our customers, we have begun a process
of internal integration. This has led us to change our
organisational structure to better serve our market
areas and cater to customers’ needs. Alongside
this, we have initiated a cultural journey to foster the
behaviour necessary to deliver on our Nordic Integrator
ambitions, allowing for better a customer experience and
addressing the Estonia case properly in the organisation.
To realise the Nordic Integrator vision, we have identified
eight strategic priorities that will guide our efforts in the
coming years:
• Win on customer experience
• Make compliance a business enabler
•
• Build a harmonised Nordic core
• Drive efficiency and agility
• Make partnerships a growth lever
Increase the focus on people and culture
Danske Bank / Annual Report 2018
17
• Lead data and analytics
•
Integrate societal impact into our business model
Going forward, our business units will work within
this framework to create the best possible customer
experience. Examples of the initiatives launched in
2018 are included below.
Win on customer experience
Customers need to feel recognised and experience
banking as easy. We are striving to give proactive
and relevant guidance that helps customers gain an
overview and become confident that they will reach their
financial goals.
As an example of our current efforts in relation to our
commercial customers, we have launched the financial
platform District. Our aim is to give customers a main
hub in which they can handle all of their day-to-day
finances as well as major financial decision-making.
As another example, in 2018 we started offering our
commercial customers Industry Insights reports as an
integral part of our advisory services. These reports
give commercial customers an overview of trends and
industry developments, helping them make informed
strategic decisions.
In order to be available to customers where and when
they prefer, we have made it easy to book meetings
directly with an adviser via our digital platforms. We
will continue to launch more initiatives to improve the
experience for our customers.
Make compliance a business enabler
Customers and society expect us to be a solid, balanced
and predictable institution. This entails continuously
contributing to a healthy and efficient financial system.
The Estonia case has demonstrated that there are
important learnings for us in this context. Accordingly,
compliance will become an even more important topic
for us in the time ahead and will continue to require
increasing efforts and investments.
One initiative is Profile in Danske Mobile Banking,
a GDPR-compliant feature that makes it easy for
customers to get full transparency on the data that
Danske Bank stores about them. Customers are able to
request a transfer of their data with just one tap.
Another example is the implementation of a new
investment proposition in Finland designed on the
basis of compliance with MiFiD2 regulation. The
solution provides customers with a choice of innovative
investment propositions and the flexibility to select
only the products and advisory services they need with
increased transparency on the associated benefits and
costs.
Increase the focus on people and culture
Our people are our main assets, and we have a skilled
and motivated workforce as well as a strong talent pool
to ensure that we continue to meet changing customer
needs and deliver a winning customer experience.
We are continuously building capabilities for the future
to bring more benefits to our customers. Furthermore,
the expectations that future generations have of
their work environment continue to evolve, requiring
us to explore new ways of ensuring high employee
satisfaction through commitment and engagement.
Build a harmonised Nordic core
Customers should experience us as serving them
efficiently, keeping up with their latest needs and
frequently offering new and innovative solutions. This
requires us to strengthen the way we operate.
Customers should also experience us as one bank
regardless of their preference for how they interact with
us. As a result, we are harmonising our service model
across channels and across the Nordic countries. This
will provide a seamless customer experience that is
independent of how, when and where customers prefer
to interact with us.
We participate in sector collaborations that benefit
customers through improvements to the financial
infrastructure. To give customers the benefit of faster
payments processing, we are part of the pan-Nordic
’P27’ payments sector initiative, which seeks to
modernise and standardise the payments infrastructure
in the Nordic countries.
Similarly, we are part of the Nordic KYC Utility sector
collaboration, which seeks to make compliance simpler
for new customers by reducing the processing time for
onboarding.
Drive efficiency and agility
We should help make our customers’ lives easier.
Therefore, we strive to serve our customers swiftly
and meet their needs as they emerge. This means
that we are constantly working towards becoming
more efficient and agile in the way we work. As part of
this, we established a central Innovation unit in 2018,
18
tasked with exploring and learning about future unmet
customer needs.
recommendations available to our customers, we make
them feel safe and confident about saving for retirement.
Similarly, we are upgrading our financial markets digital
platform, resulting in faster execution and higher accuracy
for the benefit of our customers.
Integrate societal impact into our business model
To create a positive impact on the societies we are part
of, we are incorporating societal impact as a core element
of our business model. A more detailed description
of our societal impact efforts is available in Corporate
Responsibility 2018.
In 2018, we launched sustainable impact funds and
financing solutions, and we sharpened our policies for
investment funds by excluding investments in enterprises
operating in nuclear and tar sands for instance. We made
sustainable financing available to retail and commercial
customers in the form of green investment products, and
we are actively supporting the international Task Force on
Climate-related Financial Disclosures.
We continue to support societal growth by supporting
entrepreneurs, connecting them with relevant advisory
services via our +impact initiative and a specially designed
accelerator programme for selected social entrepreneurs.
To make financial decision making easier and faster
for our commercial customers, we have expanded our
Future Finance offering, whereby commercial customers
can apply for, and be granted, a new loan within seconds.
Similarly, for our personal customers, we continued to
expand the use of automated credit decision tools so
that customers seeking home finance or a consumer
loan are now able to get loan approval on the spot.
Make partnerships a growth lever
Partnerships benefit our customers through new skills
and technology that can be used to improve their
banking experience. We recognise partnerships as a
key driver of growth, either as a means of reaching new
customer groups or as a source of new competencies,
ideas or technologies to the benefit our customers.
During 2018, we expanded our partnership with
Akava and Frank in Finland, renewed our partnership
with Akademikerne in Norway and entered into a new
exclusive partnership with Norway’s largest union,
Tekna. With these partnerships, new customer groups
can benefit from our products and services.
Additionally, we entered into a new Nordic partnership
with Tryg Insurance, through which we will ensure
access for our customers to high-quality and innovative
insurance offerings on competitive terms.
Finally, we entered into partnerships with a number of
fintech companies such as Spiir, Minna Technologies
and TomorrowTech. With Spiir we are able to give
customers an overview of not only their Danske Bank
products, but all their accounts across various banks.
Lead data and analytics
Customers expect us to approach them with messages
and advice tailored to their individual needs. Using
advanced analytics, we are able to identify emerging
customer needs and concerns and, in turn, adjust our
interactions to be more relevant. Additionally, we are
using advanced analytics to improve our ability to detect
and prevent fraud.
In Danica Pension, we are using analytics to help
our customers stay ’one step ahead’ when their life
situation changes. By making proactive advice and
Danske Bank / Annual Report 2018 Danske Bank / Annual Report 2018
19
20
Danske Bank / Annual Report 2018
Financial review
Income statement
(DKK millions)
Net interest income
Net fee income
Net trading income
Other income
Total income
Operating expenses
Profit before loan impairment charges
Loan impairment charges
Profit before tax, core
Profit before tax, Non-core
Profit before tax
Tax
Net profit for the year*
2018
2017
Index
18/17
23,571
15,402
4,676
716
44,365
25,011
19,354
-650
23,806
15,664
7,087
1,591
48,149
22,722
25,427
-873
20,004
26,300
-282
-12
19,722
26,288
4,721
5,388
15,001
20,900
Q4
2018
5,895
4,078
938
20
Q3
2018
5,852
3,777
1,236
235
10,931
11,100
6,243
4,688
-43
4,731
-286
4,445
1,029
3,415
192
7,367
3,733
100
3,632
-44
3,588
1,107
2,482
198
Index
Q4/Q3
101
108
76
9
98
85
126
-
130
-
124
93
138
97
99
98
66
45
92
110
76
-
76
-
75
88
72
99
Attributable to additional tier 1 etc.
781
786
*From financial highlights, see Definition of Alternative Performance Measures on page 65.
In 2018, Danske Bank Group delivered a profit before
tax from core activities of DKK 20.0 billion, a decrease
of DKK 6.3 billion, or 24% from the level in 2017. The
result was primarily affected by a decrease in net trading
income of DKK 2.4 billion, and the one-off expense of
DKK 1.5 billion relating to the donation of the estimated
gross income from our non-resident portfolio in Estonia
in the period from 2007 to 2015. In addition, the
result was negatively affected by increased compliance
costs, including costs relating to the Estonia case, the
integration of SEB Pension Danmark, and the fact that
Krogsveen, which was sold in the first quarter of 2018,
no longer contributed to the results.
Profit before tax in the IFRS income statement
amounted to DKK 19.3 billion, a decrease of 26% from
the level in 2017.
Income
Total income amounted to DKK 44.4 billion, a decrease
of 8% from the level in 2017. Net trading income was
negatively affected by challenging market conditions.
Net interest income totalled DKK 23.6 billion and
decreased 1% from the level in 2017. Net interest
income benefited from growth in lending and deposit
volumes, increased deposit margins as a result of
developments in market rates, and lower liquidity costs.
However, the positive effects were offset by a decrease
in lending margins due to developments in market rates,
currency effects, higher capital costs as a result of the
issuance of additional tier 1 capital at the end of the
second quarter of 2018 and the non-preferred senior
debt issued during the second and third quarters of
2018. The transfer of Baltic customers to the Non-core
unit also reduced net interest income.
Net fee income amounted to DKK 15.4 billion and
decreased 2% from the level in 2017. Net fee income
was adversely affected by a decline in capital markets
related activity, which was partly mitigated by higher
net fee income following the acquisition of SEB Pension
Danmark.
Net trading income totalled DKK 4.7 billion, a decrease
of 34% from the level in 2017. In particular, Corporates
& Institutions (FI&C and Capital Markets) and Wealth
Management saw a decrease. FI&C was negatively
affected by difficult market conditions, resulting in lower
income on customer transactions, and lower net trading
income in credit markets due to challenging secondary
market conditions. Wealth Management was affected
by a lower investment result in the health and accident
business.
Other income amounted to DKK 0.7 billion, against DKK
1.6 billion in 2017. Income in 2017 included income
from Krogsveen, the Norwegian real estate agency
chain, which was sold in the first quarter of 2018. In
addition, a lower risk result in the health and accident
business at Wealth Management adversely affected
Other income.
Expenses
Operating expenses amounted to DKK 25.0 billion,
an increase of 10% from the level in 2017. Operating
expenses benefited from lower activity-related costs
and efficiency measures, which were, however, more
than offset by the expense for the DKK 1.5 billion
donation. Adjusted for the donation, operating expenses
increased 3%. Higher compliance costs, including
costs related to the Estonia case, expenses resulting
from the integration of SEB Pension Danmark, and
continued initiatives to meet our high ambitions within
digital transformation also contributed to the increase
in expenses. In 2017, expenses benefited from a one-
off gain related to the amended pension liability at the
Northern Ireland unit.
Loan impairments
Loan impairments remained low, with net reversals in
2018 of DKK 650 million in core activities, against net
reversals of DKK 873 million in 2017, as credit quality
remained solid, supported by stable macroeconomic
conditions and higher collateral values in most markets.
In the IFRS income statement for 2018, loan
impairments amounted to a net reversal of DKK 387
million. The figure in the IFRS income statement includes
impairment charges at the Non-core unit and the effect
on loans granted by Realkredit Danmark of DKK 400
million resulting from the change in valuation following
the implementation of IFRS 9.
At Banking DK, reversals in 2018 primarily reflected
improved credit quality for retail and commercial
customers, except for agricultural customers. Reversals
related to legacy non-performing loans for which
restructurings during the year have had a positive
outcome, thus allowing impairment reversals. In general,
the Banking Nordic portfolio saw improved credit quality.
Corporates & Institutions saw net impairments due to
restructurings in relation to single name exposures in
the oil and gas industry. At the Northern Ireland unit,
the low amount of impairment charges related to a few
cases in the first quarter of 2018.
Loan impairment charges
(DKK millions)
2018
2017
% of
net credit
exposure*
Charges
-758
-159
278
-42
26
5
-650
-0.09
-0.03
0.07
-0.05
0.06
0.29
-0.03
% of
net credit
exposure*
-0.12
0.04
0.07
-0.12
-0.55
0.01
-0.04
Charges
-1,065
221
311
-93
-247
-
-873
Banking DK
Banking Nordic
C&I
Wealth
Management
Northern Ireland
Other Activities
Total
* Defined as net credit exposure from lending activities in core segments, excluding
exposures related to credit institutions and central banks and loan commitments.
Danske Bank / Annual Report 2018
21
Tax
Tax on profit for the period amounted to DKK 4.7 billion,
or 23.9% of profit before tax, against 20.5% of profit
before tax for 2017. The increase in the effective tax
rate is due to the expense for the donation of DKK 1.5
billion, which we have found is not tax deductible.
Net profit
Net profit amounted to DKK 15,001 million, a decrease
of 28% from the level in 2017. Net profit in the IFRS
income statement amounted to DKK 14,689 million
and was thus DKK 312 million lower due to the IFRS
9 implementation effect on loans granted by Realkredit
Danmark. See Definition of Alternative Performance
Measures on page 65 for more information.
Q4 2018 vs Q3 2018
In the fourth quarter of 2018, the Group posted a net profit of
DKK 3.4 billion, against DKK 2.5 billion in the third quarter.
Net interest income amounted to DKK 5.9 billion, an increase of
1% from the level in the third quarter. Net interest income saw a
positive effect from lending volume growth, deposit margins as a
result of developments in market rates, and lower capital costs.
However, the positive effect was partly offset by a decrease in
lending margins, due primarily to developments in market rates,
and a decrease in deposit volumes.
Net fee income amounted to DKK 4.1 billion, an increase of 8%
from the level in the third quarter. Net fee income at Wealth
Management increased as a result of performance fees from
asset management.
Net trading income amounted to DKK 0.9 billion, a decrease
of 24% from the level in the third quarter. At Corporates &
Institutions, net trading income in FI&C decreased due to a
continuation of challenging market conditions, and at Wealth
Management, we saw a lower investment result in the health
and accident business. Net trading income benefited from
seasonal mortgage refinancing at Banking DK.
Other income amounted to DKK 20 million in the fourth quarter
of 2018. The decrease was due primarily to a lower risk result
in the health and accident business at Wealth Management.
Operating expenses amounted to DKK 6.2 billion, a decrease
of 15% from the level in the third quarter. Adjusted for the
expense for the DKK 1.5 billion donation, operating expenses
increased 6%. Efficiency measures were more than offset
by higher compliance costs, including costs relating to the
investigation into matters at the Estonian branch, and increased
costs at Wealth Management primarily due to costs regarding
the integration of SEB Pension Danmark and the sale of Danica
Pension in Sweden.
Loan impairments showed a net reversal of DKK 43 million, due
to continued reversals relating to legacy non-performing loans.
Loan impairments at Corporates & Institutions related to a few
single-name exposures, due primarily to ongoing restructurings
in the oil and gas industry. The underlying credit quality was
consistently strong and was supported by higher collateral
values.
22
Danske Bank / Annual Report 2018
Balance sheet
Lending (end of period)
(DKK billions)
Banking DK
Banking Nordic
Corporates & Institutions
Wealth Management
Northern Ireland
Other Activities incl. eliminations
Allowance account, lending
2018
2017
878.7
586.7
198.3
77.7
49.8
-3.8
17.9
869.7
561.2
199.5
75.0
46.3
-9.4
19.4
Total lending
1,769.4
1,723.0
Deposits (end of period)
(DKK billions)
Banking DK
Banking Nordic
Corporates & Institutions
Wealth Management
Northern Ireland
Other Activities incl. eliminations
Total deposits
Covered bonds
(DKK billions)
Bonds issued by Realkredit Danmark
Own holdings of bonds
Total Realkredit Danmark bonds
Other covered bonds issued
Own holdings of bonds
Total other covered bonds
Total deposits and issued mortgage
bonds etc.
Lending as % of deposits and issued
mortgage bonds etc.
2018
2017
282.6
226.8
260.8
66.6
62.6
-4.9
894.5
278.1
225.2
282.9
65.8
59.0
0.8
911.9
2018
2017
741.1
57.8
798.9
182.6
57.5
240.1
758.4
33.6
792.0
168.1
33.5
201.7
1,933.5
1,905.5
Index
18/17
101
105
99
104
108
-
92
103
Index
18/17
102
101
92
101
106
-
98
Index
18/17
98
172
101
109
172
119
101
Q4
2018
878.7
586.7
198.3
77.7
49.8
-3.8
17.9
Q3
2018
874.8
590.3
186.6
77.5
50.9
-4.2
18.0
1,769.4
1,757.9
Q4
2018
282.6
226.8
260.8
66.6
62.6
-4.9
Q3
2018
281.7
227.7
272.5
68.1
63.5
-4.7
894.5
908.9
Q4
2018
741.1
57.8
798.9
182.6
57.5
240.1
Q3
2018
738.3
59.1
797.4
174.7
40.1
214.8
1,933.5
1,921.1
Index
Q4/Q3
100
99
106
100
98
-
99
101
Index
Q4/Q3
100
100
96
98
99
-
98
Index
Q4/Q3
100
98
100
105
143
112
101
91.5
90.4
91.5
91.5
Danske Bank / Annual Report 2018
23
Lending
At the end of 2018, total lending was up 3% from the
level at the end of 2017. Lending increased in almost all
markets and across all geographies.
Market shares of deposits
(%)
In Denmark, new gross lending, excluding repo loans,
amounted to DKK 85.9 billion. Lending to retail
customers accounted for DKK 38.4 billion of this
amount.
Denmark (excl. repo)
Finland*
Sweden (excl. repo)*
Norway*
31 December
2018
31 December
2017
27.8
11.0
4.1
6.4
27.9
13.5
4.0
6.6
Our market share of total lending in Denmark, excluding
repo loans, was stable at 26.6% at the end of 2018.
In Sweden, our market share of lending rose 0.3
percentage points to 5.9%. Our market shares in Finland
and Norway decreased slightly (0.1 percentage points)
to 9.5% and 6.0%, respectively.
Market shares of lending
(%)
31 December
2018
31 December
2017
Denmark incl. RD (excl. repo)
Finland*
Sweden (excl. repo)*
Norway *
26.6
9.5
5.9
6.0
26.6
9.6
5.6
6.1
Source: Market shares are based on data from the central banks.
*The market shares for Finland, Sweden and Norway are based on data as
at 30 November 2018.
Lending equalled 91.5% of the total amount of deposits,
mortgage bonds and other covered bonds, against
90.4% at the end of 2017.
Deposits
At the end of 2018, total deposits were down 2%
from the level at the end of 2017. The decrease was
due primarily to a decrease in deposits at Corporates
& Institutions, due partly to the transfer of the Baltic
customers to the Non-core unit.
Our market share in Denmark decreased slightly (0.1
percentage points) to 27.8%. Our market share in
Sweden increased slightly (0.1 percentage points) to
4.1%. Our market share in Finland decreased from the
high level of 13.5% at the end of December 2017 to
11.0%. Our market share in Norway decreased 0.2
percentage points. The Group maintained its strong
funding position.
Source: Market shares are based on data from the central banks.
*The market shares for Finland, Sweden and Norway are based on data as at 30
November 2018.
Credit exposure
Credit exposure from lending activities in core segments
totalled DKK 2,392 billion, against DKK 2,688 billion
at the end of 2017. The decrease in credit exposure
from lending activities was owing primarily to the IFRS
9 reclassification and exclusion of DKK 223 billion of
repos and other loans in the trading units of Corporates
& Institutions from the credit exposure from lending
activities from 1 January 2018. The decrease was
partly offset by the inclusion of committed loan offers of
DKK 65 billion in the credit exposure and an increase
in lending, primarily at Banking Nordic. The remaining
decrease related primarily to exposures to central banks
and other banks, and the transfer of Baltic customers to
the Non-core unit.
Risk Management 2018, section 3, which is available at
danskebank.com/ir, provides details on Danske Bank’s
credit risks.
Credit quality
Credit quality remained solid in light of stable
macroeconomic conditions. At the end of 2018, gross
NPL was DKK 3.3 billion lower than at the end of 2017,
while net NPL was stable. The effect of new non-
performing loans at Corporates & Institutions was more
than offset by continued work-outs in the legacy portfolio.
The risk management notes on pp. 176-205 provide
more information about non-performing loans.
24
Non-performing loans (NPL) in core segments
(DKK millions)
31 December
2018
31 December
2017
Gross NPL
29,923
33,255
NPL allowance account
13,020
15,965
Net NPL
16,903
17,290
Collateral (after haircut)
15,296
14,703
NPL coverage ratio (%)
NPL coverage ratio of which
is in default (%)
NPL as a percentage of total
gross exposure (%)
85.0
96.2
86.1
96.8
1.2
1.2
The NPL coverage ratio is calculated as allowance account NPL exposures relative
to gross NPL net of collateral (after haircuts).
Accumulated impairments amounted to DKK 20.4
billion, including an IFRS 9 implementation effect of
DKK 2.6 billion, or 1.1% of lending and guarantees.
The corresponding figure at 31 December 2017 was
DKK 20.1 billion.
Allowance account by business units
(DKK millions)
2018
2017
Accum.
impairm.
charges*
12,185
Banking DK
Banking Nordic
4,134
% of net
credit
expo-
sure**
1.36
0.69
Accum.
impairm.
charges*
12,922
3,540
2,806
1.26 2,379
Northern Ireland
792
423
0.52
1.53
460
764
Other
Total
12
0.02
3
20,353
1.10
20,069
C&I
Wealth
Management
% of net
credit
expo-
sure**
1.45
0.62
0.58
0.59
1.62
0.01
1.00
* Relating to lending activities in core segments
** Defined as net credit exposure from lending activities in core segments, excluding
exposures related to credit institutions and central banks and loan commitments..
Realised losses amounted to DKK 2.3 billion. Of these
losses, DKK 0.7 billion was charged directly to the
income statement.
Trading and investment activities
Credit exposure from trading and investment activities
amounted to DKK 1,012 billion at the end of 2018,
against DKK 774 billion at 31 December 2017. The
increase, which related primarily to repos and other
loans in the trading units of Corporates & Institutions,
was the result of the implementation of IFRS 9. This
credit exposure is now included in credit exposure from
trading and investment activities and therefore no longer
forms part of credit exposure from lending activities.
The Group has made netting agreements with many
of its counterparties concerning positive and negative
market values of derivatives. The net exposure was
DKK 68.6 billion, against DKK 74.7 billion at the end of
2017.
The value of the bond portfolio was DKK 442 billion.
Of the total bond portfolio, 68% was recognised at fair
value and 32% at amortised cost.
Bond portfolio
(%)
Government bonds and bonds
guaranteed by central or local
governments
Bonds issued by quasi-
government institutions
Danish mortgage bonds
Swedish covered bonds
Other covered bonds
Corporate bonds
Total holdings
Bonds at amortised cost
included in total holdings
31 December
2018
31 December
2017
39
1
47
9
2
2
100
32
34
1
49
12
3
1
100
30
Other balance sheet items
Total assets in Non-core amounted to DKK 14.3 billion
at the end of 2018, against DKK 4.9 billion at the end
of 2017. The increase related to the transfer of Baltic
customers to the Non-core unit as per 1 April 2018
as a result of the repositioning of the Group’s business
activities in the Baltic countries.
Other assets is the sum of several small line items.
Other assets increased DKK 4.8 billion, or 2%, from
the end of 2017 and related to the assets of Danica
Pension in Sweden, which are now presented as part of
Other assets.The increase was, however, partly offset by
a decrease in cash in hand and demand deposits. Other
liabilities increased DKK 43 billion, or 26%, from the
end of 2017. The increase related primarily to liabilities
of Danica Pension in Sweden, which are now presented
as Other liabilities, and to the provision for the DKK 1.5
billion donation.
Danske Bank / Annual Report 2018 25
Capital and liquidity
management
The main purposes of our capital management are to
support our business strategy and to ensure a sufficient
level of capital to withstand even severe downturns
without breaching regulatory requirements.
Capital effect of the Estonia investigation
The Board of Directors reassessed and increased the
Group’s solvency need by DKK 10 billion during 2018 to
ensure adequate capital coverage of its compliance and
reputational risks as a consequence of the orders from
the Danish FSA 3 May 2018, and the FSA’s follow-up
decision from 4 October 2018, concerning the Estonian
branch. As part of the decision from 4 October 2018,
the Pillar II requirement concerning compliance and
reputational risk is to be met with CET1 capital.
Furthermore, the Board of Directors has reassessed
and increased the Group’s capital targets and has taken
further prudency measures, as outlined below.
Capital ratios
At the end of 2018, the total capital ratio was 21.3%,
and the CET1 capital ratio was 17.0%, against
22.6% and 17.6%, respectively, at the end of 2017.
The movement in capital ratios in 2018 was driven
primarily by the share buy-back programme initiated
on 5 February 2018, which totalled DKK 6.9 billion
at discontinuation, and planned net redemptions of
subordinated capital as well as accumulated net profits
for 2018 adjusted for proposed dividends. In addition,
Danica Pension’s acquisition of SEB Pension Danmark
lowered the Group’s capital ratios due to the rules of
deducting investments made in insurance subsidiaries.
During 2018, the REA decreased around DKK 5.3
billion to DKK 748.1 billion at the end of 2018. Despite
the implementation of a risk weight floor on Swedish
residential mortgage exposures in the fourth quarter of
2018 (moved from Pillar II to Pillar I), the REA for credit
risk decreased DKK 5.1 billion due to portfolio changes
such as lower exposure and a depreciation of our main
currencies. Lower market risk reduced the total REA by
a further DKK 3 billion.
At the end of 2018, the Group’s leverage ratio was
4.6% under transitional rules and 4.5% under fully
phased-in rules.
Capital requirements
Danske Bank’s capital management policies are based
on the internal capital adequacy assessment process
(ICAAP). In this process, Danske Bank determines its
solvency need.
The solvency need consists of the 8% minimum capital
requirement under Pillar I and an individual capital add-
on under Pillar II.
At the end of 2018, the Group’s solvency need was
11.8%, an increase of 1.3 percentage points from
the level at the end of 2017. The increase was due
to a reassessment of capital to cover compliance and
reputational risks, which increased the solvency need
by DKK 10 billion. The DKK 10 billion is covered by
common equity tier 1 (CET1) capital, as ordered by the
Danish FSA.
A combined buffer requirement applies in addition to
the solvency need. At the end of 2018, the Group’s
combined capital buffer requirement was 4.9%.
In March 2018, the Danish Government introduced a
countercyclical buffer requirement in Denmark of 0.5%
effective as of 31 March 2019. In September 2018,
the requirment was increased to 1.0%, effective as of
30 September 2019, which will increase the Group’s
combined buffer requirement by 0.5 percentage points.
In addition, the Swedish FSA and the Norwegian
Ministry of Finance increased their respective national
buffer requirements from 2.0% to 2.5%, taking effect
during 2019, which will raise the Group’s requirement
by 0.1 percentage points. Consequently, the buffer
requirement will be 6.7% when fully phased in, bringing
the fully phased-in CET1 capital requirement to 14.0%
and the fully phased-in total capital requirement to
18.6%.
Capital ratios and requirements
(% of total REA)
2018
Fully phased-in*
Capital ratios
CET 1 capital ratio
Total capital ratio
Capital requirements (incl. buffers)**
CET 1 requirement
- portion from countercyclical buffer
- portion from capital conservation
buffer
- portion from SIFI buffer
Total capital requirement
Excess capital
CET 1 capital
Total capital
17.0
21.3
12.1
0.6
1.9
2.4
16.7
4.8
4.6
16.8
21.2
14.0
1.2
2.5
3.0
18.6
2.8
2.6
* Based on fully phased-in rules and requirements incl. fully phased-in impact of IFRS 9.
** The total capital requirement consists of the solvency need and the combined buffer
requirement. The fully phased-in countercyclical buffer is based on the buffer rates
announced at the end of 2018.
Danske Bank / Annual Report 2018
26
Danske Bank / Annual Report 2018
The calculation of the solvency need and the combined
capital buffer requirement is described in more detail in
Risk Management 2018, section 5, which is available at
danskebank.com/ir.
Capital targets
As a consequence of the increase in the Group’s
solvency need of DKK 10 billion and in order to take
further prudency measures, the Board of Directors
decided to increase the Group’s capital targets during
2018.
The CET1 capital ratio target was set at around 16%
(previously 14-15%) and the total capital ratio target
was set at above 20% (previously above 19%). Danske
Bank fully meets the revised capital targets.
The Board of Directors reassesses the targets on an
ongoing basis.
Capital distribution policy
On the basis of our continually strong capital position,
the Board of Directors is proposing a dividend of
DKK 8.5 per share, corresponding to 51% of reported
net profit.
Going forward, Danske Bank’s dividend policy is
unchanged, and it is still our ambition to pay out 40-
60% of net profit for the year.
As a further prudency measure due to the current
circumstances and in addition to the increased capital
targets, the Board of Directors decided on 4 October
2018 to discontinue the 2018 share buy-back
programme. The programme, totalling DKK 10 billion,
was due to end on 1 February 2019.
By the date of discontinuation, we had bought back a
total of 33.8 million shares for a gross value of DKK
6.9 billion (figures at trade date). Due to continued
uncertainty regarding consequences of the Estonia case,
no share buy-back programme is initiated in 2019.
Ratings
In 2018, rating agencies took repeated rating actions
in both a positive and negative direction. The defining
event was the publication of the Bruun & Hjejle report
in September, which lead to all rating agencies taking
negative rating actions.
On 25 September 2018, S&P Global affirmed Danske
Bank’s ‘A’ issuer and senior debt ratings. At the same
time, it lowered Danske Bank’s stand-alone credit profile
to ‘a-’. Consequently, S&P Global lowered by one notch
the ratings on Danske Bank’s non-preferred senior debt,
tier 2 debt, and additional tier 1 capital instruments, and
also lowered the long-term issuer credit rating on Danica
Pension Livsforsikringsaktieselskab to ‘A-‘ from ‘A’.
At the same time, S&P Global revised the outlook on
Danske Bank to negative from positive due to regulatory
investigations into Danske Bank’s Estonian branch and
the possible consequences for Danske Bank.
On 25 September 2018, Fitch Ratings affirmed all
ratings of Danske Bank, while revising the outlook to
negative from stable due to the uncertainty relating to
the investigations and their consequences.
On 12 October 2018, Moody’s downgraded Danske
Bank’s senior unsecured debt rating to ‘A2’ from ‘A1’,
Danske Bank’s counterparty risk rating to ‘Aa3’ from
‘Aa2’ and Danske Bank’s non-preferred senior debt
rating to ‘Baa2’ from ‘Baa1’. The rating action followed
the announcement that Danske Bank is subject to
an investigation by the US Department of Justice.
Moody’s maintained the negative outlook assigned on
21 September 2018. The negative outlook reflects
operational and reputational risks stemming from the
investigations.
Danske Bank’s ratings, 31 December 2018
Moody’s
S&P Global
Fitch
Ratings
Counterparty rating
Aa3/P-1
A+/A-1
A+
Senior debt
A2/P-1
A/A-1
A+/F1
Outlook
Negative
Negative
Negative
Non-preferred senior
debt
Tier 2
AT1
Baa2
BBB+
-
-
BBB
BB+
A
A-
BB+
Mortgage bonds and covered bonds (RO and SDRO)
issued by Realkredit Danmark are rated ‘AAA’ (stable
outlook) by S&P Global and Scope Ratings. Scope
Ratings assigned its inaugural ratings on 29 August
2018. Fitch Ratings rates bonds issued from Realkredit
Danmark’s capital centre S ‘AAA’ (stable outlook) and
rates bonds issued from capital centre T ‘AA+’ (stable
outlook).
Covered bonds (SDO) issued by Danske Bank A/S are
rated ‘AAA’ (stable outlook) by both S&P Global and
Fitch Ratings, while covered bonds issued by Danske
Mortgage Bank Plc are rated ‘Aaa’ by Moody’s and
covered bonds issued by Danske Hypotek AB are rated
‘AAA’ (stable outlook) by S&P Global.
27
ESG ratings
ESG ratings cover a range of analytical activities that
address a business’s or an organisation’s societal
impact. The acronym stands for Environment, Social
and Governance. Each concept itself may be defined to
include a broad range of sub-assessments. Definitions
vary considerably among analysis providers.
We will, from time to time, issue in GBP, JPY, CHF
and other currencies when market conditions allow.
Issuance plans for subordinated debt in either the
additional tier 1 or tier 2 formats will depend on
balance sheet growth and redemptions on the one side
and our capital targets on the other. Any issuance of
subordinated debt may cover part of our funding need.
While there are several hundred providers of ESG
analyses, Danske Bank has chosen to focus on four
providers in particular (selected on the basis of their
importance to our investors):
MSCI ESG Ratings, USA
Oekom Research, Germany
Sustainalytics, USA
Vigeo Eiris, Italy
Going forward, the information requirements defined
by these ESG rating agencies will influence Danske
Bank’s disclosure policy on financial and non-financial
information.
Unlike ratings published by credit rating agencies, ESG
ratings are unsolicited and based on public information
only. Disclosure of ratings does not take place on a
public basis; it is discretionary, meaning that ratings are
made public selectively.
Funding and liquidity
During 2018, the Group issued preferred senior bonds
of DKK 3.5 billion, non-preferred senior bonds of DKK
26.1 billion, covered bonds of DKK 34.9 billion, and
additional tier 1 bonds of DKK 4.8 billion, bringing total
new long-term wholesale funding to DKK 69.3 billion.2
The new legislation covering non-preferred senior
issuance passed the parliamentary process, and the
law came into effect on 1 July 2018. Importantly, the
new legislation has been effective retroactively from 1
January 2018, thus also applicable to the inaugural non-
preferred senior we issued in the second quarter.
The funding plan for 2019 is DKK 70-90 billion, and we
remain dedicated to our strategy of securing a large part
of funding directly in our Nordic lending currencies. SEK
covered bonds issues are planned out of our Swedish
mortgage subsidiary Danske Hypotek AB.
We plan for regular issues in the EUR benchmark
format in both covered bonds and non-preferred senior
bonds as well as issues in the domestic USD market for
non-preferred senior bonds in the Rule 144A format.
On 11 January 2019, we issued non-preferred senior
bonds in the amount of USD 3 billion. We do not plan
for benchmark issues in preferred senior format. The
benchmark issues are expected to be supplemented
with private placements of bonds.
2 Amounts translated into Danish kroner at the date of issue.
Danske Bank’s overall liquidity position remained robust.
Stress tests show that we have a sufficient liquidity
buffer well beyond 12 months. At the end of 2018, our
liquidity coverage ratio stood at 121%, with a liquidity
reserve of DKK 512 billion.
The requirement for the net stable funding ratio forms
an integral part of our funding planning, to which we are
already comfortably adhering.
At 31 December 2018, the total nominal value of
outstanding long-term funding, excluding equity-
accounted additional tier 1 capital and bonds issued by
Realkredit Danmark, was DKK 326 billion, against DKK
327 billion at the end of 2017.
Danske Bank excluding Realkredit Danmark
(DKK billions)
Covered bonds
Preferred senior bonds
Non-preferred senior bonds
Subordinated debt
Total
31 December
2018
31 December
2017
182.6
93.9
26.4
23.1
326.0
168.1
129.9
-
29.1
327.1
The Supervisory Diamond
The Danish FSA has identified a number of specific risk
indicators for banks and mortgage institutions and has
set threshold values with which all Danish banks must
comply. The requirements are known as the Supervisory
Diamond.
At the end of 2018, Danske Bank was in compliance
with all threshold values. A separate report is available
at danskebank.com/ir.
Realkredit Danmark also complies with all threshold
values.
New regulation
In March 2018, the Danish FSA published its decision
to set the minimum requirement for own funds and
eligible liabilities (MREL). As expected, the MREL for the
Group was set to be equivalent to two times the capital
requirement including capital buffer requirements.
The requirement for the Group is equivalent to 33% of
Danske Bank / Annual Report 2018
On 23 November 2016, the EU Commission brought
forward proposals to review CRD IV, CRR and BRRD.
The changes include the implementation of the leverage
ratio (LR), the net stable funding ratio (NSFR) and the
fundamental review of the trading book (FRTB). In
addition, the Commission aims to harmonise the Pillar
II framework to ensure alignment with the international
standards and further harmonisation towards a
single rule book in the EU. In December 2018, EU
co-legislators reached an agreement on the package.
In respect of BRRD II, the agreed package implies
changes to the future MREL as regards the size of the
requirement, the composition of eligible liabilities and
phase-in of the requirement.
If formally adopted in the first half of 2019, the
implementation will take place in 2021. In the light of
the preliminary compromise text, the Group expects the
CRR and CRD IV amendments to have limited capital
and REA impact on the Group.
28
the REA adjusted for Realkredit Danmark and will be
effective from 1 July 2019. The Danish FSA updates the
MREL requirement annually. We expect the next update
in February 2019. As a result of the increases in the
Group’s capital requirement since 2016, including the
expected rise from the increases in the countercyclical
buffer rates in Denmark and Sweden effective from
2019, the Group plans for an MREL of around 36% of
the REA adjusted for Realkredit Danmark. At the end of
December 2018, the MREL ratio stood at 33.9% of the
REA adjusted for Realkredit Danmark.
Danish mortgage credit institutions are exempt from
the MREL. Instead they are subject to a debt buffer
requirement of 2% of their loans. Due to this exemption,
Realkredit Danmark is not included in the consolidation
for the purpose of determining the MREL for the Group.
However, the capital and debt buffer requirements that
apply to Realkredit Danmark are deducted from the
liabilities and own funds used to fulfil the MREL.
The Danish FSA also imposes the requirement that all
MREL eligible liabilities and own funds must bear losses
before other senior unsecured debt in case of both
resolution and insolvency. However, under a gradual
transition to the 2022 requirement, unsecured senior
debt issued before 1 January 2018 can also be used
to fulfil the MREL if the residual maturity exceeds 12
months.
In December 2017, the Basel Committee on Banking
Supervision (BCBS) published the final revised
standards for REA calculations. The standards are
also known as ‘Basel IV’. According to the BCBS, the
standards are revised in order to restore credibility in
REA calculations and to improve the comparability of the
capital ratios of financial institutions.
It is too early to firmly assess the effects of the
changes since the political process to implement
the recommendations in the EU has not yet been
initiated, and the final outcome is subject to substantial
uncertainty.
However, on the basis of our strong underlying earnings
capacity and capitalisation, the Group is confident that
it will be able to adapt smoothly to the future changes in
EU regulatory requirements in relation to Basel IV.
Danske Bank / Annual Report 2018
Danske Bank shares
Index 2014 = 100
Danske Bank shareholders 2018
Danske Bank Europe 600 Banks
20% A. P. Møller Holding Group
31% Rest of Denmark
Denmark
17% USA & Canada
15% Rest of Europe
12% UK
5% Other
2014
2015
2016
2017
2018
250
200
150
100
50
0
Investor Relations
Investor Relations at Danske Bank contributes to the
Group’s pursuit of its strategic goals by ensuring that
stakeholders receive correct and adequate information
according to best practice in proactive investor
communications and consultation.
Together with executive management, Investor Relations
has an ongoing dialogue with analysts, shareholders,
debt investors and prospective investors. This dialogue
includes presenting and discussing current topics
relevant to Danske Bank at seminars and conferences.
Through regular shareholder identification studies,
Investor Relations proactively targets institutional
investors in order to achieve a stable and diversified
investor base and to support high liquidity in and fair
pricing of Danske Bank shares. Investor Relations also
aims to ensure that there is a broad level of coverage
by relevant analysts. At the end of 2018, 30 equity
analysts covered Danske Bank.
In 2018, investor events were held in the Nordic
countries, other European countries, Asia and the US,
with more than 700 investors attending.
Danske Bank shares
Danske Bank shares are listed on Nasdaq Copenhagen
and are included in a number of Danish and international
equity indices, such as the OMX Copenhagen 25 CAP
Index (OMXC25CAP). At the end of 2018, Danske Bank
shares had an index weighting of 7.45%.
Danske Bank’s share price declined from DKK 241.6
at 31 December 2017 to DKK 128.9 at 31 December
2018, a decrease of 46.6%. In comparison, the
OMXC25CAP Index decreased 13.2%, while the Europe
600 Banks Index decreased 28.3%.
Danske Bank shares
(DKK)
Share capital (millions)
Share price (end of year)
Total market capitalisation
(end of year) (billions)
Earnings per share
Dividend per share
Book value per share
Share price/book value per share
2018
8,960
128.9
110.2
16.5
8.5
174.3
0.7
2017
9,368
241.6
216.0
22.2
10.0
172.2
1.4
Each share entitles the holder to one vote, and all shares
carry the same rights.
29
most actively traded share on Nasdaq Copenhagen during
2018.
250
200
150
100
50
0
k
r
a
m
n
e
D
Danske Bank shares Index 2014 = 100
Danske Bank Europe 600 Banks
Danske Bank shareholders 2018
Other
5%
2017
2015
2016
Rest of Europe
15%
2014
UK
12%
Shareholders
USA & Canada
Rest of Denmark
At the end of 2018, Danske Bank had about 270,000
17%
31%
shareholders. The 10 largest shareholders together
owned about 41% of the share capital.
A. P. Møller
Holding Group
20%
2018
We estimate that shareholders outside Denmark, mainly
in the US and the UK, hold around 49% of the share
capital.
Danske Bank shareholders 2018
Other
5%
Rest of Europe
15%
UK
12%
USA & Canada
17%
A. P. Møller
Holding Group
20%
Rest of Denmark
31%
k
r
a
m
n
e
D
According to the Danish Companies Act, shareholders
must notify the company if the voting rights of their
shares represent 5% or more of the voting rights of
the company’s share capital or if the nominal value
of their shares represents 5% or more of the share
capital. Shareholders must also disclose changes in
shareholdings if they exceed or fall below specified
percentage thresholds.
Two shareholders have notified Danske Bank of holding
5% or more of the share capital:
•
The A.P. Møller Holding Group holds 20.5% of the
share capital.
At 31 December 2018, BlackRock, Inc. held more than
5% of the share capital. On 29 January 2019, however,
the company announced that as of 28 January 2019,
it no longer held more than 5% of the share capital and
voting rights of Danske Bank A/S.
•
The average daily trading volume of Danske Bank shares
was 2.6 million. The Danske Bank share was the second
For more information on Danske Bank’s shares and own
holdings of shares, see p. 75.
Danske Bank / Annual Report 2018 30
Danske Bank / Annual Report 2018 31
Corporate
responsibility
As the largest financial services provider in Denmark
and one of the largest financial institutions in the
Nordic region, we recognise that we have a particular
responsibility because of our size and our impact on the
Nordic economies.
Complying with the law and adhering to international
principles for responsible business conduct is
fundamental to this responsibility – a responsibility to
which we remain fully committed.
We realise that many stakeholders have been prompted
to question our understanding of and commitment to
honouring our corporate social responsibility as result
of the issues related to the terminated portfolio of non-
resident customers at our Estonian branch and because
it has become clear that we have not lived up to our own
standards in that matter. However, this case in no way
reflects the bank we want to be or the ambitions we
have in that area.
We are driven by an ambition to create value for all our
stakeholders and use our expertise to drive sustainable
progress and make a positive impact in the societies we
are a part of.
More information is available in the independently
assured Corporate Responsibility 2018..
Societal Impact & Sustainability strategy
Since 2015, we have been working to integrate
corporate responsibility into our core business through
five focus areas, as described below. In addition, two
strategic themes (Fostering financial confidence and
Accessible finance for everyone, every day) have
not only defined our initiatives for building financial
confidence in the next generations and in growth
companies, but also ensure a responsible transition to
future financial services. Furthermore, in May 2018
we launched our new Societal Impact & Sustainability
Strategy 2025, which builds on our achievements so
far.
Focus area: Responsible customer relationships
It is our policy to build long-term responsible customer
relationships by providing responsible and sustainable
advice and through easy and secure access to financial
products and services. It is also our aim to ensure
compliance across all business activities by preventing
financial crime and eliminating all forms of corruption.
In order to mitigate any risk of violating our ESG-related
policies and to enable us to build new and innovative
services and products, ESG considerations are
integrated into our investment and lending decisions.
We use our
expertise to
drive sustainable
progress and
make a positive
impact in the
societies we
are part of
Danske Bank / Annual Report 2018 32
We work to strengthen ESG integration into our
investment processes, products, and advice and in our
active ownership activities. In 2018, we developed a
new sustainable investment strategy and launched
our first report and a new digital platform on active
ownership activities disclosing details about our voting
at 313 general meetings. We also launched two
impact investment funds on climate and water that are
committed to creating returns and making a positive
societal impact. We have also introduced investment
restrictions related to thermal coal, tar sands and
nuclear arms.
Over the past couple of years, Danske Bank has
launched an extensive anti-money laundering (AML)
programme, which has led to major changes in
organisational structures, routines and procedures, not
least in the wake of the Estonia case and the related
investigations. In 2018, we developed eight robots to
support the AML professionals in areas such as ongoing
due diligence, transaction screening and customer
screening.
We work to mitigate the risk of bribery and corruption
through our compliance infrastructure, which includes
controls, centralisation of processes, training and
escalation procedures. Three principles govern the way
that we operate: 1) not to accept or solicit bribes in any
form; 2) not to make or accept facilitation payments; and
3) not to give or receive gifts above a token value, except
for gifts given or received in specific situations – records
are kept of all gifts and hospitality received. We have
a whistleblower system where employees can report
wrongdoing, and in 2019, we will publish a separate
policy on anti-corruption.
Focus area: Responsible employer
It is our policy to promote diversity and an inclusive
culture, ensure equal opportunity and eliminate the risk
of discriminatory treatment. We sustain a healthy and
safe working environment and a collaborative culture
where our employees feel engaged. We protect our
employees’ right to freedom of association and collective
bargaining, right to privacy and right to raising concerns
without fear of retaliation.
To succeed with our corporate strategy, we need access
to a diverse pool of candidates. In addition to working to
reduce any potential gender bias in recruitment, we also
monitor equal pay and report our salary data annually to
the business association for banks in Denmark (Finance
Denmark).
Increasing the share of female mangers is an area
of particular focus for us because we see this as a
stepping-stone to unlocking other facets of diversity,
such as education, nationality, age, ways of thinking,
seniority and experience.
In 2018, the Board of Directors revised the targets for
the share of women on the Executive Board, bringing
our 2020 target to 25%. Our long-term ambition is
38-40%, which is in line with our target for women in
management positions in the Group.
Gender targets & performance (%)
Performance
2018
Targets
2020
Share of AGM elected
Board of Directors members
being women
Share of women on the
Executive Board
Share of women in
management positions
38
10
37
38
25
38-40
Our Employee Engagement score fell over the course of
the year, ending at an Engagement Index of 84% against
our long-term ambition of 90% by 2020. This decrease
is a matter that we take very seriously, and it is our
assessment that the decline in 2018 can be attributed
to the reorganisation that took place over the course of
the year.
Employee-related performance
Full-time
employees (FTE)
Share of women in
workforce (%)
Employee
engagement
Absence due to
illness (avg. no.
of days)
2018
2017
2016
2015
20,683
19,768
19,303
19,049
50
84
49
85
50
66
5,4
5,4
5,3
51
-
6
Focus area: Environmental footprint
It is our policy to work systematically to minimise the
risk of severe environmental impact of our operations
and to reduce our CO2 emissions through energy and
environmental management.
Despite our annual efforts, we have not been able to
reach our ambitious 2018 energy target of a 15%
reduction in overall energy consumption from the
Danske Bank / Annual Report 2018
33
Focus area: Contributing to society
It is our policy to conduct our business in a responsible
and transparent manner and to support financial stability
by being solid, balanced and predictable.
Our stand on tax compliance and the risk of tax fraud
and evasion is clearly stated in our Tax Policy.
As a natural consequence of the Estonia case, we
focused much of our stakeholder dialogue in 2018 on
explaining how this could happen and on communicating
what we are doing to combat financial crime. At our
branches across Denmark, we held 161 dialogue
meetings with retail, commercial, corporate and
institutional customers, and we maintained ongoing
dialogue with authorities and politicians throughout the
year.
Selected key actions 2018:
•
Trained all employees in identifying risk indicators of
tax evasion as part of mandatory e-learning in AML
Published a study on financial confidence among
citizens resident in Denmark, including a Nordic
outlook
Launched a guideline for employee voluntary work
•
•
More information
More information is available in the independently
assured Corporate Responsibility 2018. The report
serves as our Communication on Progress, as required
by the UN Global Compact, and ensures compliance
with the requirements of the Danish FSA’s Executive
Order on Financial Reports for Credit Institutions and
Investment Firms etc. (subsections 135a and 135b)
on corporate responsibility reporting. The report is
supplemented by our Corporate Responsibility Fact Book
2018. These reports and further information about our
CR initiatives and projects are available at danskebank.
com/societal-impact.
level in 2014. In 2018, there was a minor decrease,
which leaves us with an 8% reduction in overall energy
consumption in the strategy period.
Danske Bank has been carbon neutral since 2009,
which has been achieved by purchasing renewable
electricity and carbon credits.
Environmental footprint
CO2 emissions
(tonnes)
Energy consump-
tion (MWh)
(electricity and
heat)
Paper (tonnes)
Road transport
(1,000 km)
Air transport
(1,000 km)
2018
2017
2016
2015
16,396
18,089
18,664
18,836
111,046
113,416 113,441 111,708
603
870
1,161
1,598
11,660
12,485
13,883
13,969
73,013
72,003
67,570
61,392
We integrate environmental considerations into the
Group’s own portfolio management, and since 2015 we
have invested more than DKK 3 billion of our own funds
in green bonds.
Focus area: Responsible supplier relationships
It is our policy to work with responsible sourcing by
integrating ESG considerations into our procurement
processes and by maintaining constructive relations
with our suppliers through close dialogue and continued
improvement. We expect our suppliers to respect
internationally recognised sustainability principles and to
set similar standards in their supply chain.
Our Supplier Code of Conduct applies to all suppliers,
and our responsible sourcing process ensures that
suppliers comply with our sustainability standards.
In 2018, we managed to get 97% of tenders in scope
involving Group Procurement through the responsible
sourcing process and thereby exceeded our target of
80%.
Selected key actions in 2018:
•
•
•
Conducted two on-site supplier audits with ESG
focus
Continued to assess and evaluate high-risk suppliers
through self-assessment questionnaires
Implemented GDPR fulfilment requirements in
contracts for suppliers handling personal data on
behalf of Danske Bank
Danske Bank / Annual Report 2018
34
Organisation and management
General Meeting
The General Meeting is Danske Bank’s highest decision-
making authority.
candidates are nominated by the Board of Directors
or the shareholders and are elected by the General
Meeting.
At the Annual General Meeting held on 15 March
2018, Urban Bäckström and Martin Tivéus did not seek
re-election. The general meeting elected Jens Due Olsen
and Ingrid Bonde.
At the Extraordinary General Meeting held on 7
December 2018, the Chaiman of the Board of
Directors, Ole Andersen, and the Chairman of the
Audit Committee, Jørn P. Jensen, stepped down from
the Board of Directors, and Karsten Dybvad and Jan
Thorsgaard Nielsen were elected to the Board. At the
Board constitutive meeting held immediately after
the Extraordinary General Meeting, Karsten Dybvad
was elected Chairman and Carol Sergeant and Jan
Thorsgaard Nielsen were both elected Vice Chairman of
the Board of Directors.
Pages 238-241 provide information on the individual
members of the Board of Directors, including their
directorships. Note 35 on page 169 provides
information on the number of Danske Bank shares held
by the members of the Board of Directors, and note 34
on page 163 provides information on the remuneration
of the members of the Board of Directors.
Work of the Board of Directors in 2018
In 2018, the Board of Directors held 23 meetings,
of which 8 were extraordinary meetings. The Audit
Committee held 13 meetings, of which 7 were
extraordinary meetings, the Risk Committee held 8
meetings, the Nomination Committee held 3 meetings
and the Remuneration Committee held 2 meetings.
The Estonia case has been dealt with mainly by the
Audit Committee, but from March to June 2018, an ad
hoc committee called the Estonia Committee handled
the case. The Estonia Committee held 9 meetings in
2018.
In 2018, the Annual General Meeting was held on 15
March.
Danske Bank’s Articles of Association are available
at danskebank.com/about-us/corporate-governance
and contain information about the notice convening the
general meeting, shareholders’ admission and voting
rights as well as shareholders’ right to submit proposals
and have specified business transacted at the meeting.
All shareholders have voting rights according to the
number of shares held at the date of registration and
each share of DKK 10 carries one vote. No share has
any special rights attached to it.
Only the General Meeting can amend the Articles of
Association. An amendment requires not less than
a two-thirds majority of the votes cast and not less
than two-thirds of the share capital represented at the
general meeting and entitled to vote.
A resolution to wind up Danske Bank by merger or
voluntary liquidation can be passed only if adopted by
not less than three-quarters of the votes cast and not
less than three-quarters of the share capital represented
at the General Meeting and entitled to vote.
On 7 December 2018, an Extraordinary General
Meeting was held to elect two new members to the
Board of Directors.
Board of Directors
The Board consists of twelve members, eight elected by
the General Meeting and four elected by and among the
employees.
Board members elected by the General Meeting stand
for election every year. As prescribed by Danish law,
members elected by and among the employees serve on
the Board of Directors for a four-year term, with the next
election to be held in 2022.
The Nomination Committee operates as a preparatory
committee for the Board of Directors with respect to
the nomination and appointment of candidates to the
Board of Directors and to the Executive Board. Board
Danske Bank / Annual Report 2018 Organisation and management
The Board members’ participation in Board and
Committee meetings is illustrated below.
Board of Directors’ meetings
Board of Directors’ Committee meetings
Audit
Estonia Risk
Remune-
ration
Nomina-
tion
Karsten Dybvad
1/1
Jan Thorsgaard Nielsen 1/1
Carol Sergeant
23/23 2/2a
9/9
Ingrid Bonde
18/20 10/10
Lars-Erik Brenøe
23/23 c
Jens Due Olsen
19/20 10/10
Rolv Erik Ryssdal
20/23
Hilde Tonne
Bente Bang
Kirsten Ebbe Brich
22/23 2/2a
9/9
20/20
21/23
Thorbjørn Lundholm Dahl 20/20
Charlotte Hoffmann
22/23
8/8
6/6
6/6
Ole Andersen
21d/22 c
9/9
8/8
Urban Bäckström
3/3
Jørn P. Jensen
18/22 12/13 7/9
Martin Tiveus
1/3
1/2
Dorte Annette Bielefeldt 3/3
Carsten Eilertsen
2/3
2/2
b
3/3
3/3
1/1
2/2
2/2
2/2
2/2
a Of the Audit Committee meetings held in 2018 at which the Estonia case was
on the agenda, previous Audit Committee member Hilde Tonne participated in one
meeting and previous Audit Committee member Carol Sergeant participated in all
meetings.
b Non-Nomination Committee member Ingrid Bonde assisted the Nomination
Committee at its meetings and with its tasks in the fourth quarter of 2018
c Of the Audit Committee meetings held in 2018 at which the Estonia case was
on the agenda, non-Audit Committee member Lars-Erik Brenøe participated in
one meeting and non-Audit Committee member Ole Andersen participated in all
meetings.
d At the constitutive meeting after the Annual General Meeting, Ole Andersen had
press interviews.
In the fourth quarter, the Board of Directors carried out
the annual evaluation of the Board of Directors, including
its composition, the work on the Board committees,
the committee structure, the leadership of the Board
chairman and the individual performance of the Board
members. To ensure anonymity, an external consulting
firm facilitated the evaluation. All members of the Board
of Directors answered comprehensive questionnaires.
The findings and conclusions were subsequently
presented to and discussed by the Board of Directors.
The aim of the evaluation was to ensure, among other
things, that the composition of the Board of Directors
as well as the special competencies of each Board
member enable the Board of Directors to perform its
tasks. As the Board of Directors operates as a collegial
body, its overall competencies and experience are the
sum of the individual board members’ competencies and
experience. The composition of the Board of Directors
aims to ensure the stable and satisfactory development
of Danske Bank for the benefit of its shareholders,
customers, employees and other stakeholders. The
competencies of the Board of Directors collectively
are described in the Competency profile, which is
available on danskebank.com. Pages 238-241 provide
35
information on the competencies of the individual Board
members.
The results of the 2018 evaluation were generally
positive, but with some areas of improvement, which the
Board of Directors will explore further.
Executive Board
The Executive Board consists of Jesper Nielsen, Interim
Chief Executive Officer and Head of Banking DK,
Jacob Aarup-Andersen, Head of Wealth Management,
Christian Baltzer, Chief Financial Officer; Jim Ditmore,
Head of Group Services & Group IT (COO); Carsten
Egeriis, Group Chief Risk Officer and Head of Group Risk
Management; Henriette Fenger Ellekrog, Head of Group
HR; Jakob Groot, Head of Corporates & Institutions;
Glenn Söderholm, Head of Banking Nordic; Frederik
Gjessing Vinten, Head of Group Development, and
Philippe Vollot, Chief Compliance Officer.
On 5 April 2018, Lars Mørch, Member of the Executive
Board, resigned. Effective from 21 April 2018, Lars
Mørch was no longer a member of the Executive Board.
On 6 April 2018, Tonny Thierry Andersen, Member of
the Executive Board, resigned. Effective from 2 May
2018, Tonny Thierry Andersen was no longer a member
of the Executive Board. On 19 September 2018,
Thomas F. Borgen, Member of the Executive Board
and Chief Executive Officer of the Danske Bank Group,
resigned and he was relieved of his duties on 1 October
2018.
Corporate governance recommendations
Corporate governance recommendations issued by
the Danish Committee on Corporate Governance
are available at corporategovernance.dk. The
recommendations are best practice guidelines for the
management of companies with shares admitted to
trading on a regulated market in Denmark, including
Nasdaq Copenhagen A/S. If a company fails to comply
with a recommendation, it must explain why it has
chosen a different approach. Danske Bank complies with
all recommendations.
The statutory corporate governance report issued in
accordance with section 134 of the Danish FSA’s
Executive Order of Financial Reports for Credit
Institutions and Investment Firms etc. is available at
danskebank.com/about-us/corporate-governance. The
report includes an explanation of Danske Bank’s status
on all recommendations.
The Corporate Governance Code of the business
association for banks in Denmark (Finance Denmark)
applies to all member institutions. The Corporate
Governance Code is available on finansdanmark.dk.
The member institutions must comply with the
recommendations or explain why they do not comply.
Danske Bank complies with all recommendations set
out in the Code. Danske Bank’s explanation of the status
on all recommendations is included in section E of its
Corporate Governance Report 2018.
Danske Bank / Annual Report 2018
36
We help customers be
financially confident and
achieve their ambitions by
making daily banking and
important financial
decisions easy
Danske Bank / Annual Report 2018 37
Danske Bank / Annual Report 2018 38
Danske Bank / Annual Report 2018
Banking DK
In 2018, Banking DK delivered a profit before tax of DKK 7.3 billion, down 6% from 2017. The decrease was due mainly
to lower net impairment reversals, and an increase in expenses of 2%, primarily as a result of higher costs for regulatory
compliance. Business activity developed positively and income was on par with the 2017 level. Customer satisfaction
declined in the wake of the Estonia investigations.
Banking DK
(DKK millions)
Net interest income
Net fee income
Net trading income
Other income
Total income
Operating expenses
Profit before loan impairment charges
Loan impairment charges
Profit before tax
Loans, excluding reverse transactions
before impairments
Allowance account, loans
Deposits, excluding repo deposits
Bonds issued by Realkredit Danmark
Allowance account, guarantees
Allocated capital (average)
Net interest income as % p.a. of
loans and deposits
Profit before tax as % p.a. of
allocated capital (ROAC)
Cost/income ratio (%)
Full-time-equivalent staff
2018
2017
Index
18/17
8,955
3,400
852
234
13,442
6,860
6,582
-758
7,340
878,689
10,790
282,640
732,295
1,393
34,032
8,906
3,417
874
264
13,461
6,745
6,715
-1,065
7,780
869,740
12,285
278,074
735,481
635
34,914
101
100
97
89
100
102
98
-
94
101
88
102
100
219
97
Q4
2018
2,252
802
246
63
3,364
1,789
1,575
-148
1,723
Q3
2018
2,245
848
156
57
3,306
1,698
1,608
-16
1,624
878,689
874,789
10,790
282,640
732,295
1,393
33,312
10,880
281,747
731,738
1,630
34,028
0.78
0.78
0.78
0.78
21.6
51.0
3,341
22.3
50.1
3,380
20.7
53.2
3,341
19.1
51.4
3,352
99
Index
Q4/Q3
100
95
158
111
102
105
98
-
106
100
99
100
100
85
98
100
Fact Book Q4 2018 provides financial highlights at customer type level for Banking DK. Fact Book Q4 2018 is available at danskebank.com/ir.
2018 vs 2017
Business activity at Banking DK developed positively in
2018. The higher level of activity was fuelled primarily
by increasing demand for mortgage lending among our
personal customers and by generally good activity with
our largest commercial customers. The events related to
Estonia had an adverse effect on customer satisfaction
and our customer base but did not significantly impact
financial performance.
Our home loan portfolio grew over the year, supported
by the favourable development in the housing market.
Especially our unique FlexLife® mortgage loan,
introduced a year ago, continued to be a popular choice
among existing customers and attracted new customers
from other mortgage finance institutions. Demand
for our new bank home loan, Danske Bolig Fri, which
offers a highly competitive variable-rate alternative to
customers, also developed positively. The high popularity
of FlexLife® and the demand for Danske Bolig Fri confirm
our strong home finance value proposition that caters to
all customer preferences.
We maintained good momentum with our business
customers and attracted profitable business from
existing as well as new customers. In the small business
segment in particular, we saw a good inflow of new
customers. The positive development reflects our ability
Danske Bank / Annual Report 2018
39
to provide strategic advice at each stage of a business’s
lifecycle as well as our efficient digital service and
delivery model.
Despite intense competition and a slight decline in the
demand for mortgage loans among homeowners in the
largest cities during the year, lending increased 1% from
the level in 2017. Overall, our market shares in both
the retail and the commercial segments were stable
throughout 2018.
Profit before tax fell 6% to DKK 7.3 billion. The decrease
was due predominantly to a decline in net impairment
reversals of DKK 307 million. The decline reflects a
reduced allowance account balance and a management
overlay on impairment charges to cover the effects
of the summer drought, which adversely affected the
agricultural sector.
Income was flat from 2017 as strong mortgage activity
was offset by margin pressure from competition and the
continuation of negative interest rates.
Operating expenses increased 2% from the level in
2017, due mainly to increasing costs for regulatory
compliance.
Credit quality
Credit quality was generally stable. The market was
supported by favourable macroeconomic conditions and
the low interest rate level.
The net impairment reversals of DKK 758 million
related to both retail and commercial loans and reflect
strong and stable portfolio credit quality and increasing
collateral values.
At Realkredit Danmark, credit quality remained
strong and stable throughout 2018, supported by the
favourable conditions for the Danish economy.
The loan-to-value (LTV) level fell more than 2 percentage
points over the year on the back of increasing collateral
values.
Loan-to-value ratio, home loans
31 December 2018
31 December 2017
Average
LTV (%)
Net credit
exposure
(DKK bn)
Average
LTV (%)
Net credit
exposure
(DKK bn)
61.8
468
64.2
465
61.8
468
64.2
465
Retail
Total
Credit exposure
Credit exposure rose to DKK 959 billion in 2018. The
increase related mainly to higher exposure to private
housing cooperatives and non-profit associations in the
commercial portfolio.
Net credit exposure
Impairments
(ann.) (%)
(DKK millions)
31 December
2018
31 December
2017
31 December
2018
Retail
501,130
496,776
Commercial
457,779
445,102
-0.10%
-0.07%
Total
958,909
941,879
-0.09%
Q4 2018 vs Q3 2018
Profit before tax increased 6% to DKK 1.7 billion, owing mainly
to higher net impairment reversals.
Income rose 2% driven primarily by remortgaging activity.
Operating expenses increased 5% due mainly to additional
costs for regulatory compliance in the fourth quarter.
Reversals rose to DKK 148 million from DKK 16 million in the
third quarter, which was adversely affected by the negative
impact of the summer drought on some agricultural
customers.
Lending and deposit volumes were largely flat during the
quarter.
Business initiatives
Over the year, we continued to execute our ambition to
give customers the best experience by making banking
and financial decision-making easy, and to integrate
more with the societies we are a part of.
One bank for our customers
With the new Banking DK organisation, we took an
important step towards integrating more closely with our
customers. As one banking organisation serving both
retail and commercial customers, we have the platform
for further strengthening customer relations, developing
targeted and integrated solutions, and generating
synergies.
A focus point is to streamline how we welcome and
serve customers who have both personal accounts
and business accounts with us. We took the first steps
40
towards promoting even closer cooperation between
advisers and specialists. Moreover, we further improved
internal adviser tools to strengthen the way in which we
serve this particular segment.
funds (climate and water) to complement our broad
range of investment opportunities. They were well
received, and customers have now invested DKK 500
million in the funds.
At the same time, we continued to free up time for
advising customers. For example, we launched a new
portal that makes it significantly easier for business
customers to order products and services, and we
introduced a new tool to help advisers plan meetings
more efficiently and identify advisory and product
opportunities. Our credit application tool for small
business customers that reduces processing time and
the time-to-money from weeks to hours also contributed
to freeing up time. In 2018, it was used to process
around 40% of applications for new credit facilities in
this segment.
In addition, we continued to devote substantial
resources to further boosting our ability to transform
what we already know about our customers’ lives and
business into advice timed and targeted to suit the
individual customer.
Developing our value proposition
Ensuring a competitive value proposition that matches
our customers’ needs and expectations requires
continuous development.
For our personal customers, buying a home is an
important financial decision. Our range of home finance
solutions is one of the broadest and most competitive
in the market. We offer customers tailored solutions,
regardless of whether they are looking for flexibility,
security or low cost. The launch of our new bank home
loan, Danske Bolig Fri, complements our range of
mortgage loans and is an attractive alternative for home
owners looking for a low variable rate and the option of
repaying the loan at par whenever they want.
Our new Nordic partnership with Tryg Forsikring
will further strengthen our offering to both retail and
commercial customers. Together with Tryg, we can
offer innovative insurance products, digital solutions
and attractive benefits at competitive prices, and at the
same time reap synergies because of Tryg’s presence in
Denmark, Sweden and Norway.
For our business customers, we introduced Industry
Insights reports. These reports support the strategic
advice dialogue with customers about their business
and the future of their industry, and they have quickly
become very popular.
Over the past years, the sustainable development
agenda has become increasingly important to
our customers, and it plays an integral role in our
commitment to promoting sustainability. Together with
Wealth Management, we introduced two new impact
Accessibility is key to our customers. With our online
meeting-booking solution, retail customers can book
an online or face-to-face meeting with the adviser of
their choice when it suits them. This option has become
popular, and we are now testing customers’ appetite for
meetings outside normal working hours.
Boosting our digital offering
For our business customers, we launched the
District platform. District aims to give customers a
comprehensive, real-time overview of their financial
position, providing more transparency and thus allowing
even better financial decision-making. District features
all the well-known functionality from Business Online,
and new solutions and services will be added on an
ongoing basis to meet customers’ future needs.
Over the year, we further developed the new version
of the Danske Mobile Banking app for our personal
customers on the basis of cooperation with our partners
and valuable input from users. Using the Profile
functionality, customers can now easily view and update
personal information, and through our partnership with
Danish fintech Spiir, they can get a quick overview of
their accounts with other banks. Parents also have
the option of signing their children up as customers
and ordering accounts and other products for them.
We also improved customers’ overview of and control
over their investments and consumer loans. Among
other features, customers can now apply online for a
loan increase and fast repayment. Users appreciate
an intuitive interface, and we simplified the navigation,
design and currency converter, and we introduced a new
account entries search function.
MobilePay remains a cornerstone of our digital payment
offering to both commercial and retail customers. Over
the year, new functionality, such as MobilePay Box and a
MobilePay Invoice upgrade, was introduced.
In addition, new ways of executing payments are
emerging. With the launch of our FastPay wearable
solution, customers can now easily pay with a sim-
card-format Mastercard that fits into a wristband, for
example. And with Google Pay, they can pay contactless
with their Android smartphone or smart watch by adding
their Danske Bank Mastercard to the app.
Sunday has become a strong platform for the dialogue
with our customers throughout the home search and
buying process, and we continued to develop the Sunday
universe in 2018. However, to take the customer
experience to the next level and develop our home
purchase offering to fully support a seamless customer
Danske Bank / Annual Report 2018 experience, we have decided to integrate the Sunday
platform into our Danske Bank home purchase universe.
As a consequence, the Sunday brand will be phased out
in 2019.
Contributing to society
As the largest bank in Denmark, we recognise the
responsibility and obligation we have to help drive
sustainable progress and positively impact the society
we are part of.
Start-ups and growth businesses are key to ensuring
innovation, and our ambition is to help them successfully
develop and reach their goals.
In 2018, we launched +impact, a digital platform to help
purpose-driven start-ups boost their positive impact on
society. The launch was the first step towards creating
an eco-system for the start-ups to meet experts as well
as potential employees and investors. So far, around
175 start-ups have signed up to get help with their
specific challenges, and experts have been very active
in helping them. Later in the year, we introduced the
Accelerator programme, which offers selected start-
ups help to fine-tune their business plan and boost the
commercial potential of their products designed to help
solve environmental and social issues. The programme
attracted many applicants, and the feedback from the
selected participants has been very positive.
The initiatives build on existing initiatives such as The
Hub, our online platform that helps start-ups recruit the
right specialists, access the most efficient tools and
raise capital, and Danske Bank Growth, a network of
advisers specialising in start-ups.
We have a special responsibility for the next generation.
Over the years, our Moneyville game and Pocket
Money app have become popular ways for children to
get an understanding of money and how to manage it.
Furthermore, our advisers continue to regularly visit
schools as guest lecturers to teach teenagers about
money, personal finances and safe online behaviour.
We are committed to engaging locally with customers
and other stakeholders. In 2018, we hosted a series of
Danske Byliv events across Denmark that support the
agenda of developing local communities. The events
were successfully promoted through local Danske Bank
Facebook posts and other channels and will continue in
2019.
Customer satisfaction
The year was marked by the events related to
Estonia, and the announcement of findings from our
investigations drew considerable attention from our
customers.
41
We focused intensively on establishing a close dialogue
with our customers to apologise for what happened and
explain the actions we have taken to prevent something
similar from happening again. We met with retail
customers and commercial customers all over Denmark
at local dialogue meetings, and reached out through
letters, our website and other channels. Likewise, we
met with NGOs and other stakeholders to address their
questions and concerns.
The events in Estonia impacted customers’ trust in our
business ethics and management, and this affected
customer satisfaction adversely. At the end of the
year, we were number five among retail customers and
number three among commercial customers, and we
saw a net decline in the number of customers with a
NemKonto account of around 11,000.
The feedback from our customers only encourages us to
continue the proactive dialogue to regain their trust and
offer them the best experience every time they are in
touch with us.
Banking DK
Below target
Below target
5
5
Retail
customers
4
4
3
3
On target
On target
2
2
1
1
Commercial
cstomers
Market position, all (rolling year)
Under mål
Under mål
I mål
I mål
5
5
4
4
3
3
2
2
1
1
Below target
Below target
On target
On target
7
7
6
6
5
5
4
4
3
3
2
2
1
1
Under mål
Under mål
I mål
I mål
7
7
6
6
5
5
4
4
3
3
2
2
1
1
Market position, all (rolling year)
5
4
3
5
4
3
Markedsposition, alle (rullende år)
Markedsposition, alle (rullende år)
4
5
3
5
4
3
2
2
1
1
2
2
1
1
Danske Bank / Annual Report 2018 42
Danske Bank / Annual Report 2018
Danske Bank / Annual Report 2018
43
Banking Nordic
Banking Nordic saw good customer activity throughout 2018, resulting in a profit before tax of DKK 5.6 billion – an
increase of 9% from the level in 2017. The increase was due partly to higher lending across all market areas, which
resulted in higher net interest income. Lower operating expenses and impairment reversals also had a positive effect on
profit before tax for Banking Nordic.
Banking Nordic
(DKK millions)
Net interest income
Net fee income
Net trading income
Other income
Total income
Operating expenses
Profit before loan impairment charges
Loan impairment charges
Profit before tax
Loans, excluding reverse transactions
before impairments
Allowance account, loans
Deposits, excluding repo deposits
Bonds issued by Realkredit Danmark
Allowance account, guarantees
Allocated capital (average)
Net interest income as % p.a. of loans
and deposits
Profit before tax as % p.a. of allocated
capital (ROAC)
Cost/income ratio (%)
Full-time-equivalent staff
2018
2017
Index
18/17
7,957
1,605
302
648
7,572
1,700
300
1,047
10,512
10,619
5,029
5,483
-159
5,642
5,202
5,417
221
5,196
586,679
561,215
3,746
226,808
11,042
388
32,701
3,412
225,216
9,826
126
32,017
105
94
101
62
99
97
101
-
109
105
110
101
112
-
102
Q4
2018
2,011
406
74
126
2,616
1,333
1,283
-82
1,365
Q3
2018
1,993
384
84
145
2,606
1,217
1,389
-79
1,468
586,679
590,280
3,746
3,851
226,808
227,730
11,042
388
32,769
11,225
404
33,192
0.98
0.97
0.99
0.98
17.2
47.8
2,442
16.2
49.0
2,723
16.7
51.0
2,442
17.7
46.7
2,522
90
Index
Q4/Q3
101
106
88
87
100
110
92
-
93
99
97
100
98
96
99
97
Fact Book Q4 2018 provides financial highlights at customer type level for Banking Nordic. Fact Book Q4 2018 is available at danskebank.com/ir.
2018 vs 2017
Banking Nordic continued to see good developments
in 2018 with increasing customer activity across
its markets. The retail business benefited from the
continued development of our platform for partnerships.
The commercial business saw a positive impact from a
strengthening of our offerings to medium-sized and large
commercial customers. Overall, however, the financial
results were adversely affected by currency effects, as
the Norwegian krone and the Swedish krona depreciated
vis-à-vis the Danish krone from 2017 to 2018.
The good momentum and activity resulted in an increase
in profit before tax of 9% to DKK 5.6 billion. The increase
was driven partly by good improvement in net interest
income, as well as impairment reversals, primarily in
Norway and Finland, and lower costs.
Net interest income grew 5% due to increased volumes.
The increase came mainly from Sweden and Finland,
while Norway was on par with 2017 due to higher
margin pressure in 2018.
Banking Nordic continued to grow its business and
expanded the customer portfolio on the back of our
partnership agreements and growth relating to our
commercial customers. At the end of 2018, we
renewed the partnership agreement in Norway with
Akademikerne (the union for academics), and the largest
union, Tekna, is now also part of the agreement.
44
Danske Bank / Annual Report 2018
Lending increased in all market areas. In Sweden, there
were increases in all customer segments, whereas in
Norway, the increases were mostly in the retail and
medium-sized commercial customer segments. In
Finland, the increases were in the medium-sized and
large commercial segments. Overall, lending increased
5%.
Net fee income decreased from the level in 2017, due
mainly to lower fees in Finland. In Norway. however,
the unit managed to grow fees from financing and
investment activities. Net trading income was on par
with the level in 2017.
In the first quarter of 2018, Krogsveen, the Norwegian
real-estate agency chain, was sold. The sale reduced
both other income and costs in 2018 from the level in
2017.
Adjusted for Krogsveen, we saw an increase in other
income due to good traction within Asset Finance (which
includes our leasing activities), which saw solid business
momentum in 2018 – not least because of favourable
market conditions. In addition, we continued to expand
our product offerings in the Nordic markets.
Operating expenses decreased 3%, due primarily to the
effect of the sale of Krogsveen. Adjusted for Krogsveen,
Banking Nordic saw increasing costs related to regulatory
projects and IT investments to improve our value
propositions and enhance the customer experience.
Credit quality
Credit quality was generally stable across the Nordic
markets, reflecting the current macroeconomic stability
and the fact that economic growth is expected to
continue.
Loan impairment charges were still at a very low level,
amounting to net reversals of DKK 159 million in 2018,
driven by the retail business through the sale of debt
claims in all countries and positive macroeconomic
developments in Norway and Finland. The net reversal
trend is indicative of healthy economic conditions.
The loan-to-value (LTV) ratio decreased in Norway and
Finland. The increase in Sweden was driven mainly by
decreasing collateral values in the early part of the year.
Loan-to-value ratio, home loans
31 December 2018
31 December 2017
Net credit
exposure
(DKK bn)
Average
LTV (%)
Net credit
exposure
(DKK bn)
Retail Sweden
Retail Norway
Average
LTV (%)
65.0
62.0
Retail Finland
61.1
Total
Credit exposure
62.7
268
Credit exposure increased from DKK 645 billion at
the end of 2017 to DKK 702 billion at the end of
2018. The growth in the retail portfolio stemmed from
strategic partnerships in Norway and Sweden, while
the growth in the commercial portfolio was linked to
exposure increases in Finland and Norway, mainly within
commercial property.
Net credit exposure
Impairments
(ann.) (%)
(DKK millions)
31 December
2018
31 December
2017
31 December
2018
Sweden
Norway
Finland
Other
Total
288,703
203,751
163,010
46,364
256,084
192,415
156,105
40,839
0.03%
-0.11%
-0.04%
0.07%
701,828
645,443
-0.03%
Q4 2018 vs Q3 2018
Profit before tax decreased 7% due to higher operating
expenses than in the third quarter of 2018.
Total income was on par with the income in the third quarter of
2018.
Net interest income was stable, whereas net fee income
increased 6%, due mainly to finance and investment activities.
Operating expenses increased 10%, due, among other things to
a year-to-date correction of costs related to the reorganisation
earlier in the year.
Lending decreased in DKK from the third to the fourth quarter.
In local currency, however, Banking Nordic saw increasing
lending as a result of good customer activity and a stable
business momentum.
In the third quarter of 2018 the Norwegian unit renewed the
partnership agreement with Akademikerne (the union for
academics in Norway), and the largest union, Tekna, is now
also part of the agreement.
Business initiatives
At Banking Nordic, we worked consistently throughout
2018 on implementing the Nordic Integrator strategy
and moving closer to our customers and the societies
we are part of. We continued to focus on servicing
customers, with the aim of making banking with us
easier and more efficient across the Nordic countries.
Our ambition is to be our customers’ most trusted
adviser, based on a single Nordic core with a strong
value proposition and an increasingly digitalised service
and delivery model.
87
97
84
60.6
62.8
61.2
61.6
80
93
85
258
Nordic growth potential
Our customer-centric approach resulted in strong
business momentum across our Nordic markets,
attracting business from both new and existing
customers. We saw a rise in business volumes, which
grew more than the market average, and we thus
consolidated our position in the Nordics.
Sweden continued the strong trajectory fuelled by
growth in our retail activities, attributable in particular to
our partnerships and our strategic ambition of “Making
partnerships a growth lever”. In relation to medium-
sized and large commercial customers, Sweden has
established a stronghold through comprehensive
advisory services and leading products and services,
which led to continually solid growth.
In Norway, growth in our retail activities was driven
primarily by our partnerships. Since the initiation of the
partnership agreement with Akademikerne in 2015, the
onboarding of customers has contributed considerably
to the solid growth, and the renewal of the agreement
in the fourth quarter of 2018 was an important building
block for further growth. In addition, the largest member
association within Akademikerne, Tekna, decided to
become part of the agreement from 1 January 2019.
This gives us the opportunity to offer our products and
services to some 76,000 members. We continued to
build on the strong market position within corporate
banking as the preferred bank for international solutions,
strategic advisory services, cash management, trade
finance and capital markets transactions.
Our efficiency efforts in Finland, combined with
positive macroeconomic trends and growing markets,
contributed to solid improvement across most customer
groups. Growth came in particular from our commercial
customer segment, for which we continued to improve
our capabilities, especially within strategic advisory
services. In the retail business, our partnership
customer portfolio grew, driven by Frank and Akava.
During 2018, the second phase of the collaboration with
Akava was launched, with a targeted mortgage and day-
to-day banking offering for affiliate union members.
Asset Finance generally experienced healthy growth in
all markets. Both macroeconomic and market trends,
such as the sharing economy, continued to support
growth. During 2018, we continued to invest in this area
to support further growth and to develop new digital
solutions and services for our customers.
Customer experience
Our customers’ expectations are rising, especially
in terms of digitalisation and how easy it is to
handle finances and get fast delivery. To meet these
expectations, we have simplified both our customer
service model and internal processes. Delivery
processes have been harmonised and structured across
our markets, and to further support expectations of
efficient and seamless services, we have digitalised
customer agreements and introduced digital signing and
track and trace. We have also intensified the focus on
ensuring that our customers see us as one bank across
markets and customer groups. As a result, the customer
Danske Bank / Annual Report 2018
45
experience has improved and is at a solid level across
markets and customer groups.
Our large commercial customers with complex needs
expect us to deliver tailor-made solutions that match
their individual needs. To fulfil the expectations of these
customers, we have increased the focus on industry
and business understanding and on supporting our
customers’ business strategy. In the deciding moments
in the life cycle of our commercial customers, we strive
to be the preferred strategic financial partner.
Innovation and digitalisation
On the digital side, we saw a continued increase in
the use of e-meetings in the retail market in 2018,
and e-meetings now account for 45% of all meetings
in Sweden. In addition, the solution called Account
Aggregator – offered through our partnership with
Danish fintech Spiir – was launched in all markets
during 2018, giving customers a quick overview of their
accounts with other banks in Danske Mobile Banking.
The launch of Fast Pay and Google Pay in both Norway
and Sweden is evidence of our commitment to increase
payment capabilities, while MobilePay is gaining a
strong foothold in Finland with high growth figures year-
on-year.
Asset Finance, which covers our leasing activities, has
developed new vendor IT systems in Denmark and
Sweden for car financing for both private individuals
and businesses. The new platform is the first phase in
becoming more active in the vendor car and equipment
business across the Nordic countries.
Societal impact
Sustainability is increasingly important to us, our
customers, stakeholders and investors, with banks being
expected to play their role in driving the sustainability
agenda.
Banking Nordic has a strong focus on entrepreneurship
and has formed strong partnerships, for example with
Singularity University in Sweden where we create trend
reports, bootcamps and customer events such as the
Singularity Summit.
Danske Bank’s initiative to support the start-up
community, The Hub – which, for example, enables
companies to initiate contact with potential investors
and employees as well as advisers to share best
practise – now has more than 3,000 registered
companies in total for Finland, Sweden and Norway. The
Hub is thus becoming one of the leading digital platforms
for start-ups in the Nordic countries.
In addition, the initiative called +impact, which is for
social entrepreneurs who support one or more of the
UN’s sustainable development goals (SDGs), now has
150 registered social entrepreneurs and 147 experts
who have supported 178 challenges.
46
Customer satisfaction
We continued to focus on our goal of delivering the
best customer experience by building easy customer
journeys and customer-centric solutions.
For customer satisfaction, our ambition is to be in
the top two on satisfaction among customers in
our prioritised segments in all our Nordic markets.
The Estonia case has, however, impacted our image
negatively, resulting in customer satisfaction challenges
in Sweden. In Norway and Finland, satisfaction targets
were met.
To drive customer satisfaction improvement and
raise the bar for the value we want to provide to our
customers, we have launched several new initiatives.
These include partnerships with a number of unions
as well as fintech companies, which, among other
things, give personal customers a full overview of their
accounts with different banks, the expansion of our
Future Finance offering that allows customers to apply
for and be granted a new loan within seconds, and
the use of advanced analytics to allow us to identify
emerging customer needs and concerns and adjust our
interactions accordingly.
Retail customers
Below target
On target
Below target
On target
Under mål
I mål
5
4
3
2
1
7
6
5
4
3
2
1
7
6
5
4
3
2
1
Commercial customers
Below target
On target
Below target
On target
Under mål
I mål
5
4
3
2
1
Under mål
7
6
5
4
I mål
3
2
1
7
6
5
4
3
2
1
5
4
3
2
1
Under mål
I mål
5
4
3
2
1
Market position, all (rolling year)
5
4
3
2
1
Market position, all (rolling year)
5
5
4
4
3
3
2
2
1
1
Markedsposition, alle (rullende år)
Markedsposition, alle (rullende år)
5
4
3
2
1
Danske Bank / Annual Report 2018 47
Corporates & Institutions
Corporates & Institutions contributed with a profit before tax of DKK 4.3 billion, a decrease of 34% from 2017, which
was characterised by strong performance. The decline was driven by significantly lower trading income, especially in
FI&C, whereas income in General Banking increased from 2017 following a continuation of high activity. Operating
expenses fell 7% due primarily to lower performance-based compensation.
Corporates & Institutions
(DKK millions)
Net interest income
Net fee income
Net trading income
Other income
Total income
Operating expenses
Profit before loan impairment charges
Loan impairment charges
Profit before tax
Loans, excluding reverse transactions
before impairments
Allowance account, loans
Allowance account, credit institutions
Deposits, excluding repo deposits
Bonds issued by Realkredit Danmark
Allowance account, guarantees
Allocated capital (average)
Net interest income as % p.a. of loans
and deposits
Profit before tax as % p.a. of
allocated capital (ROAC)
Cost/income ratio (%)
2018
2017
Index
18/17
3,928
2,914
2,440
7
9,289
4,689
4,600
278
4,322
3,837
3,077
4,943
3
11,860
5,034
6,826
311
6,515
198,320
199,524
2,223
13
260,781
18,022
133
33,629
2,234
10
282,913
14,373
135
37,891
102
95
49
233
78
93
67
89
66
99
100
130
92
125
99
89
Q4
2018
954
754
383
2
2,093
1,177
916
175
741
Q3
2018
992
681
529
-4
2,199
1,107
1,092
235
857
198,320
186,627
2,223
13
2,135
17
260,781
272,480
18,022
133
32,433
17,197
564
32,663
Index
Q4/Q3
96
111
72
-
95
106
84
74
86
106
104
76
96
105
24
99
0.86
0.80
0.84
0.87
12.9
50.5
17.2
42.4
9.1
10.5
56.2
50.3
Full-time-equivalent staff
1,858
2,136
87
1,858
1,847
101
Total income
(DKK millions)
FI&C
Capital Markets
General Banking
Total income
2018
2017
2,541
1,556
5,192
9,289
4,871
1,956
5,033
11,860
Index
18/17
52
80
103
78
Q4
2018
280
403
1,410
2,093
Q3
2018
623
325
1,250
2,199
Index
Q4/Q3
45
124
113
95
Danske Bank / Annual Report 2018
48
2018 vs 2017
Corporates & Institutions generated a total income of
DKK 9.3 billion – a decrease of 22% from the level in
2017, which was characterised by more positive market
conditions. The decline in total income was driven mainly
by significantly lower trading income.
New regulation came into force in 2018 with the
introduction of MiFID II, which has contributed to higher
transparency in the financial markets. It is still too
early to conclude whether this has also led to more
competition. Danske Bank supports the development of
more transparent markets.
Challenging conditions in rates markets led to
significantly lower trading income in FI&C as income
from facilitating customer transactions declined.
Trading income was also lower in credit markets due to
challenging conditions in the secondary market.
Net interest income increased 2% despite being
adversely affected by the transfer of the majority of the
portfolio in the Baltic countries to the Non-core unit.
The increase in net interest income was driven by a
continuation of high refinancing activity across our home
markets and increased lending volumes in Denmark and
Norway in particular.
Net fee income decreased 5% from the level in 2017,
owing mainly to a decline in Equities.
Operating expenses were down 7% from the level in
2017. This was due primarily to lower performance-
based compensation, the portfolio transfer, and a
continuation of tight cost control.
Loans excluding reverse transactions before
impairments decreased 1% and were affected by the
transfer of the majority of the portfolio in the Baltic
countries to the Non-core unit. Excluding the portfolio
transfer, lending increased 6%. Deposits excluding
repo deposits decreased 8%, due partly to the portfolio
transfer.
Fixed Income & Currencies
Total income in FI&C amounted to DKK 2.5 billion, a
decrease of 48% from 2017 when trading income was
high due to favourable market conditions.
The majority of the decline in FI&C income was driven
by significantly lower revenue in the rates business.
For most of 2018, market-making conditions were very
challenging in the Nordic rates market, where Danske
Bank is a market leader, especially in the EUR and
DKK markets. The combination of relatively flat yield
curves, low rates volatility, negative interest rates and
high competition had a negative impact on the ability to
generate income from facilitating customer transactions.
Total income in Liquidity & Securities Finance declined
from the high level in 2017, driven mainly by lower
revenue from facilitating customer transactions in
money markets.
Income in currencies was broadly on par with the level
in 2017, supported by a continuation of high customer
activity.
Capital Markets
Capital Markets income amounted to DKK 1.6 billion, a
decrease of 20% from 2017, driven primarily by lower
trading income in credit markets.
Debt Capital Markets (DCM) had a large number of
new bond issues, assisting customers in entering
the debt capital markets. As a result, fee income was
broadly unchanged from the high level in 2017, and we
maintained our position as one of the leading banks in
the Nordic debt capital market. Trading income declined
significantly from the level in 2017, driven by a more
subdued level of customer activity in the secondary
market following periods of widening credit spreads and
challenging market conditions.
Equities income fell from the level in 2017, driven in part
by lower fees following the implementation of MiFID II.
Corporate finance continued to see good activity.
Loan Capital Markets income increased significantly
from the level in 2017, driven by an increased focus
on underwrite-to-distribute as part of the strategy to
strengthen our Capital Markets franchise.
General Banking
Income from General Banking was negatively affected by
the transfer of the majority of the portfolio in the Baltic
countries to the Non-core unit. This was, however, offset
by one-off income from the sale of assets previously
taken over as collateral. The underlying increase in
income was 3%, due mainly to a continuation of high
refinancing activity across our home markets and
increased lending volumes in Denmark and Norway in
particular.
Danske Bank / Annual Report 2018
49
Business initiatives
In our efforts to become the Nordic Integrator,
Corporates & Institutions is focusing on initiatives to
deliver the best customer experience through relevant
and competitive offerings and by making banking with us
easier. Our ambition is to be the most trusted financial
partner for customers by integrating our services and
solutions into their everyday activities.
2018 was characterised by challenging market
conditions and low volatility in rates markets; however,
FI&C maintained its role as risk facilitator for customers.
In Norway, the increase in customer activity within FX
and derivatives persisted, and Danish and Swedish
mortgage bonds continued to be in demand, not least
from the non-Nordic customer base.
Wholesale banking is undergoing rapid technological
transformation that also impacts FI&C and gives rise
to new opportunities. In order to be able to continue
servicing our customers well and reap the benefits of
an improved digital offering overall, we initiated a major
investment in upgrading our digital markets platform.
In Capital Markets, we extended the reach of our
advisory services, and developed in particular our
sustainable finance offering. Specifically, we continued to
expand our ESG bonds activities, helping, among others,
the Republic of Ireland and the Swedish Landshypotek
Bank with inaugural green bonds issuance, as well as
issuance of the first Hybrid Capital bond for property
rental company Akelius.
We also expanded our Loan Capital Markets business
and was mandated bookrunner/facility agent/fronting
bank for CVC Capital Partners’ acquisition of Mehilainen.
Also in Capital Markets, our Corporate Finance and
Equities area executed a number of IPOs and equity
capital markets transactions. Among other things,
Danske Bank acted as Global Coordinator in the IPOs
of IT services company Netcompany and HR service
provider VMP as well as in the placing of shares in
Ambu, a producer of diagnostic and life-supporting
devices for hospitals on behalf of Chr. Augustinus
Fabrikker. In addition, Corporate Finance won a number
of merger and acquisition mandates, including the sale
of Attendo’s healthcare business and the divestment of
Bergvik Skog’s Latvian forest holdings.
Credit quality
Total loan impairments at Corporates & Institutions
amounted to DKK 278 million in 2018, against
DKK 311 million in 2017, reflecting overall yearly
stabilisation within offshore companies active on
the Norwegian continental shelf due to moderate
improvements in activity and oil prices. In the fourth
quarter however, we saw impairment charges against a
few single name exposures in the shipping industry.
At the end of the fourth quarter of 2018, total credit
exposure from lending activities amounted to DKK 563
billion, a decrease of around 39% from the level at the
end of 2017. The decrease is explained mainly by a
reclassification of reverse transactions (repos) from
loans at amortised cost to loans at fair value as part of
the implementation of IFRS 9, thus excluding them from
the definition of credit exposure.
Net credit exposure
Impairments
(%)
31 December
2018
31 December
2017
31 December
2018
154,101
351,986
0.00%
(DKK millions)
Sovereign
Financial
institutions
73,791
184,157
Corporate
334,651
391,968
-0.04%
0.14%
Other
Total
250
1,165
562,793
929,275
0.07%
Q4 2018 vs Q3 2018
The sovereign and financial institutions portfolios
consist primarily of exposures to stable, highly rated
Nordic counterparties. The corporate portfolio is diverse
and consists mainly of large companies based in the
Profit before loan impairment charges decreased 16% from the
Nordic countries and large international customers with
level in the third quarter of 2018. Profit before tax decreased
activities in the Nordic region.
14% as loan impairment charges were slightly lower than in
the preceding quarter.
Net trading income fell 28% from the third quarter of 2018,
despite the positive effect of one-off income from the sale of
assets previously taken over as collateral.
In FI&C, income decreased 55%, primarily because of lower
revenues in the rates business, as the challenging market
conditions in core rates markets persisted.
In Capital Markets, income increased 24%, driven mainly by a
seasonal increase in Corporate Finance.
Operating expenses increased 6%, due mainly to seasonality.
The fourth quarter of 2018 saw net loan impairment charges
of DKK 175 million, against impairment charges of DKK 235
million in the third quarter of 2018.
Danske Bank / Annual Report 2018
50
Danske Bank / Annual Report 2018
General Banking continued to develop its offering to help
customers safely and easily perform their daily financial
transactions. Thus, we customised and rolled out our
award-winning cash management and trade finance
solutions to a number of new customers, growing our
business and winning market shares both in Sweden
and Norway. We strengthened our digital innovation
setup by unifying our development resources across the
Group, and we continued to improve our coverage model
to meet our customers as one bank.
Our Investor Services offering, designed to help
institutional customers outsource their back and middle
office services, thereby optimising administration in
connection with their post-trade activities and regulatory
compliance requirements, continued to see strong
growth and many new customers were onboarded in
2018.
As part of the Nordic Integrator strategy, we are
integrating our international units into Corporates &
Institutions. The aim is to align and further improve
the customer journey across geographical markets,
to ensure that our customers experience us as one
bank, while simplifying the organisation and improving
efficiency internally. We will thus continue our work to
be the bridge to the world for Nordic customers and the
gateway to the Nordics for international customers with
a significant Nordic footprint. The efforts progressed
according to plan and will continue in 2019.
As part of our ongoing efforts to strengthen the risk
setup, including efforts to combat financial crime, we
invested in our first-line risk setup.
Throughout the autumn of 2018, and as a result of the
Estonia case, senior and other management members
intensified the dialogue with customers on the main
findings of the Estonia investigations and addressed
their questions. We will maintain transparency and
continue the dialogue with our customers in 2019.
Innovation and digitalisation
We continued our efforts to get closer to our customers’
everyday activities and provide them with value-adding
solutions designed to make their working day easier.
For instance, we continued to develop District, and the
roll-out to customers was initiated. District aims to
enable corporates to gain a more comprehensive, real-
time overview of their financial position, thus allowing
even better financial decision-making.
Likewise, we began to significantly upgrade and digitalise
our financial markets platform, which will initially result
in faster execution and higher accuracy to name a few of
the benefits to customers. Once implemented, our aim is
to not only create a better customer experience but also
to gain a more efficient business unit.
Moreover, we took steps to future-proof our digital
research platform by launching an expanded and more
intuitive research website, supplemented by new, short
and easy-to-listen-to podcasts about the macroeconomy
and more personalised research reports. All our
initiatives generated good traction and received positive
customer feedback.
Societal impact
As a leading Nordic wholesale bank, we recognise our
responsibility and obligation to help drive sustainable
progress and have a positive impact on the societies we
are part of.
Danske Bank helps companies finance their growth,
helps facilitate trade, both in and outside the Nordic
countries, and provides advisory and financial services
that support companies and investors in managing their
financial risk. As a result, we recognise our responsibility
for contributing to maintaining and developing a well-
functioning financial market in the Nordics – for example
by helping to ensure a solid market for Nordic mortgage
bonds, so that households have access to attractive
home financing. Following MiFID II regulation taking
effect at the beginning of the year, we have intensified
our efforts to facilitate added financial markets
transparency and strengthen investor protection.
Sustainability is becoming increasingly important for
society, not least when it comes to the development
of a low-carbon economy. Corporates & Institutions is
committed to helping develop green financing, and in
2018, we expanded our green, social and sustainable
bonds offering further – for example by helping a
number of customers with green bonds issuance. To
better assess environmental, social and governance
(ESG) risks associated with our lending operations,
we furthermore strengthened the ESG analysis of our
lending operations
In an increasingly complex world, combining the talents
of a diverse workforce is gaining in importance, also
in wholesale banking. To this end, we have set a new
recruitment ambition as a means of accelerating our
efforts to achieve a more diverse composition of staff in
the future.
Below target
On target
Below target
On target
Under mål
I mål
5
4
3
2
1
7
6
5
4
3
2
1
7
6
5
4
3
2
1
51
Corporates & Institutions
Market position, all (rolling year)
5
4
3
2
1
Under mål
I mål
5
4
3
2
1
The chart shows current average ranking over a full set of reports
for all Prospera surveys to which Corporates & Institutions
subscribes in comparison with the main competitors in each
geographical market. A number one ranking in a market indicates
best average ranking in that market.
Markedsposition, alle (rullende år)
5
4
3
2
1
Customer satisfaction
High customer satisfaction is a key priority for Danske
Bank, and detailed customer insights are important to
understand and improve the customer experience. We
receive customer feedback in the daily encounters with
our customers and receive a number of annual peer
reviews, conducted by Prospera, an independent market
research company in the Nordics.
In 2018, we maintained an aggregate number one
position in the Nordics across all Prospera reports that
we subscribe to. We did, however, see a decline during
2018. Specifically, we maintained a leading position
in Denmark and our second place in Sweden, whereas
we dropped to second place in Finland. In Norway, we
maintained fourth place, albeit with a rising trend. We
fully recognise that the Estonia case has had a negative
impact on our customers’ perception of us, and we will
continue to work hard to regain their trust.
Across product categories, we maintained our
longstanding number one ranking as the preferred
financial provider of Cash Management and Trade
Finance in the Nordic region for the fifth and eighth year,
respectively.
We improved our M&A adviser position from second
to shared first place and maintained a leading position
within Foreign Exchange and Interest Rate Swaps for
the third and fourth year in a row, respectively. We also
improved our position in Nordic Equities from fourth to
second place.
Danske Bank / Annual Report 2018
52
Danske Bank / Annual Report 2018 53
Index
Q4/Q3
101
115
-
-
98
119
69
-
67
100
105
98
101
80
102
Wealth Management
Profit before tax amounted to DKK 3.2 billion, a decrease of 30% from the level in 2017. The performance
was adversely affected by uncertainty in the financial markets, causing lower net trading income and lower
performance fees. In addition, the risk result in the health and accident business was adversely affected by an
increase in claims. The increase in operating expenses was due mainly to regulatory costs and costs regarding
the acquisition, integration and operation of SEB Pension Danmark.
2018
2017
Index
18/17
Wealth Management
(DKK millions)
Net interest income
Net fee income
Net trading income
Other income
Total income
Operating expenses
Profit before loan impairment charges
Loan impairment charges
Profit before tax
Loans, excluding reverse transactions
before impairments
Allowance account, loans
Deposits, excluding repo deposits
Bonds issued by Realkredit Danmark
Allowance account, guarantees
725
7,353
66
-193
7,950
4,810
3,140
-42
3,183
77,704
392
66,641
37,494
32
709
7,281
403
174
8,567
4,082
4,485
-93
4,579
75,028
434
65,849
32,278
26
Q4
2018
180
2,102
-44
-165
2,073
1,448
625
11
615
77,704
392
66,641
37,494
32
Q3
2018
179
1,828
94
18
2,119
1,216
903
-21
924
77,464
374
68,143
37,259
40
17,446
17,187
102
101
16
-
93
118
70
-
70
104
90
101
116
123
111
Allocated capital (average)
15,434
13,894
Net interest income as % p.a. of
loans and deposits
Profit before tax as % p.a. of
allocated capital (ROAC)
Cost/income ratio (%)
Full-time-equivalent staff
0.50
0.50
0.50
0.49
20.6
60.5
2,201
33.0
47.6
1,851
14.1
69.9
21.5
57.4
119
2,201
2,180
101
Breakdown of assets under management*
(DKK billions)
Life conventional
Asset management
Assets under advice
200
927
449
155
911
464
Total assets under management
1,575
1,530
129
102
97
103
200
927
449
201
968
499
1,575
1,668
100
96
90
94
*Assets under Management consists of our life conventional business (Danica Traditionel), asset management (Danica unit-linked and Asset Management) and assets under
advice (the investment decision is made by the customer) from retail, commercial and private banking customers. Assets under Management from the acquired SEB Pension
Danmark consists of DKK 51 billion from Life conventional and DKK 50 billion from Asset management (unit-linked products).
Danske Bank / Annual Report 2018
54
Breakdown of net fee income
(DKK millions)
Management fees
Performance fees
Risk allowance fees
Total net fee income
6,043
204
1,105
7,353
5,737
415
1,130
7,281
105
49
98
101
1,699
154
249
2,102
1,502
21
305
1,828
113
-
82
115
2018 vs 2017
Profit before tax amounted to DKK 3.2 billion, a
decrease of 30% from the level in 2017. The financial
performance was significantly influenced by uncertainty
in the financial markets and integration costs. The
financial results of SEB Pension Danmark are included
in the financial results as from 7 June 2018. In
December 2018, Danica Pension announced the sale
of the Swedish part of its business. The deal is subject
to approval by the authorities, expected in the first half
of 2019. Consequently, it will not affect the results
for Danica Pension for 2018 except for the expenses
associated with the sale.
Net interest income was up 2% to DKK 725 million,
driven by an increase in volumes.
Net fee income amounted to DKK 7.4 billion including
the effect of SEB Pension Danmark and was up 1% from
the level in 2017 despite lower performance fees.
Net trading income amounted to DKK 66 million and
fell significantly from the level in 2017, when trading
income amounted to DKK 403 million. The reason for
the decline was a low investment return in the health
and accident business due to difficult market conditions.
Other income amounted to a negative DKK 193 million,
against DKK 174 million in 2017, due to a lower risk
result in the health and accident business. The negative
result stemmed primarily from the acquired SEB
Pension Danmark business.
Operating expenses were up 18% from the level in
2017, due mainly to increased regulatory costs, costs
related to the acquisition and integration of SEB Pension
Danmark, the ordinary operating expenses of SEB
Pension Danmark since 7 June 2018.
Credit quality
Credit quality was generally stable. Our markets are
supported by generally favourable macroeconomic
conditions and a low level of interest rates.
Loan impairment charges amounted to net reversals of
DKK 42 million in 2018.
Overall, the loan-to-value (LTV) level decreased around 1
percentage point in 2018.
Loan-to-value ratio, home loans
31 December 2018
31 December 2017
Average
LTV (%)
Net credit
exposure
(DKK bn)
Average
LTV (%)
Net credit
exposure
(DKK bn)
58.0
59.1
42
4
60.2
8
66.0
2
58.9
56
60.0
58.9
59.3
65.5
60.0
40
4
7
2
53
Denmark
Sweden
Norway
Finland
Total
Credit exposure
Credit exposure increased to DKK 87 billion in 2018.
The increase was driven by growth in all markets with
the exception of Finland due to faster debt repayment.
Net credit exposure
Impairments
(ann.) (%)
(DKK millions)
31 December
2018
31 December
2017
31 December
2018
Denmark
57,943
Sweden
Norway
Finland
6,886
11,296
3,160
Luxembourg
8,062
56,818
6,292
10,628
3,415
8,028
-0.03%
0.05%
-0.04%
-0.05%
-0.38%
Total
87,347
85,180
-0.05%
Danske Bank / Annual Report 2018
55
Assets under management
Assets under Management consists of our life
conventional business (Danica Traditionel), asset
management (Danica unit-linked and Asset
Management) as well as assets under advice, where the
customer makes the investment decision.
Assets under Management, including the acquisition
of SEB Pension Danmark, increased DKK 45 billion,
primarily because of the acquisition. Excluding SEB
Pension Danmark, AuM fell primarily as a result of the
market development as well as a few large institutional
clients insourcing their mandates. At the end of
December 2018, Assets under Management totalled
DKK 1,575 billion.
Premiums for Danica Pension amounted to DKK 44.1
billion, against DKK 39.7 billion in 2017. The increase
was driven primarily by DKK 5.6 billion in premiums
recognised as a result of the acquisition of SEB Pension
Danmark and positive developments in Sweden.
For Asset Management, net sales in 2018 amounted
to a negative DKK 18.4 billion, against a positive
DKK 20.9 billion in 2017. The decline was caused
by outflows from a few large institutional clients who
insourced mandates.
Investment return on customer funds
In 2018, the financial markets were characterised
by geopolitical uncertainty and concerns regarding
interest rates. Looking overall at our funds, 57% of
investment products generated above–benchmark
returns against 70% in 2017. On a 3-year horizon, 69%
of all investment products generated above-benchmark
results.
% of investment products (GIPS composites) with
above-benchmark returns (pre-costs)*
All funds
Equity funds
Fixed-income funds
Balanced funds etc.
2018
3-year
57
45
81
25
69
63
83
47
*Source: Investment Performance, based on results from Global Investment
Performance Standard
Customers with Danica Balance Mix achieved returns
on investments of -9.8% to 0.9%. The return for
customers with a Danica Balance medium risk profile
with 20 years to retirement was a negative 7.0%.
Customers with the Markedspension product (Danica
Pensionsforsikring) achieved returns on investments
of 9.4% to 0.2%. The return for customers with the
Markedspension product and a medium risk profile with
20 years to retirement was a negative 6.6%.
Q4 2018 vs Q3 2018
In the fourth quarter of 2018, profit before tax decreased 33%
to DKK 0.6 billion. This was due primarily to the health and
accident business posting both a lower investment and a lower
risk result, which adversely affected trading income and other
income. Higher operating expenses also had an effect.
Total income decreased 2% to DKK 2.1 billion.
Net fee income increased due to performance fees from
asset management, but net trading income fell due to lower
investment income in the health and accident business. Other
income fell due to a lower risk result in the health and accident
business.
Operating expenses were 19% higher in the fourth quarter, due
primarily to the integration expenses of SEB Pension Danmark
and costs related to the sale of Danica Pension in Sweden.
Business initiatives
Wealth Management combines our competencies
within investment, pension and insurance to help our
customers become financially confident.
To realise this strategic ambition, we will move even
closer to our retail, commercial and institutional
customers by providing proactive, relevant and holistic
wealth advice and services that enable them to realise
their dreams and ambitions or professional goals. We
will further integrate as an organisation by focusing on
enhancing our distribution ability across the Group to
fully realise our ’One Bank’ potential and better serve
our customers. And we are raising our ambitions and
competencies within sustainable investments to meet
the needs of our customers and society – by integrating
environmental, social and governance factors into our
Danske Bank / Annual Report 2018 56
investments, increasing active ownership and offering
new opportunities for sustainable investments.
In 2018, we worked to improve the customer
experience, create digital and innovative solutions,
support Nordic growth, and integrate societal impact
even further into our business through a number of
business initiatives.
Customer experience
Acquiring SEB Pension Danmark to create an even
stronger pension offering
In June 2018, the acquisition of SEB Pension Danmark
was finalised. By combining the strengths of SEB
Pension Danmark and Danica Pension, we aim to create
an even stronger pension offering and a better customer
experience for our 800,000 pension customers.
The integration of SEB Pension Danmark enables
us to invest more in moving even closer to our
customers, thereby helping them be one step ahead
by understanding their needs and reaching out to them
with relevant advice. We do that by giving them the
overview and confidence they want today and in the
future – and we are now even better equipped to realise
this ambition.
The process of transferring the customers of SEB
Pension Danmark to Danica Pension is expected to be
finalised in the first half of 2019.
The sale of Danica Pension’s pension activities in
Sweden
In December 2018, Danica Pension announced the sale
of its pension activities in Sweden.
As part of the sale, it has been agreed that the new
owner will offer the same solutions to Danske Bank’s
customers on unchanged terms, and a partnership
agreement between the new owner and Danske Bank
will ensure continued product development and offerings
to Danske Bank’s customers in Sweden. The sale
enables Danica Pension to further focus its business
on Denmark and Norway, and with the acquisition of
SEB Pension Danmark earlier in 2018, Danica is now
in an even stronger position to develop the best pension
solutions for customers in these two countries.
The transaction price is around SEK 2.6 billion,
corresponding to around DKK 1.9 billion. The sale does
not affect the results of Danica Pension for 2018, as the
purchase price will not fall due for payment until the sale
has been finalised. The sale must be approved by the
Swedish financial supervisory authority and the Swedish
competition authorities, which is expected to take place
in the first half of 2019.
New alternative offerings to expand our investment
product portfolio
During 2018, we launched two new hedge funds as part
of our strategy to be a leading provider in the alternative
investments space. We strongly believe that alternative
investments will be an increasingly important asset
class if we are to ensure stable and attractive risk-
adjusted returns for our customers in the future.
The two new hedge funds are managed by Danske
Invest and are called Danske Invest SICAV – SIF Global
Cross Asset Volatility and Danske Invest SICAV – SIF
Fixed Income Global Value Class, and the funds further
cement our strong position in the Nordic hedge fund
market. Furthermore, our Danske Invest Hedge Fixed
Income Relative Value fund was named Best Fixed
Income Hedge Fund in the Nordic markets in 2018
by HedgeNordic, and our Danske Invest Hedge Fixed
Income Strategies fund was named the best hedge fund
in Europe over the last 10 years in the Macro, Fixed
Income & Relative Value category.
During 2019, we will launch more alternative
investment funds for our customers.
Innovation and digitalisation
Innovating our digital investment solution even further
Last year, Danske Bank’s first initiative within digital
investment management, June, was created to offer
an easy-to-use and affordable investment platform. In
December, an updated version of June was launched
with four new, screened funds, which are in line with
the principles within our strategy on sustainable
investments. As part of the updated version, it is now
possible to change from one fund to another and initiate
an investment check when relevant.
June continued to attract new customers and during
2018, it reached a milestone with +20,000 customers
signed up with around DKK 600 million invested. June
is currently offered to customers in Denmark, but early
in 2019, June will be launched in Sweden.
Danske Bank / Annual Report 2018 57
number two. However, in Sweden and Norway, customer
satisfaction was increasing, with our ranking in Norway
improving from number four to number two, and in
Sweden from number twelve to number eight. In Finland,
we were ranked number five. Among providers present
in all Nordic markets, Asset Management is now ranked
number one.
Danica Pension
According to Aalund Research’s survey on customer
satisfaction, which runs every six months, Danica
Pension is number three in Denmark. The latest survey
was published in December 2018.
Private Wealth Management
According to a survey made by Prospera in the third
quarter of 2018, Private Wealth Management was
ranked number five in Denmark, number seven in
Finland, number five in Norway and number six in
Sweden. We saw a decline in rankings in the four
markets from 2017.
In April 2018, Wealth Management implemented
organisational changes in order to ensure an even
stronger customer focus. We have now established a
strong value chain organisation with a more integrated
approach from development to customer experience –
thus ensuring that we can live up the needs of our very
diverse customer base.
Democratising investment by introducing the
Aktiesparekonto in Denmark
We are constantly working on giving our customers new
and easy ways to use our services on their terms, which
means incorporating digital tools even further into our
offerings.
In December, we opened the pre-signup for a
new product, Aktiesparekonto, in Denmark. The
Aktiesparekonto is a Danish political initiative to
motivate more Danes to take an active interest in
investment and savings by offering a favourable tax rate
of only 17%, as opposed to the standard rate of 27%.
Through a digital tool, customers can easily determine
whether Aktiesparekonto is an interesting investment
option for them, either as a standalone solution or
integrated into a mix of investment tactics. The product
was launched on 2 January 2019, and similar products
are available also in Sweden and Norway.
Societal impact
Strengthen our commitment to sustainable investments
and moving closer to society
Societal impact and sustainable investments are
important focus areas for Danske Bank and we are
constantly working on integrating societal impact further
into our business model.
In 2018, we strengthened our commitment to
sustainable investments with a new, ambitious strategy,
which is all about integrating Environmental, Social
and Governance (ESG) considerations into the core
of our investment processes, products and advice. It
is centred around making better-informed investment
decisions while identifying and addressing issues of
risk, and influencing companies through active dialogue
and voting. In addition, we launched our first report on
our active ownership activities and a digital platform
disclosing how we vote at the general meetings.
Furthermore, together with Banking DK we launched
two thematic funds (targeted climate and water) across
our markets. The two funds have been well received by
customers, who invested DKK 710 million in the funds
in 2018.
Customer satisfaction
Asset Management
According to Prospera’s latest survey from July 2018,
the ranking of Asset Management in Denmark fell to
Danske Bank / Annual Report 2018 58
Danske Bank / Annual Report 2018 59
Northern Ireland
At DKK 744 million, profit before tax was lower than in 2017, which benefited from loan impairment reversals and a
one-off benefit following a change in pension liabilities. The underlying performance in 2018 was positive, with income
increasing 1% to DKK 1,978 million.
Northern Ireland
(DKK millions)
Net interest income
Net fee income
Net trading income
Other income
Total income
Operating expenses
Profit before loan impairment charges
Loan impairment charges
Profit before tax
Loans, excluding reverse transactions
before impairments
Allowance account, loans
Deposits, excluding repo deposits
Allowance account, guarantees
Allocated capital (average)*
Net interest income as % p.a. of
loans and deposits
Profit before tax as % p.a. of
allocated capital (ROAC)
Cost/income ratio (%)
Full-time-equivalent staff
* Allocated capital equals the legal entity’s capital.
2018
2017
Index
18/17
Q4
2018
Q3
2018
Index
Q4/Q3
1,491
392
82
12
1,978
1,207
770
26
744
49,805
762
62,555
30
6,843
1,374
429
111
48
1,961
957
1,004
-247
1,251
46,272
757
58,971
7
6,215
109
91
74
25
101
126
77
-
59
108
101
106
-
110
383
94
22
3
502
319
183
-1
185
49,805
762
62,555
30
6,905
372
97
20
3
492
299
193
-22
215
50,902
757
63,461
101
6,786
1.34
1.32
1.37
1.31
10.9
61.0
1,322
20.1
48.8
1,260
10.7
63.5
1,322
12.7
60.8
1,319
105
103
97
110
100
102
107
95
-
86
98
101
99
30
102
100
2018 vs 2017
Profit before tax decreased 41% to DKK 744 million on
the basis of loan impairment charges in 2018 against
net reversals in 2017. In addition, 2017 costs included
a one-off benefit following a DKK 212 million change in
pension liabilities.
Profit before loan impairment charges decreased
23% to DKK 770 million, however, the underlying
performance was positive, with profit before loan
impairment charges up 3% after adjustment for the
2017 one-off pension benefit and the proceeds from
disposal of the wealth business.
Total income amounted to DKK 1,978 million and was
1% higher than in 2017. The positive impact of lending
growth, higher customer activity and higher UK interest
rates was partially offset by lower fee income following
the sale of our wealth business.
While uncertainty remains around Brexit, customer
activity levels remained healthy. Our business continued
to perform well, supported by ongoing improvements
to our mortgage finance proposition, including new
products and revised processes, as well as further
strenghtening of business relations. Business and retail
lending and deposit volumes increased.
Danske Bank / Annual Report 2018
60
At DKK 1,207 million, operating expenses were 26%
higher than in 2017, which included a one-off benefit
following changes to staff pension arrangements.
2018 vs 2017 in local currency
In local currency, profitability is reduced as previously
described. Income was 2% higher year-on-year, despite
economic uncertainty and discontinued wealth business,
supported by lending and deposit growth of 8% and 7%,
respectively.
Credit quality
The 2018 charge takes into account the possibility
that the United Kingdom may exit the European Union
without a withdrawal agreement. The probability of a
hard Brexit has been factored into the forward-looking
macroeconomic scenarios as part of the application of
IFRS 9.
Net credit exposure
Impairments
(ann.) (%)
(DKK millions)
31 December
2018
31 December
2017
31 December
2018
Retail
customers
Public
institutions
Financial
customers
Commercial
customers
Total
23,012
19,312
-0.03%
14,919
13,163
0.01%
101
189
-0.56%
31,156
69,187
30,356
63,019
0.13%
0.06%
Q4 2018 vs Q3 2018
Profit before loan impairment charges showed a similar pattern
to the third quarter performance, with income reflecting the
underlying positive business momentum.
Costs were higher in the fourth quarter owing to the impact of a
recent UK court ruling on the provision of guaranteed minimum
pensions within defined benefit pension schemes. As a result,
Danske Bank has increased its pension liabilities, resulting in
an additional cost in the fourth quarter of 2018 of DKK 19
million.
Business initiatives
Our vision in Northern Ireland is to be recognised as
the best bank for customers, employees, stakeholders
and society. In a challenging environment, we continue
to execute our strategy to digitally transform the bank,
improve the customer experience and streamline
internal operations.
Customer activity
2018 was a strong year for our mortgage business
as new mortgage lending increased 26% on 2017.
The latest research indicates that Danske Bank is now
providing one in four first-time buyer mortgages and
one in five of all mortgages in Northern Ireland. We
have more mortgage consultants based in Northern
Ireland than any other bank and have also invested in
the creation of a new team of relationship managers
dedicated to serving the independent mortgage broker
network.
Business lending was also up year-on-year, and we
are pleased to be piloting and rolling out digital credit
decisioning in this segment. This has been very well
received so far, transforming the credit journey for both
business customers and our business relationship
managers. In most cases, credit decisions using the
digital facility are made in minutes, as opposed to days.
In the fourth quarter of 2018, we announced that on 27
February 2019, Danske Bank in Northern Ireland will
launch a plastic/polymer £10 note into local circulation.
It will be the first time Danske Bank has introduced
such a note since, as Northern Bank, we became the
first ever UK bank to issue a ‘plastic’ note in December
1999 to mark the new millennium.
Innovation and digitalisation
Digital innovation continues at a pace, and it is expected
to accelerate further in 2019. This is due to both
increasing customer expectations and the launch of
open banking.
In 2018, we saw further adoption of our digital
channels, with more than four million digital logons per
month and a 35% increase in digital transactions year-
on-year. We are leveraging the capabilities and expertise
of the Group to develop a wide range of digital offerings
for the Northern Irish market. New offerings for 2018
Danske Bank / Annual Report 2018
61
included the introduction of a new customer app as well
as new mobile payment options – Samsung Pay and
Garmin Pay.
We also received two gender diversity charter marks
in recognition of our strong work during the year on
equality, diversity and inclusion.
We educated more than 5,200 children through our
Smart schools’ programmes, and our employees gave
over 2,000 hours of volunteering time to help various
community initiatives.
Customer satisfaction
During 2018, we maintained leading business and
personal market share positions and continued to focus
on improving our customer service. In the business
segment, we were the overall leader throughout the year.
In personal banking, despite the increase in the score
from 2017, we remained in fourth position – behind
three of the national UK banks.
Northern Ireland
Below target
On target
Under mål
I mål
7
6
5
4
3
2
1
7
6
5
4
3
2
1
Retail
customers
Commercial
cstomers
Under mål
I mål
5
4
3
2
1
We also launched a dedicated fintech co-creation space
on the ground floor of our Belfast headquarters, the
Catalyst Belfast Fintech Hub. To complement this, we
introduced thehub.io, an online portal to help the growing
number of start-up businesses in Northern Ireland to
connect with investors, peers and potential new recruits
across Europe.
Another example of ongoing digital investment was our
focus on upgrading key branches to make them more
digitally interactive and conducive to good customer
experiences. Alongside this programme, we have closed
a number of branches in response to the continuing
changes in customer behaviour.
On target
Macroeconomic environment
In the third quarter of 2018, the Bank of England raised
UK interest rates for only the second time in ten years
from 0.5% to 0.75%. The record-low interest rate
environment has had an adverse impact on all banks in
the UK, and the central bank’s indication of further rate
hikes in the near future, albeit on a gradual basis, will
have a positive impact on earnings.
1
3
2
The Brexit departure date has been set at 29 March
2019, with many commentators expecting economic
uncertainty to increase as the date approaches. While
we are planning for a wide range of potential outcomes,
uncertainty relating to Brexit has so far had a relatively
small impact, with lending to retail customers being
largely unaffected. While some corporate deals may
have been delayed, corporate and business lending has
remained at satisfactory levels.
Below target
5
4
Market position, all (rolling year)
5
Societal impact
During 2018, Danske Bank received the CORE award
from Business in the Community – benchmarking us as
the highest placed bank in Northern Ireland in terms of
corporate responsibility activity.
4
1
It was a year in which we also became a registered
dementia-friendly bank and the first bank to become
JAM Card friendly. The JAM Card is a programme
aimed at helping customers with learning difficulties and
autism.
2
3
Markedsposition, alle (rullende år)
5
4
3
2
1
Danske Bank / Annual Report 2018 62
Non-core
Profit before tax for 2018 was a negative DKK 282 million. Total lending stood at DKK 14.9 billion at the end of 2018,
against DKK 5.4 billion at the end of 2017. The increase related to the transfer of Baltic customers to the Non-core
unit at 1 April 2018, which was made as a result of the repositioning of the Group’s business activities in the Baltic
countries. The winding-up of the Non-core portfolios is proceeding according to plan.
Non-core
(DKK millions)
Total income
Operating expenses
Profit before loan impairment charges
Loan impairment charges
Profit before tax
Loans, excluding reverse transactions
before impairments
Allowance account, loans
Deposits, excluding repo deposits
Allowance account, guarantees
Allocated capital (average)
Net interest income as % p.a. of
loans and deposits
Profit before tax as % p.a. of
allocated capital (ROAC)
Cost/income ratio (%)
Full-time-equivalent staff
Loan impairment charges
(DKK millions)
Non-core banking*
Non-core conduits etc.
Total
2018
2017
213
632
-419
-137
-282
14,906
784
2,399
32
2,115
169
890
-722
-710
-12
5,380
653
1,925
27
2,604
Index
18/17
126
71
-
-
-
277
120
125
119
81
Q4
2018
38
329
-292
-5
-286
Q3
2018
78
127
-49
-5
-44
14,906
16,158
784
2,399
32
2,408
786
4,600
18
2,707
Index
Q4/Q3
49
259
-
-
-
92
100
52
178
89
1.14
2.63
0.82
1.40
-13.3
296.7
259
-0.5
526.6
122
-47.5
865.8
-6.5
162.8
212
259
332
78
-137
-
-137
-796
86
-710
-
-
-
30
-36
-5
-46
41
-5
-
-
-
* Non-core banking encompasses Non-core Baltics (personal and business customers in Lithuania, Estonia and Latvia) and Non-core Ireland.
Danske Bank / Annual Report 2018
63
Total impairments amounted to a net reversal of DKK
137 million, against a net reversal of DKK 710 million
in 2017. Most of the reversals in 2017 related to
reversals of charges at Non-core banking, including a
portfolio of Irish residential mortgage loans sold in the
fourth quarter of 2017. The reversal in 2018 primarily
reflected continued reversals and work-outs, mainly in
Non-core Ireland and, to some extent, Non-core Baltics.
The winding-up of the Non-core portfolios is proceeding
according to plan.
Q4 2018 vs Q3 2018
Profit before tax was a negative DKK 286 million, against a
negative DKK 44 million in the third quarter of 2018. The
higher loss in the fourth quarter of 2018 was primarily due to
a value adjustment of DKK 200 million recognised in the fourth
quarter of 2018.
Loan impairment charges amounted to a net reversal of DKK 5
million, the same as in the third quarter of 2018. The Non-core
banking portfolio saw continued net reversals, primarily relating
to the Non-core Ireland portfolio.
2018 vs 2017
The unit posted a loss before tax of DKK 282 million,
against a loss of DKK 12 million in 2017. The loss
before tax increased primarily as a result of fewer loan
impairment reversals.
Operating expenses decreased from DKK 890 million to
DKK 632 million. The decrease was due to lower costs
related to portfolio sales. This effect was, however, partly
offset by the transfer of Baltic activities to Non-core in
the second quarter of 2018.
Net credit exposure totalled DKK 18.4 billion, against
DKK 8.2 billion at the end of 2017. The increase in Non-
core banking related to the transfer of Baltic customers
to the Non-core unit in the second quarter of 2018.
Total lending amounted to DKK 14.9 billion and
consisted mainly of exposure to commercial and
personal customers at Non-core Baltics, as well as
conduits. The loan book will mature according to
contractual terms.
In Non-core Baltics, all daily banking activities are being
discontinued, and the sale of new products has ceased.
The remaining customer accounts are being closed
as the statutory notification to customers has been
given. The process is well underway and will largely be
completed during the first quarter of 2019.
Deposit balances decreased as expected, primarily
as a result of the discontinuation of the daily banking
activities of Non-core Baltic customers.
The Non-core conduits portfolio amounted to DKK 3.9
billion, against DKK 4.6 billion at the end of 2017. The
portfolio consists mainly of liquidity facilities for conduits.
The credit quality of the portfolio was stable.
Net credit exposure
Expected credit loss
31 Dec.
20187
31 Dec.
2017
31 Dec.
2018
31 Dec.
2017
Non-core banking* 14,516
3,610
394
201
-of which personal
customers
-of which commer-
cial customers
-of which public
Institutions
Non-core conduits
etc.
4,816
3,610
153
7,620
2,081
-
-
240
2
-
3,916
4,583
422
479
-
-
Total
18,432
8,193
816
680
* The increase in net credit exposure in Non-core banking is related to the transfer
of Baltic customers to the Non-core unit at 1 April 2018. Comparative figures have
not been restated.
Danske Bank / Annual Report 2018
64
Other Activities
Other Activities includes Group Treasury and Group support functions as well as eliminations. Group Treasury is
responsible for the Group’s Internal Bank, liquidity management and funding. Net interest income primarily reflects the
elimination of the interest expense on equity accounted additional tier 1 capital, reported as an interest expense in the
business segments, differences at the Internal Bank between actual and allocated funding costs using the Group’s funds
transfer pricing model, as well as income related to the Group’s liquidity portfolio.
Other Activities
(DKK millions)
Net interest income
Net fee income
Net trading income
Other income
Total income
Operating expenses
Profit before loan
impairment charges
Loan impairment charges
Profit before tax
Profit before tax
(DKK millions)
Group Treasury
Own shares
Additional tier 1 capital
Group support functions
Total Other Activities
2018
2017
515
-261
933
7
1,194
2,416
-1,222
5
-1,227
223
500
782
-2,731
-1,227
1,410
-241
456
55
1,680
702
978
-
978
1,273
-127
787
-955
978
Index
18/17
37
-
205
13
71
-
-
-
-
18
-
99
-
-
Q4
2018
115
-80
258
-9
283
178
106
3
103
-29
214
193
-274
103
Q3
2018
71
-62
353
15
378
1,829
-1,452
4
-1,455
79
155
198
-1,888
-1,455
Index
Q4/Q3
162
-
73
-
75
10
-
75
-
-
138
97
-
-
2018 vs 2017
Other Activities posted a loss before tax of DKK 1,227
million, against a profit before tax of DKK 978 million in
2017, primarily as a result of the expense for the DKK
1.5 billion donation. A decrease in net interest income
also had a negative effect, which was partly offset by an
increase in net trading income.
Net interest income amounted to DKK 515 million,
against DKK 1,410 million in 2017. The decrease in
2018 was driven primarily by the Internal Bank, where
lower funding rates continued to reduce the allocation of
liquidity costs.
Net trading income amounted to DKK 933 million,
against DKK 456 million in 2017, and benefited from
the elimination against retained earnings of losses on
the Group’s holdings of own shares. The positive effect
was partly offset by the allocation to the business units
of accrued income on some loans, previously retained at
Group Treasury, and by lower income on fair value bond
portfolios held in Group Treasury.
Q4 2018 vs Q3 2018
The unit posted a profit before tax of DKK 103 million, against
a loss before tax of DKK 1,455 million in the third quarter. The
result in the third quarter was primarily owing to the expense
for the DKK 1.5 billion donation.
Net interest income amounted to DKK 115 million, against
DKK 71 million in the third quarter. The increase was driven
primarily by the Internal Bank.
Net trading income amounted to DKK 258 million, against DKK
353 million in the third quarter, with a negative market value
adjustment of the private equity portfolio as the main reason.
Danske Bank / Annual Report 2018 65
Definition of alternative
performance measures
Danske Bank’s management believes that the alternative performance measures (APMs) used in the Management’s report provide valuable information
to readers of the financial statements. The APMs provide a more consistent basis for comparing the results of financial periods and for assessing the
performance of the Group and each individual business unit. They are also an important aspect of the way in which Danske Bank’s management defines
operating targets and monitors performance.
Throughout the Management’s report, performance is assessed on the basis of the financial highlights and segment reporting, which represent the
financial information regularly provided to management. The differences between the financial highlights and the IFRS financial statements relate to
certain changes in the presentation. Net profit is the same in the financial highlights and in the IFRS income statement. However, in 2018 an adjusting
item related to the implementation of IFRS 9 is included. Loans granted by Realkredit Danmark (RD) are measured at fair value (both under IAS 39 and
under IFRS 9). After the implementation of IFRS 9, the IFRS 13 estimate of the fair value of the credit risk on RD loans is based on the expected credit loss
model developed in connection with the Group’s implementation of IFRS 9. The impact from the expected credit loss impairment model on these loans at
1 January 2018 is recognised as a change in an accounting estimate in the IFRS income statement. To recognise the changes in RD due to the expected
credit loss impairment model in IFRS 9 similarly to all the others IFRS 9 changes in the Group and to better reflect the actual performance in 2018, the
impact is recognised as a reduction in shareholders’ equity together with the other changes from the implementation of IFRS 9. Therefore, net profit in the
financial highlights is DKK 312 million higher than net profit in the IFRS income statement. Note 3 to the financial statements describes the differences
between the financial highlights and the IFRS financial statements, and each line item in the financial highlights is reconciled with the consolidated financial
statements prepared under IFRS.
Definitions of additional ratios presented on page 8 and in other sections of the Management’s report:
Ratios and key figures
Definition
Dividend per share (DKK)
Earnings per share (DKK)
Return on average shareholders’ equity
(% p.a.)
Net interest income as % p.a. of loans
and deposits
The dividend is the dividend related to net profit for the current year and paid to shareholders the subsequent
year. Accordingly, for 2018, it is the dividend paid in 2019.
As IFRS, but with net profit, as disclosed in the financial highlights. Hence and as explained above, earnings in
the IFRS income statement is increased by the impact of DKK 312 million related to the change in the model
used to estimate the fair value of the credit risk on RD loans at 1 January 2018.
Net profit as disclosed in the financial highlights divided by the average of the quarterly average shareholders’
equity (beginning and end of each quarter) within the year. Net profit and shareholders’ equity are stated as if
the equity-accounted additional tier 1 capital was classified as a liability. In the nominator, net profit is reduced
by interest expenses of DKK 609 million net of tax (2017: DKK 613 million), and the denominator represents
equity, excluding additional tier 1 capital and other non-controlling interests equal to a reduction in the average
of the quarterly average of equity of DKK 18.396 million (2017: 14,375 million). To better reflect the actual
performance in the period, another key figure representing the return on average shareholders’ equity adjusted
for the forfeited gross income from the non-resident portfolio in Estonia is also disclosed in the executive sum-
mary. This key figure is calculated similarly but with net profit increased by DKK 1.5 billion.
Net interest income in the financial highlights divided by the daily average of loans and deposits. All amounts
are from the financial highlights. The daily average of loans and deposits is DKK 25,781 million higher than
calculating the ratio by applying the average of loans and deposits at the beginning and at the end of the year.
The purpose of the key figure is to show if the growth in net interest income follows the growth in loans and
deposits.
Cost/income ratio (%)
Operating expenses divided by total income. All amounts are from the financial highlights.
Book value per share
Shareholders’ equity (that is, excluding equity-accounted additional tier 1 capital) divided by the number of
shares outstanding at the end of the period.
Loan impairment charges as % of loans
and guarantees
Allowance account as % of loans and
guarantees
This ratio is calculated on the basis of loan impairment charges and loans and guarantees in core segments.
The nominator is the loan impairment charges of DKK -607 million from the financial highlights. The denomi-
nator is the sum of Loans at amortised cost of DKK 935.8 billion, Repo loans of DKK 172.2 billion, Loans at
fair value of DKK 787.2 billion and guarantees of DKK 84.5 billion at the beginning of the year, as disclosed in
the column “Lending activities – core” in the “Breakdown of credit exposure” table in the notes to the financial
statements. The ratio is calculated for each business unit.
This ratio is calculated on the basis of the allowance account and loans and guarantees in core segments. The
nominator is the allowance account of DKK 21 billion at the end of the period, as disclosed in the “Allowan-
ce account in core activities broken down by segment” table in the notes to the financial statements. The
denominator is the sum of the allowance account of DKK 21 billion, Loans at amortised cost of DKK 963
billion, Loans at fair value of DKK 793.4 billion, and guarantees of DKK 80.8 billion, at the end of the period, as
disclosed in the column “Lending activities –core” in the “Breakdown of credit exposure” table in the notes to
the financial statements. The ratio is calculated for each business unit.
Danske Bank / Annual Report 2018
66
Danske Bank / Annual Report 2018 67
We are driven by an
ambition to create value
for all our stakeholders
Danske Bank / Annual Report 2018 68
Danske Bank / Annual Report 2018
Danske Bank / Annual Report 2018
69
Financial statements
Income statement
70
71 Statement of comprehensive income
72 Balance sheet
73 Statement of capital
77 Cash flow statement
Notes
78
78 1. Basis of preparation
86 2. Changes and forthcoming changes to
accounting policies and presentation
90 3. Business model and business
segmentation
99 4. Activities by country
101 5. Net interest and net trading income
104 6. Fee income and expenses
107 7. Income from holdings in associates and
Other income
108 8. Insurance contracts
109 9. Operating expenses
110 10. Audit fees
111 11. Loan impairment charges
112 12. Trading portfolio assets and liabilities
116 13. Investment securities
118 14. Due from credit institutions
119 15. Loans at amortised cost
125 16. Loans and issued bonds at fair value
128 17. Asset and deposits under pooled schemes
129 18.
and unit-linked investment contracts
Assets and liabilities under insurance
Contracts
132 19. Intangible assets
135 20. Due to credit institutions and central
banks and deposits
136 21. Tax
140 22. Issued bonds
144 23. Other assets and Other liabilities including
Assets held for sale and Liabilities in
disposal groups
146 24. Equity
148 25. Contingent liabilities
150 26. Balance sheet broken down by expected
due date
151 27. Contractual due dates of financial liabilities
152 28. Transferred financial assets that are not
deregcognised
153 29. Assets provided or received as collateral
154 30. Offsetting of financial assets and liabilities
155 31. Fair value information for financial
161 32.
instruments
Non-financial assets recognised at fair
value
162 33. Related parties
163 34. Remuneration of management and
material risk takers
169 35. Danske Bank shares held by the Board of
Directors and Executive Board
170 36. Group holdings and undertakings
173 37. Interests in associates and joint
arrangements
174 38. Interests in unconsolidated structured
entities
174 39. Note to the cash flow statement
175 40. Implementation of IFRS 16
176 Risk management
176 Risk exposure
176 Total capital
177 Credit risk
197 Market risk
199 Liquidity risk
202
Insurance risk
206 Highlights, ratios and key figures
207 Definitions of ratios and key figures
208 Financial statements – Danske Bank A/S
70
Danske Bank / Annual Report 2018
54 Danske Bank / Annual Report 2018
Income statement – Danske Bank Group
Statement of comprehensive income – Danske Bank Group
Note
(DKK millions)
2018
2017
Note
(DKK millions)
5
5
5
6
6
5
7
7
8
8
9
11
21
Interest income calculated using the effective interest method
Other interest income
Interest expense
Net interest income
Fee income
Fee expenses
Net trading income
Other income
Income from holdings in associates
Net premiums
Net insurance benefits
Operating expenses
Profit before loan impairment charges
Loan impairment charges
Profit before tax
Tax
Net profit for the year
Portion attributable to
shareholders of Danske Bank A/S (the Parent Company)
additional tier 1 capital holders
Net profit for the year
Earnings per share (DKK)
Diluted earnings per share (DKK)
Proposed dividend per share (DKK)
Net profit for the year
Other comprehensive income
Items that will not be reclassified to profit or loss
Remeasurement of defined benefit pension plans
20
Tax
Items that will not be reclassified to profit or loss
Items that are or may be reclassified subsequently to profit or loss
Translation of units outside Denmark
Hedging of units outside Denmark
Unrealised value adjustments of bonds at fair value (OCI)
Realised value adjustments of bonds at fair value (OCI)
20
Tax
Items that are or may be reclassified subsequently to profit or loss
Total other comprehensive income
Total comprehensive income for the year
Portion attributable to
shareholders of Danske Bank A/S (the Parent Company)
additional tier 1 capital holders
Total comprehensive income for the year
24,661
35,106
30,746
29,022
17,312
6,932
-10,237
4,777
451
25,963
13,400
28,020
18,936
-387
19,322
4,633
14,689
13,908
781
14,689
27,886
30,609
28,631
29,863
17,572
6,749
19,332
5,181
566
25,935
41,119
25,877
24,705
-1,582
26,288
5,388
20,900
20,114
786
20,900
16.5
16.5
8.5
22.2
22.1
10.0
2018
2017
14,689
20,900
-291
42
-249
-374
309
-21
-18
-129
-233
-482
14
-92
-78
-473
425
17
-74
-82
-187
-265
14,207
20,635
13,427
781
19,849
786
14,207
20,635
54 Danske Bank / Annual Report 2018
Danske Bank / Annual Report 2018
71
Statement of comprehensive income – Danske Bank Group
Note
(DKK millions)
20
20
Net profit for the year
Other comprehensive income
Items that will not be reclassified to profit or loss
Remeasurement of defined benefit pension plans
Tax
Items that will not be reclassified to profit or loss
Items that are or may be reclassified subsequently to profit or loss
Translation of units outside Denmark
Hedging of units outside Denmark
Unrealised value adjustments of bonds at fair value (OCI)
Realised value adjustments of bonds at fair value (OCI)
Tax
Items that are or may be reclassified subsequently to profit or loss
Total other comprehensive income
Total comprehensive income for the year
Portion attributable to
shareholders of Danske Bank A/S (the Parent Company)
additional tier 1 capital holders
Total comprehensive income for the year
2018
2017
14,689
20,900
-291
42
-249
-374
309
-21
-18
-129
-233
-482
14
-92
-78
-473
425
17
-74
-82
-187
-265
14,207
20,635
13,427
781
19,849
786
14,207
20,635
72
Danske Bank / Annual Report 2018
Danske Bank / Annual Report 2018 55
56 Danske Bank / Annual Report 2018
Balance sheet – Danske Bank Group
Statement of capital – Danske Bank Group
Note
(DKK millions)
Assets
Cash in hand and demand deposits with central banks
Due from credit institutions and central banks
Trading portfolio assets
Investment securities
Loans at amortised cost
Loans at fair value
Assets under pooled schemes and unit-linked investment contracts
Assets under insurance contracts
Assets held for sale
Intangible assets
Tax assets
Other assets
Total assets
Liabilities
Due to credit institutions and central banks
Trading portfolio liabilities
Deposits
Issued bonds at fair value
Issued bonds at amortised cost
Deposits under pooled schemes and unit-linked investment contracts
Liabilities under insurance contracts
Liabilities in disposal groups held for sale
Tax liabilities
Other liabilities
Non-preferred senior bonds
Subordinated debt
14
12
13
15
16
17
18
23
19
21
23
20
12
20
22
22
17
18
23
21
23
22
22
Total liabilities
Equity
Share capital
Foreign currency translation reserve
Reserve for bonds at fair value (OCI)
Retained earnings
Proposed dividends
Shareholders of Danske Bank A/S (the Parent Company)
Additional tier 1 capital holders
24
Total equity
Total liabilities and equity
2018
2017
40,997
225,600
415,818
276,424
986,240
1,057,340
93,988
377,369
60,247
11,224
2,981
30,239
82,818
333,975
449,292
324,618
1,112,752
787,223
112,065
296,867
426
7,177
1,419
30,897
Changes in equity
Shareholders of Danske Bank A/S (the Parent Company)
Foreign
Reserve for
currency
translation
bonds at
fair value
Share
capital
Retained
Proposed
Additional
tier 1
capital
(DKK millions)
reserve
(OCI)
earnings
dividends
Total
Total
Total equity at 31 December 2017
9,368
-681
130
135,731
9,368
153,916
14,339
168,256
-
-
-
-1,655
-
-1,655
-
-1,655
9,368
-
-681
-
130
134,076
9,368
152,261
14,339
166,601
-
13,908
-
13,908
781
14,689
plans
-
-
-
-291
-
-291
-
-291
3,578,467
3,539,528
Tax effect from remeasurement of defined
248,601
390,226
1,059,119
759,588
285,629
97,840
417,279
58,467
8,880
40,117
26,353
23,092
242,887
400,596
1,046,858
758,375
405,080
119,901
322,726
-
8,634
37,097
-
29,120
3,415,191
3,371,272
8,960
-745
90
133,056
7,616
148,976
14,299
163,276
9,368
-681
130
135,731
9,368
153,916
14,339
168,256
3,578,467
3,539,528
Effect from changes in accounting policies
(IFRS 9)
Restated total equity at 1 January 2018
Net profit for the year
Other comprehensive income
Remeasurement of defined benefit pension
benefit pension plans
Translation of units outside Denmark
Hedging of units outside Denmark
Unrealised value adjustments
Realised value adjustments
Tax
Total other comprehensive income
Transactions with owners
Paid interest on additional tier 1 capital
Dividends paid
Proposed dividends
Share capital reduction
Acquisition of own shares and additional
tier 1 capital
Sale of own shares and additional
tier 1 capital
Share-based payments
Tax
Total comprehensive income for the year
13,530
-
13,427
781
14,207
-
-
-
-21
-18
-
-39
-39
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-409
-
-
-
-
-
-374
309
-
-
-
-65
-65
-
-
-
-
-
-
-
-
42
-
-
-
-
-129
-378
-
-
-
-
-
-
-
42
-374
309
-21
-18
-129
-482
42
-374
309
-21
-18
-129
-482
-
-
-
-
-
-
-
-
-
-
-
517
-7,616
409
-
-9,368
7,616
-
-8,851
-
-
-
-784
-784
-8,851
-
-
-
-48,247
-
-48,247
-37
-48,284
-
-
-
40,181
93
112
-
-
-
40,181
93
112
-
-
-
40,181
93
112
Total equity as at 31 December 2018
8,960
-745
90
133,056
7,616
148,976
14,299
163,276
On 5 February 2018, the Group initiated a share buy-back programme of DKK 10 billion. The share buy-back programme was discontinued on 4 October
2018. The total number of shares acquired was 33,769,000 shares for a total amount of DKK 6,930 million.
On 18 April 2018, the share capital was reduced by DKK 408,741,010 through cancellation of 40,874,101 shares from Danske Bank’s holding of own
shares acquired under the 2017 share buy-back programme.
56 Danske Bank / Annual Report 2018
Danske Bank / Annual Report 2018
73
Statement of capital – Danske Bank Group
Changes in equity
(DKK millions)
Total equity at 31 December 2017
Effect from changes in accounting policies
(IFRS 9)
Restated total equity at 1 January 2018
Net profit for the year
Other comprehensive income
Remeasurement of defined benefit pension
plans
Tax effect from remeasurement of defined
benefit pension plans
Translation of units outside Denmark
Hedging of units outside Denmark
Unrealised value adjustments
Realised value adjustments
Tax
Total other comprehensive income
Total comprehensive income for the year
Transactions with owners
Paid interest on additional tier 1 capital
Dividends paid
Proposed dividends
Share capital reduction
Acquisition of own shares and additional
tier 1 capital
Sale of own shares and additional
tier 1 capital
Share-based payments
Tax
Shareholders of Danske Bank A/S (the Parent Company)
Foreign
currency
translation
reserve
Reserve for
bonds at
fair value
(OCI)
Share
capital
Retained
earnings
Proposed
dividends
Total
Additional
tier 1
capital
Total
9,368
-681
130
135,731
9,368
153,916
14,339
168,256
-
-
-
-1,655
-
-1,655
-
-1,655
9,368
-
-681
-
130
-
134,076
13,908
9,368
-
152,261
13,908
14,339
781
166,601
14,689
-
-
-
-291
-
-291
-
-291
-
-
-
-
-
-
-
-
-
-
-
-409
-
-
-
-
-
-374
309
-
-
-
-65
-65
-
-
-
-
-
-
-
-
-
-
-
-21
-18
-
-39
-39
-
-
-
-
42
-
-
-
-
-129
-378
-
-
-
-
-
-
-
42
-374
309
-21
-18
-129
-482
-
-
-
-
-
-
-
42
-374
309
-21
-18
-129
-482
13,530
-
13,427
781
14,207
-
517
-7,616
409
-
-9,368
7,616
-
-
-8,851
-
-
-784
-
-
-
-784
-8,851
-
-
-
-48,247
-
-48,247
-37
-48,284
-
-
-
40,181
93
112
-
-
-
40,181
93
112
-
-
-
40,181
93
112
Total equity as at 31 December 2018
8,960
-745
90
133,056
7,616
148,976
14,299
163,276
On 5 February 2018, the Group initiated a share buy-back programme of DKK 10 billion. The share buy-back programme was discontinued on 4 October
2018. The total number of shares acquired was 33,769,000 shares for a total amount of DKK 6,930 million.
On 18 April 2018, the share capital was reduced by DKK 408,741,010 through cancellation of 40,874,101 shares from Danske Bank’s holding of own
shares acquired under the 2017 share buy-back programme.
74
Danske Bank / Annual Report 2018
Danske Bank / Annual Report 2018 57
58 Danske Bank / Annual Report 2018
Statement of capital – Danske Bank Group
Statement of capital – Danske Bank Group
Changes in equity
Dividend
Shareholders of Danske Bank A/S (the Parent Company)
14,691 million (2017: DKK 20,829 million).
The Board of Directors is proposing a dividend of DKK 8.50 per share (2017: DKK 10.00), or a total of DKK 7,616 million (2017: DKK 9,368 million), of which
DKK 287 million relates to shares acquired under the share buy-back programme for 2018, to be paid out of the net profit for the Parent Company of DKK
(DKK millions)
Total equity at 1 January 2017
Net profit for the year
Other comprehensive income
Remeasurement of defined benefit pension plans
Tax effect from remeasurement of defined benefit
pension plans
Translation of units outside Denmark
Hedging of units outside Denmark
Unrealised value adjustments
Realised value adjustments
Tax
Total other comprehensive income
Total comprehensive income for the year
Transactions with owners
Issuance of additional tier 1 capital, net of
transaction costs
Paid interest on additional tier 1 capital
Dividends paid
Dividends proposed
Share capital reduction
Cost of share capital increase
Acquisition of own shares and additional tier 1
capital
Sale of own shares and additional tier 1 capital
Share-based payments
Tax
Share
capital
9,837
-
-
-
-
-
-
-
-
-
-
-
-
-
-469
-
-
-
-
-
-473
425
-
-
-
-48
-48
-
-
-
-
-
-
-
-
-
-
Foreign
currency
translation
reserve
Reserve for
available-
for-sale
assets
Retained
earnings
Proposed
dividends
Additional
tier 1
capital
Total
Total
-633
-
187
-
134,028
20,114
8,853
-
152,272
20,114
14,343
786
166,615
20,900
-
-
14
-
-
17
-74
-
-57
-
-
-
-
-174
-160
-57
19,954
-
-
-
-
-
-
-
-
14
-
-473
425
17
-74
-174
-265
-
-
-
-
-
-
-
-
14
-
-473
425
17
-74
-174
-265
19,849
786
20,635
-
-
-
-
-
-
-
-
-
-
-
-
521
-9,368
469
-
-51,642
41,447
150
172
-
-
-8,853
9,368
-
-
-
-
-8,332
-
-
-
-
-
-
-
-51,642
41,447
150
172
-
-786
-
-
-
-
-176
173
-
-
-
-786
-8,332
-
-
-
-51,818
41,620
150
172
Total equity as at 31 December 2017
9,368
-681
130
135,731
9,368
153,916
14,339
168,256
Danske Bank Group accounts for all shares issued by Danske Bank A/S and held by Danske Bank Group as own shares that are eliminated in the statement
On 3 February 2017, the Group initiated a share buy-back programme of DKK 10 billion. The share buy-back programme was completed on 31 January 2018.
At the end of 2017, the Group had acquired 39,632,505 shares for a total amount of DKK 9,173 million under the share buy-back programme based on
figures at trade date.
discontinued on 4 October 2018.
On 24 April 2017, the share capital was reduced by DKK 468,851,130 through cancellation of 46,885,113 shares from Danske Bank’s holding of own
shares acquired under the 2016 share buy-back programme.
of changes in shareholders' equity. The disclosures above clarify the purpose of the acquisitions made by Danske Bank Group of its own shares. The holding
of own shares related to the share buy-back programme consists of the shares that were acquired until the share buy-back programme for 2018 was
Earnings per share (DKK millions)
Net profit for the year attributable to the shareholders of the parent company
Number of shares issued at 1 January
Share capital reduction (share buy-back programme)
Average number of own shares held by the Group (including share buy-back programme)
Average number of shares outstanding
Number of dilutive shares issued for share-based payments
Adjusted average number of shares outstanding after share capital reduction, including dilutive shares
871,764,982
915,981,212
The share capital consists of shares of a nominal value of DKK 10 each. All shares carry the same rights; there is thus only one class of shares.
2018
2017
13,908
20,114
936,827,722
983,712,835
40,874,101
46,885,113
24,724,690
21,403,800
871,228,931
915,423,922
536,052
557,291
16.5
16.5
22.2
22.1
2018
2017
895,953,621 936,827,722
41,158,233
42,776,900
854,795,388 894,050,822
Value
2018
4,353
354
599
5,305
Total
2018
10,336
48,247
40,181
-3,895
9,201
Value
2017
9,060
447
829
10,336
Total
2017
10,378
51,642
41,447
1,100
11,337
5,305
10,336
Number
2018
Number
2017
33,769,000
37,498,000
2,746,086
4,643,147
1,848,110
3,430,790
41,158,233
42,776,900
Share buy-back
Trading
programme
portfolio
of customers
Investment
on behalf
9,060
7,825
-
-3,332
9,201
4,353
447
40,024
39,974
-142
-
354
829
397
206
-421
-
599
Earnings per share (DKK)
Diluted earnings per share (DKK)
Number of shares outstanding
Issued at 31 December
Holding of own shares
Shares outstanding at 31 December
Holding of own shares
Share buy-back programme
Trading portfolio
Investment on behalf of customers
Total
(DKK millions)
Holding as 1 January
Acquisition of own shares
Sale of own shares
Value adjustment
Cancellation of own shares
Holding at 31 December
The Board of Directors is authorised to let Danske Bank acquire own shares up to a total nominal amount of 10% of the share capital. The shares may be
held for ownership or provided as collateral. If shares are acquired for ownership, the acquisition price may not deviate by more than 10% from the price
quoted at the time of acquisition. Danske Bank A/S has obtained permission from the Danish Financial Supervisory Authority to acquire own shares for
market-making purposes etc. and this amount is deducted from the Group’s common equity tier 1 capital.
On 5 February 2018, the Group initiated a share buy-back programme of DKK 10 billion. The programme was discontinued on 4 October 2018 with a total
amount of DKK 6.9 billion of shares bought back.
58 Danske Bank / Annual Report 2018
Danske Bank / Annual Report 2018
75
Statement of capital – Danske Bank Group
Dividend
The Board of Directors is proposing a dividend of DKK 8.50 per share (2017: DKK 10.00), or a total of DKK 7,616 million (2017: DKK 9,368 million), of which
DKK 287 million relates to shares acquired under the share buy-back programme for 2018, to be paid out of the net profit for the Parent Company of DKK
14,691 million (2017: DKK 20,829 million).
Earnings per share (DKK millions)
Net profit for the year attributable to the shareholders of the parent company
Number of shares issued at 1 January
Share capital reduction (share buy-back programme)
Average number of own shares held by the Group (including share buy-back programme)
Average number of shares outstanding
Number of dilutive shares issued for share-based payments
2018
2017
13,908
20,114
936,827,722
40,874,101
24,724,690
983,712,835
46,885,113
21,403,800
871,228,931
536,052
915,423,922
557,291
Adjusted average number of shares outstanding after share capital reduction, including dilutive shares
871,764,982
915,981,212
Earnings per share (DKK)
Diluted earnings per share (DKK)
16.5
16.5
22.2
22.1
The share capital consists of shares of a nominal value of DKK 10 each. All shares carry the same rights; there is thus only one class of shares.
Number of shares outstanding
Issued at 31 December
Holding of own shares
Shares outstanding at 31 December
Holding of own shares
Share buy-back programme
Trading portfolio
Investment on behalf of customers
Total
2018
2017
895,953,621 936,827,722
42,776,900
41,158,233
854,795,388 894,050,822
Number
2018
Number
2017
33,769,000
2,746,086
4,643,147
37,498,000
1,848,110
3,430,790
41,158,233
42,776,900
Value
2018
4,353
354
599
5,305
Value
2017
9,060
447
829
10,336
Danske Bank Group accounts for all shares issued by Danske Bank A/S and held by Danske Bank Group as own shares that are eliminated in the statement
of changes in shareholders' equity. The disclosures above clarify the purpose of the acquisitions made by Danske Bank Group of its own shares. The holding
of own shares related to the share buy-back programme consists of the shares that were acquired until the share buy-back programme for 2018 was
discontinued on 4 October 2018.
(DKK millions)
Holding as 1 January
Acquisition of own shares
Sale of own shares
Value adjustment
Cancellation of own shares
Holding at 31 December
Share buy-back
programme
9,060
7,825
-
-3,332
9,201
4,353
Trading
portfolio
447
40,024
39,974
-142
-
354
Investment
on behalf
of customers
829
397
206
-421
-
599
Total
2018
10,336
48,247
40,181
-3,895
9,201
Total
2017
10,378
51,642
41,447
1,100
11,337
5,305
10,336
The Board of Directors is authorised to let Danske Bank acquire own shares up to a total nominal amount of 10% of the share capital. The shares may be
held for ownership or provided as collateral. If shares are acquired for ownership, the acquisition price may not deviate by more than 10% from the price
quoted at the time of acquisition. Danske Bank A/S has obtained permission from the Danish Financial Supervisory Authority to acquire own shares for
market-making purposes etc. and this amount is deducted from the Group’s common equity tier 1 capital.
On 5 February 2018, the Group initiated a share buy-back programme of DKK 10 billion. The programme was discontinued on 4 October 2018 with a total
amount of DKK 6.9 billion of shares bought back.
76
Danske Bank / Annual Report 2018
Danske Bank / Annual Report 2018 59
60 Danske Bank / Annual Report 2018
Statement of capital – Danske Bank Group
Cash flow statement – Danske Bank Group
Total capital and total capital ratio
(DKK millions)
Total equity
Revaluation of domicile property at fair value
Tax effect of revaluation of domicile property at fair value
Total equity calculated in accordance with the rules of the Danish FSA
Additional tier 1 capital instruments included in total equity
Accrued interest on additional tier 1 capital instruments
Tax on accrued interest on additional tier 1 capital instruments
Common equity tier 1 capital instruments
Adjustment to eligible capital instruments
IFRS 9 reversal due to transitional rules
Prudent valuation
Prudential filters
Proposed dividends
Intangible assets of banking operations
Deferred tax on intangible assets
Deferred tax assets that rely on future profitability excluding temporary differences
Defined benefit pension plan assets
Statutory deduction for insurance subsidiaries
Other statutory deductions
Common equity tier 1 capital
Additional tier 1 capital instruments
Statutory deduction for insurance subsidiaries
Tier 1 capital
Tier 2 capital instruments
Statutory deduction for insurance subsidiaries
Total capital
Total risk exposure amount
Common equity tier 1 capital ratio (%)
Tier 1 capital ratio (%)
Total capital ratio (%)
2018
2017
163,276
269
-32
163,513
-14,133
-166
37
149,250
-225
1,544
-779
-356
-7,616
-7,466
201
-329
-1,270
-5,987
-141
168,256
267
-32
168,491
-14,158
-169
37
154,202
-1,060
-
-759
-211
-9,368
-7,100
377
-335
-1,343
-1,349
-308
126,827
132,744
23,677
-
18,574
-169
150,505
151,150
9,161
-
19,343
-169
159,666
170,324
748,104
753,409
17.0
20.1
21.3
17.6
20.1
22.6
(DKK millions)
Cash flow from operations
Profit before tax
Tax paid
Total
Changes in operating capital
39
Adjustment for non-cash operating items
Amounts due to/from credit institutions and central banks
Trading portfolio
Acquisition/sale of own shares and additional tier 1 capital
Other financial instruments
Loans at amortised cost and fair value
Deposits
Issued bonds at amortised cost and fair value
Assets/liabilities under insurance contracts
Other assets/liabilities
Cash flow from operations
Cash flow from investing activities
Acquisition/sale of businesses
Acquisition of intangible assets
Acquisition of tangible assets
Sale of tangible assets
Cash flow from investing activities
Cash flow from financing activities
Issues of subordinated debt
Redemption of subordinated debt
Issues of non-preferred senior bonds
39
39
39
Dividends
Share buy-back programme*
Paid interest on additional tier 1 capital
Cash flow from financing activities
14
Cash and cash equivalents at 1 January
Foreign currency translation
Change in cash and cash equivalents
Total capital and the total risk exposure amount are calculated in accordance with the rules applicable under the Capital Requirements Regulation (CRR),
Cash and cash equivalents, end of period
taking transitional rules into account as stipulated by the Danish Financial Supervisory Authority.
In terms of the transitional arrangements for the impact of IFRS 9 on regulatory capital, the Group applies the so-called dynamic approach in accordance
with the CRR.
Risk Management 2018 provides more details about the Group’s total capital, the total risk exposure amount and the Group’s solvency need. The report
is available at danskebank.com/investorrelations/repor ts and is not covered by the statutory audit.
* Shares acquired under the share buy-back programme are recognised at the settlement date.
Cash and cash equivalents, end of period
Cash in hand
Demand deposits with central banks
Total
Amounts due from credit institutions and central banks within three months
Note 39 provides further information on the cash flow statement.
2018
2017
19,322
-5,427
1,997
26,288
-5,482
-1,093
15,892
19,713
-144,665
148,392
7,154
23,104
-277
43,615
-143,218
12,262
-117,701
17,051
-2,547
-5,000
-1,120
-549
10
-6,659
4,748
-10,928
25,816
-8,851
-7,825
-784
2,176
413,593
393
-149,150
-31,337
-17,318
-241
26,854
9,177
102,993
31,643
-3,720
10,628
291
-1,022
-623
74
-1,280
5,087
-12,577
-
-8,332
-9,958
-786
-26,566
297,078
-4,031
120,546
264,836
413,593
8,799
32,198
223,839
9,051
73,766
330,776
264,836
413,593
60 Danske Bank / Annual Report 2018
Danske Bank / Annual Report 2018
77
Cash flow statement – Danske Bank Group
(DKK millions)
Cash flow from operations
Profit before tax
Tax paid
Adjustment for non-cash operating items
39
Total
Changes in operating capital
Amounts due to/from credit institutions and central banks
Trading portfolio
Acquisition/sale of own shares and additional tier 1 capital
Other financial instruments
Loans at amortised cost and fair value
Deposits
Issued bonds at amortised cost and fair value
Assets/liabilities under insurance contracts
Other assets/liabilities
Cash flow from operations
Cash flow from investing activities
Acquisition/sale of businesses
Acquisition of intangible assets
Acquisition of tangible assets
Sale of tangible assets
Cash flow from investing activities
Cash flow from financing activities
Issues of subordinated debt
Redemption of subordinated debt
Issues of non-preferred senior bonds
Dividends
Share buy-back programme*
Paid interest on additional tier 1 capital
Cash flow from financing activities
Cash and cash equivalents at 1 January
Foreign currency translation
Change in cash and cash equivalents
Cash and cash equivalents, end of period
39
39
39
14
Cash and cash equivalents, end of period
Cash in hand
Demand deposits with central banks
Amounts due from credit institutions and central banks within three months
Total
* Shares acquired under the share buy-back programme are recognised at the settlement date.
Note 39 provides further information on the cash flow statement.
2018
2017
19,322
-5,427
1,997
26,288
-5,482
-1,093
15,892
19,713
7,154
23,104
-277
43,615
-143,218
12,262
-117,701
17,051
-2,547
-31,337
-17,318
-241
26,854
9,177
102,993
31,643
-3,720
10,628
-144,665
148,392
-5,000
-1,120
-549
10
-6,659
4,748
-10,928
25,816
-8,851
-7,825
-784
291
-1,022
-623
74
-1,280
5,087
-12,577
-
-8,332
-9,958
-786
2,176
-26,566
413,593
393
-149,150
297,078
-4,031
120,546
264,836
413,593
8,799
32,198
223,839
9,051
73,766
330,776
264,836
413,593
78
Danske Bank / Annual Report 2018
Danske Bank / Annual Report 2018 61
62 Danske Bank / Annual Report 2018
Notes – Danske Bank Group
1. Basis of preparation
(a) General
Danske Bank Group prepares its consolidated financial statements in accordance with the International Financial Reporting Standards (IFRSs) and
applicable interpretations (IFRIC) issued by the International Accounting Standards Board (IASB), as adopted by the EU. Furthermore, the consolidate d
financial statements comply with the Danish FSA’s Executive Order No. 1306 dated 16 December 2008 on the use of IFRSs by undertakings subject to
the Danish Financial Business Act.
At 1 January 2018, the Group implemented IFRS 9, Financial Instruments, and IFRS 15, Revenue from Contracts with Customers.
Further information on the implementation of IFRS 9, IFRS 15 and changes to other IFRSs etc., including the impact on the opening balance sheet at 1
January 2018, can be found in note 2. Except for these changes, the Group has not changed its significant accounting policies from those applied in
Annual Report 2017.
For changes in the segment reporting, see note 3.
Financial statement figures are stated in Danish kroner and whole millions, unless otherwise stated. As a result, rounding discrepancies may occur
because totals have been rounded off and the underlying decimals are not presented to financial statement users.
Fair value measurement of financial instruments
Monetary assets and liabilities in foreign currency are translated at the exchange rates at the balance sheet date. Exchange rate adjustments of monetary
assets and liabilities arising as a result of differences in the exchange rates at the transaction date and at the balance sheet date are recognised in the
income statement. Non-monetary assets and liabilities in foreign currency that are subsequently revalued at fair value are translated at the exchange
rates at the date of revaluation. Exchange rate adjustments are included in the fair value adjustment of an asset or liability. Other non-monetary items in
foreign currency are translated at the exchange rates at the transaction date. The accounting treatment of foreign currency translation of units outside
Denmark is described in note 24.
For the purpose of clarity, the primary financial statements and the notes to the financial statements are prepared using the concepts of materiality and
relevance. This means that line items not considered material in terms of quantitative and qualitative measures or relevant to financial statement users
are aggregated and presented together with other items in the primary financial statements. Similarly, information not considered material is not
presented in the notes.
The significant accounting policies are incorporated into the notes to which they relate.
(b) Significant accounting estimates
Management’s estimates and assumptions of future events that will significantly affect the carrying amounts of assets and liabilities underlie the
preparation of the consolidated financial statements. Those estimates and assumptions are presented in the following sections.
The estimates and assumptions are based on premises that management finds reasonable but which are inherently uncertain and unpredictable. The
premises may be incomplete, unexpected future events or situations may occur, and other parties may arrive at other estimated values.
Measurement of expected credit losses on loans, financial guarantees and loan commitments, and bonds measured at amortised cost or fair value
through other comprehensive income
At 1 January 2018, the Group implemented the three-stage expected credit loss impairment model in IFRS 9. The impairment charge for expected credit
losses depends on whether the credit risk has increased significantly since initial recognition. If the credit risk has not increased significantly, the
impairment charge equals the expected credit losses resulting from default events that are possible within the next 12 months (stage 1). If the credit risk
has increased significantly, the loan is more than 30 days past due, or the loan is in default or otherwise impaired, the impairment charge equals the
lifetime expected credit losses (stages 2 and 3).
The expected credit loss is calculated for all individual facilities as a function of probability of default (PD), exposure at default (EAD) and loss given default
(LGD) and incorporates forward-looking information. The estimation of expected credit losses involves forecasting future economic conditions over a
number of years. Such forecasts are subject to management judgement and those judgements may be sources of measurement uncertainty that have a
significant risk of resulting in a material adjustment to a carrying amount within the next financial year. The incorporation of forward-looking elements
reflects the expectations of the Group’s senior management and involves the creation of scenarios (base-case, upside and downside scenarios), includin g
an assessment of the probability for each scenario. The purpose of using multiple scenarios is to model the non-linear impact of assumptions about
macroeconomic factors on the expected credit losses. The base-case scenario enters with a probability of 70%, the upside scenario with a probability of
15% and the downside scenario with a probability of 15%. On the basis of these assessments, the allowance account at 31 December 2018 amounte d
to DKK 21.2 billion. If the base-case scenario was assigned a probability of 100%, the allowance account would decrease DKK 0.4 billion. The allowance
account would increase DKK 3.4 billion, if the downside scenario was assigned a probability of 100%. If instead the upside scenario was assigned a
probability of 100%, the allowance account would decrease DKK 0.6 billion. However, it shall be noted that the expected credit losses in the individu a l
scenarios does not represent expected credit loss (ECL) forecasts.
According to the Group’s definition of a significant increase in credit risk, i.e. when a loan is transferred from stage 1 to stage 2, facilities with an initia l
PD below 1% are transferred to stage 2 if the facility’s 12-month PD has increased by at least 0.5 of a percentage point and the facility’s lifetime PD has
doubled since origination. If instead an increase in the facility’s 12-month PD by at least 0.25 of a percentage point combined with a doubling of lifetim e
PD was considered a significant increase in credit risk, the allowance account would increase by DKK 0.1 billion.
Notes – Danske Bank Group
1. Basis of preparation continued
(b)
Significant accounting estimates
The Group applies post-model adjustments of DKK 4.5 billion. Around half of all the adjustments relate to high-risk industries such as Agriculture and Oil
& gas, where the Group has no specific expected credit loss models in place, and consequently makes supplementary calculations in order to ensure
sufficient impairment coverage. Furthermore, adjustments are made to take into account non-linear downside risks, such as related to the property
market in Copenhagen where the macroeconomic forecasts used in the models are based on the Danish property market as a whole and adjustments
are therefore made to reflect the fact that a further specific downside risk currently exist for properties in Copenhagen. Finally, post-model adjustments
are made for portfolios where the Group’s quality assurance teams have identified gaps in the credit risk assessment process that could lead to an
underestimation of the expected credit losses.
Note 15 and the section on credit risk in the risk management notes provide more details on expected credit losses. At 31 December 2018, loans
accounted for about 57% of total assets (31 December 2017: 54%).
Measurements of financial instruments that are only to a limited extent based on observable market data, such as the measurement of unlisted shares
and certain bonds for which there is no active market, are subject to significant estimates. The estimated fair value of illiquid bonds significantly depends
on the credit spread estimate. A credit spread widening of 50bp would have caused the fair value of the bonds to decrease DKK 110 million (31 December
2017: DKK 80 million). The Group makes fair value adjustments to cover changes in counterparty risk (CVA and DVA) and to cover expected funding
costs (FVA) on derivatives, bid-offer spreads on the net open position of the portfolio of assets and liabilities with offsetting market risk recognised at
mid-market prices, and model risk on level 3 derivatives. At 31 December 2018, the adjustments totalled DKK 1.1 billion (31 December 2017: DKK 0.9
billion), including the adjustment for credit risk on derivatives that are credit impaired. Note 31 provides more details.
Measurement of goodwill and customer rights
Goodwill is tested for impairment once a year or more frequently if indications of impairment exist. Impairment testing requires management to estimate
the future cash flows. A number of factors affect the value of such cash flows, including discount rates, changes in the economic outlook, customer
behaviour and competition. At 31 December 2018, goodwill amounted to DKK 7.8 billion (31 December 2017: DKK 5.3 billion). In June 2018, the Group
acquired SEB Pension Danmark. The acquisition led to an increase in goodwill in Wealth Management of DKK 2.4 billion and in customer relations of DKK
1.3 billion. For further information, see note 36. The total carrying amount of goodwill in Wealth Management is DKK 4.2 billion (31 December 2017:
DKK 1.8 billion), of which DKK 1.8 billion relates to Danske Capital’s activities in Finland. The excess value (the amount by which the cash-generatin g
unit’s recoverable amount exceeds the carrying amount) in the latest annual impairment test for Wealth Management, Danske Capital and Wealth
Management, Danica Pension, which was performed in the fourth quarter of 2018, amounted to DKK 1.3 billion (2017: DKK 0.3 billion) and DKK 0.3
billion, respectively. Note 19 provides information on changes in key assumptions that would cause the excess value to be zero. The remaining goodwill
of DKK 3.6 billion (2017: DKK 3.5 billion) relates to Corporates & Institutions, and the excess value is DKK 33.2 billion (2017: DKK 26.8 billion). Note
19 provides more information on impairment testing and sensitivity to changes in assumptions.
Measurement of liabilities under insurance contracts
Measurement of liabilities under insurance contracts is based on actuarial computations that rely on assumptions about a number of variables, includin g
mortality and disability rates, and on the discount rate. Assumptions about future mortality rates are based on the Danish FSA’s benchmark, while other
assumptions are based on data from the Group’s own portfolio of insurance contracts. In 2018, the Danish FSA changed the assumptions about future
mortality rates to the effect that these are to be calculated based on the last 20 years (previously the last 30 years). The adjustment has reduced net
profit before tax by DKK 83 million. Notes 2(a) and 18 provide further information on the measurement of insurance liabilities. The risk managemen t
notes contain a sensitivity analysis for life insurance.
Recognition of deferred tax assets and liabilities
Recognition of deferred tax requires management to assess the probability and amount of future profit. Deferred tax assets arising from unused tax
losses are recognised to the extent that such losses can be offset against tax on future profit over the next five years. At 31 December 2018, deferred
tax assets from recognised tax loss carry-forwards amounted to DKK 0.3 billion (31 December 2017: DKK 0.3 billion). The tax base of unrecognised tax
loss carry-forwards, relating primarily to the Group’s banking operations in Ireland, amounted to DKK 2.9 billion (31 December 2017: DKK 2.9 billion) .
The full deferred tax liability arising from international joint taxation was recognised and amounted to DKK 5.8 billion (31 December 2017: DKK 5.8
billion). Note 21 provides more information about deferred tax.
62 Danske Bank / Annual Report 2018
Danske Bank / Annual Report 2018
79
Notes – Danske Bank Group
1. Basis of preparation continued
Significant accounting estimates
(b)
The Group applies post-model adjustments of DKK 4.5 billion. Around half of all the adjustments relate to high-risk industries such as Agriculture and Oil
& gas, where the Group has no specific expected credit loss models in place, and consequently makes supplementary calculations in order to ensure
sufficient impairment coverage. Furthermore, adjustments are made to take into account non-linear downside risks, such as related to the property
market in Copenhagen where the macroeconomic forecasts used in the models are based on the Danish property market as a whole and adjustments
are therefore made to reflect the fact that a further specific downside risk currently exist for properties in Copenhagen. Finally, post-model adjustments
are made for portfolios where the Group’s quality assurance teams have identified gaps in the credit risk assessment process that could lead to an
underestimation of the expected credit losses.
Note 15 and the section on credit risk in the risk management notes provide more details on expected credit losses. At 31 December 2018, loans
accounted for about 57% of total assets (31 December 2017: 54%).
Fair value measurement of financial instruments
Measurements of financial instruments that are only to a limited extent based on observable market data, such as the measurement of unlisted shares
and certain bonds for which there is no active market, are subject to significant estimates. The estimated fair value of illiquid bonds significantly depends
on the credit spread estimate. A credit spread widening of 50bp would have caused the fair value of the bonds to decrease DKK 110 million (31 December
2017: DKK 80 million). The Group makes fair value adjustments to cover changes in counterparty risk (CVA and DVA) and to cover expected funding
costs (FVA) on derivatives, bid-offer spreads on the net open position of the portfolio of assets and liabilities with offsetting market risk recognised at
mid-market prices, and model risk on level 3 derivatives. At 31 December 2018, the adjustments totalled DKK 1.1 billion (31 December 2017: DKK 0.9
billion), including the adjustment for credit risk on derivatives that are credit impaired. Note 31 provides more details.
Measurement of goodwill and customer rights
Goodwill is tested for impairment once a year or more frequently if indications of impairment exist. Impairment testing requires management to estimate
the future cash flows. A number of factors affect the value of such cash flows, including discount rates, changes in the economic outlook, customer
behaviour and competition. At 31 December 2018, goodwill amounted to DKK 7.8 billion (31 December 2017: DKK 5.3 billion). In June 2018, the Group
acquired SEB Pension Danmark. The acquisition led to an increase in goodwill in Wealth Management of DKK 2.4 billion and in customer relations of DKK
1.3 billion. For further information, see note 36. The total carrying amount of goodwill in Wealth Management is DKK 4.2 billion (31 December 2017:
DKK 1.8 billion), of which DKK 1.8 billion relates to Danske Capital’s activities in Finland. The excess value (the amount by which the cash-generatin g
unit’s recoverable amount exceeds the carrying amount) in the latest annual impairment test for Wealth Management, Danske Capital and Wealth
Management, Danica Pension, which was performed in the fourth quarter of 2018, amounted to DKK 1.3 billion (2017: DKK 0.3 billion) and DKK 0.3
billion, respectively. Note 19 provides information on changes in key assumptions that would cause the excess value to be zero. The remaining goodwill
of DKK 3.6 billion (2017: DKK 3.5 billion) relates to Corporates & Institutions, and the excess value is DKK 33.2 billion (2017: DKK 26.8 billion). Note
19 provides more information on impairment testing and sensitivity to changes in assumptions.
Measurement of liabilities under insurance contracts
Measurement of liabilities under insurance contracts is based on actuarial computations that rely on assumptions about a number of variables, includin g
mortality and disability rates, and on the discount rate. Assumptions about future mortality rates are based on the Danish FSA’s benchmark, while other
assumptions are based on data from the Group’s own portfolio of insurance contracts. In 2018, the Danish FSA changed the assumptions about future
mortality rates to the effect that these are to be calculated based on the last 20 years (previously the last 30 years). The adjustment has reduced net
profit before tax by DKK 83 million. Notes 2(a) and 18 provide further information on the measurement of insurance liabilities. The risk managemen t
notes contain a sensitivity analysis for life insurance.
Recognition of deferred tax assets and liabilities
Recognition of deferred tax requires management to assess the probability and amount of future profit. Deferred tax assets arising from unused tax
losses are recognised to the extent that such losses can be offset against tax on future profit over the next five years. At 31 December 2018, deferred
tax assets from recognised tax loss carry-forwards amounted to DKK 0.3 billion (31 December 2017: DKK 0.3 billion). The tax base of unrecognised tax
loss carry-forwards, relating primarily to the Group’s banking operations in Ireland, amounted to DKK 2.9 billion (31 December 2017: DKK 2.9 billion) .
The full deferred tax liability arising from international joint taxation was recognised and amounted to DKK 5.8 billion (31 December 2017: DKK 5.8
billion). Note 21 provides more information about deferred tax.
80
Danske Bank / Annual Report 2018
Danske Bank / Annual Report 2018 63
Notes – Danske Bank Group
1. Basis of preparation continued
(c) Overview of classification and measurement basis for financial instruments and insurance contracts
Financial instruments account for more than 98% of total assets and liabilities. A portion of financial assets relate to investments made under insurance
contracts. The following sections provide a general description of the classification and measurement of financial instruments and obligations under
insurance contracts.
(c) Overview of classification and measurement basis for financial instruments and insurance contracts
Classification and measurement of financial assets and financial liabilities under IFRS 9 – general
Under IFRS 9, financial assets are classified on the basis of the business model adopted for managing the assets and on their contractual cash flow
characteristics (including embedded derivatives, if any) are grouped into one of the following measurement categories:
Financial instruments – general
The Group recognises financial assets and liabilities when it becomes a party to the terms of the contract. A financial asset, or a portion of a financia l
asset, is derecognised if the contractual rights to cash flows from the asset have expired, or have been transferred, usually by sale, leading to substantially
all the risks and rewards of the asset or significant risks and rewards being transferred. Financial liabilities are derecognised when the liability has been
settled, has expired or has been extinguished.
Regular way purchases and sales of financial instruments are recognised and derecognised at the settlement date. Fair value adjustments of unsettle d
financial instruments are recognised from the trade date to the settlement date if the financial asset is classified at fair value through profit or loss or
through other comprehensive income.
The following section describes the general classification and measurement of financial instruments subsequent to the implementation of IFRS 9 at 1
January 2018. The classification is shown in the table below.
Financial instruments and obligations under insurance contracts, classification and measurement end of 2018
Amortised cost
Fair value OCI
Fair value through profit or loss
Held to collect
assets/
Liabilities
Held to collect
and sell financial
assets**
Held for
trading
Managed
at fair
value
FVPL
due to
SPPI test
Desig-
nated
Interest
rate
hedge *
(DKK billions)
Assets
Cash in hand and demand deposits with
central banks
Due from credit institutions and central banks
Derivatives
Bonds
Shares
Loans
Assets under pooled schemes and unit-linked
investment contracts
Assets under insurance contracts
41
169
-
142
-
985
-
-
-
-
-
74
-
-
-
-
-
-
236
166
5
-
-
-
Total financial assets, 1 January 2018
1,337
74
408
Liabilities
Due to credit institutions and central banks
Trading portfolio liabilities
Deposits
Bonds issued by Realkredit Danmark
Other issued bonds
Deposits under pooled schemes and unit-
linked investment investment contracts
Liabilities under insurance contracts ***
Non-preferred senior bonds
Subordinated debt
Loan commitments and guarantees
62
-
888
-
281
-
-
26
23
2
-
-
-
-
-
-
-
-
-
389
-
-
-
-
-
-
-
57
-
59
1
262
94
354
828
-
-
-
-
-
-
-
-
-
-
-
-
-
795
-
-
-
-
-
-
-
-
-
-
795
-
-
-
-
-
-
-
-
-
186
-
172
741
18
98
417
-
-
Total
41
226
244
442
6
2,044
94
354
3,451
249
390
1,059
741
304
98
417
26
23
2
3,310
-
-
8
-
-
1
-
-
9
-
2
-
5
-
-
-
-
-
7
Total financial liabilities, 1 January 2018
1,282
-
389
-
-
1,632
*The interest rate risk on some fixed-rate financial assets and liabilities is hedged by derivatives (fair value hedging). The interest rate risk on some fixed-rate bonds 'hold to collect and sell'
is also hedged by derivatives. The fair value represents changes in the fair value of the interest rate risk on the hedged items, i.e. not a full fair value of the hedged items.
** Unrealised fair value gains and losses are presented in Other comprehensive income, and realised fair value gains and losses are recycled to the income statement.
*** Liabilities under insurance contracts are recognised at the present value of expected insurance benefits.
64 Danske Bank / Annual Report 2015
Notes – Danske Bank Group
1. Basis of preparation continued
Amortised cost (AMC)
Fair value through other comprehensive income (FVOCI)
Fair value through profit or loss (FVPL)
•
•
•
•
•
•
•
Financial assets are measured at AMC if they are held within a business model for the purpose of collecting contractual cash flows (hold to collect) and
if cash flows are solely payments of principal and interest on the principal amount outstanding.
Financial assets are measured at FVOCI if they are held within a business model for the purpose of both collecting contractual cash flows and selling
(hold to collect and sell) and if cash flows are solely payments of principal and interest on the principal amount outstanding. FVOCI results in the assets
being recognised at fair value in the balance sheet and at AMC in the income statement. Gains and losses, except for expected credit losses and foreign
exchanges gains and losses, are therefore recognised in other comprehensive income until the financial asset is derecognised. When the financial asset
is derecognised the cumulative gains and losses previously recognised in other comprehensive income are reclassified to the income statement.
All other financial assets are mandatorily measured at FVPL including financial assets held within other business models, such as financial assets
managed at fair value or held for trading and financial assets with contractual cash flows that are not solely payments of principal and interest on the
principal amount outstanding.
Generally, financial liabilities are measured at amortised cost and when relevant with bifurcation of embedded derivatives not closely related to the host
contract. Financial liabilities measured at fair value comprise the trading portfolio (derivatives and obligations to repurchase securities) and liabilitie s
designated at fair value through profit or loss under the fair value option. Value adjustments relating to the inherent credit risk of financial liabilitie s
designated at fair value are recognised in other comprehensive income unless this leads to an accounting mismatch.
The business model assessment
The business model assessment in Danske Bank Group has been applied separately for each business unit represented by the Group’s reportable
segments, and it is based on observable factors for the different portfolios, such as (1) how the performance of the business model and the financia l
assets held within that business model are evaluated and reported to the Executive Board and the Board of Directors, (2) the risks that affect the
performance of the business model and the way such risks are managed and (3) past and expected frequency, value and timing of sales from the portfolio.
In general, the business model assessment of the Group can be summarised as follows:
The Group’s banking units, comprising Banking DK, Banking Nordic, General Banking at C&I, Private Banking at Wealth Management and Northern
Ireland, have a “hold to collect” business model. The financial assets consist primarily of loans. The management and reporting of performance are
based on collecting the contractual cash flows, and loans are only very infrequently sold.
The trading units at C&I (FI&C and Capital Markets) and the financial assets related to the Group’s insurance activities have a business model that
is neither “hold to collect” nor “hold to collect and sell” and the financial assets are mandatorily recognised at FVPL. The assets consist of bonds,
shares, repo transactions and short-term loans. Some of the financial assets are included in portfolios with a trading pattern that falls under the
definition of “held for trading” while other portfolios are managed and their performance reported on a fair value basis.
Group Treasury has portfolios of bonds within the “hold to collect” business model, the “hold to collect and sell” business models and the “other”
business model.
The remaining portfolio of Non-core is “hold to collect”. The financial assets consist primarily of loans.
Danske Bank / Annual Report 2018
81
64 Danske Bank / Annual Report 2015
Notes – Danske Bank Group
1. Basis of preparation continued
(c) Overview of classification and measurement basis for financial instruments and insurance contracts
Classification and measurement of financial assets and financial liabilities under IFRS 9 – general
Under IFRS 9, financial assets are classified on the basis of the business model adopted for managing the assets and on their contractual cash flow
characteristics (including embedded derivatives, if any) are grouped into one of the following measurement categories:
•
•
•
Amortised cost (AMC)
Fair value through other comprehensive income (FVOCI)
Fair value through profit or loss (FVPL)
Financial assets are measured at AMC if they are held within a business model for the purpose of collecting contractual cash flows (hold to collect) and
if cash flows are solely payments of principal and interest on the principal amount outstanding.
Financial assets are measured at FVOCI if they are held within a business model for the purpose of both collecting contractual cash flows and selling
(hold to collect and sell) and if cash flows are solely payments of principal and interest on the principal amount outstanding. FVOCI results in the assets
being recognised at fair value in the balance sheet and at AMC in the income statement. Gains and losses, except for expected credit losses and foreign
exchanges gains and losses, are therefore recognised in other comprehensive income until the financial asset is derecognised. When the financial asset
is derecognised the cumulative gains and losses previously recognised in other comprehensive income are reclassified to the income statement.
All other financial assets are mandatorily measured at FVPL including financial assets held within other business models, such as financial assets
managed at fair value or held for trading and financial assets with contractual cash flows that are not solely payments of principal and interest on the
principal amount outstanding.
Generally, financial liabilities are measured at amortised cost and when relevant with bifurcation of embedded derivatives not closely related to the host
contract. Financial liabilities measured at fair value comprise the trading portfolio (derivatives and obligations to repurchase securities) and liabilitie s
designated at fair value through profit or loss under the fair value option. Value adjustments relating to the inherent credit risk of financial liabilitie s
designated at fair value are recognised in other comprehensive income unless this leads to an accounting mismatch.
The business model assessment
The business model assessment in Danske Bank Group has been applied separately for each business unit represented by the Group’s reportable
segments, and it is based on observable factors for the different portfolios, such as (1) how the performance of the business model and the financia l
assets held within that business model are evaluated and reported to the Executive Board and the Board of Directors, (2) the risks that affect the
performance of the business model and the way such risks are managed and (3) past and expected frequency, value and timing of sales from the portfolio.
In general, the business model assessment of the Group can be summarised as follows:
•
•
•
•
The Group’s banking units, comprising Banking DK, Banking Nordic, General Banking at C&I, Private Banking at Wealth Management and Northern
Ireland, have a “hold to collect” business model. The financial assets consist primarily of loans. The management and reporting of performance are
based on collecting the contractual cash flows, and loans are only very infrequently sold.
The trading units at C&I (FI&C and Capital Markets) and the financial assets related to the Group’s insurance activities have a business model that
is neither “hold to collect” nor “hold to collect and sell” and the financial assets are mandatorily recognised at FVPL. The assets consist of bonds,
shares, repo transactions and short-term loans. Some of the financial assets are included in portfolios with a trading pattern that falls under the
definition of “held for trading” while other portfolios are managed and their performance reported on a fair value basis.
Group Treasury has portfolios of bonds within the “hold to collect” business model, the “hold to collect and sell” business models and the “other”
business model.
The remaining portfolio of Non-core is “hold to collect”. The financial assets consist primarily of loans.
82
Danske Bank / Annual Report 2018
66 Danske Bank / Annual Report 2018
Danske Bank / Annual Report 2018 65
Notes – Danske Bank Group
1. Basis of preparation continued
Notes – Danske Bank Group
1. Basis of preparation continued
(c) Overview of classification and measurement basis for financial instruments and insurance contracts
The SPPI test (solely payment of principal and interest on the principal amount outstanding)
The second step in the classification of the financial assets in portfolios being “hold to collect” and “hold to collect and sell” relates to the assessment of
whether the contractual cash flows are consistent with the SPPI test. The principal amount reflects the fair value at initial recognition less any subsequen t
changes, e.g. due to repayment. The interest must represent only consideration for the time value of money, credit risk, other basic lending risks and a
margin consistent with basic lending features. If the cash flows introduce more than de minimis exposure to risk or volatility that is not consistent with
basic lending features, the financial asset is mandatorily recognised at FVPL.
In general, the Group’s portfolios of financial assets that are “hold to collect” or “hold to collect and sell” (loans and bonds) have contractual cash flows
that are consistent with the SPPI test, i.e. they have basic lending features.
However, loans granted under Danish mortgage finance law are funded by issuing listed mortgage bonds with matching terms. Such loans are granted
by the Realkredit Danmark subsidiary only. Borrowers may repay such loans by delivering the underlying bonds. This represents an option to prepay at
fair value that can be both above and below the principal amount plus accrued interest. Therefore, this prepayment option is not consistent with the SPPI
test, and the loans are mandatorily recognised at FVPL. In October 2017, IFRS 9 was amended to allow for prepayment features with negative
compensation. The amended IFRS 9 does not change this assessment since changes in the fair value of the underlying bonds include other elements than
the effect of changes in the relevant benchmark interest rate.
All equity instruments have contractual cash flows that do not pass the SPPI test. All such holdings are recognised at FVPL since the Group has decided
not to use the option to designate equity instruments at FVOCI.
Financial liabilities
Financial liabilities are generally measured at amortised cost and when relevant with bifurcation of embedded derivatives not closely related to the host
contract. Financial liabilities measured at fair value comprise derivatives, the trading portfolio and liabilities designated at FVPL under the fair value
option. Value adjustments relating to the inherent own credit risk of financial liabilities designated at fair value are, however, recognised in Other
comprehensive income unless this leads to an accounting mismatch.
IFRS 9 allows the designation of financial liabilities at FVPL when doing so results in more relevant information, because either (1) it eliminates or
significantly reduces an accounting mismatch that would otherwise arise, or (2) is part of a portfolio of financial instruments that are managed and their
performance reported on a fair value basis to management.
The Group designates the following financial liabilities at FVPL:
•
•
Mortgage bonds issued by Realkredit Danmark. The bonds fund the loans granted by Realkredit Danmark, i.e. loans that due to the SPPI test are
mandatorily recognised at FVPL. The fair value of the loans is based on the fair value of the issued bonds (the loans and the issued bonds that are
funding the loans have matching contractual terms) adjusted for changes in the fair value of the credit risk of borrowers. To eliminate the accounting
mismatch that exists if the loans are measured at FVPL and the issued bonds at AMC, the issued bonds are designated at FVPL, and fair value
changes of the issued bonds (including fair value changes related to own credit risk) are offset by the fair value changes of the loans. Hence, changes
in the fair value attributable to the Group’s own credit risk on the issued bonds are also recognised in the income statement since an accounting
mismatch would otherwise arise.
Financial liabilities in FI&C and Capital Markets at C&I. These financial liabilities are part of a portfolio of financial assets and liabilities that is
managed and performance reported to the Management on a fair value basis. The financial liabilities consist of repo transactions, deposits and
commercial papers. Changes, if any, in the fair value attributable to the Group’s own credit risk is, however, recognised in other comprehensive
income.
Hedge accounting
The Group uses derivatives to hedge the interest rate risk on some fixed-rate assets and fixed-rate liabilities measured at amortised cost and on some
bonds measured at fair value through other comprehensive income. Hedged risks that meet the criteria for fair value hedge accounting are treated
accordingly. The interest rate risk on the hedged assets and liabilities is measured at fair value through profit or loss. At end-2018, hedging derivative s
measured at fair value accounted for about 0.2% of total assets and about 0.05% of total liabilities (31 December 2017: 0.2% and 0.03%, respectively) .
For further information on hedge accounting, see note 12.
(c) Overview of classification and measurement basis for financial instruments and insurance contracts
Financial instruments and obligations under insurance contracts, classification and measurement end of 2017
In accordance with the transitional requirements of IFRS 9, comparative figures are not restated as retrospective application of the impairmen t
requirements is not possible without the use of hindsight. The classification and measurement of financial instruments under IAS 39 at 31 December
2017 is shown in the table below. For further information on the general classification and measurement of financial instruments under IAS 39, please
see section 1(b) in Annual Report 2017.
Cash in hand and demand deposits with
Due from credit institutions and central banks
(DKK billions)
Assets
central banks
Derivatives
Bonds
Shares
Loans at amortised cost
Loans at fair value
Assets under pooled schemes and
unit-linked investment contracts
Assets under insurance contracts
Liabilities
Due to credit institutions and central banks
Trading portfolio liabilities
Deposits
Bonds issued by Realkredit Danmark
Deposits under pooled schemes and
unit-linked investment contracts
Liabilities under insurance contracts***
Other issued bonds
Subordinated debt
Loan commitments and guarantees
Fair value
Amortised cost
Directly through profit or loss
Held-for-
Interest rate
Available-
trading Designated
hedge*
for-sale**
Hold-to-
maturity
Loans
Liabilities
Total
249
173
19
401
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1
-
98
787
112
273
758
120
323
-
-
-
-
-
-
-
-
8
-
-
2
-
-
-
-
-
-
-
-
-
5
-
-
5
79
147
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
83
334
1,111
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
243
1,047
400
29
1
83
334
257
497
20
1,113
787
112
273
3,476
243
401
1,047
758
120
323
405
29
1
Total financial assets, 2017
441
1,271
10
79
147
1,528
Total financial liabilities, 2017
401
1,201
1,720
3,327
*The interest rate risk on some fixed-rate financial assets and liabilities is hedged by derivatives (fair value hedging). The interest rate risk on some fixed-rate bonds available for sale is also
hedged by derivatives. The fair value represents changes in the fair value of the interest rate risk on the hedged item, i.e. not a full fair value of the hedged item.
**Unrealised gains and losses are booked under Other comprehensive income, and realised gains and losses are recycled to the income statement.
***Liabilities under insurance contracts are recognised at the present value of expected insurance benefits.
66 Danske Bank / Annual Report 2018
Danske Bank / Annual Report 2018
83
Notes – Danske Bank Group
1. Basis of preparation continued
(c) Overview of classification and measurement basis for financial instruments and insurance contracts
Financial instruments and obligations under insurance contracts, classification and measurement end of 2017
In accordance with the transitional requirements of IFRS 9, comparative figures are not restated as retrospective application of the impairmen t
requirements is not possible without the use of hindsight. The classification and measurement of financial instruments under IAS 39 at 31 December
2017 is shown in the table below. For further information on the general classification and measurement of financial instruments under IAS 39, please
see section 1(b) in Annual Report 2017.
(DKK billions)
Assets
Cash in hand and demand deposits with
central banks
Due from credit institutions and central banks
Derivatives
Bonds
Shares
Loans at amortised cost
Loans at fair value
Assets under pooled schemes and
unit-linked investment contracts
Assets under insurance contracts
Fair value
Amortised cost
Directly through profit or loss
Held-for-
trading Designated
Interest rate
hedge*
Available-
for-sale**
Hold-to-
maturity
Loans
Liabilities
Total
-
-
249
173
19
-
-
-
-
-
-
-
98
1
-
787
112
273
-
-
8
-
-
2
-
-
-
-
-
-
79
-
-
-
-
-
83
334
-
-
-
1,111
-
-
-
-
147
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
83
334
257
497
20
1,113
787
112
273
3,476
Total financial assets, 2017
441
1,271
10
79
147
1,528
Liabilities
Due to credit institutions and central banks
Trading portfolio liabilities
Deposits
Bonds issued by Realkredit Danmark
Deposits under pooled schemes and
unit-linked investment contracts
Liabilities under insurance contracts***
Other issued bonds
Subordinated debt
Loan commitments and guarantees
-
401
-
-
-
-
-
-
-
-
-
-
758
120
323
-
-
-
Total financial liabilities, 2017
401
1,201
-
-
-
-
-
-
5
-
-
5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
243
-
1,047
-
243
401
1,047
758
-
-
400
29
1
120
323
405
29
1
1,720
3,327
*The interest rate risk on some fixed-rate financial assets and liabilities is hedged by derivatives (fair value hedging). The interest rate risk on some fixed-rate bonds available for sale is also
hedged by derivatives. The fair value represents changes in the fair value of the interest rate risk on the hedged item, i.e. not a full fair value of the hedged item.
**Unrealised gains and losses are booked under Other comprehensive income, and realised gains and losses are recycled to the income statement.
***Liabilities under insurance contracts are recognised at the present value of expected insurance benefits.
84
Danske Bank / Annual Report 2018
Danske Bank / Annual Report 2018 67
Notes – Danske Bank Group
1. Basis of preparation continued
(c) Overview of classification and measurement basis for financial instruments and insurance contracts
Insurance activities – general
The Group issues life insurance policies, which are divided into insurance and investment contracts. Insurance contracts are contracts that entail
significant insurance risk or entitle policyholders to bonuses. Investment contracts are contracts that entail no significant insurance risk and comprise
unit-linked contracts under which the investment risk lies with the policyholder.
Insurance contracts
Insurance contracts comprise both an investment element and an insurance element, which are recognised as aggregate figures.
IFRS 4, Insurance Contracts, includes an option to continue the accounting treatment of insurance contracts under local GAAP. The Group’s life insurance
provisions are therefore recognised at their present value in accordance with the Danish FSA’s Executive Order on Financial Reports for Insurance
Companies etc. The life insurance provisions are presented under Liabilities under insurance contracts.
Assets earmarked for insurance contracts are recognised under Assets under insurance contracts if most of the return on the assets accrues to the
policyholders. Most of these assets are measured at fair value.
Investment contracts
Investment contracts are recognised as financial liabilities, and, consequently, contributions and benefits under such contracts are recognised directly
in the balance sheet. Deposits are measured at the value of the savings under Deposits under pooled schemes and unit-linked investment contracts.
Savings under unit-linked investment contracts are measured at fair value under Assets under pooled schemes and unit-linked investment contracts.
The return on the assets and the crediting of the amounts to policyholders’ accounts are recognised under Net trading income.
Assets funded by shareholders’ equity
The separate pool of assets equal to shareholders’ equity is recognised at fair value and consolidated with other similar assets.
Income from insurance business
Insurance activities are consolidated in the various income statement items. Insurance premiums are recognised under Net premiums. Net insurance
benefits in the income statement consists of benefits disbursed under insurance contracts and the annual change in insurance obligations not derivin g
from additional provisions for benefit guarantees and changes to the collective bonus potential. The return on earmarked assets is allocated to the
relevant items in the income statement. The return to policyholders is recognised under Net trading income as are changes to additional provisions for
benefit guarantees. Note 5 provides more information.
The sources of the Group’s net income from insurance business comprise the return on assets funded by Danica Pension’s shareholders’ equity, income
from unit-linked business and health and accident business, and income from conventional life insurance business, the so-called risk allowance.
The risk allowance is determined in accordance with the Danish FSA’s executive order on the contribution principle. The contribution principle regulates
how earnings are allocated between policyholders and the life insurance company’s shareholders’ equity and defines the maximum payment to
shareholders’ equity (the risk allowance). The contribution principle was changed on 1 January 2016. If the contribution rules do not allow recognition of
the full risk allowance in a given period, the amount that cannot be recognised can no longer be recovered in subsequent periods through the use of a
shadow account. The risk allowance included in the shadow account at 31 December 2015 may be recovered over a five years period following after
2015.
Insurance contracts guarantee a certain long-term return on policyholders’ funds. If the technical basis exceeds the interest accrual to policyholders and
the risk allowance, the difference is allocated to the bonus potential. The bonus potential serves as a risk buffer. If the technical basis is insufficient to
cover the risk allowance, the shortfall can be covered by the bonus potential. If the bonus potential is insufficient to cover the shortfall, the difference can
be covered by the individual bonus potentials or the profit margin; otherwise, the risk allowance that cannot be recognised will be lost. If the technica l
basis is insufficient to cover the interest accrual to policyholders, the shortfall is covered by the bonus potentials or the profit margin. Any remainin g
shortfall is paid by the Group in the form of an outlay. If the Group has made such an outlay, the outlay may be recovered the following year.
Danske Bank / Annual Report 2018
85
68 Danske Bank / Annual Report 2018
Notes – Danske Bank Group
1. Basis of preparation continued
(d) Financial highlights
The financial highlights and reporting for each segment shown in note 3 are used in the Management’s report and represent the financial informatio n
regularly provided to management. The Reclassification column in note 3 shows the reconciliation between the presentation in the financial highlights
and the presentation in the consolidated financial statements prepared under IFRS and includes the following:
Sale of operating lease assets where the Group acts as a lessor
In the IFRS income statement, gains or losses on the sale of operating lease assets, excluding properties, at the end of the lease agreement are presented
on a gross basis. This means that the proceeds from the sale of the assets are recognised under Other income, whereas the carrying amount of the lease
assets is recognised under Operating expenses.
In the financial highlights, the gains or losses on the sale of the lease asset are presented on a net basis under Other income to better reflect the
development in the cost base.
FI&C and Capital Markets (both part of Corporates & Institutions) and Group Treasury (part of Other Activities)
In the IFRS income statement, income from FI&C, Capital Markets and Group Treasury is presented as Net interest income, Net fee income, Net trading
income and Other income, depending on the type of income. The distribution of income between the various income line items can vary considerably from
one year to the next, depending on the underlying transactions and market conditions. To better reflect income in those areas, the following
reclassifications are made in the financial highlights:
•
•
•
All income contributed by FI&C, excluding FI&C’s share of margins on customer derivatives, is presented as Net trading income
Trading-related income at Capital Markets is presented as Net trading income. However, income contributed by Equity Finance (also part of
Corporates & Institutions, Capital Markets) is presented as Net fee income
All income in Group Treasury, except income at Internal Bank, income on bonds held to collect and bonds held to collect and sell, are presented as
Net trading income
Danica Pension
In the IFRS income statement, income and expenses in Danica Pension (part of Wealth Management) is consolidated on a line-by-line basis. In the financia l
highlights, the following reclassifications are made to better reflect income from the services provided to customers:
•
•
•
•
The risk allowance and income from the unit-link business are presented as Net fee income
The return on assets related to the health and accident business is presented as Net trading income
The risk and guarantee result, the net income from the health and accident business and the income from recharge to customers of certain expenses
are presented as Other income
All costs, except external investment costs, are presented under Operating expenses
Non-core
In the IFRS income statement and balance sheet, income and expense items and asset and liability items from the Non-core segment are included in the
various income statement and balance sheet lines, as the segment does not fulfil the requirements in IFRS 5, Non-current Assets Held for Sale and
Discontinued Operations.
The Non-core segment includes certain customer segments that are no longer considered part of the Group’s core business. To better reflect activitie s
from the Group’s core and non-core business, the profit or loss of the Non-core segment is presented as one amount in a separate line item ‘Profit before
tax, Non-core’ in the financial highlights. Similarly, assets are presented together as Total assets in Non-core and liabilities together as Total liabilities in
Non-core in the balance sheet in the financial highlights.
The impact of the IFRS 9 expected credit loss impairment model on loans granted by Realkredit Danmark
Loans granted by Realkredit Danmark (RD) are measured at fair value (both under IAS 39 and under IFRS 9). From 1 January 2018, the IFRS 13 estimate
of the fair value of the credit risk on loans granted by Realkredit Danmark is based on the expected credit loss model developed in connection with the
Group’s implementation of IFRS 9. The impact from the expected credit loss impairment model on these loans at 1 January 2018 is recognised as a
change in an accounting estimate in the IFRS income statement. To recognise the changes in RD due to the expected credit loss impairment model in
IFRS 9 similarly to all other IFRS 9 changes in the Group and to better reflect the actual performance in 2018, the impact is recognised as a reduction in
shareholders’ equity in the financial highlights together with the other changes from the implementation of IFRS 9. For 2018, reclassification therefore
include this adjusting item, and profit before tax, tax and net profit for the year is not the same in the financial highlights and the IFRS income statement.
86
Danske Bank / Annual Report 2018
Danske Bank / Annual Report 2018 69
70 Danske Bank / Annual Report 2018
Notes – Danske Bank Group
Notes – Danske Bank Group
2. Changes and forthcoming changes to accounting policies and presentation
2. Changes in accounting policies implemented at 1 January 2018 continued
(a) Changes to significant accounting policies and presentation during the year
At 1 January 2018, the Group implemented IFRS 9 (Financial Instruments) and IFRS 15 (Revenue from Contract with Customers). The implementatio n
of IFRS 15 had no impact on shareholders’ equity, assets or liabilities. Note 6 includes additional disclosures required by IFRS 15. IFRS 9 is applied
retrospectively with the cumulative impact recognised in shareholders’ equity at 1 January 2018. Comparative information has not been restated.
The key impact of the implementation of IFRS 9 is:
•
•
•
•
The introduction of the new expected credit loss model has increased the allowance account by DKK 2,572 million. Of this, DKK 2,172 million
relates to financial instruments at amortised cost (including financial guarantees and loan commitments) and DKK 400 million to loans at fair value
(loans granted by Realkredit Danmark). The latter represents the change to the IFRS 13 estimate of the fair value of the credit risk on RD loans
(measured at fair value through profit or loss under IAS 39 and IFRS 9) that from 1 January 2018 is based on the expected credit loss model
developed in connection with the Group’s implementation of IFRS 9.
The business model assessment resulted in loans, including reverse transactions, in the Group’s trading units (FI&C and Capital Markets of C&I)
being measured at fair value through profit or loss instead of as previously at amortised cost. If only the financial assets are measured at fair value
through profit or loss, an accounting mismatch exists. Therefore, deposits, including repo transactions, and issued bonds in these business units
are designated at fair value through profit or loss instead of as previously at amortised cost. The remeasurement reduced the carrying amount of
financial assets by DKK 68 million and financial liabilities by DKK 171 million at 1 January 2018.
The effect of DKK 1,967 million, net of tax, reduced shareholders’ equity at 1 January 2018. The impact from expected credit loss impairment on
loans at amortised cost and remeasurement due to reclassifications, net of tax, of DKK 1,655 million is recognised as a reduction in shareholders’
equity at 1 January 2018, while the impact on the fair value of the credit risk on loans at fair value, net of tax, of DKK 312 million is recognised as a
change in an accounting estimate in the IFRS income statement in 2018. However, in the segment reporting, financial highlights and throughout the
Management’s report, the total impact from IFRS 9, including the impact on loans at fair value, is recognised as a reduction in shareholders’ equity
at 1 January 2018.
The implementation of the ECL impairment model (for loans at amortised cost) will be phased-in in the capital statement from 2018 to 2022 in
accordance with EU capital requirements regulation adopted in 2017. This phasing-in of IFRS 9 reduced the CET1 capital ratio at 1 January 2018
by 0.1 percentage points. The fully phased-in impact will be a reduction of the CET1 capital ratio of 0.2 percentage points.
Further, the disclosure requirements for financial instruments in IFRS 7 (Financial Instruments: Disclosure) and IAS 1 (Presentation of Financia l
Statements) were amended as part of the IFRS 9 project. The amendments have been implemented in the consolidated financial statements 2018.
The Group has also implemented amendments to various standards effective as at 1 January 2018, including amendments to IFRS 2 (Share-based
Payments), IAS 28 (Investments in Associates and Joint Ventures) and IAS 40 (Investment Properties). Further, the Group has implemented IFRIC 22
(Foreign Currency Transactions and Advance Considerations). The implementation of these changes had no impact on the Group’s financial statements .
The impact from changes in accounting policies is recognised in shareholders’ equity in the opening IFRS balance sheet at 1 January 2018 and the
comparative information has not been restated. The impact on the opening balance sheet is shown in the table below. The reclassifications of financia l
instruments between measurement categories in IFRS 9 and the impact from the expected credit loss impairment model are shown separately. The
latter excludes the impact on loans granted by Realkredit Danmark. All other changes, i.e. remeasurement from amortised cost to fair value, the tax
impact and minor adjustments in Danica Pension related to the accounting for the profit margin (see note 18), are presented together.
31 December
Remeasurement
Other
1 January 2018
2017 Reclassification
(ECL)
remeasurements
IFRS
-48,941
48,941
-173,255
173,255
-33
-2
-717
Cash in hand and demand deposits with central banks
82,818
Due from credit institutions and central banks at amortised
Due from credit institutions and central banks at fair value1
Assets under pooled schemes and unit-linked investment
contracts
Assets under insurance contract
(DKK millions)
Assets
cost1
Trading portfolio assets
Investment securities
Loans at amortised cost
Loans at fair value
Intangible assets
Tax assets
Other assets
Total assets
Liabilities
Due to credit institutions and central banks at amortised cost2
242,887
Due to credit institutions and central banks at fair value2
Trading portfolio liabilities
Deposits at amortised cost3
Deposits at fair value3
Issued bonds at fair value
Issued bonds at amortised cost
Deposits under pooled schemes and unit-linked investment
Liabilities under insurance contracts
-156,505
156,505
-149,820
149,820
66,052
-66,052
contracts
Tax liabilities
Other liabilities
Subordinated debt
Total liabilities
Equity
Share capital
Retained earnings
Proposed dividends
Foreign currency translation reserve
Reserve for available-for-sale financial assets
Shareholders of Danske Bank A/S (the Parent Company)
Additional tier 1 capital holders
Total equity
Total liabilities and equity
1 Presented in the balance sheet as Due from credit institutions and central banks
2 Presented in the balance sheet as Due to credit institutions and central banks
3 Presented in the balance sheet as Deposits
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-2,172
-2,172
-2,172
-752
-752
140
3,538,916
1,420
-206
1,420
-377
3,372,315
-12
-56
208
-69
-50
-52
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
517
517
517
140
82,818
285,001
48,929
449,292
324,616
938,780
960,422
112,065
296,867
7,177
1,627
31,324
86,382
156,436
400,596
897,038
149,770
824,375
339,028
119,901
322,726
8,428
38,517
29,120
9,368
-681
130
134,076
9,368
152,261
14,339
166,601
3,538,916
333,975
-
449,292
324,618
1,112,752
787,223
112,065
296,867
7,177
1,419
31,324
3,539,528
400,596
1,046,858
-
-
758,375
405,080
119,901
322,726
8,634
37,097
29,120
3,371,272
9,368
-681
130
135,731
9,368
153,916
14,339
168,256
3,539,528
70 Danske Bank / Annual Report 2018
Danske Bank / Annual Report 2018
87
Notes – Danske Bank Group
2. Changes in accounting policies implemented at 1 January 2018 continued
(DKK millions)
Assets
Cash in hand and demand deposits with central banks
Due from credit institutions and central banks at amortised
cost1
Due from credit institutions and central banks at fair value1
Trading portfolio assets
Investment securities
Loans at amortised cost
Loans at fair value
Assets under pooled schemes and unit-linked investment
contracts
Assets under insurance contract
Intangible assets
Tax assets
Other assets
Total assets
Liabilities
Due to credit institutions and central banks at amortised cost2
Due to credit institutions and central banks at fair value2
Trading portfolio liabilities
Deposits at amortised cost3
Deposits at fair value3
Issued bonds at fair value
Issued bonds at amortised cost
Deposits under pooled schemes and unit-linked investment
contracts
Liabilities under insurance contracts
Tax liabilities
Other liabilities
Subordinated debt
Total liabilities
Equity
Share capital
Foreign currency translation reserve
Reserve for available-for-sale financial assets
Retained earnings
Proposed dividends
Shareholders of Danske Bank A/S (the Parent Company)
Additional tier 1 capital holders
Total equity
Total liabilities and equity
31 December
2017 Reclassification
Remeasurement
(ECL)
Other
remeasurements
1 January 2018
IFRS
82,818
-
333,975
-
449,292
324,618
1,112,752
787,223
112,065
296,867
7,177
1,419
31,324
3,539,528
242,887
-
400,596
1,046,858
-
758,375
405,080
119,901
322,726
8,634
37,097
29,120
3,371,272
9,368
-681
130
135,731
9,368
153,916
14,339
168,256
3,539,528
-48,941
48,941
-
-
-173,255
173,255
-
-
-
-
-
-
-156,505
156,505
-
-149,820
149,820
66,052
-66,052
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-33
-
-
-2
-717
-
-
-
-
-
-
-752
-
-
-
-
-
-
-
-
-
-
1,420
-
1,420
-
-
-
-2,172
-
-2,172
-
-2,172
-752
-
-
-12
-
-
-
-56
-
-
-
208
-
140
-
-69
-
-
-50
-52
-
-
-
-206
-
-
-377
-
-
-
517
-
517
-
517
140
82,818
285,001
48,929
449,292
324,616
938,780
960,422
112,065
296,867
7,177
1,627
31,324
3,538,916
86,382
156,436
400,596
897,038
149,770
824,375
339,028
119,901
322,726
8,428
38,517
29,120
3,372,315
9,368
-681
130
134,076
9,368
152,261
14,339
166,601
3,538,916
1 Presented in the balance sheet as Due from credit institutions and central banks
2 Presented in the balance sheet as Due to credit institutions and central banks
3 Presented in the balance sheet as Deposits
88
Danske Bank / Annual Report 2018
Danske Bank / Annual Report 2018 71
72 Danske Bank / Annual Report 2018
Notes – Danske Bank Group
2. Changes in accounting policies implemented at 1 January 2018 continued
The classification under IFRS 9 and the previous IAS 39 classification is summarised in the table below:
Classification under IFRS 9 compared to IAS 39
Balance sheet line item (IAS 39)
Financial assets
Cash in hand and demand deposits
with central banks
Due from credit institutions and
central banks
Due from credit institutions and
central banks
Trading portfolio assets
Investment securities – fair value
Investment securities –
bonds available-for-sale
Investment securities – bonds
hold-to-maturity
Loans at amortised cost
Loans at fair value - Danish
mortgage loans
Assets under pooled schemes and
unit-linked investment contracts
Original carrying
amount under
IAS 39
Original measurement
category, IAS 39
New measurement
category, IFRS 9
New carrying
amount
under IFRS 9 Balance sheet line item (IFRS 9)
82,818 Loans and receivables
Amortised cost
82,818
285,034 Loans and receivables
48,941 Loans and receivables
449,292
99,058
Fair value through profit
or loss
Fair value through profit
or loss
Amortised cost
Fair value
through profit or loss 1)
Fair value through profit
or loss (held for trading)
Fair value through profit
or loss
78,863 Available for sale
Fair value through OCI
146,697 Hold to maturity
Amortised cost
Cash in hand and demand deposits
with central banks
Due from credit institutions and
central banks
Due from credit institutions and
central banks
285,001
48,929
449,292 Trading portfolio assets
78,863
99,058 Inv