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Contents
Management’s report
4
8
9
12
16
19
25
28
31
34
Foreword
Financial highlights - Danske Bank Group
Executive summary
Estonia case
Strategy execution
Financial review
Capital and liquidity management
Investor Relations
Societal impact and sustainability
Organisation and management
Banking DK
Banking Nordic
Corporates & Institutions
38
43
49
55 Wealth Management
Northern Ireland
60
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
236 Statement by the management
237
Independent Auditor’s report
Management and directorships
244 Board of Directors
250 Executive Leadership Team
253 Supplementary information
04
Danske Bank / Annual Report 2019
Foreword
For close to 150 years, Danske Bank has evolved in
tandem with the Nordic economies.
We have created opportunities and helped individuals
and businesses realise their ambitions – enabling
businesses to finance new ventures and providing
opportunities for individuals to buy a home of their own
or to save for retirement, and we have helped build and
innovate the financial infrastructure. In doing so, we have
benefited from being part of prosperous societies with
successful companies, well-educated work forces and
strong institutions in stable, well-governed democracies.
As the largest financial services provider in Denmark
and one of the largest financial institutions in the
Nordic countries, we have a particular responsibility
and an evident self-interest in contributing to continued,
sustainable growth and development of the societies we
are part of. We have an opportunity and an obligation
to respond to common challenges and to help develop
viable solutions.
We can respond to the needs and demands of
customers and society, contribute to growth and
offer viable solutions only if we run a sustainable and
profitable business. And we can secure long-term
profitability only through careful balancing of all our
stakeholders’ interests.
In 2019, a more balanced stakeholder approach
was adopted with a new leadership jointly committed
to create a better bank for all our stakeholders: our
customers, our employees, the societies we are part of
and our shareholders.
2019 was also the year when we signed the UN
Principles on responsible banking as a manifestation of
our commitment to integrating social responsibility and
sustainability across our business and to contributing
further to sustainable development and making a
positive contribution to society.
Financial results are essential, but as indicators of
commercial success they cannot stand alone. Therefore,
as we execute on our plan to become a better bank, we
will also measure and report on our progress across
a number of areas, including customer satisfaction,
employee engagement and societal impact and ESG
measures.
Becoming a better bank for all our stakeholders is a
journey of a thousand steps – making incremental
improvements on a day-to-day basis to turn ambitions
into real change.
Thanks to the efforts of our dedicated and hard-working
colleagues throughout Danske Bank, it is a journey that
has already begun.
Karsten Dybvad
Chairman of the
Board of Directors
Chris Vogelzang
Chief Executive Officer
Danske Bank / Annual Report 2019
05
Danske Bank 2019 at a glance
DKK
15.1bn
Net profit
DKK
45bn
Total income
Changes in Executive
Leadership Team
Significant
investments
in improving
AML efforts
New 2023
ambitions
3%
Lending growth
9.6%
Return on equity
Green
mortgage
bonds
launched in Denmark
Sale of Danica Sweden
& LR Realkredit A/S
06
For close to 150 years,
Danske Bank has evolved in
tandem with the Nordic economies
Danske Bank / Annual Report 2019 07
Danske Bank / Annual Report 2019 08
Danske Bank / Annual Report 2019
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
Attributable to additional tier 1 etc.
2019
2018
Index
19/18
2017
2016
2015
21,877
15,895
4,985
2,225
44,982
27,548
1,603
15,831
1,516
14,315
-493
13,822
-1,249
15,072
786
23,571
15,402
4,676
716
44,365
25,011
-
19,354
-650
20,004
-282
19,722
4,548
15,174
781
93
103
107
-
101
110
-
82
-
72
-
70
-
99
101
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
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
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
*Includes net income of DKK 4.1billion from reversal of a deferred tax liability for International Joint Taxation and increased provisions for deferred tax on assets and liabilities
measured at amortised cost.
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
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 % 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)
81,941
346,708
1,821,309
495,313
284,873
463,816
7,519
259,571
3,761,050
98,828
232,271
962,865
795,721
350,190
452,190
504,714
2,501
159,529
31,733
14,237
156,271
3,761,050
8.5
16.7
9.6
0.80
64.8
61.2
22.7
17.3
107.8
183.1
22,006
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
14,299
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
48
110
103
119
103
123
52
108
105
67
89
108
107
106
116
121
62
78
137
100
105
105
106
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
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
14,342
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
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
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 2019
09
Executive summary
“The financial results for 2019 were as expected. Customer activity was at a good level in Denmark
especially due to high remortgaging activity. We also saw a good customer development and lending
growth across our other core markets. However, low interest rates, margin pressure, higher impairments
and increased costs due mainly to investments in compliance and AML-related activities had a negative
effect on the result. A number of extraordinary items also had an impact, positive as well as negative, on the
results, but all in all, our financial performance remains under pressure,” says Chief Executive Officer Chris
Vogelzang and continues:
“Our plan to become a better bank for all stakeholders and deliver on our ambitions for 2023 is off to a good
start. Key initiatives include a simplification of our product range, accelerated digitalisation efforts in areas
that are particularly important to our customers and improved cost discipline across the Group. Furthermore,
we have defined clear, quantitative targets for among other things our contribution to the transition towards
a greener economy as well as for our own efforts to become a more diverse and inclusive workplace with an
even more customer- and compliance-centric culture. These are just the first of many steps we will take in the
months and years to come.”
Danske Bank posted a net profit of DKK 15.1 billion for
2019, against DKK 15.2 billion for 2018. The return on
shareholders’ equity in 2019 was 9.6%, against 9.8%
in 2018.
The result was affected by a number of non-recurring
items, including goodwill impairment charges of
DKK 1.6 billion, the sales of Danica Pension Sweden
and LR Realkredit A/S with a net gain of DKK 2.1 billion
and a net positive tax adjustment of approximately
DKK 4.1 billion. The latter was due to Danske Bank’s
decision not to re-enter the International Joint Taxation
scheme and a provision for deferred tax adjustments.
Tax on profit for the year was at around the same
tax level as for previous years. Profit before goodwill
impairments and tax was DKK 15.4 billion, against
DKK 19.7 billion in 2018.
In accordance with our dividend policy of paying out
between 40% and 60% of reported net profit, we
propose a dividend of DKK 8.5 per share, corresponding
to 49% of reported net profit.
The year was characterised by difficult financial markets,
a further decline in interest rates, a slight worsening
of the macroeconomic environment, and persistently
strong competition in all markets. However, customer
activity was still at a good level, as exemplified by the
high Danish remortgaging activity, and our partnership
agreements continued to help us grow lending in
the Nordic markets. Regulatory and compliance
costs continued to increase, and an expected rise in
impairments also had a negative effect on the result.
negative interest rates, digitalisation, rising customer
expectations, increased costs, a need to get compliance
under control, and a need to reduce complexity in the
organisation. With this in mind, we published a new
2023 plan on 1 November 2019 with four ambitions
that will make Danske Bank a better bank for all our
stakeholders.
Our 2023 ambitions are as follows:
•
We are on average among the top two on customer
satisfaction in everything we do.
• At least 90% of our employees are engaged.
•
We operate sustainably, ethically and transparently –
and have a positive impact on the societies we are a
part of.
We aim to achieve a return on shareholders’ equity
of 9-10% and a cost/income ratio in the low 50s
by continuously improving the profitability level,
leveraging our full potential.
•
To build a better bank, we need to invest in our ways of
working and in our capabilities and technologies, among
other things, and we are committed to delivering on our
ambitions and making Danske Bank a better bank for all
our stakeholders.
Financials
In 2019, lending grew 3%. Lending was strongest in
the first half of the year, especially at Banking Nordic.
In Denmark, customer activity within remortgaging was
strong throughout the year as significant declines in
interest rates caused many customers to remortgage to
cheaper fixed-rate mortgages.
While Danske Bank is fundamentally strong, it is
clear that we are facing a number of structural as well
as Danske Bank-specific challenges. These include
At Banking DK, lending was up 1% from year-end
2018 but declined slightly in the fourth quarter. High
remortgaging activity in the second, third and fourth
10
quarters meant a further shift towards longer-term but
lower-margin mortgage products among both retail and
commercial customers. This is positive for credit quality
but puts a downward pressure on net interest income in
the longer term.
of the DKK 1.5 billion donation to the combating of
financial crime. Excluding the donation, expenses were
up 17% year-on-year. This was due mainly to increased
costs for compliance and AML-related activities as well
as costs for the Estonia case.
Customer satisfaction among retail customers in
Denmark increased through the year. However, in
2019, we saw a net outflow of approximately 23,600
NemKonto customers in Denmark, against an outflow of
approximately 11,000 in 2018. In the fourth quarter, we
saw a net outflow of approximately 4,600 NemKonto
customers, and overall, we are seeing an improving
trend in our retail customer base. The total number of
NemKonto customers is now 1.37 million.
At Banking Nordic, lending increased 5% from the
level at the end of 2018, with a 1% increase in the
fourth quarter. Especially in Norway, we continued to
see a good inflow of customers from our partnership
agreements. Lending growth in Norway was 12% in
local currency, whereas lending in Sweden was flat in
local currency year-on-year. In Finland, lending was up
4% in 2019, driven mainly by commercial lending.
In 2019, net interest income was down 7% from the
level in 2018. A positive impact from lending growth
was offset by higher funding costs, and rising interest
rates in Norway and Sweden led to increased margin
pressure in these markets.
In addition, funding costs remained at a more elevated
level than in 2018 as a result of our issuance of non-
preferred senior debt. The new funding was issued to
meet the new MREL requirement set by the Danish
Financial Supervisory Authority.
Net fee income was up 3% from 2018 and 3% from
the third to the fourth quarter of 2019, due mainly
to significant remortgaging activity in Denmark and
higher performance fees at Wealth Management in
the fourth quarter. Fee income was adversely affected
by the amount set aside in the second quarter for
compensation of certain Flexinvest Fri customers.
Trading income increased year-on-year as a result of
the DKK 0.8 billion gain from the sale of LR Realkredit
A/S in the fourth quarter. Excluding this gain, trading
income declined 10% from the level in 2018. Quarter-
on-quarter, trading income was up 68%, excluding LR
Realkredit A/S. This was due to an increase in interest
rates and a steepening of the yield curve that had a
positive effect on our FI&C operations. The continuation
of the high remortgaging activity in Denmark meant that
there was also a strong increase in trading income at
Banking DK.
Expenses in 2019 were 10% higher than in 2018,
despite the recognition in the third quarter of 2018
Expenses also increased as a result of the compensation
paid to certain Flexinvest Fri customers, impairment
charges against other intangible assets, an adjustment
of the value of a distribution contract as well as
transformation costs.
In addition, expenses increased as a result of a provision
for operational risk-related losses of DKK 0.4 billion. The
provision relates to a data quality issue that affects a
limited part of our operations.
We saw impairment charges of DKK 1.5 billion in 2019,
of which DKK 0.7 billion were recognised in the fourth
quarter. The charges were due mainly to single-name
exposures at Corporates & Institutions and a review
of our loan portfolio across business units. The loan
review affected the impairment level at Banking Nordic
in particular. The portfolio review was carried out in
connection with an ongoing review by the Danish FSA
in connection with a sector review. The macroeconomic
outlook deteriorated slightly during the summer, which is
also reflected in our impairment models.
The change in the macroeconomic outlook affected
impairments in Denmark in particular. In order to
retain strong credit quality, we continue to take a
more cautious approach in relation to both retail and
commercial customers in Denmark. This focus on
maintaining a high-quality loan book meant that credit
quality remained strong in 2019. As expected, we are,
however, above the impairment levels in 2018, when we
saw significant reversals.
2019 also saw a number of non-recurring items that
affected profit for the year.
On 2 May, we sold Danica Pension Sweden, realising
a net gain of approximately DKK 1.3 billion recognised
under Other income.
On 24 June, we announced that we will pay
compensation to the approximately 87,000 customers
who had invested in our Flexinvest Fri product during
a period when the fees were too high and the product
was unsuitable for some customers. The compensation
amounts to an estimated DKK 400 million before tax.
In December, we decided not to enter into a new 10-year
period in the International Joint Taxation Scheme (IJT).
This caused a one-off positive effect of around
DKK 5.2 billion as a provision made for the recapture
of tax losses was released.
Danske Bank / Annual Report 2019 11
On the basis of fully phased-in requirements, our CET1
capital ratio stood at 17.1% versus our current fully
phased-in regulatory CET1 capital requirement of
14.9%.
At 31 December 2019, our liquidity coverage ratio
stood at 140%.
In 2019, we issued DKK 100 billion of funding, split
between DKK 60 billion in non-preferred senior debt,
DKK 26 billion in covered bonds and DKK 2 billion
in senior debt, as well as DKK 12 billion in tier 2. For
2020, we expect a funding need of DKK 70-90 billion.
Changes to the Executive Leadership Team
On 28 November Danske Bank appointed Frans
Woelders as new Group COO and member of the
Executive Leadership Team with overall responsibility
for Group services and Group IT. Frans Woelders will
take up the position in April 2020.
Outlook for 2020
We expect net profit for 2020 to be in the range of
DKK 8-10 billion, equivalent to a 5-6% return on
shareholders’ equity, as communicated on 1 November
2019.
We expect net interest income to be lower than the level
in 2019, as margin pressure and higher funding costs
will more than offset continued volume growth.
Net fee income is expected to be slightly lower than in
2019, due to lower remortgaging activity and subject to
customer activity and market developments.
Expenses are expected to be in the range of DKK 28-29
billion, driven by acceleration of investments of up to
DKK 2 billion and a continued increase in compliance
costs.
Loan impairments are expected to be higher.
The outlook is subject to uncertainty and
macroeconomic developments.
We maintain our ambition for a return on shareholders’
equity of 9-10% in 2023.
Moreover, we saw a DKK 1.1 billion negative impact on
tax due to a provision for deferred tax adjustments on
assets and liabilities measured at amortised cost.
On 30 December, the sale of our stake in LR
Realkredit A/S was finalised. This gave us a net gain of
approximately DKK 0.8 billion, recognised under Trading
income.
In addition, we recognised a goodwill impairment
charge of DKK 1.6 billion, due mainly to the expected
introduction of higher regulatory capital requirements,
and a software impairment charge of DKK 0.4 billion, in
total DKK 2.0 billion.
Estonia
The Estonia case continues to be a major focus point
for Danske Bank and all our stakeholders. In the Estonia
section on page 12, we describe developments in the
case in 2019 as well as our work to improve compliance
in the Group.
Exit from the Baltics and Russia
Danske Bank is closing down its remaining banking
activities in Estonia in accordance with the resolution
announced on 19 February 2019 and the precept
issued by the Estonian FSA. Danske Bank Estonia
Branch has entered into solvent liquidation. This reflects
the fact that Danske Bank has essentially exited its
banking activities in Estonia, with mainly technical
matters outstanding. The management now lies with
a liquidation committee.
On 1 November, Danske Bank’s Russian branch entered
into solvent liquidation. This is in line with our decision
to close our Russian activities as communicated on 19
February 2019.
On 23 November, the sale of Danske Bank’s remaining
portfolio of personal customers in Estonia to AS LHV
Pank was finalised.
On 9 January 2020, we announced the sale of a
portfolio of personal customers in Lithuania to Siauliu
Bankas. The sale is expected to be finalised in the
second quarter.
As previously announced, Danske Bank will also
be closing down its banking activities in Latvia and
Lithuania, but we will continue to operate our shared
services centre in Lithuania, which undertakes a number
of administrative functions for the Group.
Capital, funding, liquidity and regulation
Our capital position remained strong, with a total capital
ratio of 22.7% and a CET1 capital ratio of 17.3%. This
is in line with the Group’s target of a CET1 capital ratio
above 16% in the short term and a total capital ratio of
above 20%.
Danske Bank / Annual Report 2019 12
Danske Bank / Annual Report 2019
Estonia case
The Estonia case continues to be a major focus area for
Danske Bank and all our stakeholders.
The findings of the investigation into the non-resident
portfolio at the Estonian branch, published in September
2018, revealed a series of significant deficiencies in
governance and control systems at Danske Bank’s
Estonian branch as well as deficiencies at Group level.
Danske Bank has embarked on a multi-year
enhancement programme designed to materially
upgrade its systems and controls relating to money
laundering and other forms of financial crime more
broadly. We have made material progress across a
number of these initiatives in the past year. This includes
significantly increasing the number of employees
•
engaged in preventing financial crime, including
hiring senior staff with expertise in these areas from
international markets
improving our KYC controls so that they are more
efficient and more effective
delivering training to all employees to enable them to
better identify and manage potential financial crime
risks
investing in more effective IT systems for automated
transactions monitoring
creating a separate Board of Directors’ Conduct &
Compliance Committee to improve the Board of
Directors’ oversight of compliance matters
•
•
•
•
Below are a few examples of initiatives taken. For
detailed information, see the Risk Management 2019
report.
Risk and compliance culture: We strengthened our
non-financial risk awareness through various mandatory
training programmes and team sessions. Additionally,
we implemented an improved whistleblower system to
make it easier for employees to report their concerns of
non-compliance with applicable laws and regulations as
well as breaches of internal standards, irregularities and
criminal offences.
Strengthening risk and compliance competences:
Additional resources were recruited throughout 2019 in
both risk and compliance areas to ensure that sufficient
skills and expertise are in place. We launched the new
Group Non-Financial Risk (GNFR) organisation to ensure
alignment with the oversight responsibility laid out in the
enterprise risk management (ERM) framework, as well
as a new Group Compliance organisation.
Framework and policy: We redesigned frameworks and
policies for simplification purposes and for strengthening
compliance with internal and external requirements.
Event management and lessons learned: Enhancements
to risk management and culture initiatives led to better
identification of legacy issues. Such legacy issues were
raised and understood in a more thorough manner.
Authorities’ investigations
Danske Bank remains in dialogue with various
international authorities regarding the matters arising
out of its Estonian branch. This includes criminal and
regulatory investigations by authorities in Estonia,
Denmark, France and the US. Danske Bank is reporting
to, responding to inquiries from and cooperating with
these authorities, including the U.S. Department
of Justice (DOJ), the U.S. Securities and Exchange
Commission (SEC), the Estonian Office of the Prosecutor
General and the Danish State Prosecutor for Serious
Economic and International Crime (SØIK), relating to
Danske Bank’s Estonian branch.
The overall timing of completion and the outcome of the
investigations by, and subsequent discussions with, the
authorities are uncertain.
In November 2018, Danske Bank was preliminarily
charged by SØIK with violation of Danish anti-money
laundering legislation on four counts all relating to the
Estonian branch in the period from 1 February 2007 to
the end of January 2016.
In February 2019, Danske Bank was placed under
formal investigation by an investigating judge at the
Tribunal de Grande Instance de Paris in the context of
an ongoing French criminal investigation and on the
grounds of money laundering suspicions relating to
certain transactions in the terminated portfolio.
Internal investigations
Danske Bank’s internal investigation into the terminated
non-resident portfolio is currently expected to conclude
by the fourth quarter of 2020. This timing is estimated
Danske Bank / Annual Report 2019
13
further 9 investors joined the action, bringing the total
number of claims in the proceedings to 241 with a total
claim amount of approximately DKK 6.3 billion.
On 27 December 2019, a separate claim was filed by
63 investors against Danske Bank with a total claim
amount of approximately DKK 1.3 billion.
These cases relate to alleged violation at Danske Bank’s
branch in Estonia of the rules on prevention of money
laundering and the alleged failure to timely inform the
financial markets of such violation.
Danske Bank is defending itself against these claims.
The timing of completion of any lawsuits (pending or
threatening) and their outcome are uncertain.
and is subject to change, including as a result of further
requests from authorities. The investigation continues to
focus on issues arising out of the non-resident portfolio
at the Estonian branch and includes reviewing whether
similar issues have been present historically at Danske
Bank’s other Baltic branches.
A further, and important, aspect of Danske Bank’s
ongoing investigation into historical activities at the
Estonian branch relates to sanctions screening. As
set out in our interim report for the first nine months
of 2019, Danske Bank has enhanced its methodology
since publishing the Report on the Non-Resident
Portfolio in September 2018 and is screening historical
data on relevant historical customers of the Estonian
branch, including the terminated non-resident portfolio,
as well as associated persons and transaction
information for possible sanctions violations. Danske
Bank will inform the market if there are material
developments that require disclosure.
Civil proceedings
In addition to the investigations by the authorities, a
number of lawsuits have been filed against Danske Bank
in the US and in Denmark.
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.
On 3 March 2019, a court case was initiated against
Danske Bank for approval of a class action led by a
newly formed association with the aim of representing
former and current shareholders in a liability action
relating to the Estonia case.
On 14 March 2019, 168 separate cases were further
initiated simultaneously concerning shareholder
claims relating to the Estonia case with claims totalling
approximately DKK 3.5 billion.
Between 16 and 18 October 2019, a further 64
investors joined the action with claims totalling
approximately DKK 2.5 billion. On 24 January 2020, a
14
We are creating a better bank
for all our stakeholders
Danske Bank / Annual Report 2019 15
Danske Bank / Annual Report 2019 16
Danske Bank / Annual Report 2019
Strategy execution
Danske Bank is a strong Nordic universal bank, and for
almost 150 years, we have played an important role
in the communities we serve and in the lives of our
customers. We are a fundamentally strong bank with a
good customer base, but we are currently challenged by
both structural changes in the industry and a number
of matters specific to Danske Bank. This affects our
strategy going forward.
On the one hand, challenges in the financial industry
comprise for example negative interest rates, increasing
regulation and changing customer expectations. On the
other hand, current challenges specific to Danske Bank
are getting compliance and costs under control as well
as reducing complexity. To address both, we need to
change and improve our efforts to become a better bank
for all our stakeholders.
Embarking on this journey, we believe that our strategic
direction – to be a Nordic bank that services both
personal and business customers, meeting all their
financial needs in our core markets – is fundamentally
right and provides a solid foundation for expediting the
transformation to deliver results.
Hence, in 2019, we pursued our ambition to be the
Nordic Integrator and move closer to and become more
relevant to our customers, break down internal silos
and become even more integrated into the societies
we are part of. We have taken an even more active role
in making our customers financially confident and in
contributing to societal growth and stability.
Better Bank 2023
Continuing on our path to become more integrated into
the lives of our customers and the Nordic societies as
well as more integrated internally will remain essential
and will continue to guide us in our work going forward.
Yet to overcome the current challenges and to address
the accelerating pace of change in the industry, we have
set ourselves four ambitions we are working to achieve
by 2023:
•
We are on average among the top two on customer
satisfaction in everything we do.
At least 90% of our employees are engaged.
We operate sustainably, ethically and transparently –
and have a positive impact on the societies we are a
part of.
We aim to achieve a return on shareholders’ equity
of 9-10% and a cost/income ratio in the low 50s
by continuously improving the profitability level,
leveraging our full potential.
•
•
•
Satisfied customers
Satisfied customers are vital to our commercial success.
This is why we need to make banking easy, provide
the best customer experience and cater to evolving
customer needs. Achieving this will enable us to provide
proactive and relevant guidance that helps customers
gain an overview and become confident that they will
reach their financial goals. To provide our customers
with leading offerings and a leading customer experience
as well as to boost growth, we have entered into new
partnerships. For example with Tryg to offer insurance
to our customers, with Minna Technologies to offer
subscription management directly in Danske Mobile
Banking, and with HSB to offer home savings accounts
to its members in Sweden. Our partnerships span many
different areas, from open banking and Fintech start-ups
to mature and well-established companies. We believe
in co-creating with partners to offer better products and
services to our customers.
Engaged employees
Our people are our main assets, and we have a skilled
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 working to reinforce employee motivation
and engagement by driving broader cultural change,
investing in short- and long-term efforts to further
empower our employees, and creating an even
more open, diverse, and inclusive culture. During
2019, we have implemented several initiatives to
strengthen internal integration, resulting in increases
in both employee engagement and employer net
promotor scores. These activities include, for example,
establishing an “Engagement Team” to solve integration
pain points across the organisation and engaging the top
500 leaders in “Being an Integrator” culture camps.
Sustainable, ethical and transparent operations
To create a positive impact on the societies we are
part of, we continue to incorporate societal impact as
a core element of our business model. At the heart
of this is our strong commitment to sustainability, to
always having the best interest of our customers at
heart and to contributing to society by fighting financial
crime. A robust level of compliance is the foundation
for sustainable relationships with our customers and
business partners as well as for our contribution to a
stable financial system. Compliance is therefore a key
area of focus in our day-to-day work.
Danske Bank / Annual Report 2019
17
We also want to accelerate our commitment to driving
positive societal impact, for example by offering green
loans and bonds, helping entrepreneurs grow their
impact on society and by supporting businesses and
individuals in becoming financially confident and secure.
In 2019, we created a strong foundation, for example
exemplified by the launch of the Danske Bank Green
Bond Framework, which enables us to provide green
financing solutions to our customers. We are currently
ranked number two in the Nordics and number nine
globally in terms of helping customers raise capital
through the issuing of green bonds.
Last year, we furthermore became a signatory to the UN
Principles for Responsible Banking. This was a natural
next step to advance our positive societal impact, and
enables us to measure our impact even better and
share best practice with other banks. As part of this,
we will, for example, continue to integrate sustainability
perspectives into our investment and credit offerings
and processes to help our customers reach their
financial goals in a sustainable way. In addition, we work
to operate more sustainably, ensuring that we source
responsibly and continuously reduce our own footprint.
To guide the realisation of our societal impact agenda,
we have defined specific targets and performance
indicators, which you can read more about in the
Societal impact and sustainability section on page 31.
Improved profitability
Our financial performance in 2019 was challenged by
both external headwinds, such as increased funding
costs and margin pressure, and by the challenges
specific to Danske Bank related to compliance, costs
and complexity. We are working to regain commercial
momentum and aim to invert the downward trend by
stabilising underlying costs and investing heavily in
initiatives to drive future performance. Our work in
2019 to become the Nordic Integrator will contribute
to our commercial momentum going forward. This is
exemplified by the successful integration of SEB Pension
Denmark into our Life & Pension business, which
enhances our capabilities and scale and enables us
to invest more in helping our customers stay one step
ahead and give them the overview and confidence they
want, today and in the future.
a payout ratio of 40-60%. One of the most important
aspects in achieving this ambition is the digitalisation
of core customer journeys and the scaling up of agile
ways of working. We will also strengthen our discipline
in terms of pricing and capital allocation, and we will
reap the benefits of changes made in 2019, such as
the integration of Private Wealth Management into our
banking units.
The road ahead
To achieve our targets, we have launched a
comprehensive transformation programme across
the organisation. This programme will enable us to
become a better bank towards 2023 and deliver on the
objectives towards customers, employees, society and
shareholders. The roadmap consists of two components:
Group-wide and business unit-specific initiatives.
Group-wide initiatives drive the acceleration and
development of functional capabilities across the
organisation and our customer journeys to meet our
customers’ needs proactively, transparently and reliably.
Compliance is a key priority in this because customers
and society expect us to be a stable and predictable
institution, worthy of being trusted to safeguard their
assets and promote a healthy financial system. We
continue to focus on strengthening our conduct and
compliance frameworks across AML and investor
protection to drive good conduct outcomes for
customers, live up to our role in society and reduce the
risk of financial loss and reputational damage.
Being an integral part of customers’ lives means building
trust with customers to ensure they feel recognised and
to make banking easy and safe. Accordingly, developing
future customer journeys with a simplified, truly digital
experience across all our customer touchpoints is one
of our main focus areas. The customer experience will
be enhanced thanks to our digital platforms, such as
Danske Mobile Banking, and at physical meetings with
advisers and specialists, for instance by seamlessly
providing customers with a holistic overview of their
financial situation, filtering out unnecessary complexity.
Lead time in welcoming customers or processing credit
applications will also be reduced.
It is our ambition by 2023 to have a return on
shareholders’ equity of 9-10% and a cost/income
ratio in the low 50s. Our dividend policy will remain
unchanged along the way, and shareholders can expect
A second key component in relation to meeting
customers where they are is to offer a simplified
range of products with clearly differentiated solutions.
Furthermore, we are advancing our internal capabilities
18
Danske Bank / Annual Report 2019
and processes to ensure that our solutions are relevant
and that we deliver them proactively.
Finally, leveraging more efficient go-to-market
approaches, streamlining back-end activities and
digitalising processes will also reduce our cost base
across business lines and make the foundation of
our business leaner and more scalable, thereby
reinvigorating growth by, for example, increasing the
amount of time spent with customers and opening up
further for partnerships to supplement and broaden our
offering.
Business unit-specific initiatives focus on the ways
in which we service our customers and on the value
propositions we are offering. For example, customers
can do all their day-to-day banking independently and
can purchase simple products digitally on their mobile
phone. Building on the strength of our full-range offering
as a universal bank, we accelerate our efforts to become
even more customer-centric. We want to be the trusted
partner for all of our customers, whether they are buying
a new home, investing or issuing bonds to raise capital.
Our transformation of customer service models will
provide our customers with more flexibility to choose
through which channels and with which frequency they
want to engage with us, which offerings they want and
at which price.
Redesigning our value propositions is a key lever to
make sure our customers feel recognised and are
satisfied. Consequently, we are developing new products
and implementing new services across all segments
and in close alignment with our overall ambition to meet
customers with a lean, differentiated offering that is
accessible through multiple channels and meets their
desire to make sustainable choices.
We have set ambitious targets and launched our
transformation to become a better bank. By executing
diligently on specific initiatives across the Group, we
aim to deliver in the short term while at the same time
investing in our future success. By 2023, we aspire to
be a better bank for all our stakeholders, and between
now and then we will continuously provide updates on
how our work is progressing.
Financial review
Income statement
(DKK millions)
Net interest income
Net fee income
Net trading income
Other income
Total income
Operating expenses
Goodwill impairment charges
2019
2018
Index
19/18
21,877
15,895
4,985
2,225
44,982
27,548
1,603
23,571
15,402
4,676
716
44,365
25,011
-
93
103
107
-
101
110
-
82
-
72
-
70
-
99
101
Profit before loan impairment charges
15,831
19,354
Loan impairment charges
Profit before tax, core
Profit before tax, Non-core
Profit before tax
Tax*
Net profit
Attributable to additional tier 1 etc.
1,516
-650
14,315
20,004
-493
13,822
-1,249
15,072
786
-282
19,722
4,548
15,174
781
Danske Bank / Annual Report 2019
19
Q4
2019
5,541
4,214
2,078
320
Q3
2019
5,445
4,111
779
160
12,153
10,495
8,342
1,603
2,208
703
1,505
-244
1,261
-3,780
5,041
199
6,382
-
4,113
343
3,771
22
3,793
782
3,011
197
Index
Q4/Q3
102
103
267
200
116
131
-
54
205
40
-
33
-
167
101
Tax included income of net DKK 4.1 billion from reversal of a deferred tax liability for International Joint Taxation and increased provision for deferred tax on assets and liabilities
measured at amortised cost.
In 2019, Danske Bank Group delivered a profit before
tax from core activities of DKK 14.3 billion, a decrease
of DKK 5.7 billion, or 28%, from the level in 2018. The
decrease was due primarily to an increase in operating
expenses of 10%, or DKK 2.5 billion, relating mainly to
higher costs for compliance and AML-related activities.
Also contributing to the decrease in profit before tax
was an increase of DKK 2.2 billion in loan impairments,
which went from a net reversal to a net charge, a
decrease in net interest income of DKK 1.7 billion
caused mainly by higher funding costs, and goodwill
impairment charges of DKK 1.6 billion at Corporates &
Institutions and Wealth Management. The gains on the
sales of Danica Pension Sweden and LR Realkredit A/S
of DKK 2.1 billion partly offset the negative effects.
Tax amounted to a net positive charge of DKK 1.2 billion,
resulting in a net profit of DKK 15.1 billion, a decrease of
1% from the level in 2018. The positive tax charge was
due primarily to the reversal of a deferred tax liability
for recapture of tax losses under the International Joint
Taxation scheme that expired in 2019.
Income
Total income amounted to DKK 45.0 billion, an increase
of 1% from the level in 2018.
Net interest income totalled DKK 21.9 billion, a
decrease of 7%. Net interest income was adversely
affected by a significant decrease in lending margins
due to developments in market rates in Sweden and
Norway. An increase in funding costs, primarily as a
result of the issuing of non-preferred senior bonds for
MREL compliance, also had a negative effect. Improved
deposit margins, primarily in Sweden, and positive
developments in lending and deposit volumes, mainly in
Norway and Sweden, had a partly offsetting effect.
Net fee income amounted to DKK 15.9 billion, an
increase of 3% from the level in 2018. The increase
was due mainly to income from SEB Pension
Danmark activities and higher remortgaging activity at
Banking DK, which, however, was partly offset by the
compensation payable in relation to the Flexinvest Fri
product.
Profit before tax in the IFRS income statement
amounted to DKK 13.8 billion, a decrease of 28% from
the level in 2018.
Net trading income totalled DKK 5.0 billion, an increase
of 7% from the level in 2018. The increase was due
primarily to the sale of LR Realkredit A/S and higher
20
Danske Bank / Annual Report 2019
remortgaging activity at Banking DK. At Corporates &
Institutions, net trading fell as a result of one-off income
in 2018 related to sales of assets taken over and
negative value adjustments of the derivatives portfolio
(xVA) in 2019. At Wealth Management, net trading
income was adversely affected by a regulatory change to
the discount curve for life insurance provisions.
Other income amounted to DKK 2.2 billion, against
DKK 0.7 billion in 2018. The increase in other income
was due mainly to the gain on the sale of Danica
Pension Sweden.
Expenses
Operating expenses amounted to DKK 27.5 billion, an
increase of 10% from the level in 2018. Adjusted for
the expense for the DKK 1.5 billion donation in 2018,
operating expenses increased 17%. The increase was
primarily the result of higher costs for compliance and
AML-related activities, costs for the Estonia case and
transformation costs. Impairment of software, the
provision for the compensation payable in relation to
the Flexinvest Fri product and the ordinary operating
expenses of SEB Pension Danmark also had a negative
impact. In Finland, higher VAT charges on costs due to
new VAT rules as well as an adjustment of the expected
value of a distribution contract also contributed to the
increase in operating expenses.
In addition, expenses increased as a result of a provision
of DKK 0.4 billion made for operational risk-related
losses. The provision relates to a data quality issue that
affects a limited part of our operations. Further analysis
is still ongoing to determine the exact extent of the
issue.
Goodwill impairments
Goodwill impairments of DKK 1.6 billion were
recognised in 2019. A goodwill impairment charge
of DKK 0.8 billion relating to the acquisition of SEB
Pension Danmark was recognised as the upcoming
Solvency II regulation is expected to increase capital
requirements. A goodwill impairment charge of
DKK 0.8 billion was recognised at FI&C and Capital
Markets due to updated assumptions of lower future
structural income at FI&C and expectations of higher
allocated capital as a result of the implementation of
higher regulatory capital requirements.
Loan impairments
Loan impairments in core activities amounted to
DKK 1.5 billion in 2019, against a net reversal of
DKK 0.7 billion in 2018. The increase in loan
impairments was driven mainly by increased
impairments against a few single-name exposures
at Corporates & Institutions and Banking Nordic and
lower reversals on non-performing loans in Denmark.
Of the loan impairments made in 2019, DKK 0.4
billion were recognised following a review of the loan
portfolio. This was carried out in connection with an
ongoing review by the Danish FSA in connection with a
sector review and affected primarily Banking Nordic. In
addition, loan impairments were adversely affected by
adjustments made to take into account the increased
downside risk in the macroeconomic outlook for the
Nordic countries. Although the risk of a downside to
the outlook increased, credit quality remained solid,
supported by stable macroeconomic conditions and
stable collateral values in most markets.
Corporates & Institutions saw loan impairments against
some single-name exposures, mainly in the shipping,
oil & gas and retailing industries. Banking Nordic saw
increased impairments, mainly against single-name
exposures in the construction industry. At Banking
DK, lower reversals in 2019 were caused mostly by
lower reversals on legacy non-performing loans than
in 2018, an increase in impairments caused by model
adjustments for retail customers in the first quarter of
2019 and adjustments due to the increased risk of a
downside to the macroeconomic outlook in the third
quarter of 2019. An improved outlook for agricultural
customers supported reversals at Banking DK. In
general, the Banking DK and Banking Nordic portfolios
saw solid credit quality, with few new non-performing
loans.
Loan impairment charges
2019
2018
(DKK millions)
Charges
Banking DK
Banking Nordic
C&I
Northern Ireland
Other Activities
Total
-342
510
1,348
5
-5
1,516
% of
net credit
exposure*
% of
net credit
exposure*
Charges
-0.04
0.08
0.57
0.01
-0.07
0.08
-798
-161
278
26
5
-650
-0.09
-0.03
0.07
0.06
0.31
-0.03
* Relating to lending activities in core segments.
Tax
Tax on profit for the period amounted to a net positive
charge of DKK 1.2 billion, which includes the positive
effect of DKK 5.2 billion associated with Danske Bank
exiting the International Joint Taxation scheme in 2019,
and a DKK 1.1 billion negative effect due to a provision
for deferred tax adjustments on assets and liabilities
measured at amortised cost.
Tax on profit for the year was at around the same tax
level as for previous years. Adjusted for the specific
changes in deferred tax, tax on profit for the year
amounted to 22% of profit before tax, against 24% of
profit before tax for 2018. The decrease in the effective
tax rate was due primarily to the gains on the sale of
Danica Pension Sweden and LR Realkredit A/S being
non-taxable income. The decrease was partly offset
by non-deductible goodwill impairments. In 2018, the
effective tax rate was higher as the DKK 1.5 billion
donation was non-deductible.
Danske Bank / Annual Report 2019
21
Q4 2019 vs Q3 2019
In the fourth quarter, the Group posted a profit before tax of
DKK 1.3 billion, against DKK 3.8 billion in the third quarter. Net
profit amounted to DKK 5.0 billion, against DKK 3.0 billion in the
third quarter of 2019. The increase was due to a net positive
deferred tax adjustment.
Net interest income amounted to DKK 5.5 billion, a 2% increase
from the level in the third quarter of 2019. Net interest income
benefited primarily from increased deposit margins, higher
lending volumes and foreign exchange movements. The positive
effects were partly offset by a decrease in lending margins.
Net fee income amounted to DKK 4.2 billion and increased
3% from the level in the third quarter of 2019. The increase
was due to seasonality at Corporates & Institutions, Capital
Markets. At Wealth Management, performance fees from
asset management booked in the fourth quarter of 2019 had
a positive effect on net fee income. However, the positive effect
was smaller than usual because of the high level of fees from
the Danica Pension Tidspension product in the third quarter of
2019.
Net trading income amounted to DKK 2.1 billion, an increase
of DKK 1.3 billion from the third quarter of 2019. This was due
primarily to the sale of LR Realkredit A/S and an increase in net
trading income from the fixed income business at FI&C.
Operating expenses amounted to DKK 8.3 billion, an increase
of 31% from the level in the third quarter. The increase was due
primarily to an impairment of software, transformation costs, an
adjustment of the expected value of a distribution contract and a
provision of DKK 0.4 billion for operational risk-related losses.
Goodwill impairments of DKK 1.6 billion were recognised in the
fourth quarter of 2019 as a result of the assumption that new
and higher regulatory capital requirements will be introduced.
Loan impairments amounted to DKK 0.7 billion, against
DKK 0.3 billion in the third quarter of 2019. Loan impairments
were adversely affected by charges of DKK 0,4 billion, primarily
at Banking Nordic, recognised following a review that was
carried out in connection with an ongoing review by the Danish
FSA in connection with a sector review. Banking DK saw
reversals driven by a stronger outlook for agricultural customers
and positive outcomes on single–name exposures. Banking
Nordic and Corporates & Institutions saw charges driven by
single-name exposures mainly in the construction & building
materials, capital goods, shipping, and oil & gas industries.
22
Danske Bank / Annual Report 2019
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
2019
2018
943.7
635.0
209.1
0.1
54.3
-3.0
18.0
938.1
604.7
198.3
0.3
49.8
-3.8
17.9
Total lending
1,821.3
1,769.4
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.
2019
2018
358.0
270.5
270.7
0.2
70.9
-7.4
962.9
330.1
245.9
260.8
0.1
62.6
-4.9
894.5
2019
2018
795.7
9.7
805.4
176.5
61.9
238.4
741.1
57.8
798.9
182.6
57.5
240.1
2,006.7
1,933.5
Index
19/18
101
105
105
33
109
-
101
103
Index
19/18
108
110
104
200
113
-
108
Index
19/18
107
17
101
97
108
99
104
Q4
2019
943.7
635.0
209.1
0.1
54.3
-3.0
18.0
Q3
2019
948.9
626.4
210.3
0.1
52.6
-3.2
17.5
1,821.3
1,817.6
Q4
2019
358.0
270.5
270.7
0.2
70.9
-7.4
Q3
2019
348.2
258.1
261.6
0.2
66.9
-8.7
962.9
926.3
Q4
2019
795.7
9.7
805.4
176.5
61.9
238.4
Q3
2019
813.9
-2.9
811.0
181.0
60.1
241.1
2,006.7
1,978.4
Index
Q4/Q3
99
101
99
100
103
-
103
100
Index
Q4/Q3
103
105
103
100
106
-
104
Index
Q4/Q3
98
-
99
98
103
99
101
101
*Includes only bonds issued to fund lending. For further information, see the Definition of alternative performance measures section.
90.8
91.5
90.8
91.9
Danske Bank / Annual Report 2019
23
Credit exposure
Credit exposure from lending activities in core segments
increased to DKK 2,444 billion, against DKK 2,392
billion at the end of 2018, driven primarily by an increase
in loans and loan commitments at Banking Nordic,
Norway. Demand deposits with central banks and due
from credit institutions and central banks decreased
DKK 27 billion from the level at the end of 2018.
Risk Management 2019, 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, although the risk of a
downside to the macroeconomic outlook for the
Nordic countries increased. Total net non-performing
loans (NPL) increased DKK 4.5 billion from the end of
2018, with the increase being driven by a few single-
name exposures to the capital goods, shipping, oil &
gas, construction and building materials, and retailing
industries at Corporates & Institutions. The fact that
these single-name exposures had relatively low expected
credit losses in view of the gross exposure contributed to
reducing the NPL coverage ratio from 85% to 76%.
The risk management notes on pp. 176-209 provide
more information about non-performing loans.
Non-performing loans (NPL) in core segments
(DKK millions)
Gross NPL
31 December
2019
31 December
2018
34,713
29,923
NPL allowance account
13,367
13,020
Net NPL
21,346
16,903
Collateral (after haircut)
17,479
15,296
NPL coverage ratio (%)
NPL coverage ratio of which is in
default (%)
NPL as a percentage of total
gross exposure (%)
77.6
73.6
85.0
96.2
1.4
1.2
The NPL coverage ratio is calculated as allowance account NPL exposures relative
to gross NPL net of collateral (after haircuts).
At DKK 20.5 billion, or 1.1% of lending and guarantees,
accumulated impairments remained at the level at 31
December 2018.
Lending
At the end of 2019, total lending was up 3% from the
level at the end of 2018. Lending increased in almost all
geographies and across most markets.
In Denmark, new gross lending, excluding repo loans,
amounted to DKK 72.8 billion. Lending to retail
customers accounted for DKK 28.2 billion of this
amount.
Our market share of total lending in Denmark, excluding
repo loans, decreased 0.4 percentage points to 26.2%.
In Sweden, our market share decreased 0.1 percentage
points. In Norway, our market share increased 0.6
percentage points. In Finland, our market share of lending
was stable at 9.5%.
Lending equalled 90.8% of the total amount of deposits,
mortgage bonds and other covered bonds, against
91.5% at the end of 2018.
Market shares of lending
(%)
Denmark incl. RD (excl. repo)
Finland**
Sweden (excl. repo)*
Norway**
31 December
2019
31 December
2018
26.2
9.5
5.6
6.3
26.6
9.5
5.7
5.7
Source: Market shares are based on data from central banks at the time of reporting.
*The method for calculating the market share in Sweden has been updated.
Comparative information has been restated.
** The market shares for Finland, Sweden and Norway are based on data as at 30
November 2019.
Deposits
At the end of 2019, total deposits were up 8% from the
level at the end of 2018. Our market share in Denmark
increased 1.3 percentage points to 29.0. Our market
share in Norway increased 0.3 percentage points. Our
market share in Sweden increased 0.4 percentage
points. Our market share in Finland decreased 0.9
percentage points. The Group maintained its strong
funding position.
Market shares of deposits
(%)
Denmark (excl. repo)
Finland**
Sweden (excl. repo)*
Norway**
31 December
2019
31 December
2018
29.0
10.4
4.4
6.7
27.7
11.3
4.0
6.4
Source: Market shares are based on data from central banks at the time of reporting.
* The method for calculating the market share in Sweden has been updated.
Comparative information has been restated.
** The market shares for Finland, Sweden and Norway are based on data as at 30
November 2019.
24
Allowance account by business units
The financial highlights on page 8 provide information
about the balance sheet.
31 December
2019
31 December
2018
Accum.
impairm.
charges*
% of net
credit
expo-
sure*
Accum.
impairm.
charges*
% of net
credit
expo-
sure*
Trading portfolio assets and trading portfolio liabilities
increased from net assets of DKK 25.6 billion at the end
of 2018 to net assets of DKK 43.1 billion at the end of
2019. The increase in net assets was due mainly to an
increase in the bond portfolio.
(DKK millions)
Other balance sheet items
Due from credit institutions and central banks decreased
DKK 87.3 billion from the end of 2018. The decrease
was due partly to general liquidity management, as
some excess liquidity held with the ECB is now placed
in a current account instead of in a deposit facility. This
caused a decrease in Due from credit institutions and
central banks and an increase in Cash in hand and
demand deposits with central banks, which is presented
as part of Other assets.
Other assets is the sum of several small line items.
Other assets increased DKK 20.1 billion, or 8%, from
the end of 2018 due to increases in cash in hand and
demand deposits, as outlined above, and in assets under
pooled schemes and unit-linked investment contracts.
These increases were, however, partly offset by the
sale in the second quarter of 2019 of Danica Pension
Sweden, which was presented as part of Other assets at
the end of 2018. Other liabilities decreased DKK 44.7
billion, or 22%, from the end of 2018. The decrease was
due mainly to the sale in the second quarter of 2019
of Danica Pension Sweden, which was presented as
part of Other liabilities at the end of 2018. However, the
decrease was partly offset by an increase in deposits
under pooled schemes and unit-linked investment
contracts. The DKK 1.5 billion donation is presented as
part of Other liabilities.
Assets under insurance contracts, including financial
instruments, and Liabilities under insurance contracts
increased DKK 86.4 billion and DKK 87.4 billion,
respectively, from the end of 2018, primarily as a
result of the positive developments in the financial
markets.
Banking DK
11,662
1.21
12,593
Banking Nordic
C&I
Northern Ireland
Other
Total
4,333
3,718
730
8
0.68
1.61
1.37
0.01
4,149
2,806
792
12
20,451
1.08
20,353
1.32
0.67
1.26
1.53
0.02
1.10
* Relating to lending activities in core segments.
Trading and investment activities
Credit exposure from trading and investment activities
amounted to DKK 1,124 billion at the end of 2019,
against DKK 1,012 billion at the end of 2018. The
increase was due primarily to increased positive market
values for derivatives and increased bond holdings and
repo deposits.
The Group has made netting agreements with many of its
counterparties concerning positive and negative market
values of derivatives. The net exposure was DKK 76.4
billion, against DKK 68.6 billion at the end of 2018.
The value of the bond portfolio was DKK 473 billion.
Of the total bond portfolio, 74% was recognised at fair
value and 26% 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
2019
31 December
2018
32
1
53
10
2
2
100
26
39
1
47
9
2
2
100
32
Danske Bank / Annual Report 2019 25
Capital and liquidity
management
The main purposes of our capital management practices
are to support our business strategy and to ensure
a sufficient level of capital to withstand even severe
downturns without breaching regulatory requirements.
Capital ratios
At the end of 2019, the total capital ratio was 22.7%,
and the CET1 capital ratio was 17.3%, against 21.3%
and 17.0%, respectively, at the end of 2018. The
movement in the capital ratios in 2019 was driven by
an accumulated net profit for 2019, which was partly
countered by an increase in the total risk exposure
amount (REA) and a higher capital deduction related to
Danica Pension’s solvency requirement. The deduction
increased mainly as a result of regulatory changes,
lower interest rates and completion of the integration of
SEB Pension Danmark into Danica Pension. The total
capital ratio was supported by net issues of tier 2 capital
amounting to about DKK 8.5 billion.
During 2019, the total REA increased by approximately
DKK 19 billion, due mainly to increased credit exposure,
the implementation of IFRS 16, leading to changed
recognition of rights-of-use assets, and increased
volatility in the financial markets as well as specifically
large movements in interest rates, driving the REA for
market risk upwards.
At the end of December 2019, the Group’s leverage
ratio was 4.7% under the transitional rules and 4.6%
under the 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 ratio. The solvency need ratio consists of
the 8% minimum capital requirement under Pillar I and
an individual capital add-on under Pillar II.
At the end of 2019, the Group’s solvency need ratio was
12.7%, an increase of 0.9 percentage points from the
level at the end of 2018. As a result of general product
governance risk following the Flexinvest Fri investigation
and an inspection of our IT governance structure, the
solvency need ratio increased by 0.5 percentage points
during 2019.
The solvency need still includes DKK 10 billion as a
consequence of the orders issued by the Danish FSA in
2018 in relation to the Estonia case. 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 ratio. At the end of 2019, the Group’s
combined capital buffer requirement was 6.7%.
Announced increases to the national countercyclical
buffer rate in Denmark will increase the Group’s
combined buffer requirement by 0.5 percentage
points in 2020. Consequently, the fully phased-in
countercyclical buffer requirement will be 7.2%, bringing
the fully phased-in CET1 requirement to 14.9%. This is a
0.9-percentage-point increase from the level at the end
of 2018, which is driven by the announced increases
in the Danish countercyclical buffer rate from 1.0% to
2.0% in 2020 as well as the increase in the solvency
need ratio in 2019.
Capital ratios and requirements
(% of total REA)
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
2019
Fully phased-in*
17.3
22.7
14.4
1.2
2.5
3.0
19.4
2.9
3.3
17.1
22.5
14.9
1.7
2.5
3.0
19.9
2.2
2.6
* Based on fully phased-in rules and requirements incl. the fully phased-in impact
of IFRS 9.
** The total capital requirement consists of the solvency need ratio and the combined
buffer requirement. The fully phased-in countercyclical capital buffer is based on the
buffer rates announced at the end of 2019.
The calculation of the solvency need ratio and the
combined capital buffer requirement is described in
more detail in section 5 of Risk Management 2019,
which is available at danskebank.com/ir.
Minimum requirement for own funds and eligible
liabilities
The minimum requirement for own funds and eligible
liabilities (MREL) came into effect on 1 July 2019.
The requirement is set as two times the total capital
requirement, but includes the institution-specific
countercyclical buffer only once. At the end of 2019, the
Danske Bank / Annual Report 2019 26
Danske Bank / Annual Report 2019
requirement was 37.6% of REA adjusted for Realkredit
Danmark. The MREL ratio was 40.0%.
Danish mortgage credit institutions are exempt from
the MREL. Instead, they are subject to a debt buffer
requirement of 2% of their loans. The capital and debt
buffer requirements applying to Realkredit Danmark are
thus deducted from the eligible liabilities and own funds
used for meeting the MREL.
Compared to Danske Bank’s peers, the transition to
the full MREL for Danske Bank has been relatively
short. In combination with a relatively high Danish
MREL, Danske Bank issued non-preferred senior debt
of DKK 60.2 billion in 2019, bringing the total amount
of non-preferred senior debt to DKK 86.1 billion.
Capital targets
As a consequence of the increase in capital
requirements and general uncertainty about future
regulation, the Board of Directors decided to change the
Group’s CET1 capital target in 2019.
The CET1 capital ratio target was set at above 16% in
the short term to ensure a sufficiently prudent buffer to
the capital requirement. The total capital target was kept
at above 20%. Danske Bank fully meets these capital
targets.
The Board of Directors will continue to adapt capital
targets to regulatory developments in order to ensure a
strong capital position.
Capital distribution policy
As our capital position continues to be strong, the Board
of Directors is proposing a dividend of DKK 8.5 per
share, corresponding to 49% 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.
Credit ratings
S&P Global Ratings (S&P) and Moody’s Investors
Service (Moody’s) took rating actions in the fourth
quarter of 2019.
On 23 October 2019, S&P revised the outlook on
Danske Bank and Danica Pension to stable from
negative, while affirming the ‘A/A-1’ long- and short-
term issuer credit rating. The stable outlook reflects
the Group’s solid capitalisation, driven by S&P’s
reassessment of leverage in the Danish market and the
sizeable loss-absorbing buffer established by Danske
Bank through the issuance of non-preferred senior debt.
This in itself would have resulted in an upgrade of the
issuer credit rating. However, S&P continues to see
risks associated with the ongoing investigations relating
to the Estonia case, and this has resulted in a one-notch
negative adjustment to the issuer credit rating.
On 10 December 2019, Moody’s downgraded the senior
debt rating of Danske Bank to ‘A3/P-2’ from ‘A2/P-1’ and
revised the outlook to stable from negative. At the same
time, Moody’s downgraded the rating of non-preferred
senior debt to ‘Baa3’ from ‘Baa2’, while affiming the
‘A2’/negative/’P-1’ deposit ratings. The negative rating
action reflects lower-than-expected earnings as a result
of the Estonia case, net interest margins under pressure
and a significant fall in trading income.
Fitch Ratings took no rating action in respect of Danske
Bank in 2019. Danske Bank continues to have an
‘A’ issuer rating from Fitch, and the outlook remains
negative because of the uncertainty relating to the
ultimate effect of the Estonia case on Danske Bank’s
capitalisation, franchise and funding profile.
Danske Bank’s ratings, 31 December 2019
Moody’s
S&P
Fitch
Ratings
Counterparty rating
A1/P-1
A+/A-1
A+
Deposits
A2/negative/
P-1
-
A+/F1
Senior debt
A3/P-2
A/A-1
A+/F1
Issuer rating
A3/P-2
A/A-1
A/F1
Outlook
Stable
Stable
Negative
Non-preferred
senior debt
Tier 2
AT1
Baa3
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 and Scope Ratings. Fitch gives bonds
issued from Realkredit Danmark’s capital centre S a
rating of ‘AAA’ (stable outlook) and bonds issued from
capital centre T a rating of ‘AA+’ (stable outlook).
Covered bonds (SDO) issued by Danske Bank A/S are
rated ‘AAA’ (stable outlook) by both S&P and Fitch, while
27
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.
ESG ratings
ESG (Environmental, Social and Governance) ratings
cover a range of analytical activities that address a
business’s societal impact. Each concept may include
a broad range of sub-assessments, and definitions vary
considerably among research providers.
Danske Bank has chosen to focus on six providers
selected on the basis of their importance to our investors:
ESG rating agency
Score at
31 December
2019
Score at
31 December
2018
CDP Worldwide, UK
C
C
Imug, Germany
ISS ESG, USA
Positive (B)
Positive (B)
C Prime
C Prime
MSCI ESG Ratings, USA
B
B
Sustainalytics, USA
Medium Risk
Medium Risk
Vigeo Eiris, France
Not public to
Danske Bank
Not public to
Danske Bank
ESG ratings are updated annually, and interim updates
are limited. Unlike the credit rating agencies, ESG
rating agencies do not engage in dialogue with issuers
between annual updates. The scores did not change in
2019.
Unlike ratings published by credit rating agencies, ESG
ratings are unsolicited and in principle based on public
information. Disclosure of ESG ratings is discretionary
and does not take place on a public basis.
Funding and liquidity
During 2019, the Group issued non-preferred senior
bonds of DKK 59.9 billion, senior debt of DKK 2.2
billion, covered bonds of DKK 25.8 billion and tier 2
capital of DKK 11.9 billion, bringing total long-term
wholesale funding to DKK 99.8 billion.
The funding plan for 2020 is DKK 70-90 billion and
we remain dedicated to our strategy of securing more
funding directly in our main lending currencies, including
NOK and SEK.
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.
We do not plan for benchmark issues in the preferred
senior format. The benchmark issues are expected to be
supplemented with private placements of bonds.
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.
The significant funding activity in 2019 caused funding
costs to rise. This was primarily the result of our
issuance of non-preferred senior bonds, whereas the
issues of such funding and the related costs were lower
in 2018 than in 2019. However, funding conditions
improved over the course of the year.
Danske Bank’s liquidity position remained robust. Stress
tests show that we have a sufficient liquidity buffer well
beyond 12 months. At the end of 2019, our liquidity
coverage ratio stood at 140%, with an LCR reserve of
DKK 432 billion.
The requirement for the net stable funding ratio forms an
integral part of our funding planning, and we are already
comfortably adhering to the requirement.
At 31 December 2019, the total nominal value of
outstanding long-term funding, excluding equity-
accounted additional tier 1 capital and debt issued by
Realkredit Danmark, was DKK 370 billion, against
DKK 326 billion at the end of 2018.
Danske Bank excluding Realkredit Danmark
(DKK billions)
Covered bonds
Preferred senior bonds
Non-preferred senior bonds
Subordinated debt
Total
31 December
2019
31 December
2018
176.5
75.3
86.9
31.6
370.2
182.6
93.9
26.4
23.1
326.0
Danske Bank / Annual Report 2019 28
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 2019, 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 December 2017, the Basel Committee on Banking
Supervision (BCBS) published the final revised
standards for REA calculations (Basel IV). The
process for its implementation in the EU has recently
started and a legislative proposal from the European
Commission is expected in the second quarter of
2020.
In December 2019, the EU covered bonds package
was formally adopted. The package outlines
requirements for bonds to be recognised as covered
bonds under EU law. This includes a requirement for
a cover pool liquidity buffer and stipulates eligible
cover pool assets. Further, the package introduces
a new requirement of a minimum level of cover pool
overcollaterisation. The Group expects the new rules to
have a limited effect on the Group.
At the beginning of 2019, Danske Bank formally
established an IBOR Transition Programme, the main
objectives being to identify how the IBOR transition will
affect the Group financially and operationally and to
recommend the best implementation of the transition,
mitigate risks, implement changes in contractual
relationships, etc. The calculation method behind
EURIBOR has been amended to comply with the EU
Benchmarks Regulation. Danske Bank expects that
EURIBOR will continue in the foreseeable future and
sees no immediate need for contractual changes. The
future of the Scandinavian interest rate benchmarks is
yet to be fully determined, but the general perception is
that the Scandinavian benchmarks will continue in the
years to come. LIBOR is expected to be discontinued
after 2021. However, it is possible that LIBOR rates
could continue to be published after 2021. It is a top
priority for Danske Bank to conduct the transition in a
timely and orderly manner that is transparent and fair
to our customers.
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.
Investor Relations communicates information from and
about the capital markets to Danske Bank’s Executive
Leadership Team and supports the Executive Leadership
Team in keeping the Board of Directors well-informed.
To maintain and build stakeholder relations, Danske
Bank holds roadshows after the release of our financial
reports as well as roadshows on major transactions and
other topics for debt investors.
Together with executive management, Investor Relations
has an ongoing dialogue with analysts, shareholders,
debt investors and prospective investors that 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.
In 2019, investor events were held in the Nordic
countries, other European countries, Asia and the US,
with more than 800 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 2019, Danske Bank
shares had an index weighting of 5%.
Danske Bank’s share price declined from DKK 128.9
at 31 December 2018 to DKK 107.8 at 31 December
2019, a decrease of 16%. In comparison, the
OMXC25CAP Index increased 26%, while the Europe
600 Banks Index increased 9%.
Danske Bank / Annual Report 2019 Investor Relations
29
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
Danske Bank shareholders 2019
2019
8,622
107.8
92.0
16.7
8.5
183.1
0.6
2018
8,960
128.9
110.2
16.5
8.5
174.3
0.7
Other
5%
Rest of Europe
15%
UK
9%
USA & Canada
18%
A. P. Møller
Holding
21%
k
r
a
m
n
e
D
Rest of Denmark
32%
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.
One shareholder has notified Danske Bank of holding
5% or more of the share capital:
•
A.P. Møller Holding holds 21.3% of the share capital.
At the end of 2019, 26 equity analysts covered Danske
Bank.
The average daily trading volume of Danske Bank shares
was 2.4 million. The Danske Bank share was the fifth
most actively traded share on Nasdaq Copenhagen
during 2019.
Danske Bank shares
Index 2014 = 100
Danske Bank Europe 600 Banks
250
200
150
100
50
0
2014
2015
2016
2017
2018
2019
Shareholders
At the end of 2019, Danske Bank had about 284,000
shareholders. The 10 largest shareholders together
owned about 41% of the share capital.
We estimate that shareholders outside Denmark, mainly
in the US and the UK, hold around 47% of the share
capital.
Danske Bank / Annual Report 2019
30
We operate sustainably,
ethically and transparently
Danske Bank / Annual Report 2019 31
Strategic achievements in 2019
Ensuring a responsible and sustainable business and
workplace that live up to societal expectations and our
international commitments is the foundation of our
Societal Impact & Sustainability Strategy. Building upon
this foundation, we have three strategic themes where
we address specific SDGs by applying our skills and
expertise to drive a positive impact.
TCFD reporting
– climate-related risks and opportunities
In our Sustainability Report 2019, we report on the TCFD in
relation to governance, strategy, risk management, and metrics
and targets. In 2019, we started working on our first climate-
related scenario analyses, and we are participating in working
groups organised by UNEP FI to test and further develop
methodologies. Additionally, we have worked with assessments
of climate-related risks as part of our credit analysis for large
corporate customers, and we have also begun developing
methodologies to identify climate-related risks and opportunities
as part of our investment decision-making processes.
We are in the early stages of a multi-year journey and will
use our initial insights to further strengthen our processes for
managing climate-related financial risks and opportunities.
Our commitment to integrating climate considerations across
our business is integral to our fulfilment of the Principles for
Responsible Banking.
Societal impact
and sustainability
At Danske Bank, we aim to become a better bank for
our stakeholders: customers, employees, society and
our shareholders. As a large financial institution and
an important part of society, we recognise our role and
responsibility in providing financial infrastructure for a
prosperous, stable and sustainable economy.
To achieve our ambitions and to meet the expectations
of our stakeholders, it is fundamental that we align our
goals with those of society while ensuring that we run
a solid business. We comply with applicable legislation,
market standards and international principles for
responsible conduct covering human rights (including
labour rights) and the environment. Additionally, we
use our assets and competencies to drive sustainable
progress to ensure that we have a positive impact on
the societies we are part of.
Defining the agenda: Principles for Responsible
Banking
There are ever-increasing expectations and desire for
businesses to integrate sustainability into their core
business, and it is key that Danske Bank continues
to be both agile and ambitious. The UN Sustainable
Development Goals (SDGs) and the Paris Agreement
on Climate Change remain the most significant global
initiatives driving the sustainability agenda, and society’s
emphasis on these frameworks is growing.
In the financial sector, three initiatives in particular are
shaping the agenda: 1) The European Commission
action plan on sustainable finance, which will
entail major changes for the banking sector; 2) the
recommendations of the Task Force on Climate-related
Financial Disclosures (TCFD), which provide a framework
for companies to measure and disclose climate change
risks and opportunities; and 3) the UN Environment
Programme Finance Initiative (UNEP FI) Principles
for Responsible Banking, which help banks align their
business strategy with society’s goals and provide a
framework for responsible banking.
In 2018, Danske Bank signed up to the TCFD initiative,
and in September 2019 we endorsed the Principles for
Responsible Banking. Besides being a natural next step
towards becoming a better bank, this is a continuation
of our commitment to integrate sustainability into our
business as manifested in our Nordic Integrator Strategy
and our Societal Impact & Sustainability Strategy, both
of which were launched in 2018.
Danske Bank / Annual Report 2019
32
Societal impact
In 2019, we worked to advance our three strategic themes and societal impact goals.
Societal Impact & Sustainability Strategy
Strategic themes
Climate & environment
Innovation & entrepreneurship
Financial confidence & security
Goals for 2025
Helping society transition towards
a net-zero carbon economy through
green financing.
Helping 1,000 entrepreneurs grow
their positive impact in society.
Helping five million people and
businesses to become financially con-
fident and secure in today’s digital age.
2019
performance
DKK 7 billion
Green loans granted to customers
DKK 4.5 billion
Green bonds issued
DKK 104 billion
Green bonds arranged for customers
214
3,952,248
Data accumulated from baseline
2018
Data accumulated from baseline
2018
In particular, we see significant impact potential by
offering green financing solutions and by encouraging
our customers and portfolio companies to take climate
action. In 2019, we launched Danske Bank’s Green
Bond Framework, which serves as a cornerstone for
the advancement of our green bond issuance and
development of green loan offerings. Based on the
framework, we in 2019 issued our first green bond and
launched green mortgage loans in Denmark, Norway,
Finland and Sweden.
Significant societal impact can be generated by helping
entrepreneurs to drive employment and economic
growth. In 2019, we continued to develop our free,
cross-Nordic, digital matchmaking platform tailored to
social entrepreneurs who address one or more of the
SDGs. Furthermore, we are working to generate positive
societal impact within the areas of financial confidence
and IT security. Also in 2019, we continued to develop
new tools and educational programmes to help families
and businesses navigate in today’s digital age.
Sustainable business
During 2019, we worked to strengthen our foundation
by integrating sustainability into our core business.
Besides building long-term responsible customer
relationships by maintaining a continued strong focus
on compliance and on the prevention of financial crime,
this also includes integrating environmental, social and
governance (ESG) factors into our investment, lending
and procurement decisions.
Clear policies, a high level of risk-awareness and
mandatory training for all employees are key to building
and maintaining a strong culture of compliance. In 2019,
96% of our employees completed the eLearning modules
on risk and compliance. We strive to foster a healthy
feedback culture in which employees can feel free to
voice any concerns they may have and are able to report
their concerns anonymously through our whistleblower
system. In 2019, the number of whistleblower reports
increased by more than 20% from 2018.
In recent years, Danske Bank has made substantial
investments to improve systems and competencies
to fight money laundering and other types of financial
crime. In 2019, we saw an increase in the number
of reports submitted to the authorities regarding
suspicious matters, and main areas of focus during the
year included strengthening our compliance leadership
team and providing comprehensive employee training.
Sustainable finance is another area where we in recent
years have accelerated our efforts. In 2019, a key focus
was on improving the ESG data foundation to support
better-informed decisions and training to assist our
relationship and portfolio managers in assessing and
integrating ESG perspectives into their decision-making.
Implementing ESG across our investment processes
is an ongoing task, and we do not believe in a one-size-
fits-all approach. Our portfolio managers are tailoring
their ESG integration to fit the unique features and
characteristics of each investment strategy and asset
class. In 2019, more than 600 investment advisers
and client managers were trained in ESG, and it is
our ambition that 100% of our investment teams will
have integrated ESG into their investment processes
by the end of 2020. With respect to credit, we seek to
integrate ESG considerations into the assessment of
Danske Bank / Annual Report 2019 33
financial key figures. In 2019, a total of 712 relationship
managers and credit officers across the Group were
trained in ESG. When working with ESG at a customer
level, our focus is to help our customers understand
their ESG risks and to reduce or mitigate those risks.
Responsible sourcing and collaboration with our
suppliers form part of our value-chain approach
to embedding ESG considerations throughout our
business. In 2019, a total of 93% of tenders were in
scope through the responsible sourcing process.
Sustainable workplace
A central element of our corporate responsibility is to
ensure a sustainable workplace for our employees and a
responsible management of our environmental footprint.
How well we manage to foster a sustainable workplace
and a collaborative inclusive culture where people
feel engaged and free to speak up is reflected in our
employee engagement score. In 2019, we saw a slight
increase in this score from 84 in 2018 to 86 in 2019.
We recognise the importance of gender balance, and
we are pleased to have a 50% share of women in
our workforce. However, the balance differs across
the organisation, which is why we focus on raising
awareness to reduce gender bias in recruitment as
well as on increasing the share of women in leadership
positions. In 2019, we introduced principles for
recruitment to senior leadership roles to help achieve
our gender diversity targets.
Through our environmental management, we are
also working systematically to limit the negative
environmental impact of our business operations. For
example, we have been carbon neutral since 2009,
achieved by purchasing certified renewable electricity
and offsetting our residual via verified carbon credits. In
2019, energy consumption in our premises accounted
for 32% of the Group’s total carbon emissions, and we
achieved a reduction in our energy consumption per FTE
and in our CO2 emissions per FTE compared to 2018.
ESG ratings
ESG (Environmental, Social and Governance) ratings
cover a range of analytical activities that address a
business’s societal impact.
Danske Bank has chosen to focus on six providers
selected on the basis of their importance to our
investors. This is described further in the Capital and
liquidity management section on page 27.
The way forward – new metrics and targets
With our new Executive Leadership Team in place,
we are accelerating our determination to progress on
societal impact and sustainability even further.
In view of our commitment to the Principles for
Responsible Banking and to Danske Bank’s promises
and 2023 ambitions to become a better bank, we will in
2020 calibrate our Societal Impact and Sustainability
Strategy with seven focus areas: Sustainable investing,
Sustainable financing, Governance, Diversity & Inclusion,
Environmental footprint, Entrepreneurship, and Financial
literacy.
As an initial part of this strategic review, we introduce
new supporting KPIs and targets related to these seven
focus areas, with the aim of setting climate related
targets aligned with the Paris Agreement on Climate
Change. These KPIs will help us measure progress and
raising the bar for ourselves to embrace sustainability in
everything we do. Going forward, we will also adjust our
existing metrics and our strategic 2025 goals.
Focus area
KPI
Sustainable
investing
Sustainable
financing
Governance
Billions invested in the
green transition through
Danica Pension
(DKK billion)
Volume of sustainable
financing (green loans
and arranged bonds)
(DKK billion)
Employees trained in
risk and compliance and
passed all tests (%)
Status
2019
2023 target
10
30
46.1
Well above
DKK 100
billion
96
Over 95
Diversity &
inclusion
Share of women in senior
leadership positions (%)
23
35%
Environmen-
tal footprint
Own CO2 emissions
(tonnes)
15,230
13,705
(-75% vs.
2010*
10% vs.
2019)
Entrepreneur-
ship
Financial
literacy
Number of start-ups &
scale-ups supported with
growth & impact tools,
services and expertise
Number of people support-
ed with financial literacy
tools and expertise
3,851
10,000
719,763 2 million
*Baseline is 54,823 tonnes of CO2 emissions in 2010.
More information
Our independently assured Sustainability Report 2019
serves as our Communication on Progress to the UN
Global Compact and ensures compliance with sections
135a and b of the Danish FSA’s Executive Order on
Financial Reports for Credit Institutions and Investment
Firms etc., available at danskebank.com/societal-impact.
Danske Bank / Annual Report 2019
34
Organisation and management
General meeting
The general meeting is Danske Bank’s highest decision-
making authority.
seek re-election. The general meeting elected Bente
Avnung Landsnes, Christian Sagild and Gerrit Zalm as
new members of the Board of Directors.
In 2019, the annual general meeting was held on 18
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.
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 prior to the annual general meeting in
2022.
The Nomination Committee operates as a preparatory
committee for the Board of Directors with respect to the
identification and selection, as well as the competency
and suitability assessment of candidates to the Board of
Directors and to the Executive Leadership Team. Board
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 18 March 2019,
Ingrid Bonde, Hilde Tonne and Rolv Erik Ryssdal did not
Pages 244-249 provide information on the individual
members of the Board of Directors, including their
directorships. Note 37 on page 170 provides
information on the number of Danske Bank shares held
by the members of the Board of Directors, and note 36
on page 164 provides information on the remuneration
of the members of the Board of Directors.
Work of the Board of Directors in 2019
In 2019, the Board of Directors held 26 meetings, of
which 9 were extraordinary meetings. As to committee
meetings (ordinary and extraordinary), the Audit
Committee held 7 meetings, the Risk Committee held 8
meetings, the Nomination Committee held 6 meetings
and the Remuneration Committee held 6 meetings.
In 2019, the Board of Directors established a new
permanent committee to deal with matters related to
conduct, compliance and culture named the Conduct
& Compliance Committee. In 2019, the Conduct &
Compliance Committee held 9 meetings (ordinary and
extraordinary).
The Board members’ participation in Board and
Committee meetings is illustrated below.
BoD
Committees
Audit CCC
Nomina-
tion
Remune-
ration
Risk
Karsten Dybvad
25/26 3a
9/9
6/6
6/6
6/8
Jan Thorsgaard Nielsen 26/26 7/7
9/9
2a
2a
Lars-Erik Brenøe
26/26
6/6
4/4
Kirsten Ebbe Brich
26/26
9/9
Charlotte Hoffmann
26/26
6/6
Carol Sergeant
26/26 2a
9/9
2/2 + 1a
8/8
Rolv Erik Ryssdal
Hilde Tonne
Ingrid Bonde
7/7
7/7
6/7
2/2
Jens Due Olsen
24/26 7/7
1a
Bente Bang
26/26
Thorbjørn Lundholm Dahl 26/26
2/2
2/2
Bente Avnung Landsnes 20/20 5/5
4/4
Gerrit Zalm
17/20
4/4
Christian Sagild
20/20 5/5
a Participated in meetings as non-committee members.
2/2
2/2
6/6
5/6
Danske Bank / Annual Report 2019 Organisation and management
35
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 and the leadership of the Board
chairman. To ensure anonymity, an external consulting
firm facilitated the evaluation. All members of the
Board of Directors and the Executive Leadership Team
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 customers,
employees, shareholders and other stakeholders. The
competencies of the Board of Directors collectively
are described in the Competency profile, which is
available on danskebank.com. Pages 244-249 provide
information on the competencies of the individual Board
members.
The results of the 2019 evaluation were generally
positive, however, some areas for improvement became
apparent from the results, and the Board of Directors
will work on these in 2020.
Executive Leadership Team
As of 5 September 2019, the name of the Executive
Board was changed to the Executive Leadership Team.
The Executive Leadership Team consists of Chris
Vogelzang, Chief Executive Officer and interim Chief
Operating Officer; Jacob Aarup-Andersen, Interim
Chief Financial Officer and Head of Banking DK (from
1 February 2020), Berit Behring, Head of Wealth
Management; Carsten Rasch Egeriis, Chief Risk Officer;
Jakob Groot, Head of Corporates & Institutions; Glenn
Söderholm, Head of Banking Nordic (and interim Head of
Banking DK from 29 June 2019 to 31 January 2020);
and Philippe Vollot, Chief Compliance Officer.
Stephan Engels has been appointed Chief Financial
Officer and new member of the Executive Leadership
Team. Stephan Engels will take up his position in April
2020.
Frans Woelders has been appointed Chief Operating
Officer and new member of the Executive Leadership
Team. Frans Woelders will also take up his position in
April 2020.
On 8 February 2019, Henriette Fenger Ellekrog, member
of the then Executive Board and Head of Group HR,
resigned. On 29 June 2019, Jesper Nielsen, member
of the then Executive Board and Head of Banking DK,
left his executive position with Danske Bank. With effect
from 5 September 2019, Christian Baltzer, member of
the then Executive Board and Chief Financial Officer; Jim
Ditmore, member of the then Executive Board and Head
of Group Services & Group IT; and Frederik Gjessing
Vinten, member of the then Executive Board and Head
of Group Development, left their executive positions with
Danske Bank.
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 Danish Bankers Association, which is now
part of Finance Denmark, has issued a Corporate
Governance Code, which applies to the institutions that
were members of the Danish Bankers Association.
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
2019.
Danske Bank / Annual Report 2019 36
We create opportunities and
help individuals and businesses
realise their ambitions
Danske Bank / Annual Report 2019 37
Danske Bank / Annual Report 2019 38
Danske Bank / Annual Report 2019
Banking DK
In 2019, Banking DK posted a profit before tax of DKK 6.5 billion, a decrease of 20% from 2018. The year was
characterised by strong competition and increases in regulatory costs and compliance investments, which adversely
affected the result. As expected, we also saw lower impairment reversals in 2019. However, these effects were partly
offset by significant remortgaging activity fuelled by historically low interest rates, increasing volume growth and higher
business activity.
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
Covered bonds issued*
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 (avg.)
Cost/income ratio (%)
2019
2018
Index
19/18
9,111
4,397
1,176
227
9,622
4,363
948
237
14,912
15,170
8,736
6,176
-342
6,518
943,723
10,235
357,967
804,130
1,425
36,430
7,831
7,339
-798
8,137
938,118
11,168
330,124
794,219
1,424
36,822
95
101
124
96
98
112
84
-
80
101
92
108
101
100
99
Q4
2019
2,231
1,209
318
53
3,812
2,523
1,289
-261
1,549
Q3
2019
2,251
1,235
288
59
3,834
2,070
1,764
-109
1,873
943,723
948,948
10,235
357,967
804,130
1,425
36,287
10,650
348,191
808,378
1,465
36,460
Index
Q4/Q3
99
98
110
90
99
122
73
-
83
99
96
103
99
97
100
0.72
0.77
0.70
0.71
17.9
58.6
22.1
51.6
17.1
20.5
66.2
54.0
Full-time-equivalent staff
4,588
4,225
109
4,588
4,501
102
*Covered bonds issued is before the elimination of the Group’s holding of own covered bonds. Previously, only bonds issued by Realkredit Danmark were allocated to the business
units. Comparative information has been restated.
Fact Book Q4 2019 provides financial highlights at customer type level for Banking DK. Fact Book Q4 2019 is available at danskebank.com/ir.
Danske Bank / Annual Report 2019
39
Loan impairment charges amounted to a net reversal of
DKK 342 million in 2019. Reversals related primarily to
our agricultural portfolios.
Credit quality
Credit quality generally remained stable. The market
was supported by the low interest rate level and benign
macroeconomic conditions, but there were also some
early indications of a slowdown.
Credit quality at Realkredit Danmark remained strong
and stable during 2019 supported by the favourable
state of the Danish economy.
The average loan-to-value (LTV) ratio decreased 0.6
percentage points during the period.
Loan-to-value ratio, home loans
31 December 2019
31 December 2018
Average
LTV (%)
60.6
60.6
Net credit
exposure
(DKK bn)
Average
LTV (%)
Net credit
exposure
(DKK bn)
508
508
61.2
61.2
510
510
Retail
Total
Credit exposure
Credit exposure increased to DKK 1,054 billion, driven
mainly by our commercial portfolio.
Net credit exposure
Impairments
(%)
(DKK millions)
31 December
2019
31 December
2018
31 December
2019
Retail
567,125
564,573
Commercial
486,987
457,779
0.01%
-0.10%
Total
1,054,111
1,022,352
-0.04%
2019 vs 2018
The year was characterised by strong competition and
lower risk appetite on our part following the slowdown
in the housing market, but also by high remortgaging
activity caused by historically low interest rates,
increasing volume growth and higher business activity.
Lending growth primarily reflected demand from our
large real estate customers for subsidised housing and
commercial property financing. Our home loan portfolio
also grew over the year. The demand for FlexLife® and
Danske Bolig Fri® loans continued to confirm our strong
home finance value proposition to all homeowners.
Remortgaging activity was evident across all segments
but especially prevalent in our commercial and large real
estate segments. Deposits grew significantly during the
year.
We maintained our strong presence in the commercial
market, while our share of the retail market declined.
The decline reflects a net decrease in the number
of customers with a NemKonto account of 23,600
over the year. The outflow diminished in the course of
the year, and we continue the close dialogue with our
customers to offer them the best experience every time
they are in contact with us.
Net interest income decreased 5% from the level in
2018. The low interest rate environment in Denmark
put pressure on deposit margins and encouraged
customers to switch to loan and mortgage products with
lower margins. Furthermore, net interest income was
adversely affected by strong competition and increasing
funding costs to meet the new MREL requirement set by
the Danish FSA.
Income benefited from the extraordinarily high
remortgaging activity, which added some DKK 700
million to total income relative to the figure for 2018.
Around half of this amount was fee income.
Fee income was on par with the level in 2018 due to
the compensation of approximately DKK 150 million
payable to certain Flexinvest Fri customers as well
as reduced customer appetite for actively managed
investment products in general.
Operating expenses rose 12% owing to increasing costs
for regulatory requirements and compliance, primarily for
investments in anti-money laundering activities, such as
monitoring and controls, staff training and IT.
40
Q4 2019 vs Q3 2019
Profit before tax decreased 17% to DKK 1.5 billion, owing to
increasing regulatory and compliance costs.
Lending volume fell 1% in the period due to negative market
value adjustments. Excluding market value adjustments,
lending was stable. Deposits increased 3%.
Operating expenses increased 22%. This reflects a continued
focus on regulatory requirements and compliance.
The fourth quarter of 2019 saw a net impairment reversal of
DKK 261 million, against a net reversal of DKK 109 million
in the third quarter of 2019. We see continued impairment
reversals, driven primarily by our agricultural portfolio, but also
in the metals and mining portfolios. In the agricultural portfolio,
the reversal trend is broadly based, while the metals and mining
reversals relate to single-name exposures.
Business initiatives
At Banking DK, our ambition is always to put our
customers first by offering the best experience when
they do their day-to-day banking or seek financial advice.
We recognise the special societal responsibility we have
as the largest bank in Denmark, and we work diligently
on supporting sustainable development and contributing
to the society that we are part of.
Developing our real estate platform
Property financing and advice are key to our customers’
lives and businesses, and they constitute a fundamental
part of our value proposition. In 2019, we continued to
develop our offering:
Realkredit Danmark launched green mortgage bonds
(RD Cibor6® Green) as the first issuer on the Danish
market. The bonds, which form part of our Green Bond
Framework, are available to customers to finance
climate-friendly commercial property and they offer
climate-conscious investors a new way to expand their
green portfolios.
For homeowners, we introduced an integrated digital
home universe. The new universe features, for example,
a tool for customers to search for potential homes and
match them with their financial situation and budget.
The tool forms an integral part of our advisory process
and is a seamless way for customers to have adviser
support throughout the search and buying process.
Bolig Fri®. In 2019, we added a fixed-repayments
option to make the popular loan even more flexible for
customers.
Boosting our business with strong partnerships
Our new partnership with Nordic insurer Tryg Forsikring
began strongly, attracting keen interest from both retail
and commercial customers. Feedback from customers
shows that they are very satisfied with the advice
provided and with the ease with which they can book
a meeting with an adviser. We continue to promote
our Tryg offering to retail and commercial customers
through targeted initiatives.
We also announced a new partnership with the
PropTech Danmark network. The aim of the partnership
is to support the development of energy-saving
technologies for homes and commercial property to the
benefit of customers and the environment by bringing
together innovators, the real estate business and the
financing industry. We contribute our knowledge of and
expertise on real property financing to accelerate the
technological development.
Being a strategic partner for our customers
Among our commercial customers, we see increasing
demand for a partner that understands not only their
business but also their strategic context, and with
whom they can have an open and future-focused
dialogue. To accommodate this demand, more than 300
advisers and specialists completed an intensive training
programme in 2019 that enables them to take on this
role.
Digitising our business
We completed the migration of retail customers to our
new Danske Mobile Banking app. Satisfaction with the
app continues to grow, and most of our customers now
do their day-to-day banking on their mobile phone. Most
recently, we added a subscription manager feature that
gives customers an overview of their subscriptions and
provides the option of cancelling subscriptions they no
longer want.
The migration of existing commercial customers to
District continued, and we replaced Business Online
with District in our offering to new customers. District
gives customers a full, real-time overview of their
financial position, providing more transparency, thereby
enabling even better financial decision-making.
For customers looking for a competitive alternative to
mortgage loans, we offer our bank home loan Danske
For small businesses, it is now possible to apply for
credit facilities online. In addition to reducing processing
Danske Bank / Annual Report 2019 41
time and the time-to-money from weeks to hours, the
solution also ensures a smooth customer experience.
We added Apple Pay to the range of payment solutions
we offer our retail and commercial customers. With
the inclusion of Apple Pay, we now cover all major
smartphone brands, and the addition was well received
by customers.
Private Wealth Management DK part of Banking DK
With effect from September, the Danish activities of our
Private Wealth Management operation became part of
Banking DK. The aim of the new setup is to develop a
more holistic approach towards our retail and private
banking customers across the Group to the benefit of
our customers.
Focus in 2019 was on further increasing the level of
proactivity towards our private banking customers and
on developing our products, solutions and processes on
the basis of customer input and feedback.
Flexinvest Fri
In October, we started the payout to customers with
Flexinvest Fri agreements to compensate them for the
incorrect fee charged and advice provided in the period
2017–2018. At the end of October, we started the
series of meetings with all affected customers at which
we offer to review their agreement.
Societal impact
As part of the Group’s ambition to operate sustainably
and have a positive impact on the societies that we
operate in, Banking DK has taken several new initiatives.
Although digitalisation is transforming our customers’
lives, many retail customers still prefer to meet
with their adviser face to face. To accommodate
customer demand, we opened meeting centres in 14
new locations across Denmark, where we can offer
customers face-to-face advisory services.
Our advisers continued to regularly visit schools as
guest lecturers to teach teenagers about money,
personal finances and safe online behaviour. In 2019,
we added Pocket Money Day to our range of activities
that support children’s financial education and
confidence.
The Hub, our online platform that helps start-ups recruit
specialists and raise capital, has become one of the
most successful Nordic start-up platforms. To make
it easier for start-ups to find talent, we merged our
services for all regions on one website in the 2.0 version
of The Hub. The new version provides start-ups with
a visual recruitment process overview, an interactive
search function and stronger employer branding. For
job seekers, the shared platform means that they can
now find their dream job, irrespective of where they are
located.
We also participated as a Danish partner of the EY
Entrepreneur Of The Year programme – a unique
global programme that recognises entrepreneurial
achievement among individuals and companies.
As partner, we participated in the interviews of the
around 450 nominated businesses in Denmark.
The Entrepreneur Of The Year programme is also an
opportunity for us to strengthen our national and local
networks with participating customers and forge new
relations with potential customers.
Customer satisfaction
Satisfaction among our commercial customers
continued to grow throughout the year, and since the
first quarter, we have also seen an upward trend in
satisfaction among our retail customers. Furthermore,
we saw progress among our private banking customers.
The positive trend was driven by a close dialogue with
our customers combined with customers’ increasing
focus on advice and services and declining interest in
the Estonia case. We also experienced positive feedback
on the meetings held with Flexinvest Fri customers.
We want to be among the top two on customer
satisfaction in everything we do. At the end of 2019,
we were ranked number three among commercial
customers, number three among private banking
customers and number five among retail customers.
As this is below our target, we remain fully committed
to continuing our work. The trend we saw in 2019
further encourages us to continue the close dialogue
with our customers and drives us to offer them the best
experience every time they are in touch with us.
Banking DK
Below target
On target
5
4
3
2
1
Retail
customers
Commercial
customers
Danske Bank / Annual Report 2019 42
Danske Bank / Annual Report 2019
Danske Bank / Annual Report 2019
43
Banking Nordic
Banking Nordic ended 2019 with a profit before tax of DKK 3.8 billion, equivalent to a decrease of 35% from the level in
2018. The decrease was caused mainly by a decline in net interest income due to higher interest rates in Norway and
Sweden putting pressure on margins as well as an increase in operating expenses caused by investments in complian-
ce and higher costs for regulatory requirements. Increased impairments in Finland and Sweden and adverse currency
effects also contributed to the decline.
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
Allowance account, loans
Deposits, excluding repo deposits
Covered bonds issued*
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 (avg.)
Cost/income ratio (%)
Full-time-equivalent staff
2019
2018
Index
19/18
7,839
1,857
280
592
8,183
1,875
323
649
10,567
11,029
6,269
4,298
510
3,788
5,324
5,706
-161
5,867
3,880
270,522
223,604
451
34,371
3,761
245,867
225,914
389
33,497
Q4
2019
1,992
479
72
136
2,678
1,757
921
511
410
Q3
2019
1,959
470
61
133
2,623
1,480
1,143
86
1,058
634,974
626,406
3,880
270,522
223,604
451
34,283
3,544
258,072
227,201
379
34,550
96
99
87
91
96
118
75
-
65
105
103
110
88
116
103
0.89
0.97
0.90
0.88
11.0
59.3
2,599
17.5
48.3
2,613
4.8
65.6
2,599
12.2
56.4
2,696
99
Index
Q4/Q3
102
102
118
102
102
119
81
-
39
101
109
105
88
119
99
96
Loans, excluding reverse transactions
before impairments
634,974
604,679
*Covered bonds issued is before the elimination of the Group’s holding of own covered bonds. Previously, only bonds issued by Realkredit Danmark were allocated to the business
units. Comparative information has been restated.
Fact Book Q4 2019 provides financial highlights at customer level for Banking Nordic. Fact Book Q4 2019 is available at danskebank.com/ir.
44
Danske Bank / Annual Report 2019
2019 vs 2018
Banking Nordic saw a decline in income in 2019 of 4%
from the level in 2018. However, the good customer
inflow continued in 2019, especially in the retail
business in Norway, where we saw a substantial inflow
of customers from the level in 2018. Across our market
areas, partnerships accounted for a significant part of
the customer inflow and acted as a core lever for our
growth strategies. A strengthening of our offerings to
medium-sized and large commercial customers also had
a positive impact on the commercial business.
Overall, the financial results were adversely affected
by currency effects, as the Norwegian krone and the
Swedish krona both depreciated vis-à-vis the Danish
krone during 2019. In addition, rising interest rates in
Norway and Sweden led to increased margin pressure.
Furthermore, the result was adversely affected by
increased funding costs as a result of acquiring funding
to meet the MREL requirement set by the Danish FSA. In
combination with higher operating expenses as well as
higher impairments in Finland and Sweden, profit before
tax decreased 35% year-on-year.
Banking Nordic saw growth in lending in most market
areas from the levels at the end of 2018. However,
whereas Finland and Norway saw steady growth over
the year, Sweden saw a decline in the last half of 2019.
The decline was due largely to a revision of the risk
and pricing strategy in the second and third quarters of
2019. Hence, our Swedish business saw only a modest
increase in retail volumes from the level at the end of
2018, whereas volumes from medium-sized and large
commercial customers within real estate declined. In
Norway, growth was driven by retail customers and large
commercial customers, and in Finland by medium-sized
and large commercial customers.
Net interest income was adversely affected by increased
margin pressure. This pressure came mainly from
an environment of rising interest rates in Norway
and Sweden as well as more intense competition.
Furthermore, net interest income was adversely affected
by increased funding costs as a result of acquiring
funding to meet the MREL requirement.
Net fee income decreased 1% year-on-year. However, in
local currency we saw an increase. Fee income grew in
Norway and Sweden, primarily as a result of financing
and investment fees mainly from Private Banking.
Other income decreased from the level in 2018, due
partly to the gain from the sale of the Norwegian real
estate agency chain Krogsveen benefiting the first
quarter of 2018.
The Asset Finance business area experienced good
progress and business momentum in 2019 due to
strong demand for leasing services and also had one-off
income from sales of investment properties. However,
sales were not at the same level as in 2018, which
contributed to the year-on-year decrease in other
income.
Banking Nordic saw an increase in operating expenses
of 18% from the level in 2018. In 2018, operating
expenses were at a somewhat low level due to Banking
Nordic being a new organisation. Operating expenses
were also elevated because of significant investments
in compliance and anti-money laundering activities.
Furthermore, operating expenses increased due to
higher activity in Norway and higher VAT charges
on costs in Finland as well as an adjustment of the
expected value of a distribution contract in Finland.
Loan impairments amounted to a charge of DKK 510
million, driven in large part by a review of the loan
portfolio. The charges related mainly to single-name
exposures in the commercial portfolio, specifically within
the construction and building materials as well as social
services industries.
Credit quality
Credit quality was generally stable across the Nordic
markets, reflecting the current macroeconomic stability.
The overall loan-to-value (LTV) ratio increased 0.1
percentage points during the year.
Loan-to-value ratio, home loans
31 December 2019
31 December 2018
Retail Sweden
Retail Norway
Retail Finland
Average
LTV (%)
63.6
62.7
61.8
Total
62.7
Net credit
exposure
(DKK bn)
Average
LTV (%)
Net credit
exposure
(DKK bn)
87
125
86
297
64.7
61.9
61.2
62.6
86
104
86
276
Danske Bank / Annual Report 2019
45
Credit exposure
Credit exposure increased to DKK 764 billion in 2019.
Growth came mainly from the retail portfolio in Norway,
driven by our strategic partnership agreement with the
trade union Tekna.
Net credit exposure
Impairments
(%)
(DKK millions)
31 December
2019
31 December
2018
31 December
2019
Sweden
Norway
Finland
Other
289,206
284,369
249,001
215,039
172,857
166,170
53,159
57,584
-0.10%
0.12%
0.35%
0.03%
Total
764,224
723,162
0.08%
Q4 2019 vs Q3 2019
Profit before tax decreased 61% due to higher costs and
impairment charges.
Total income increased 2% quarter-on-quarter.
Net interest income increased 2% due to slightly lower margin
pressure, especially in Norway where we started to see the
effect of repricing on the back of the most recent interest rate
hike in September.
Net fee income increased 2% because of increased investment
activities across Banking Nordic.
Operating expenses increased 19% due mainly to year-end
booking of costs related to investments in compliance and
anti-money laundering activities as well as an adjustment of the
expected value of a distribution contract in Finland.
Loan impairments amounted to a charge of DKK 511 million in
the fourth quarter of 2019, against a charge of DKK 86 million
in the third quarter of 2019. This development was driven
mainly by charges against single-name exposures in the social
services and construction and building materials industries in
the Finnish portfolio.
Business initiatives
At Banking Nordic, our ambition is always to put our
customers first by offering the best experience when
they do their day-to-day banking or seek financial advice.
As a challenger in the Nordic countries, we are working
towards the best offerings for our customers, and we
work diligently on supporting sustainable development
and on contributing to the societies that we are part of.
Growth through partnerships
During 2019, Banking Nordic expanded its retail
customer portfolio through partnership agreements.
In Norway, we experienced a steady inflow of new
customers from our agreement with Tekna, which
drove lending volumes up. In Sweden, we entered into
a new partnership with HSB Bospar, Sweden’s largest
association for home savers with a portfolio of 140,000
members. We entered into the partnership agreement
in the third quarter of 2019, and the customers will be
onboarded during 2020.
Integration of Private Wealth Management
We aim to develop a more holistic approach towards our
retail and private banking customers across the Group
to the benefit of our customers. In order to achieve this,
we have from September incorporated the Norwegian,
Swedish and Finish activities of our Private Wealth
Management operation into Banking Nordic. This will
help us ensure better alignment of our banking activities
across our different markets to make sure we reach our
ambition of delivering the best customer experience.
We will also be better positioned to release our growth
potential as we will have stronger coordination and
collaboration on the development of solutions and
products across the Nordic countries and across our
various customer segments.
Innovation and digitalisation
In the third quarter of 2019, we added Apple Pay
to our offering of payment solutions for retail and
commercial customers across our markets. The solution
provides easy, accessible and secure payments for
our customers. The Apple Pay solution has been well
received by our customers, and it supports our strategy
of offering digital solutions that make everyday banking
easier.
46
In order to ensure less complexity and more agility for
our customers, Banking Nordic will be working on a
service model transformation across our markets with
greater utilisation of synergies and best practice.
We have successfully migrated our commercial
customers to our new financial platform, District, which
is replacing the Business Online platform. District
provides our customers with a simple overview of their
finances and makes it easier to handle everything from
day-to-day banking to long-term planning and strategic
decision-making. It is built on a customisable, flexible
and scalable platform that is designed to accommodate
the possibilities of the future and allows for integration
of third-party applications. District presents customers
with their own personal dashboard that provides
an improved financial overview and makes it easier
to handle their finances. The dashboard is easily
customisable, allowing users to build the dashboard that
best suits their needs – and role – in their company.
Among our commercial customers, we see an
increasing demand for a partner that understands not
only their business but also their strategic context, and
with whom they can have an open and future-focused
dialogue.
In collaboration with Corporates & Institutions, Banking
Nordic continued to upgrade the service model for our
commercial customers. The service model is focused on
broader coverage in terms of specialists and products to
help customers get the best solution for their business.
By taking this holistic, product-neutral approach, each
customer can get the best advisory services, tailored to
their needs, whether they need a bond issue or a loan,
for example. Our focus on our commercial segments
delivered increased volume growth, particularly in
Norway and Finland, compared with volume levels at the
end of 2018.
Societal impact
As part of the Group’s ambition to operate sustainably
and have a positive impact on the societies that we
operate in, Banking Nordic has strengthened its position
and taken several new initiatives.
During 2019, Banking Nordic focused strongly on
sustainable finance offerings for our customers with
issuance of green loans and bonds. These offerings
have now been introduced in all our markets and have
received great interest from our commercial customers
in particular.
As customers are looking towards more sustainable
solutions, sustainability is one of the key focus points in
Asset Finance. As an example, new car fleet reports that
include figures on emissions have been developed. It is
the ambition of Asset Finance to take an active stance in
setting the green agenda and in transforming car fleets
to become more environmentally friendly.
Diversity is also high on the agenda at Banking Nordic,
with particular focus on gender and ethnicity. In Sweden
for example, we have encouraged women within the
start-up community to take an active role. In cooperation
with Singularity University and Reach for Change,
we have issued invitations to a series of events and
entrepreneur campfires that are targeted towards
female entrepreneurs and women with aspirations of
becoming entrepreneurs.
Customer satisfaction
We continued to focus on our goal of delivering the
best customer experience by building easy customer
journeys and customer-centric solutions.
Our ambition is to be in the top two on satisfaction
among customers in our prioritised segments in all our
markets. For commercial customers, we are on target,
whereas we are still not at the desired level for retail
customers. In Norway, capacity challenges in the retail
business have driven customer satisfaction below
target.
Customer satisfaction is a key priority, and we continue
to focus on our goal of delivering the best customer
experience by opening up the bank, building easy
customer journeys and providing customer-centric
solutions.
Danske Bank offers meetings outside normal working
hours, and customers can book meetings online with
either a specific adviser or the best available expert and
get assistance 24/7. We have launched new digital
platforms for both retail and commercial customers, and
more features will be added to these in 2020.
Danske Bank / Annual Report 2019 47
Our partnerships with Fintech companies enable
customers to view accounts from other banks, and
during 2020, our subscription manager feature will be
rolled out further, allowing customers to get an overview
of their subscriptions, get a better deal or cancel
subscriptions they no longer want. We also continue to
develop our financing journey to ensure that customers
experience a smooth and fast process.
Banking Nordic, retail customers
Below target
On target
5
4
3
2
1
Banking Nordic, commercial customers
Below target
On target
5
4
3
2
1
Danske Bank / Annual Report 2019 48
Danske Bank / Annual Report 2019 49
Corporates & Institutions
Corporates & Institutions contributed a profit before tax of DKK 1.7 billion in 2019, a decrease of 61% from 2018. The
decline was driven by increased loan impairment charges, goodwill impairment charges and negative developments in
value adjustments. Operating expenses increased 3% from 2018 due to regulatory compliance-related activities.
Corporates & Institutions
(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
Profit before tax and goodwill
impairment charges
Loans, excluding reverse trans. before
impairments
loans in General Banking
Allowance account, loans
Allowance account, credit institutions
Deposits, excluding repo deposits
deposits in General Banking
Covered bonds issued*
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 (avg.)
Cost/income ratio (%)
2019
2018
Index
19/18
3,656
2,909
2,114
8
8,688
4,834
803
3,051
1,348
1,703
3,928
2,914
2,440
7
9,289
4,689
-
4,600
278
4,322
2,506
4,322
209,148
171,478
3,156
9
270,685
227,131
15,856
552
32,684
198,320
168,126
2,223
13
260,781
227,523
18,713
133
33,629
0.79
0.83
5.2
64.9
12.9
50.5
93
100
87
114
94
103
-
66
-
39
58
105
102
142
69
104
100
85
-
97
-
-
-
Q4
2019
985
836
586
7
2,413
1,318
803
292
459
-167
637
209,148
171,478
3,156
9
270,685
227,131
15,856
552
33,920
Q3
2019
885
673
182
-
1,739
1,128
-
612
369
243
243
210,254
165,970
2,653
11
261,607
216,526
16,597
601
33,781
0.84
0.76
-2.0
2.9
87.9
64.9
Index
Q4/Q3
111
124
-
-
139
117
-
48
124
-
262
99
103
119
82
103
105
96
92
100
-
-
-
Full-time-equivalent staff
1,665
1,858
90
1,665
1,704
98
Total income
(DKK millions)
FI&C
xVA**
Capital Markets
General Banking
Total income
2019
2018
2,378
-283
1,678
4,631
8,688
2,541
-62
1,556
5,192
9,289
Index
19/18
94
-
108
89
94
Q4
2019
688
-25
499
1,227
2,413
Q3
2019
287
-40
309
1,143
1,739
Index
Q4/Q3
240
-
161
107
139
*Covered bonds issued is before the elimination of the Group’s holding of own covered bonds. Previously, only bonds issued by Realkredit Danmark were allocated to the
business units. Comparative information has been restated.
**The xVA acronym covers Credit (CVA), Debit (DVA), Funding (FVA) and Collateral (ColVA) Valuation Adjustments to the fair value of the derivatives portfolio. Danske Bank
has a centralised xVA desk responsible for quantifying, managing and hedging xVA risks. The PnL result of the xVA desk is thus the combined effect of the net xVA position
and funding and collateral costs of the trading book.
Danske Bank / Annual Report 2019 50
2019 vs 2018
Corporates & Institutions saw an increase in income
towards the end of the year, but overall, 2019 was a
challenging year due to weak trading income in FI&C
throughout the year as well as negative developments
in value adjustments, and high loan and goodwill
impairment charges.
Total income amounted to DKK 8.7 billion, a decrease
of 6% from 2018. The decrease was driven by lower
trading income and the transfer of the portfolios in the
Baltics and Russia to the Non-core unit.
Net interest income declined 7% from the level in 2018.
Adjusted for the portfolio transfers, net interest income
fell 2% as a result of a decline in activity-driven income
and higher funding costs. Loans excluding reverse
transactions before impairments increased 5% from
the level at year-end 2018, driven by changes in the
gross value of collateral related to derivatives exposure,
whereas underlying bank lending increased 2%.
Deposits in General Banking were unchanged from the
end-2018 level.
Net fee income was unchanged year-on-year as Debt
Capital Markets and Loan Capital Markets income made
up for lower income from Equities.
Net trading income fell 13% from the level in 2018 as a
result of the one-off income at the end of 2018 related
to the sale of assets previously taken over as collateral
and negative developments in value adjustments of
the derivatives portfolio (xVA).Trading income in FI&C
remained challenged and did not improve from the level
in 2018.
Operating expenses increased 3% from the level in
2018 as investments in anti-money laundering activities
and regulatory compliance continued to put an upward
pressure on operating expenses.
Goodwill related to FI&C and Capital Markets was
impaired and a charge of DKK 0.8 billion was recognised
due to updated assumptions of lower structural income
in FI&C in the future and expectations of a higher capital
allocation as a result of the implementation of higher
regulatory capital requirements.
adjustments of the derivatives portfolio (xVA). Underlying
income in FI&C increased 2% as trading income
rebounded in the fourth quarter from a very weak third
quarter and a weak end to 2018. The rebound was
driven by Fixed Income business, whereas income from
currencies & liquidity declined slightly.
The decrease seen in FI&C income since 2016-2017
is the result of both structural and cyclical headwinds,
with an increasing likelihood that the latter will prove
more persistent. The goodwill impairments and the cost
reductions made in the fourth quarter of 2019 are both
a consequence of this outlook.
Value adjustments of the derivatives portfolio (xVA)
contributed a loss of DKK 283 million in 2019. The key
driver was negative DVA resulting from the spread of
Danske Bank’s own senior credit default swap (CDS)
tightening in 2019 alongside an overall positive credit
market. Negative credit value adjustments from falling
interest rates were largely offset by interest rate hedges.
Customer activity in the Rates business as well as in
Currencies remained high, whereas activity in Liquidity &
Securities Finance decreased from the level in 2018.
Capital Markets
Capital Markets income increased 8% from the level in
2018, driven by several large customer transactions
in Loan Capital Markets and strong secondary credit
markets in Debt Capital Markets.
Activity in Debt Capital Markets’ primary market was
below the 2018 level in the beginning of the year,
however customer activity in the second half of the year
made up for this. Throughout 2019, secondary market
income benefited from strong credit markets.
In 2019, income in our equity value chain was
negatively affected by an overall decline in ECM
transactions in the Nordic countries and pressure on
fees following the implementation of MiFID II in 2018.
Income from M&A transactions, however, remained
stable.
In Loan Capital Markets, our underwrite-to-distribute
strategy continued to yield positive results.
Fixed Income & Currencies
Total income in FI&C decreased 6% from the level
in 2018 due to negative developments in value
General Banking
Income from General Banking was 11% lower than in
2018, mainly as a result of one-off trading income in
Danske Bank / Annual Report 2019 2018 from the sale of assets previously taken over as
collateral and the portfolio transfers to the Non-core unit.
Underlying income in General Banking decreased 2%
as a result of lower activity-driven income and higher
funding costs.
Credit quality
In 2019, loan impairments amounted to DKK 1,348
million, against DKK 278 million in 2018. This
development is due primarily to single-name charges
in the shipping, oil & gas and retailing industries.
The general review of our loan portfolio carried out in
connection with an ongoing review by the Danish FSA
also had a negative effect on impairments.
Net credit exposure from lending activities amounted
to DKK 443 billion at the end of December 2019, a
decrease of DKK 120 billion from the level at the end
of 2018. The decrease was due to the DKK and EUR
liquidity accounts being moved from Corporates &
Institutions to Group Treasury in 2019.
Net credit exposure
Impairments
(%)
(DKK millions)
31 December
2019
31 December
2018
31 December
2019
Sovereign
Financial
institutions
Corporate
Other
Total
23,056
154,101
0.00%
84,347
73,791
335,783
334,651
0.01%
0.71%
36
250
443,223
562,793
0.57%
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
Nordic countries and large international customers with
activities in the Nordic region.
51
Q4 2019 vs Q3 2019
Profit before tax was negative for the quarter, due mainly to
goodwill impairment charges.
FI&C income increased from the level in the third quarter as
income in Fixed Income and Liquidity improved significantly. The
improvement, driven largely by better performance in Danish
fixed income business in FI&C, came on the back of a weak
third quarter. Foreign Exchange and Investment Solutions were
largely unchanged from the level in the third quarter.
Capital Markets income increased 61% from the level in the
third quarter, driven mainly by a seasonal increase in Corporate
Finance.
General Banking income increased 7% from the third-quarter
level, driven by net interest income from deposits and lending.
Operating expenses increased 17% from the level in the third
quarter, driven primarily by increased compliance costs and
restructuring costs.
The fourth quarter of 2019 saw net loan impairment charges
of DKK 459 million, against charges of DKK 369 million in
the third quarter. In the fourth quarter, additional impairment
charges were made following a review of our loan portfolio,
mostly in the shipping and oil & gas industries.
Business initiatives
To realise our strategic ambition of being the leading
wholesale bank in the Nordic countries, we continue our
work to move closer to our corporate and institutional
customers.
One of our more recent focus areas in this respect is
sustainable financing, for which demand is steadily
increasing. Not only do we want to support our
customers in achieving their sustainability ambitions,
but we see our role as extending beyond this.
As a key provider of wholesale financing in the Nordic
countries, we want to contribute to driving sustainable
change in the societies we are part of. In 2019, we
took a major step forward in assisting more Nordic
companies and investors with their transition towards
a more sustainable economy, and we will continue to
develop and expand this platform over the years to
come.
Furthermore, we introduced a number of other business
initiatives to support our customers in reaching their
ambitions and to make daily banking easy.
Danske Bank / Annual Report 2019
52
Danske Bank / Annual Report 2019
In Transaction Banking and Investor Services, we
continued to invest in our award-winning cash
management and trade finance solutions, and we
onboarded new customers. Most notably, we won the
cash management of the Finnish state, and we are
now the state bank in Denmark, Sweden, Finland and
Ireland. Our Investor Services offering, designed to
help institutional customers outsource their back- and
middle-office activities, also continued to see high
activity growth.
District, Danske Bank’s corporate financial platform,
was rolled out to Corporates & Institutions customers
across the Nordic countries, and we now have more
than 14,000 active C&I users on the platform and
more than 225,000 users across Danske Bank. With
District, we aim to give customers a comprehensive,
real-time overview of their financial position, providing
more transparency and enabling even better financial
decision-making. The platform has been well received by
our customers, and new solutions and services will be
added on an ongoing basis.
We continue to invest in our Capital Markets platform,
remaining fully committed to being a leading Capital
Markets player in the Nordic countries. Over the past
five years, we have increased our Capital Markets area
by 20%, mainly our equity value chain and Loan Capital
Markets capabilities. Today, we offer a pan-Nordic
Capital Markets franchise.
Investments in developing our green, social and
sustainable finances offering allowed us to meet
increasing demand from both companies and investors
and helped us attain a position as number two among
banks in terms of Nordic currency green bond issuance
arrangement in 2019, measured in terms of volume.
In total, we helped 38 customers issue green, social
and sustainable bonds. We climbed to number five in
Bloomberg’s European Green Bond League Table (EUR
and Nordic currencies), and were number nine on all
currencies on a global scale.
Moreover, we developed a framework to lay down
the criteria for green loans and our own green bonds
across the Group. We are also a founding signatory of
the Poseidon Principles, which promote greener global
shipping. Major deals included acting as lead manager
on the European Investment Bank’s inaugural DKK 3
billion Climate Awareness Bond (the largest green bond
in Danish kroner to date), helping Outokumpu (a global
leader in stainless steel) with a secured EUR 400 million
sustainability-linked term loan, and supporting Finnish
Kuusakoski Recycling with its first green loan. We also
increased our focus on the environmental, social and
governance (ESG) agenda and set up Project Finance to
Renewable Energy.
Capital Markets cemented its position as one of the
leading advisers and transaction facilitators in the
Nordic countries. Loan Capital Markets had a record
year, winning several large Corporate Loans and
Leveraged Finance mandates, ensuring its position
as the leading Nordic underwriter and mandated lead
arranger of Nordic syndicated loans according to
Bloomberg League Tables.
Similarly, Corporate Finance saw good M&A activity
across all of our home markets. In Denmark, we assisted
in the Maersk Drilling demerger and separate listing, and
we acted as sell-side adviser to power company Ørsted
on the sale of Radius to SEAS-NVE. In Finland and
Sweden, we supported rental services provider Cramo’s
demerger in connection with the separate listing of their
Modular Space solutions. And in Norway, we conducted
three subsequent transactions for Norwegian Air
Shuttle, including a NOK 3 billion underwritten rights
issue and a USD 150 million convertible issue.
In our Fixed Income & Currencies (FI&C) area, recent
years have seen substantial changes in customer
expectations, requiring us to digitise further to make
banking easier and more efficient. The FI&C business is
challenged by structural and cyclical drivers that have
resulted in lower income from facilitating customer
transactions. In addition, the outlook for higher capital
requirements will make it more expensive to provide
these services in the future.
In response to these changes, and to continue meeting
our customers’ needs in future, we are taking significant
steps to future-proof our offering with the ambition
to remain a leading Nordic player in this space. Most
importantly, we continued to invest in digitising our
markets engine and optimising end-to-end processes.
The aim is to increase operational efficiencies across the
value chain and simplify our technology – for example
by developing One Calculation Engine on One Platform –
thereby improving the customer experience by delivering
faster, easier and more efficient execution.
Further steps were taken to ensure that we service
customers as One Bank by introducing a new
organisational structure in the fourth quarter of 2019
53
that supports the service model of the future. By
integrating activities that overlap from a customer
perspective, for example within Rates and Debt Capital
Markets, we will achieve synergies and make day-to-day
banking easier for our customers.
Anti-money laundering (AML) initiatives
As part of our efforts to combat financial crime, we
continued to invest in and further improve our first-line
risk setup, and we sustained our investment in digitising
and improving AML processes.
In support of this, and to improve the customer
experience overall, we established a joint venture
company with a number of Nordic banks to develop a
single platform for handling Know Your Customer (KYC)
data. The expected roll-out of the platform in the course
of 2020 and 2021 will offer added transparency and
help large companies that have several banking partners
report their data to one platform only and in one uniform
format across banking partners.
Diversity initiatives
Diversity is an important factor for Danske Bank when
hiring new employees. Being regarded as an attractive
employer by a diverse talent pool allows us to select the
best candidates from a wider population and, to a larger
extent, reflect the composition of the societies we are
part of.
In 2019, we continued to work towards achieving a
more diverse workforce at Corporates & Institutions.
We launched a number of new initiatives, including
increasing the level of diversity among graduates hired.
Nevertheless, it is our ambition to have greater diversity
than we have today, in terms of both gender composition
and other characteristics, and it remains an explicit
goal at Corporates & Institutions to build a more diverse
workforce over the coming years.
Customer satisfaction
A high level of customer satisfaction is a key priority
for Danske Bank, and detailed customer insight is
important for understanding and improving the customer
experience. In addition to obtaining customer feedback
from our day-to-day dialogue with customers, we receive
a number of annual customer reviews conducted by
Prospera, an independent market research company in
the Nordic countries.
Overall, we see that our customers appreciate Danske
Bank for our strong transaction banking platform.
Consequently, in 2019, we attained the highest position
ever recorded across the Nordic countries for our
solutions within cash management and trade finance
on the basis of number one positions in each of our four
Nordic home markets in both of these product areas.
In FI&C, we maintained our solid FX position but
otherwise saw a mixed picture with improvements in
some areas and declining scores in others. In Capital
Markets, despite our investments, our customers’
evaluation of us deteriorated, specifically in Corporate
Finance and Debt Capital Markets. In Relationship
Banking, we remained below our target in Corporate
Banking, but we are on a positive trend in terms of our
Institutional Banking performance.
In the aggregated ranking across the Nordic countries
we are now on par with our two Nordic wholesale
peers from a clear number one position in 2018. The
underlying country-specific results are a continued lead
position in Denmark, a second place in Sweden, a fourth
place in Norway and a third place in Finland. We believe
our continued investments in people and in digital
solutions will support our efforts to improve customer
satisfaction even further.
Corporates & Institutions
Market position, all (rolling year)
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.
Danske Bank / Annual Report 2019 54
Danske Bank / Annual Report 2019 Wealth Management
Profit before tax amounted to DKK 3.0 billion, an increase of 39% from the level in 2018, due mainly to the
gain of DKK 1.3 billion from the sale of Danica Pension Sweden, which was partly offset by a DKK 0.8 billion
goodwill impairment charge on SEB Pension Danmark caused by regulatory changes. Net fee income benefited
from the inclusion of SEB Pension Danmark. Trading income saw a negative impact in the first quarter of 2019
from a regulatory change to the discount curve for life insurance provisions.
Wealth Management
(DKK millions)
Net interest income
Net fee income
Net trading income
Other income
Total income
Operating expenses
Goodwill impairment charges
Profit before tax
Profit before tax and goodwill
impairment charges
Allocated capital (average)
Profit before tax as % p.a. of
allocated capital (avg.)
Cost/income ratio (%)
Full-time-equivalent staff
2019
2018
Index
19/18
-248
6,596
-117
1,167
7,398
3,589
800
3,009
3,809
15,569
19.3
59.3
1,563
-167
6,119
-50
-197
5,705
3,545
-
2,161
2,161
11,847
18.2
62.1
1,579
Breakdown of assets under management*
(DKK billions)
Life conventional
Asset management
Assets under advice
209
953
489
200
927
449
Total assets under management
1,651
1,575
Breakdown of net fee income
(DKK billions)
Management fees
Performance fees
Risk allowance fees
Total net fee income
4,847
376
1,373
6,596
4,865
149
1,105
6,119
Q4
2019
-75
1,658
111
-6
1,688
879
800
9
809
Q3
2019
-69
1,694
110
-120
1,615
784
-
831
831
16,383
16,336
0.2
99.5
1,563
20.3
48.5
1,567
209
953
489
210
951
450
1,651
1,610
966
358
334
1,658
1,281
4
409
1,694
-
108
-
-
130
101
-
139
176
131
-
-
99
105
103
109
105
100
252
124
108
55
Index
Q4/Q3
-
98
101
-
105
112
-
1
97
100
-
-
100
100
100
109
103
75
-
82
98
*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.
Danske Bank / Annual Report 2019 56
2019 vs 2018
Profit before tax amounted to DKK 3.0 billion, up 39%
from the level in 2018, due mainly to the gain from the
sale of Danica Pension Sweden, which was partly offset
by a DKK 0.8 billion goodwill impairment charge on
SEB Pension Denmark caused by regulatory changes.
The financial performance benefited from improved
conditions in the equity markets but was negatively
affected by lower interest rates and a regulatory change
implemented by the European pensions authority
(EIOPA) to the discount curve for life insurance
provisions. The provision for the compensation payable
to certain customers with the Flexinvest Fri product also
had an adverse effect on the result. The financial results
of SEB Pension Danmark were only partially included
in the result for 2018 and hence had a larger positive
effect on the result for 2019.
Net fee income amounted to DKK 6.6 billion and was up
8% from the level in 2018, due primarily to the inclusion
of SEB Pension Danmark. The Asset Management
business benefited from an additional DKK 0.2 billion in
performance fees relative to the 2018 figure. The sale
of Danica Pension Sweden caused a decrease in fee
income of DKK 0.2 billion from the level in 2018.
Net trading income amounted to a negative DKK 117
million, against a negative DKK 50 million in 2018.
Trading income was adversely affected by a DKK 140
million one-off in the first quarter of 2019 that was due
to a regulatory change in the VA component.
Other income amounted to DKK 1,167 million, against
a negative DKK 197 million in 2018. The increase was
due to the gain of DKK 1.3 billion from the sale of Danica
Pension Sweden. In 2019, other income saw a negative
impact of DKK 582 million from the health and accident
business, against a negative impact of DKK 487 million
in 2018.
Operating expenses were up 1% from the level in 2018.
This was due to the addition of the ordinary operating
expenses of SEB Pension Danmark, increased costs
for regulatory compliance, and the provision for the
approximately DKK 210 million one-off compensation
payable to certain customers with Flexinvest Fri. The
sale of Danica Pension Sweden lowered costs by
approximately DKK 250 million from the level in 2018.
The goodwill impairment charge of DKK 0.8 billion was
made due to an assessment of the effect of upcoming
Solvency II regulatory changes that take effect for 2020
and are expected to increase capital requirements.
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 increased DKK 76 billion,
primarily because of positive developments on the
financial markets. The sale of Danica Pension Sweden
reduced Assets under Management by DKK 64 billion.
At the end of 2019, Assets under Management totalled
DKK 1,651 billion – an increase of 5% year-on-year.
Net sales were negative in 2019, driven by sales to both
retail and institutional investors.
Premiums in Danica Pension amounted to DKK 33.6
billion, against DKK 44.1 billion in 2018. The decrease
was driven primarily by the sale of Danica Pension
Sweden and lower single premiums.
Investment return on customer funds
In 2019, the financial markets were characterised
by high returns. Looking overall at our funds, 70% of
investment products generated above–benchmark
returns in 2019, against 57% in 2018. On a 3-year
horizon, 71% 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.
2019
3-year
70
51
88
70
71
50
91
73
*Source: Investment Performance, based on results from Global Investment
Performance Standard.
Danske Bank / Annual Report 2019
57
Customers with Danica Balance Mix achieved returns
on investments of between 9.0% for low-risk profiles
with 0 years to retirement and 25.5% for high-risk
profiles with 30 years to retirement. The return for
customers with a Danica Balance medium risk profile
with 20 years to retirement was 19.7%.
We have developed our own in-house ESG tool called
mDASH that helps portfolio managers identify material
ESG aspects. To support the investment organisation,
we have a team of ESG analysts across the Nordic
countries who act as on-site support for our local
investment teams.
Q4 2019 vs Q3 2019
In the fourth quarter of 2019, profit before tax decreased
DKK 0.8 billion to DKK 0.0 billion, due primarily to a DKK 0.8
billion goodwill impairment charge on SEB Pension Danmark
caused by regulatory changes.
Total income increased 5% to DKK 1.7 billion owing to
performance fees from Asset Management.
Net fee income was down 2% from the level in the third quarter
as fees from the Danica Pension Tidspension product were
higher in the third quarter. However, the decline was somewhat
mitigated by performance fees of DKK 358 million booked in
the fourth quarter.
Operating expenses increased 12% from the third quarter to
the fourth quarter of 2019 due mainly to consultancy costs for
specific projects.
Business initiatives
Integrating ESG into the core of our investment offerings
Our journey to introduce ESG Inside into our investment
processes will help us make better-informed investment
decisions and will deliver attractive long-term returns
to our customers. With ESG Inside, we take an
active role as an investor in contributing to change
and improvement among our portfolio companies
and to support the work of companies in the area of
sustainability.
In 2019, we launched the Our Sustainable Investment
Journey 2019 report. This report shares stories of how
investment teams integrate ESG and details the thoughts
and approaches behind our ESG Inside strategy.
Our 2020 goal is that all our investment teams should
be able to explain how they integrate ESG. To reach that
goal, we are continuously building a stronger foundation
that will enable our investment teams to deploy
strong and systematic ESG integration. In addition to
supporting our ambition to meet customer demand for
investment solutions that take sustainability matters
into consideration, the continued focus on ESG Inside
also meets the wish of customers to influence the
sustainability work undertaken by portfolio companies.
Additionally, we rolled out an educational and skill-
building programme for advisers and customer
managers with the ultimate goal of having ESG Inside as
a natural part of our advisory services.
We will continue to strengthen our ability to integrate ESG
Inside into our processes, products and advisory services.
Furthermore, we will focus on increasing transparency
in relation to the sustainability characteristics of our
investment products and funds so that our customers
can easily select investment products that suit their
preferences and meet their financial goals.
New climate ambition for Danica Pension
In 2019, Danica Pension announced that they will
increase their climate ambitions by raising investments
in the green transformation to DKK 100 billion in the
period towards 2030. The investment ambition is
dependent on attractive investment opportunities that
support international climate goals and can generate
attractive returns on customers’ pension savings.
New digital solutions for Danish Pension customers
In the first quarter of 2019, we launched two new digital
solutions for our Danish pension customers. In January,
a new version of the pension overview on danicapension.
dk was launched. This new solution has been developed
together with the customers in order to ensure the best
possible customer experience. Since the launch, we
have added new features, one of which now enables
customers to see their forecasted savings. The first new
features to be added in 2020 are a new Pension Check
and the ability to sign documents digitally.
In March, we followed this up with a new version of our
mobile pension app. With user-centricity as the main
focus, the app has been simplified and is now easier to
use. One of the improvements that was introduced over
the year was the addition of push notifications, which
will enable us to communicate relevant advice to our
customers if and when their private or work life changes.
We expect to launch many new features in both the web
and the app solution in 2020.
Danske Bank / Annual Report 2019
Danica Pension
According to the December 2019 Aalund Research
survey on customer satisfaction, Danica Pension has
a stable level of customer satisfaction and is number
three in Denmark. Customer satisfaction is higher in
the segment of companies with 50-499 employees,
where Danica Pension is number two. Danica Pension in
Norway is ranked number four of six.
58
New partnership with Tryg off to a great start
At the beginning of June, Danica Pension announced a
new partnership with Tryg. As part of the partnership,
Tryg customers are offered Danica Pension’s pension
solutions under the Tryg Pension name. The offer covers
pension savings and risk coverage on life, critical illness
and loss of earning capacity. The partnership follows the
Danske Bank Group’s partnership with Tryg, which was
announced in late 2018, and it gives us the opportunity
to offer better products to our corporate and self-
employed customers. The partnership is expected to be
fully operational by July 2020 and has already been well
received by potential customers.
Expanding existing offering with Global Portfolio Solution
(GPS) to institutional customers in the Nordics
At the beginning of April 2019, we expanded our
existing offering with a new portfolio solution. Called
Global Portfolio Solution (GPS), this solution was first
offered to our Danish institutional clients and selected
Private Banking Elite customers. In November, the
solution was additionally made available to institutional
customers in Sweden, Norway and Finland. Global
Portfolio Solution (GPS) allows us to better manage
unwanted risk, improve diversification and be more agile
in our execution. It is our long-term ambition to offer
private investors the benefits that GPS provides, and we
are looking into how we can integrate GPS in the best
possible manner as part of our total investment offering
to retail customers.
Customer satisfaction
Asset Management
According to Prospera’s most recent survey from June
2019, the ranking of Asset Management in Denmark
rose from second to first. In Sweden and Norway,
however, customer satisfaction declined, with a fall in
our ranking in Norway from number two to number six
and in Sweden from number eight to number 13. In
Finland, we were ranked number four, up from number
five. Among providers present in all Nordic markets,
Asset Management is now ranked number two.
Danske Bank / Annual Report 2019 59
Danske Bank / Annual Report 2019 60
Northern Ireland
At DKK 789 million, profit before tax was 6% higher than in 2018, despite continued Brexit uncertainty. The increase
reflects a combination of higher income and lower loan impairment charges, with costs marginally higher.
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 (avg.)
Cost/income ratio (%)
Full-time-equivalent staff
* Allocated capital equals the legal entity’s capital.
2019
2018
Index
19/18
Q4
2019
Q3
2019
Index
Q4/Q3
1,524
363
110
14
2,011
1,216
794
5
789
54,287
696
70,943
34
6,425
1,491
392
82
12
1,978
1,207
770
26
744
49,805
762
62,555
30
6,843
102
93
134
117
102
101
103
19
106
109
91
113
113
94
391
89
-3
3
480
344
136
-5
141
54,287
696
70,943
34
6,341
368
86
43
4
500
277
222
-4
226
52,563
663
66,944
49
6,066
1.26
1.31
1.24
1.24
12.3
60.5
1,285
10.9
61.0
1,322
8.9
71.7
1,285
14.9
55.4
1,323
97
106
103
-
75
96
124
61
-
62
103
105
106
69
105
97
2019 vs 2018
Profit before tax increased 6% to DKK 789 million for
the full year 2019. This included a reduction in loan
impairments, with profit before loan impairment charges
being 3% higher at DKK 794 million.
Total income amounted to DKK 2,011 million and
was up 2% year-on-year. Despite continued Brexit
uncertainty, both lending and deposit volumes increased.
Retail customer activity levels remained high, supported
by ongoing improvements to our mortgage finance
proposition. Lending to businesses was impacted by
Brexit, with some customers delaying investment
decisions. Uncertainty is further evident from the
volatility in trading income, which was higher in 2019
than in the preceding year. Alongside balance sheet
growth and higher UK interest rates, this resulted in
increased income.
At DKK 1,216 million, operating expenses were
marginally higher than in 2018, as we continued to
manage our cost base while investing in improved
solutions and skills designed to ensure customer
expectations are fully met.
Danske Bank / Annual Report 2019
61
cashback offers. Total mortgage lending is at its highest
ever level.
For business customers, demand for lending continues
to be subdued as a result of uncertainty around the
prolonged Brexit process. There has been a notable uplift
in customer requests for support, advice and guidance,
conversations we encourage and value. Whatever
shape Brexit takes, it will only be the beginning of a new
operating environment, and the process of change will
be a significant factor for many years to come.
In the digital space, 2019 saw more than 75 million
digital logons from customers and a 32% increase in
digital transactions year-on-year. We have leveraged
significant Group investments in the development of
new digital platforms, including a new Mobile Banking
app for personal customers and the District digital
solution for business customers.
In 2019, we were delighted to be named Northern
Ireland’s Responsible Company of the Year by Business
in the Community. We are very proud of this, and it is a
reflection of the positive societal impact we continue to
make, alongside our various community partners, right
across Northern Ireland.
Customer satisfaction
We were also delighted to finish the year 2019 in first
place for Corporate & Business Banking, and, for the
first time, to also have attained first position in Personal
Banking & Small Business.
Northern Ireland
Below target
On target
7
6
5
4
3
2
1
Retail
customers
Business
customers
2019 vs 2018 in local currency
Profitability also improved in local currency, with
income maintained alongside reduced costs and lower
impairment charges as described.
Credit quality
There was no significant movement in credit quality
during the year. The possibility that the United Kingdom
may exit the European Union at the end of the transition
period without a trade agreement has been factored into
forward-looking macroeconomic scenarios as part of the
application of IFRS 9.
Net credit exposure
Impairments
(%)
(DKK millions)
31 December
2019
31 December
2018
31 December
2019
Retail
customers
Public
institutions
Financial
customers
Commercial
customers
26,812
23,012
-0.11%
19,934
14,919
0.00%
459
101
-15.92%
31,332
Total
78,537
31,156
69,187
0.15%
0.01%
Q4 2019 vs Q3 2019
Profitability fell in the fourth quarter, mainly as a result of higher
costs.
While costs are controlled tightly and broadly maintained year-
on-year, an increase in the fourth quarter was exacerbated by a
significant strengthening of the British pound sterling from the
third quarter.
Business initiatives
Our vision in Northern Ireland is to be recognised as
the best bank for customers, colleagues, partners and
society. In a challenging environment, we continue to
execute our strategy to digitally transform the bank,
improve the customer experience and reduce costs.
For personal customers, we are providing attractive
mortgage loan packages with competitive rates and
Danske Bank / Annual Report 2019
62
Non-core
Profit before tax for 2019 was a negative DKK 493 million. Total lending stood at DKK 7.5 billion at the end of 2019,
against DKK 14.9 billion at the end of 2018 due to the sale of loan portfolios in the Baltics and the closing down of our
activities in Russia. 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 (avg.)
Cost/income ratio (%)
Full-time-equivalent staff
2019
2018
Index
19/18
-61
219
-280
213
-493
7,456
842
1,668
19
2,379
213
632
-419
-137
-282
14,906
784
2,399
32
2,115
-
35
-
-
175
50
107
70
59
112
Q4
2019
-224
126
-350
-106
-244
7,456
842
1,668
19
2,123
Q3
2019
55
83
-28
-50
22
11,528
790
1,734
19
2,218
1.27
1.02
1.05
1.70
-20.7
-359.0
159
-13.3
296.7
259
-46.0
-56.3
159
4.0
150.9
284
-205
99
-106
-50
-
-50
61
-
-
-
Index
Q4/Q3
-
152
-
-
-
65
107
96
100
96
56
-
-
-
Loan impairment charges
(DKK millions)
Non-core banking**
Non-core conduits etc.
Total
19
194
213
-177
40
-137
* Loans, excluding reverse transactions before impairments includes loans held for sale in Lithuania and Latvia.
** Non-core banking encompasses the Group’s activities in Lithuania and Latvia as well as Non-core Ireland.
Danske Bank / Annual Report 2019
63
Total impairments amounted to a net charge of
DKK 213 million, against a net reversal of DKK 137
million in 2018. The increase was due to a single-
name exposure in the legacy Non-core portfolio.
Q4 2019 vs Q3 2019
Profit before tax amounted to a negative DKK 244 million,
against a positive DKK 22 million in the third quarter of 2019.
The loss before tax in the fourth quarter was due mainly to
adjustments in relation to the sale of loan portfolios in the
Baltics, an impairment charge in the legacy Non-core portfolio
and an increase in severance pay.
2019 vs 2018
The Non-core unit posted a loss before tax of DKK 493
million, against a loss before tax of DKK 282 million in
2018, primarily as a result of the sale of the Baltic loan
portfolios.
Operating expenses amounted to DKK 219 million, a
decrease of DKK 413 million from the level in 2018.
Operating expenses benefited from an adjustment of
VAT regarding previous years.
Net credit exposure totalled DKK 10.4 billion, against
DKK 18.4 billion at the end of 2018.
At the end of 2019, total lending amounted to DKK 7.5
billion and consisted mainly of exposure to commercial
customers and public institutions in Lithuania and Latvia
as well as conduits. A loan portfolio of local personal
customers in Estonia, for which the Group in June 2019
entered into an agreement with AS LHV Pank, was sold
and transferred to AS LHV Pank in November 2019.
The Group has exited its banking activities in Estonia
and Russia. In December 2019 and January 2020,
the Group entered into agreements to sell its personal
customer loan portfolios in Latvia and Lithuania. The
sales are expected to be settled in the first half of
2020. Subsequently, the Lithuanian branch will hold
only a portfolio of commercial loans, which will mature
according to contractual terms.
The Non-core conduits portfolio amounted to DKK 3.7
billion, against DKK 3.9 billion at the end of 2018. The
portfolio consists mainly of liquidity facilities for conduits.
Net credit exposure Expected credit loss
31 Dec.
2019
31 Dec.
2018
31 Dec.
2019
31 Dec.
2018
Non-core banking*
6,653
14,516
222
394
-of which personal
customers
-of which commercial
customers
-of which public
institutions
983
4,816
21
153
3,696
7,620
201
240
1,974
2,081
-
2
Non-core conduits etc.
3,749
3,916
640
422
Total
10,402
18,432
862
816
Danske Bank / Annual Report 2019
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
differences at the Internal Bank between actual and allocated funding costs using the Group’s funds transfer pricing
model, the elimination of the interest expense on equity-accounted additional tier 1 capital, reported as an interest
expense in the business segments, 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 and issues*
Additional tier 1 capital
Group support functions
Total Other Activities
2019
2018
Index
19/18
-5
-227
1,421
217
1,407
2,903
-1,497
-5
-1,491
825
59
785
-3,160
-1,491
515
-261
933
7
1,194
2,416
-1,222
5
-1,227
241
482
782
-2,731
-1,227
-
-
152
-
118
120
-
-
-
-
12
100
-
-
Q4
2019
18
-57
993
127
1,081
1,521
-439
-1
-438
836
-51
197
-1,421
-438
Q3
2019
52
-47
96
83
184
643
-459
1
-460
39
68
197
-765
-460
Index
Q4/Q3
35
-
-
153
-
237
-
-
-
-
-
100
-
-
* Eliminations of market making in own issues have been moved from Group Treasury to Own shares and issues. Comparative figures have been restated.
2019 vs 2018
Other Activities posted a loss before tax of DKK 1,491
million, against a loss before tax of DKK 1,227 million in
2018.
Net interest income amounted to a negative DKK 5
million, against a positive DKK 515 million in 2018. The
decrease was caused primarily by differences between
actual and allocated funding costs at the Internal
Bank, which, among other things, were affected by the
increase in liquidity costs attributable to the Estonia
case being retained at the Internal Bank rather than
being allocated to business units.
Net trading income amounted to DKK 1,421 million,
against DKK 933 million in 2018. The increase was due
mainly to the gain from the sale of the shareholding in LR
Realkredit A/S and positive market value adjustments
of the private equity portfolio. The increase was offset
partly by the effect of the elimination of lower losses on
the Group’s holdings of own shares.
Operating expenses amounted to DKK 2,903 million,
against DKK 2,416 million in 2018. The increase in
2019 was primarily the result of higher costs for the
Estonia case, a DKK 0.4 billion provision for operational
risk-related losses and transformation costs. In 2018,
operating expenses were affected by the expense for the
DKK 1.5 billion donation.
Q4 2019 vs Q3 2019
Other Activities posted a loss before tax of DKK 438 million,
against a loss before tax of DKK 460 million in the third quarter
of 2019.
Net interest income amounted to DKK 18 million, against
DKK 52 million in the third quarter of 2019, driven partly by
lower allocated funding costs at the Internal Bank.
Net trading income amounted to DKK 993 million, against
DKK 96 million in the third quarter of 2019, due mainly to the
gain from the sale of the shareholding in LR Realkredit A/S
and positive market value adjustments of the private equity
portfolio.
Operating expenses amounted to DKK 1,521 million, against
DKK 643 million in the third quarter of 2019. The increase was
due primarily to a DKK 0.4 billion provision for operational risk-
related losses and higher costs relating to the Estonia case.
Danske Bank / Annual Report 2019 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 the comparative figures for
2018 an adjusting item related to the implementation of IFRS 9 was 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 was 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 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 together with the other changes from the implementation of IFRS 9.
Therefore, net profit in the financial highlights for 2018 was 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)
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.
Earnings per share (DKK)
As IFRS, with the exception that for 2018, the net profit used is the net profit in the financial highlights, see explana-
tion above.
Return on average
shareholders’ equity (% p.a.)
Net interest income as % p.a.
of loans and deposits
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 786 million (2018: DKK 781 million). 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 17,744 million (2018: DKK 18,396 million) compared to a simple average of total equity (beginning and end of
the period).
Net interest income in the financial highlights divided by the daily average of the sum of loans and deposits.
Previously, the sum of loans and deposits end of the period was used as denominator. Prior periods have been
restated. If the ratio was calculated applying the sum of loans and deposits end of period, the ratio for 2019 would be
0.79% due to the daily average of the sum of loans and deposits being DKK 54.9 billion lower than calculating the
ratio by applying the end-of-period sum of loans and deposits. The purpose of the ratio is to show if the growth in net
interest income follows the growth in loans and deposits. The daily average is a more faithful representation of 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
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 1,516 million from the financial highlights. The denominator is the
sum of Loans at amortised cost of DKK 972.1 billion, Loans at fair value of DKK 794.9 billion and guarantees of
DKK 83.1 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.
Allowance account as %
of loans and guarantees
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 20.5 billion at the end of the period, as disclosed in the “Allowance
account in core activities broken down by segment” table in the notes to the financial statements. The denominator is
the sum of. Loans at amortised cost of DKK 1,022.3 billion, Loans at fair value of DKK 802.6 billion, and guarantees
of DKK 68.7 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.
Realkredit Danmark bonds
funding loans
On page 22, information is provided on the funding of lending by deposits and covered bonds. The ‘Bonds issued
by Realkredit Danmark’ line item equals the carrying amount in the balance sheet, that is, issued bonds held by the
Group’s external investors. The ‘Total Realkredit Danmark bonds’ line item equals loans funded by Realkredit Danmark
bonds. The ‘Own holdings of bonds’ line item is a residual item that includes the net amount of the elimination of own
holdings less issued bonds backed by collateral other than mortgage loans, such as securities.
Market shares of lending and
deposits
Market shares of lending and deposits are based on data from central banks at the time of reporting. Comparative
information is updated on the basis of the latest available data, for example Annual Report 2018 included November
2018 data for Finland, Sweden and Norway as December 2018 data was not available at the time of publication of
Annual Report 2018. Subsequently, in Interim report – first quarter 2019, the comparative data for market shares in
Finland, Sweden and Norway was updated with December 2018 data.
Danske Bank / Annual Report 2019
66
It is fundamental that we
align our goals with those of
society while ensuring that we
run a solid business
Danske Bank / Annual Report 2019 67
Danske Bank / Annual Report 2019 68
Danske Bank / Annual Report 2019
Financial statements
Income statement
70
71 Statement of comprehensive income
72 Balance sheet
73 Statement of capital
77 Cash flow statement
78 Notes
78 G1. Basis of preparation
86 G2.
89 G3.
Changes and forthcoming changes to
accounting policies and presentation
Business model and business
segmentation
98 G4. Activities by country
100 G5. Net interest and net trading income
103 G6.
105 G7.
Fee income and expenses
Gain or loss on sale of disposal groups,
Income from holdings in associates and
Other income
Insurance contracts
G8.
G9. Operating expenses
G10. Audit fees
G11. Loan impairment charges
G12. Trading portfolio assets and liabilities
G13. Investment securities
G14. Due from credit institutions and central
106
107
108
109
110
115
117
banks
118 G15. Loans at amortised cost
123 G16. Loans and issued bonds at fair value
126 G17.
Asset and deposits under pooled
schemes and unit-linked investment
contracts
Assets and liabilities under insurance
Contracts
Intangible assets
Due to credit institutions and central
banks and deposits
127 G18.
130 G19.
134 G20.
135 G21. Tax
139 G22.
143 G23.
Issued bonds
Assets held for sale and Liabilities in
disposal groups
144 G24. Other assets and Other liabilities
146 G25. Equity
Danske Bank / Annual Report 2019
69
148 G26. Note to the cash flow statement
149 G27. Guarantees, commitments and contingent
151 G28.
152 G29.
153 G30.
liabilities
Balance sheet broken down by expected
due date
Contractual due dates of financial
liabilities
Transferred financial assets that are not
deregcognised
154 G31. Assets provided or received as collateral
155 G32. Offsetting of financial assets and liabilities
156 G33.
Fair value information for financial
instruments
Non-financial assets recognised at fair
value
162 G34.
163 G35. Related parties
164 G36.
170 G37.
Remuneration of management and
material risk takers
Danske Bank shares held by the Board of
Directors and Executive Board
171 G38. Group holdings and undertakings
Interests in associates and joint
174 G39.
arrangements
Interests in unconsolidated structured
entities
Changes to financial highlights and
segment reporting in 2020
175 G40.
175 G41.
176 Risk management
176 Risk exposure
176 Total capital
177 Credit risk
177 Credit exposure
197 Bond portfolio
200 Market risk
203 Liquidity risk
206
Insurance risk
210 Highlights, ratios and key figures
211 Definitions of ratios and key figures
212 Financial statements – Danske Bank A/S
70
Danske Bank / Annual Report 2019
Income statement – Danske Bank Group
Statement of comprehensive income – Danske Bank Group
Note
(DKK millions)
G5
G5
G5
G6
G6
G5
G7
G7
G7
G8
G8
G9
G9, G19
G11
G21
Interest income calculated using the effective interest method
Other interest income
Interest expense
Net interest income
Fee income
Fee expenses
Net trading income or loss
Gain or loss on sale of disposal groups
Income from holdings in associates
Other income
Net premiums
Net insurance benefits
Operating expenses
Impairment charges on goodwill
Profit before loan impairment charges
Loan impairment charges
Profit before tax
Tax
Net profit
Portion attributable to
Shareholders of Danske Bank A/S (the Parent Company)
Additional Tier 1 capital holders
Net profit
Earnings per share (DKK)
Diluted earnings per share (DKK)
Proposed dividend per share (DKK)
Note
(DKK millions)
Net profit
Other comprehensive income
Items that will not be reclassified to profit or loss
Remeasurement of defined benefit pension plans
G21
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
G12
Hedging of units outside Denmark
Reclassified to the income statement on disposal of units outside Denmark
Unrealised value adjustments of bonds at fair value (OCI)
Realised value adjustments of bonds at fair value (OCI)
G21
Tax
Items that are or may be reclassified subsequently to profit or loss
Total other comprehensive income
Total comprehensive income
Portion attributable to
Additional Tier 1 capital holders
Total comprehensive income
2019
24,754
45,065
41,927
27,892
16,437
6,079
34,533
1,879
386
4,857
26,316
58,106
30,960
1,603
15,551
1,729
13,822
-1,249
2018
24,661
35,106
30,746
29,022
17,312
6,932
-10,237
-
451
4,777
25,963
13,400
28,020
-
18,936
-387
19,322
4,460
15,072
14,862
Shareholders of Danske Bank A/S (the Parent Company)
14,285
786
15,072
16.7
16.7
8.5
14,081
781
14,862
16.2
16.2
8.5
Danske Bank / Annual Report 2019 53
2019
2018
15,072
14,862
228
-21
207
692
-324
5
9
3
47
432
639
-291
42
-249
-374
309
-
-21
-18
-129
-233
-482
15,711
14,380
14,925
786
15,711
13,599
781
14,380
Statement of comprehensive income – Danske Bank Group
Danske Bank / Annual Report 2019
71
Danske Bank / Annual Report 2019 53
Note
(DKK millions)
G21
G12
G21
Net profit
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
Reclassified to the income statement on disposal 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
Portion attributable to
Shareholders of Danske Bank A/S (the Parent Company)
Additional Tier 1 capital holders
Total comprehensive income
2019
2018
15,072
14,862
228
-21
207
692
-324
5
9
3
47
432
639
-291
42
-249
-374
309
-
-21
-18
-129
-233
-482
15,711
14,380
14,925
786
15,711
13,599
781
14,380
72
Danske Bank / Annual Report 2019
54 Danske Bank / Annual Report 2019
Danske Bank / Annual Report 2019 55
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
G14
G12
G13
G15
G16
G17
G18
G23
G19
G21
G24
2019
2018
99,035
105,674
495,321
284,873
1,028,011
1,122,048
111,089
463,816
1,352
9,165
2,987
37,679
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
Total assets
3,761,050
3,578,467
G20
G12
G20
G16, G22
G22
G17
G18
G23
G21
G24
G22
G22
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
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
G25
Total equity
Total liabilities and equity
155,246
452,202
1,140,726
802,501
256,355
111,537
504,714
110
2,172
46,191
87,054
31,733
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
3,590,541
3,415,191
8,622
-372
102
140,590
7,329
156,271
14,237
8,960
-745
90
133,056
7,616
148,976
14,299
170,508
163,276
3,761,050
3,578,467
Changes in equity
Shareholders of Danske Bank A/S (the Parent Company)
Foreign
currency
Reserve for
(DKK millions)
Share
translation
bonds at fair
Retained
Proposed
Additional
capital
reserve
value (OCI)
earnings
dividends
Total
tier 1 capital
Total
Total equity as at 31 December 2018
Impact from changes in accounting policies
8,960
-745
90
133,056
7,616
148,976
14,299
163,276
-288
-288
-288
Restated total equity as at 1 January 2019
8,960
-745
90
132,768
7,616
148,688
14,299
162,988
14,285
14,285
786
15,072
Net profit
Other comprehensive income
Remeasurement of defined benefit pension plans
Translation of units outside Denmark
Hedging of units outside Denmark
Reclassified on disposal
Unrealised value adjustments
Realised value adjustments
Tax
Total other comprehensive income
Total 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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-338
692
-324
-
-
-
5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9
3
-
-
-
-
-
-
-
-
-
228
-
-
-
-
-
26
254
228
692
-324
5
9
3
26
639
373
373
12
12
14,539
14,925
786
15,711
-
377
-7,329
338
-19,768
19,552
90
23
-7,616
7,329
-7,239
-
-
-
-19,768
19,552
90
23
-787
-787
-7,239
-62
-19,830
19,552
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
228
692
-324
5
9
3
26
639
-
-
90
23
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total equity as at 31 December 2019
8,622
-372
102
140,590
7,329 156,271
14,237
170,508
On 29 April 2019, the share capital was reduced by DKK 337,690,000 through cancellation of 33,769,000 shares from Danske Bank’s holding of own
shares acquired under the 2018 share buy-back programme.
Danske Bank / Annual Report 2019
73
Danske Bank / Annual Report 2019 55
Statement of capital – Danske Bank Group
Changes in equity
(DKK millions)
Total equity as at 31 December 2018
Impact from changes in accounting policies
Restated total equity as at 1 January 2019
Net profit
Other comprehensive income
Remeasurement of defined benefit pension plans
Translation of units outside Denmark
Hedging of units outside Denmark
Reclassified on disposal
Unrealised value adjustments
Realised value adjustments
Tax
Total other comprehensive income
Total 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
Shareholders of Danske Bank A/S (the Parent Company)
Foreign
currency
translation
reserve
Reserve for
bonds at fair
value (OCI)
Retained
earnings
Proposed
dividends
Additional
tier 1 capital
Total
Total
-745
-
-745
-
-
692
-324
5
-
-
-
373
373
-
-
-
-
-
-
-
-
90
-
90
-
-
-
-
-
9
3
-
12
12
-
-
-
-
-
-
-
-
133,056
-288
132,768
14,285
228
-
-
-
-
-
26
254
14,539
-
377
-7,329
338
-19,768
19,552
90
23
7,616
-
148,976
-288
14,299
-
163,276
-288
7,616
-
148,688
14,285
14,299
786
162,988
15,072
-
-
-
-
-
-
-
-
-
228
692
-324
5
9
3
26
639
-
-
-
-
-
-
-
-
228
692
-324
5
9
3
26
639
14,925
786
15,711
-
-7,616
7,329
-
-
-
-
-
-
-7,239
-
-
-19,768
19,552
90
23
-787
-
-
-
-62
-
-
-
-787
-7,239
-
-
-19,830
19,552
90
23
Share
capital
8,960
-
8,960
-
-
-
-
-
-
-
-
-
-
-
-
-
-338
-
-
-
-
Total equity as at 31 December 2019
8,622
-372
102
140,590
7,329 156,271
14,237
170,508
On 29 April 2019, the share capital was reduced by DKK 337,690,000 through cancellation of 33,769,000 shares from Danske Bank’s holding of own
shares acquired under the 2018 share buy-back programme.
74
Danske Bank / Annual Report 2019
56 Danske Bank / Annual Report 2019
Statement of capital – Danske Bank Group
Statement of capital – Danske Bank Group
Changes in equity
Dividend
(DKK millions)
Total equity as at 1 January 2018
Net profit
Other comprehensive income
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
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)
Retained
earnings
Proposed
dividends
Additional
tier 1 capital
Total
Total
-681
-
-
-374
309
-
-
-
-65
-65
-
-
-
-
-
-
-
-
130
-
134,076
14,081
9,368
-
152,261
14,081
14,339
781
166,601
14,862
-
-
-
-21
-18
-
-39
-291
-
-
-
-
-87
-378
-39
13,530
-
-
-
-
-
-
-
-
-291
-374
309
-21
-18
-87
-482
-
-
-
-
-
-
-
-291
-374
309
-21
-18
-87
-482
13,599
781
14,380
-
-
-
-
-
-
-
-
-
517
-7,616
409
-48,247
40,181
93
112
-
-9,368
7,616
-
-
-
-
-
-
-8,851
-
-
-48,247
40,181
93
112
-784
-
-
-
-37
-
-
-
-784
-8,851
-
-
-48,284
40,181
93
112
Share
capital
9,368
-
-
-
-
-
-
-
-
-
-
-
-
-409
-
-
-
-
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.
Total
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.
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
The Board of Directors is proposing a dividend of DKK 8.50 per share (2018: DKK 8.50), or a total of DKK 7,329 million (2018: DKK 7,616 million) to be paid
out of the net profit for the Parent Company of DKK 15,068 million (2018: DKK 14,864 million).
Earnings per share (DKK millions)
Net profit 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
854,911,769
871,764,982
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. Earnings per
share and diluted earnings per share for 2018 have been adjusted as they was previously calculated based on net profit in financial highlights.
Danske Bank / Annual Report 2019 57
2019
2018
14,285
14,081
895,953,621
936,827,722
33,769,000
40,874,101
7,830,142
24,724,690
854,354,479
871,228,931
557,291
536,052
16.7
16.7
16.2
16.2
2019
2018
862,184,621
895,953,621
8,479,706
41,158,233
853,704,915
854,795,388
Value
2019
278
636
914
Total
2019
5,305
19,768
19,552
-199
4,409
Value
2018
4,353
354
599
5,305
Total
2018
10,336
48,247
40,181
-3,895
9,201
-
33,769,000
-
Number
2019
Number
2018
2,578,835
5,900,871
2,746,086
4,643,147
8,479,706
41,158,233
Share buy-back
Trading
programme
portfolio
of customers
Investment
on behalf
4,353
-
-
56
354
19,440
19,495
-21
599
328
57
-234
4,409
-
-
Earnings per share (DKK)
Diluted earnings per share (DKK)
Number of shares outstanding
Issued at 31 December 2018
Holding of own shares
Shares outstanding at 31 December 2019
Holding of own shares
Share buy-back programme
Trading portfolio
Investment on behalf of customers
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 as 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.
-
278
636
914
5,305
In 2019, the Group did not initiate a share buy-back programme. 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.
Danske Bank / Annual Report 2019
75
Danske Bank / Annual Report 2019 57
Statement of capital – Danske Bank Group
Dividend
The Board of Directors is proposing a dividend of DKK 8.50 per share (2018: DKK 8.50), or a total of DKK 7,329 million (2018: DKK 7,616 million) to be paid
out of the net profit for the Parent Company of DKK 15,068 million (2018: DKK 14,864 million).
Earnings per share (DKK millions)
Net profit 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
2019
2018
14,285
14,081
895,953,621
33,769,000
7,830,142
936,827,722
40,874,101
24,724,690
854,354,479
557,291
871,228,931
536,052
Adjusted average number of shares outstanding after share capital reduction, including dilutive shares
854,911,769
871,764,982
Earnings per share (DKK)
Diluted earnings per share (DKK)
16.7
16.7
16.2
16.2
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. Earnings per
share and diluted earnings per share for 2018 have been adjusted as they was previously calculated based on net profit in financial highlights.
Number of shares outstanding
Issued at 31 December 2018
Holding of own shares
Shares outstanding at 31 December 2019
Holding of own shares
Share buy-back programme
Trading portfolio
Investment on behalf of customers
Total
2019
2018
862,184,621
8,479,706
895,953,621
41,158,233
853,704,915
854,795,388
Number
2019
Number
2018
Value
2019
-
2,578,835
5,900,871
33,769,000
2,746,086
4,643,147
-
278
636
8,479,706
41,158,233
914
Value
2018
4,353
354
599
5,305
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 as at 31 December
Share buy-back
programme
Trading
portfolio
Investment
on behalf
of customers
4,353
-
-
56
4,409
354
19,440
19,495
-21
-
599
328
57
-234
-
Total
2019
5,305
19,768
19,552
-199
4,409
Total
2018
10,336
48,247
40,181
-3,895
9,201
-
278
636
914
5,305
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.
In 2019, the Group did not initiate a share buy-back programme. 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 2019
58 Danske Bank / Annual Report 2019
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
Expected/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
Tier 1 capital
Tier 2 capital instruments
Total capital
Total risk exposure amount
Common equity tier 1 capital ratio (%)
Tier 1 capital ratio (%)
Total capital ratio (%)
31 December
2019
31 December
2018
170,508
265
-31
170,741
-14,070
-167
37
156,541
-344
1,325
-926
-178
-7,329
-6,339
487
-12
-1,925
-8,439
-197
132,664
23,944
156,608
17,598
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
126,827
23,677
150,505
9,161
174,206
159,666
767,177
748,104
17.3
20.4
22.7
17.0
20.1
21.3
Total capital and the total risk exposure amount are calculated in accordance with the rules applicable under the Capital Requirements Regulation (CRR),
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.
In May 2019, the Group established a so-called structural FX hedge position in SEK, NOK and EUR for the purpose of hedging against adverse currency
effects on the Group’s capital ratios in accordance with article 352(2) in CRR. The hedge positions will thus reduce the impact on the Group’s CET1
capital ratio resulting from changes in the risk exposure amount due to changes in relevant currency rates. At the end of 2019, the hedge positions
totalled DKK 29,988 million and effect equity through Other comprehensive income, which at the end for 2019 included a gain of DKK 286 million (see
further details in note G12(d).
Risk Management 2019 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/reports and is not covered by the statutory audit.
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 G26 provides further information on the cash flow statement.
(DKK millions)
Cash flow from operations
Profit before tax
Tax paid
Total
Changes in operating capital
Trading portfolio
Adjustment for non-cash operating items
Amounts due to/from credit institutions and central banks
Acquisition/sale of own shares and additional tier 1 capital
Investment securities
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
Issue of subordinated debt
Redemption of subordinated debt
Issue of non-preferred senior bonds
G26
G26
G26
Dividends
Share buy-back programme*
Paid interest on additional tier 1 capital
Principal portion of lessee lease payments
Cash flow from financing activities
G14
Cash and cash equivalents as at 1 January
Foreign currency translation
Change in cash and cash equivalents
Cash and cash equivalents, end of period
Cash and cash equivalents, end of period
Cash in hand
Demand deposits with central banks
Danske Bank / Annual Report 2019 59
2019
2018
13,822
-5,245
10,369
19,322
-5,427
1,997
18,946
15,892
-126,772
-144,665
-96,693
-17,527
-278
-8,449
-108,208
81,606
14,533
988
-11,690
1,683
-878
-666
12
151
11,791
-3,467
59,808
-7,239
-787
-729
-
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
-
59,377
2,176
264,836
2,016
-67,244
413,593
393
-149,150
199,608
264,836
6,235
92,800
100,574
8,799
32,198
223,839
199,608
264,836
Cash flow statement – Danske Bank Group
(DKK millions)
Cash flow from operations
Profit before tax
Tax paid
Adjustment for non-cash operating items
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
Investment securities
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
G26
G26
G26
Cash flow from financing activities
Issue of subordinated debt
Redemption of subordinated debt
Issue of non-preferred senior bonds
Dividends
Share buy-back programme*
Paid interest on additional tier 1 capital
Principal portion of lessee lease payments
Cash flow from financing activities
G14
Cash and cash equivalents as at 1 January
Foreign currency translation
Change in cash and cash equivalents
Cash and cash equivalents, end of period
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 G26 provides further information on the cash flow statement.
Danske Bank / Annual Report 2019
77
Danske Bank / Annual Report 2019 59
2019
2018
13,822
-5,245
10,369
19,322
-5,427
1,997
18,946
15,892
-96,693
-17,527
-278
-8,449
-108,208
81,606
14,533
988
-11,690
7,154
23,104
-277
43,615
-143,218
12,262
-117,701
17,051
-2,547
-126,772
-144,665
1,683
-878
-666
12
151
11,791
-3,467
59,808
-7,239
-
-787
-729
-5,000
-1,120
-549
10
-6,659
4,748
-10,928
25,816
-8,851
-7,825
-784
-
59,377
2,176
264,836
2,016
-67,244
413,593
393
-149,150
199,608
264,836
6,235
92,800
100,574
8,799
32,198
223,839
199,608
264,836
78
Danske Bank / Annual Report 2019
60 Danske Bank / Annual Report 2019
Notes – Danske Bank Group
G1. 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 consolidated
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.
On 1 January 2019, the Group implemented IFRS 16, Leases, amendments to various standards (IFRS 9, Prepayment Features with Negative
Compensation, Annual Improvements to IFRS Standards 2015-2017 Cycle (amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23), IAS 19, Plan
Amendment, Curtailment or Settlement and IAS 28, Long-term Interests in Associates and Joint Ventures) and the interpretation IFRIC 23, Uncertainty
over Income Tax Treatments. In the fourth quarter of 2019, the Group has decided to early adopt the amendments to IFRS 9, IAS 39 and IFRS 7 included
in IASB’s project ‘Interest Rate Benchmark Reform. Further, the Group has changed its accounting policy for calculating the provision for health and
accident insurance.
Further information on the implementation of changes to accounting policies in 2019, including the impact on the opening balance sheet at 1 January
2019, can be found in note G2. Except for these changes, the Group has not changed its significant accounting policies from those applied in Annual
Report 2018.
For changes in the segment reporting, see note G3.
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.
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 G25.
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.
losses.
The significant accounting policies are incorporated into the notes to which they relate.
probability assigned to the downside scenario.
(b) Significant accounting estimates and judgements
The preparation of financial information requires, in some cases, the use of judgements and estimates by management. This includes judgements made
when applying accounting policies. The most significant judgements made when applying accounting policies relate to the classification of financial assets
and financial liabilities under IFRS 9, especially related to the business model assessment, and the SPPI test (further explained in note G15) and the
designation of financial liabilities at fair value through profit or loss to eliminate or significantly reduce an accounting mismatch (further explained in note
G16). An overview of the classification and measurement basis for financial instruments can be found in section (c) of this note.
Further, the determination of the carrying amounts of some assets and liabilities requires the estimation of the effects of uncertain future events on
those assets and liabilities. The estimates 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. In view of the inherent uncertainties and the high level of subjectivity and judgement involved in the recognition and measurement of the items
listed below, it is possible that the outcomes in the next financial year could differ from those on which management’s estimates are based.
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
The three-stage expected credit loss impairment model in IFRS 9 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). In determining the impairment for expected credit
losses, management exercises judgement and uses estimates and assumptions as explained below.
Danske Bank / Annual Report 2019 61
Notes – Danske Bank Group
G1. Basis of preparation continued
(b) Significant accounting estimates and judgements
The expected credit loss is calculated for all individual facilities as a function of estimates 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 in future periods. 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), including
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 60 % (2018: 70%), the upside scenario with
a probability of 10 % (2018: 15%) and the downside scenario with a probability of 30 % (2018: 15%). On the basis of these assessments, the allowance
account at the end of 2019 amounted to DKK 21.3 billion (2018: 21.2 billion). If the base-case scenario was assigned a probability of 100%, the allowance
account would decrease DKK 0.7 billion (2018: 0.4 billion). Compared to the base case scenario, the allowance account would increase DKK 2.4 billion
(2018: 3.8 billion), if the downside scenario was assigned a probability of 100%. The increase reflects primarily the transfer of exposures from stage 1
to stage 2 and increased expected credit losses within stage 2. If instead the upside scenario was assigned a probability of 100%, the allowance account
would decrease DKK 0.5 billion (2018: 0.1 billion) compared to the base case scenario. However, it shall be noted that the expected credit losses in the
individual scenarios (i.e. without the weighting) does not represent expected credit loss (ECL) forecasts.
In determining the expected credit losses, management is required to exercise judgement in defining what is considered a significant increase in credit
risk. 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
initial 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. The allowance account is relatively stable in terms of changes to the definition of significant increase in credit risk. At
the end of 2019, the allowance account would increase by DKK 0.03 billion (2018: DKK 0.05 billion), 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 lifetime PD was considered a significant increase in credit risk.
Management applies judgement when determining the need for post-model adjustments. At the end 2019, the post-model adjustments amounted to
DKK 4.0 billion (31 December 2018: 4.5 billion). Around half of all the adjustments relate to high-risk industries such as Agriculture and Oil & gas within
the Group’s Shipping, Oil & Gas exposure, where the Group has no specific expected credit loss models in place, and consequently makes supplementary
calculations in order to ensure sufficient impairment coverage. Remaining adjustments are made to take into account non-linear downside risks, for
instance 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 credit risk assessment process has identified underestimation of the expected credit
Loan impairment charges in the income statement 2019 amounted to DKK 1,729 million against a reversal of DKK 387 million in 2018. The increase
was driven mainly by increased impairments against a few single-name exposures, lower reversals on non-performing loans and the increase in the
Note G15 and the section on credit risk in the risk management notes provide more details on expected credit losses. At the end of 2019, financial assets
covered by the expected credit loss model accounted for about 57% of total assets (2018: 61%).
Fair value measurement of financial instruments
The majority of valuation techniques employ only observable market data. However, certain financial instruments are measured on the basis of valuation
techniques that are based on one or more significant unobservable inputs and, therefore, are subject to significant estimates. This includes unlisted
shares and certain bonds for which there is no active market. In general, the Group’s net profit is only to a limited extent impacted by such estimates as
most of the financial assets that is measured on the basis of unobservable data are allocated to insurance contract policyholders, and the policyholders
assume most of the risk on the financial assets. On the derivatives portfolio, 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 2019, the adjustments
totalled DKK 1.5 billion (2018: DKK 1.1 billion), including the adjustment for credit risk on derivatives that are credit impaired. Note G33(a) provides
more details on fair value measurement of financial instruments.
The Group uses derivatives to hedge the fixed interest rate risk on some financial assets and liabilities, thus converting the fixed interest rates on the
financial instruments to variable interest rates by the use of swaps. The ongoing Interest Rate Benchmark Reform will replace existing benchmark
interbank offered rates (IBORs) with alternative risk-free rates. There is currently uncertainty as to the timing and the methods of transition of different
IBORs and whether some existing benchmarks will continue to be supported. As a result of these developments, accounting judgement is involved in
determining whether certain hedge accounting relationships that hedge the interest rate risk due to changes in IBORs continue to qualify for hedge
accounting. The Group has early adopted the amendments to IFRS 9, IAS 39 and IFRS 7 included in IASB’s project ‘Interest Rate Benchmark Reform’ and
for the assessment of effectiveness of such hedges it is assumed that the interest rate benchmark is not altered as a result of the reform. For further
information, see note G12(d).
Danske Bank / Annual Report 2019
79
Danske Bank / Annual Report 2019 61
Notes – Danske Bank Group
G1. Basis of preparation continued
(b) Significant accounting estimates and judgements
The expected credit loss is calculated for all individual facilities as a function of estimates 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 in future periods. 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), including
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 60 % (2018: 70%), the upside scenario with
a probability of 10 % (2018: 15%) and the downside scenario with a probability of 30 % (2018: 15%). On the basis of these assessments, the allowance
account at the end of 2019 amounted to DKK 21.3 billion (2018: 21.2 billion). If the base-case scenario was assigned a probability of 100%, the allowance
account would decrease DKK 0.7 billion (2018: 0.4 billion). Compared to the base case scenario, the allowance account would increase DKK 2.4 billion
(2018: 3.8 billion), if the downside scenario was assigned a probability of 100%. The increase reflects primarily the transfer of exposures from stage 1
to stage 2 and increased expected credit losses within stage 2. If instead the upside scenario was assigned a probability of 100%, the allowance account
would decrease DKK 0.5 billion (2018: 0.1 billion) compared to the base case scenario. However, it shall be noted that the expected credit losses in the
individual scenarios (i.e. without the weighting) does not represent expected credit loss (ECL) forecasts.
In determining the expected credit losses, management is required to exercise judgement in defining what is considered a significant increase in credit
risk. 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
initial 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. The allowance account is relatively stable in terms of changes to the definition of significant increase in credit risk. At
the end of 2019, the allowance account would increase by DKK 0.03 billion (2018: DKK 0.05 billion), 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 lifetime PD was considered a significant increase in credit risk.
Management applies judgement when determining the need for post-model adjustments. At the end 2019, the post-model adjustments amounted to
DKK 4.0 billion (31 December 2018: 4.5 billion). Around half of all the adjustments relate to high-risk industries such as Agriculture and Oil & gas within
the Group’s Shipping, Oil & Gas exposure, where the Group has no specific expected credit loss models in place, and consequently makes supplementary
calculations in order to ensure sufficient impairment coverage. Remaining adjustments are made to take into account non-linear downside risks, for
instance 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 credit risk assessment process has identified underestimation of the expected credit
losses.
Loan impairment charges in the income statement 2019 amounted to DKK 1,729 million against a reversal of DKK 387 million in 2018. The increase
was driven mainly by increased impairments against a few single-name exposures, lower reversals on non-performing loans and the increase in the
probability assigned to the downside scenario.
Note G15 and the section on credit risk in the risk management notes provide more details on expected credit losses. At the end of 2019, financial assets
covered by the expected credit loss model accounted for about 57% of total assets (2018: 61%).
Fair value measurement of financial instruments
The majority of valuation techniques employ only observable market data. However, certain financial instruments are measured on the basis of valuation
techniques that are based on one or more significant unobservable inputs and, therefore, are subject to significant estimates. This includes unlisted
shares and certain bonds for which there is no active market. In general, the Group’s net profit is only to a limited extent impacted by such estimates as
most of the financial assets that is measured on the basis of unobservable data are allocated to insurance contract policyholders, and the policyholders
assume most of the risk on the financial assets. On the derivatives portfolio, 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 2019, the adjustments
totalled DKK 1.5 billion (2018: DKK 1.1 billion), including the adjustment for credit risk on derivatives that are credit impaired. Note G33(a) provides
more details on fair value measurement of financial instruments.
The Group uses derivatives to hedge the fixed interest rate risk on some financial assets and liabilities, thus converting the fixed interest rates on the
financial instruments to variable interest rates by the use of swaps. The ongoing Interest Rate Benchmark Reform will replace existing benchmark
interbank offered rates (IBORs) with alternative risk-free rates. There is currently uncertainty as to the timing and the methods of transition of different
IBORs and whether some existing benchmarks will continue to be supported. As a result of these developments, accounting judgement is involved in
determining whether certain hedge accounting relationships that hedge the interest rate risk due to changes in IBORs continue to qualify for hedge
accounting. The Group has early adopted the amendments to IFRS 9, IAS 39 and IFRS 7 included in IASB’s project ‘Interest Rate Benchmark Reform’ and
for the assessment of effectiveness of such hedges it is assumed that the interest rate benchmark is not altered as a result of the reform. For further
information, see note G12(d).
80
Danske Bank / Annual Report 2019
62 Danske Bank / Annual Report 2019
Notes – Danske Bank Group
G1. Basis of preparation continued
(b) Significant accounting estimates and judgements
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 present value of 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. The impairment test conducted in 2019 resulted in impairment charges of DKK 0.8 billion on goodwill in FI&C and
Capital Markets and DKK 0.8 billion on goodwill in Danica Pension (2018: DKK 0.0 billion). The reasons for the FI&C and Capital Market impairment were
an increase in the capital allocated to the unit after implementation of the increase in the capital target from 15% to 16% from 2020 onwards and the
expected impact from higher regulatory capital requirements in combination with expectations about persistent cyclical headwinds on FI&C income.
Dania Pension goodwill is impaired because of higher solvency capital requirements caused by the impact from the Solvency II regulatory changes with
expected effect for Danica Pension’s solvency capital requirement level from 2020. Following the impairment charges done in 2019, goodwill amounted
to DKK 6.2 billion at 31 December 2019 (31 December 2018: DKK 7.8 billion). As the FI&C and Capital Market goodwill (2018: excess value DKK 22.3
billion) and the Danica Pension goodwill (2018: excess value DKK 0.3 billion) were written down to the recoverable amount, there is no excess value (the
amount by which the cash-generating units’ recoverable amount exceeds the carrying amount) and changes to the key assumptions applied in the test
could cause further impairment. The remaining goodwill of DKK 2.4 billion (2018: DKK 2.4 billion) relates mainly to General Banking and Danske Capital,
and the excess value is DKK 3.6 billion (2018: DKK 12.1 billion). Note G19 provides more information on impairment testing and sensitivity to changes
in assumptions.
Measurement of liabilities under insurance contracts
Liabilities under insurance contracts are measured at the present value of expected benefits for each insurance contract. The measurement is based on
actuarial computations that rely on estimates of a number of variables, including mortality and disability rates, and on the discount rate. The future
mortality rates are based on the Danish FSA’s benchmark, while other variables are estimated based on data from the Group’s own portfolio of insurance
contracts. Section (c) of this note and note G18 provide further information on the measurement of insurance liabilities. The risk management notes
contain a sensitivity analysis for life insurance.
Recognition of tax assets and liabilities
The recognition of tax assets and liabilities is subject to judgements and estimates. This includes on the deductibility of certain expense items, transfer
pricing in relation to internal transactions and the outcome of ongoing and potential tax investigations. In general, the Group uses the expected value
when estimating the impact from the above, except in relation to tax positions with binary outcomes where the most likely outcome is used. In relation to
the recognition of deferred tax, management is required 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 are expected to be offset against tax on future profit over the next five years. At 31 December
2019, deferred tax assets from recognised tax loss carry-forwards amounted to DKK 0.2 billion (2018: 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 (2018: DKK 2.9 billion). Since 2009,
Danske Bank has been part of international joint taxation. This automatically runs for ten years and thus expired in 2019. The Board of Directors decided
not to enter into a new 10-year period. The expire of the international joint taxation is expected to lead to a tax payment of DKK 0.6 billion, however, the
final tax payment is subject to uncertainty as it involves the estimation of the fair value of foreign units with tax losses deducted in the joint taxation. The
deferred tax liability for recapture of tax loss from international joint taxation recognised at the end of 2018 of DKK 5.8 billion has been reversed leading
to an accounting income of DKK 5.2 billion in 2019.
In 2019, the Group implemented IFRIC 23, Uncertainty over Income Tax Treatments. The implementation has not changed the Group’s assessment of
uncertain tax positions. Note G21 provides more information on tax.
Danske Bank / Annual Report 2019 63
Notes – Danske Bank Group
G1. Basis of preparation continued
insurance contracts.
Financial instruments – general
(c) Overview of classification and measurement basis for financial instruments and insurance contracts
Financial instruments account for around 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
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 financial
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 unsettled
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 classification is shown in the table below.
Financial instruments and obligations under insurance contracts, classification and measurement end of 2019
Cash in hand and demand deposits with central
Due from credit institutions and central banks
(DKK billions)
Assets
banks
Derivatives
Bonds
Shares
Loans
Assets under pooled schemes and unit-linked
investment contracts
Assets under insurance contracts
Total financial assets, 31 December 2019
Total financial assets, 31 December 2018
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 investment contracts
Liabilities under insurance contracts ***
Non-preferred senior bonds
Subordinated debt
Loan commitments and guarantees
Total financial liabilities, 31 December 2019
Total financial liabilities, 31 December 2018
Amortised cost
I Fair value OCI
I
Fair value through profit or loss
Held to collect
Held to collect
and sell
financial
assets/Liabilities
I
assets**
I
test
nated
hedge *
Total
Managed
FVPL due
Interest
to SPPI
Desig-
rate
Held for
trading
at fair
value
-
-
-
-
-
-
-
-
99
82
121
1,026
1,329
1,337
75
956
251
86
32
2
1,404
1,282
319
803
2
2,150
486
944
803
12
3,682
408
828
795
9
3,451
108
108
74
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
284
189
12
450
-
-
-
-
-
-
-
-
-
-
-
-
-
-
450
389
24
-
-
54
1
111
435
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
80
-
185
803
112
505
1,683
1,632
10
-
-
-
-
-
-
-
2
-
-
5
1
-
-
-
-
9
7
99
106
294
473
14
111
435
155
452
1,141
803
256
112
505
87
32
2
3,545
3,310
*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.
Danske Bank / Annual Report 2019
81
Danske Bank / Annual Report 2019 63
Notes – Danske Bank Group
G1. Basis of preparation continued
(c) Overview of classification and measurement basis for financial instruments and insurance contracts
Financial instruments account for around 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.
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 financial
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 unsettled
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 classification is shown in the table below.
Financial instruments and obligations under insurance contracts, classification and measurement end of 2019
(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
Total financial assets, 31 December 2019
Total financial assets, 31 December 2018
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 investment contracts
Liabilities under insurance contracts ***
Non-preferred senior bonds
Subordinated debt
Loan commitments and guarantees
Total financial liabilities, 31 December 2019
Total financial liabilities, 31 December 2018
Amortised cost
I Fair value OCI
I
Fair value through profit or loss
Held to collect
assets/Liabilities
I
Held to collect
and sell
financial
assets**
Held for
trading
I
Managed
at fair
value
FVPL due
to SPPI
test
Desig-
nated
Interest
rate
hedge *
99
82
-
121
-
1,026
-
-
1,329
1,337
75
-
956
-
251
-
-
86
32
2
1,404
1,282
-
-
-
108
-
-
-
-
108
74
-
-
-
-
-
-
-
-
-
-
-
-
-
-
284
189
12
-
-
-
-
24
-
54
1
319
111
435
-
-
-
-
-
803
-
-
486
944
803
408
828
795
-
-
-
-
-
-
-
-
-
-
-
450
-
-
-
-
-
-
-
-
450
389
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
80
-
185
803
-
112
505
-
-
-
1,683
1,632
Total
99
106
294
473
14
2,150
111
435
-
-
10
-
-
2
-
-
12
3,682
9
3,451
-
2
-
-
5
-
-
1
-
-
9
7
155
452
1,141
803
256
112
505
87
32
2
3,545
3,310
*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.
82
Danske Bank / Annual Report 2019
64 Danske Bank / Annual Report 2015
Notes – Danske Bank Group
G1. 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 – general
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.
Financial liabilities
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 liabilities
designated at fair value through profit or loss under the fair value option. Value adjustments relating to the inherent credit risk of financial liabilities
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 financial
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 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 2019 65
Notes – Danske Bank Group
G1. 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 subsequent
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. Changes in the fair value of the underlying bonds include other
elements than the effect of changes in the relevant benchmark interest rate and the prepayment option is therefore not consistent with the SPPI test in
IFRS 9 and are mandatorily measured at FVPL.
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 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-2019, hedging derivatives
measured at fair value accounted for about 0.3% of total assets and about 0.2% of total liabilities (31 December 2018: 0.2% and 0.05%, respectively).
For further information on hedge accounting, see note G12(d).
Danske Bank / Annual Report 2019
83
Danske Bank / Annual Report 2019 65
Notes – Danske Bank Group
G1. 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 subsequent
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. Changes in the fair value of the underlying bonds include other
elements than the effect of changes in the relevant benchmark interest rate and the prepayment option is therefore not consistent with the SPPI test in
IFRS 9 and are mandatorily measured at FVPL.
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-2019, hedging derivatives
measured at fair value accounted for about 0.3% of total assets and about 0.2% of total liabilities (31 December 2018: 0.2% and 0.05%, respectively).
For further information on hedge accounting, see note G12(d).
84
66 Danske Bank / Annual Report 2019
Danske Bank / Annual Report 2019
Notes – Danske Bank Group
G1. 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 or loss.
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 deriving
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 or loss as are changes to additional
provisions for benefit guarantees. Note G8 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).
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 technical
basis is insufficient to cover the interest accrual to policyholders, the shortfall is covered by the bonus potentials or the profit margin. Any remaining
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 2019
85
Danske Bank / Annual Report 2019 67
Notes – Danske Bank Group
G1. Basis of preparation continued
(d) Financial highlights
The financial highlights and reporting for each segment shown in note G3 are used in the Management’s report and represent the financial information
regularly provided to management. The Reclassification column in note G3 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 or loss 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 or loss
Trading-related income at Capital Markets is presented as Net trading income or loss. 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 or loss
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 financial
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 or loss
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 activities
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 2019
68 Danske Bank / Annual Report 2019
Danske Bank / Annual Report 2019 69
Notes – Danske Bank Group
G2. Changes and forthcoming changes to accounting policies and presentation continued
(a) Changes to significant accounting policies and presentation during the year
Amendment to IFRS 9/ IAS 39, Financial Instruments, and IFRS 7, Financial Instruments: Disclosures
The amendments to IFRS 9/IAS 39 and IFRS 7 cover issues related to the pre-replacement issues following the ongoing Interest Rate Benchmark Reform
that could result in discontinuation of hedge accounting relationships. The effective date of the amendments is 1 January 2020 with earlier application
permitted. In the fourth quarter of 2019, the Group has early adopted the amendments. The Group uses the option in IFRS 9 to continue to apply hedge
accounting using the requirements in IAS 39 and thus the amendments to IAS 39 have been early adopted. The amendments to IAS 39 implies, that for
the purpose of the assessment of the prospective hedge effectiveness it shall be assumed that the benchmark reform will not alter the cash flows and
that a hedging relationship is not required to be discontinued if the actual results of the effectiveness exceeds the 80%-125% limit. IFRS 7 includes
further disclosure requirements, which is presented in note G12(d).
Amendment to IAS 12, Income Taxes
The amendment to IAS 12, Income Taxes, which is part of the Annual Improvements to IFRS Standards 2015-2017 Cycle, requires the income tax
consequences of dividends to be recognised in profit or loss if the transactions that generated distributable profit are recognised in profit or loss, and
thus not recognised directly in equity. The Group has implemented the clarification at 1 January 2019. The distribution of interest on the Group’s equity
accounted additional tier 1 capital is deductible for tax purposes, and the tax income is recognised in the income statement when the interest is paid.
Comparative information has been restated. The change has decreased tax in the income statement and increased net profit by DKK 173 million and
increased distributions to owners by the same amount for 2018 and 2019. There is no impact on earnings per share.
IFRIC 23, Uncertainty over Income Tax Treatments
IFRIC 23 considers how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments. When
uncertainty exists and it is probable that the uncertainty will result in a change in the income tax, the uncertainty is reflected by using either the most
likely outcome (if the possible outcomes is binary or are concentrated on one value) or the expected value, calculated as the probability weighted amounts
in a range of possible outcomes (if there is a range of possible outcomes that are neither binary nor concentrated on one value). The implementation had
no significant impact on the Group’s financial statements.
Change in the accounting for health and accident insurance
The Group has voluntarily changed its accounting policy for calculating the provision for health and accident insurance contracts with a risk coverage
period no longer than one year. From 1 January 2019, the provision represents the net present value of expected future payments, administrative costs
and premiums due to be received during the risk coverage period. Under the previous accounting policy, the provision was calculated using a simplified
method and represented the share of gross premiums received that relates to the coverage period after the balance sheet date. The change is considered
to result in a more relevant and faithful representation of the Group’s liabilities, as the provision now represents a best estimate of the amounts to be
paid as insurance benefits the next year.
Retrospective application is impracticable without the use of hindsight and due to lack of data. The cumulative impact is recognised as a reduction in
shareholders’ equity at 1 January 2019 of DKK 288 million, consisting of an increase in insurance liabilities of DKK 369 million and a decrease in tax
liabilities of DKK 81 million. The impact on net profit for 2019 is insignificant.
The implementation of changes to IFRS not mentioned above had no impact on the Group’s financial statements.
Notes – Danske Bank Group
G2. Changes and forthcoming changes to accounting policies and presentation
(a) Changes to significant accounting policies and presentation during the year
At 1 January 2019, the Group implemented IFRS 16 (Leases, amendments to various standards (IFRS 9, Prepayment Features with Negative
Compensation, Annual Improvements to IFRS Standards 2015-2017 Cycle (amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23), IAS 19, Plan
Amendment, Curtailment or Settlement and IAS 28, Long-term Interests in Associates and Joint Ventures) and the interpretation IFRIC 23, Uncertainty
over Income Tax Treatments. The Group has decided to early adopt the amendments to IFRS 9, IAS 39 and IFRS 7 included in IASB’s project ‘Interest
Rate Benchmark Reform. Further, the Group has changed its accounting policy for calculating the provision for health and accident insurance.
The implementation of IFRS 16 and the change of the accounting policy for calculating the provision for health and accident insurance had an impact on
the opening balance sheet at 1 January 2019. The impact is shown in the table below. The changes decreased shareholders’ equity at 1 January 2019
by DKK 288 million. The income statement for 2018 has been restated to reflect changes due to the implementation of amendments to IAS 12, Income
Taxes, see further below.
(DKK millions)
Oher assets
Total assets
Liabilities under insurance contracts
Tax liabilities
Other liabilities
Total liabilities
Total equity
Balance sheet
31 December 2018
30,239
3,578,467
417,279
8,880
40,117
3,415,191
163,276
IFRS 16
6,424
6,424
6,424
6,424
-
Health and
accident
Balance sheet
1 January 2019
-
369
-81
288
-288
36,663
3,584,891
417,648
8,799
46,541
3,421,903
162,988
The sections below explain the key impacts of the changes in accounting policies implemented.
IFRS 16, Leases
IFRS 16 provides revised principles for lessees, and requires lessees to recognise assets and liabilities for all leases with a term of more than 12 months,
unless the underlying asset is of a low value. The lease payments associated with short-term leases and leases for which the underlying asset is of low
value is recognised in profit and loss as an expense. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly,
there are no changes to the Group’s accounting policy for lessor accounting.
As allowed under the transitional provisions of IFRS 16, the Group uses the cumulative catch up approach. Accordingly, the Group has not restated
comparative information. IFRS 16 has increased both assets and liabilities at 1 January 2019 by DKK 6,424 million. The Group has excluded initial direct
costs from the measurement of the right-of-use lease asset at the date of initial application, and the Group has relied on the Groups assessment of
whether leases are onerous, applying IAS 37 immediately before the date of initial application. There has been no implementation impact on shareholders’
equity, however, the Group’s capital ratios are reduced by 0.2 percentage points. Right-of-use lease assets and lessee lease liabilities are presented as
part of Other assets and Other liabilities, respectively. Lease liabilities recognised in the balance sheet at 1 January 2019 are significantly higher than
the operating lease commitments disclosed in Annual Report 2018. This is predominantly due to lease terms being significantly longer under IFRS 16,
as the Group is reasonably certain to exercise extension options, and therefore lease terms exceed the non-cancellable period. The Group has used
hindsight in determining the lease tem at initial application. At 1 January 2019, the Group’s weighted average incremental borrowing rate applied to the
lease liabilities was 1.5 % for right-of-use properties and 1.4% for other right-of-use tangible assets.
In the income statement, expenses related to leases are presented as depreciation expenses (part of operating expenses) and interest expenses. As the
interest expenses are calculated on the reducing balance of the lease liabilities while the depreciations are made on a straight-line basis, the costs under
IFRS 16 are front loaded compared to under IAS 17. Due to this front loading, net profit before tax for 2019, compared with the net profit under IAS 17,
decreased by DKK 108 million hereof DKK 83 million interest expenses and DKK 25 million operating expenses. The effect on earnings per share is
insignificant.
Amendment to IFRS 9, Financial Instruments
The amendment to IFRS 9, Financial Instruments, relates to the SPPI test, and the previous requirement that a prepayment option will only be consistent
with ‘basic lending features’ if the prepayment amount represents the principal amount outstanding plus accrued interest and may include a reasonable
additional compensation for early termination (i.e. the party exercising the right cannot receive a compensation for the early termination). The word
‘additional’ is deleted. After the implementation of the amendment, compensation that reflects changes in the relevant benchmark interest rate will be
consistent with the SPPI test, regardless of whether the compensation is positive or negative. The implementation of the amendment had no impact on
the classification of financial instruments between fair value measurement and amortised cost. The prepayment option included in loans granted by
Realkredit Danmark continues to be inconsistent with the SPPI test.
Danske Bank / Annual Report 2019
87
Danske Bank / Annual Report 2019 69
Notes – Danske Bank Group
G2. Changes and forthcoming changes to accounting policies and presentation continued
(a) Changes to significant accounting policies and presentation during the year
Amendment to IFRS 9/ IAS 39, Financial Instruments, and IFRS 7, Financial Instruments: Disclosures
The amendments to IFRS 9/IAS 39 and IFRS 7 cover issues related to the pre-replacement issues following the ongoing Interest Rate Benchmark Reform
that could result in discontinuation of hedge accounting relationships. The effective date of the amendments is 1 January 2020 with earlier application
permitted. In the fourth quarter of 2019, the Group has early adopted the amendments. The Group uses the option in IFRS 9 to continue to apply hedge
accounting using the requirements in IAS 39 and thus the amendments to IAS 39 have been early adopted. The amendments to IAS 39 implies, that for
the purpose of the assessment of the prospective hedge effectiveness it shall be assumed that the benchmark reform will not alter the cash flows and
that a hedging relationship is not required to be discontinued if the actual results of the effectiveness exceeds the 80%-125% limit. IFRS 7 includes
further disclosure requirements, which is presented in note G12(d).
Amendment to IAS 12, Income Taxes
The amendment to IAS 12, Income Taxes, which is part of the Annual Improvements to IFRS Standards 2015-2017 Cycle, requires the income tax
consequences of dividends to be recognised in profit or loss if the transactions that generated distributable profit are recognised in profit or loss, and
thus not recognised directly in equity. The Group has implemented the clarification at 1 January 2019. The distribution of interest on the Group’s equity
accounted additional tier 1 capital is deductible for tax purposes, and the tax income is recognised in the income statement when the interest is paid.
Comparative information has been restated. The change has decreased tax in the income statement and increased net profit by DKK 173 million and
increased distributions to owners by the same amount for 2018 and 2019. There is no impact on earnings per share.
IFRIC 23, Uncertainty over Income Tax Treatments
IFRIC 23 considers how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments. When
uncertainty exists and it is probable that the uncertainty will result in a change in the income tax, the uncertainty is reflected by using either the most
likely outcome (if the possible outcomes is binary or are concentrated on one value) or the expected value, calculated as the probability weighted amounts
in a range of possible outcomes (if there is a range of possible outcomes that are neither binary nor concentrated on one value). The implementation had
no significant impact on the Group’s financial statements.
Change in the accounting for health and accident insurance
The Group has voluntarily changed its accounting policy for calculating the provision for health and accident insurance contracts with a risk coverage
period no longer than one year. From 1 January 2019, the provision represents the net present value of expected future payments, administrative costs
and premiums due to be received during the risk coverage period. Under the previous accounting policy, the provision was calculated using a simplified
method and represented the share of gross premiums received that relates to the coverage period after the balance sheet date. The change is considered
to result in a more relevant and faithful representation of the Group’s liabilities, as the provision now represents a best estimate of the amounts to be
paid as insurance benefits the next year.
Retrospective application is impracticable without the use of hindsight and due to lack of data. The cumulative impact is recognised as a reduction in
shareholders’ equity at 1 January 2019 of DKK 288 million, consisting of an increase in insurance liabilities of DKK 369 million and a decrease in tax
liabilities of DKK 81 million. The impact on net profit for 2019 is insignificant.
The implementation of changes to IFRS not mentioned above had no impact on the Group’s financial statements.
88
Danske Bank / Annual Report 2019
70 Danske Bank / Annual Report 2019
Danske Bank / Annual Report 2019 71
Notes – Danske Bank Group
Notes – Danske Bank Group
G2. Changes and forthcoming changes to accounting policies and presentation continued
G3. Business model and business segmentation
(b) Standards and interpretations not yet in force
The International Accounting Standards Board (IASB) has issued one new accounting standard (IFRS 17) and amendments to existing international
accounting standards (IFRS 3, IFRS 7, IFRS 9, IAS 1, IAS 8, IAS 39) that have not yet come into force. Further, several standards were amended to
incorporate reference to the revised Conceptual Framework for Financial Reporting that has not yet come into force. The Group has early adopted the
changes in IASB’s Interest Rate Benchmark Reform, which included amendments IFRS 9, IAS 39 and IFRS 7, see further in section (a) above. The Group
has not early adopted any of the other changes. The sections below explain the IFRS changes that are likely to affect the Group’s future financial reporting.
For the changes not described below, no significant impact is expected.
IFRS 17, Insurance Contracts
In May 2017, the IASB issued IFRS 17, Insurance Contracts. IFRS 17 replaces IFRS 4, Insurance Contracts, which was an interim standard that did not
prescribe the measurement of insurance contracts but relied on existing accounting practices. IFRS 17 is a comprehensive standard with principles for,
for example, the measurement of insurance contracts at a current (fulfilment) value in the balance sheet, the recognition of insurance contract revenue
in the income statement and the presentation of information on the performance in relation to insurance contracts.
The standard will be effective 1 January 2021. However, IASB is currently considering targeted amendments to IFRS 17, including deferral of the effective
date be by one year to 1 January 2022. IFRS 17 has not yet been adopted by the EU.
The standard may have a significant impact on the financial statements due to the new principles for calculating insurance provisions and for the
presentation in the income statement and balance sheet. The Group has undertaken a pre-analysis to assess the impact on the Group’s financial
statements, including an assessment of the Group’s insurance product in terms of classification and measurement and aggregation into portfolios.
Estimates using the 3 measurement approaches (Building Bloch approach, Variable Fee approach and Premium Allocation approach), including a
calculation of the Contractual Service Margin, have been made. This indicates, that after a transitional period, net profit before tax will not be significantly
altered.
(a) Business model and business segmentation
Danske Bank is a Nordic bank with bridges to the rest of the world offering customers a wide range of services in the fields of banking, mortgage finance,
insurance, pension, real-estate brokerage, asset management and trading in fixed income products, foreign exchange and equities. The Group consists
of a number of business units and support functions. The business units are segmented according to customers, products and services characteristics.
The Group has five business units, a Non-core unit and an Other Activities unit, and these constitute the Group’s reportable segments under IFRS 8.
On 5 September 2019, the Group announced adjustments to its organisation. Group Development, part of Other Activities, has been dissolved and most
of its activities have been transferred to the banking units. The Group’s Private Banking activities, which have been part of Wealth Management, have
been transferred to the banking units. The new business segments are reflected in the Group’s internal and external financial reporting from the fourth
quarter of 2019 with restatement of comparative information.
Banking DK serves retail and commercial customers in Denmark. The unit offers retail customers’ advice tailored to their financial needs and is a leading
provider of daily banking, home financing, investment and retirement planning solutions. For commercial customers, the unit provides targeted advice and
solutions based on the size and situation of the customers’ business. Services include strategic advice on, for instance, international expansion and
acquisitions. The unit offers digital solutions to facilitate daily operations, including cross-border transfers and cash management.
Banking Nordic serves retail and commercial customers in Sweden, Norway and Finland, providing customer offerings similar to those of Banking DK. In
addition, the unit encompasses the Group’s global asset finance activities, such as lease activities.
Corporates & Institutions is the wholesale banking division of the Group. It serves all of the Group’s corporate and institutional customers by offering expertise
within financing, financial markets, general banking, investment services and corporate finance advisory services. In addition, the unit operates globally,
supported by global product areas and local customer coverage, and acts as a bridge to the world for Nordic customers as well as a gateway into the Nordics
for international customers. The unit bridges the financial needs of the institutional and corporate sectors, connecting issuers and investors. The unit is
organised in four areas: a customer unit, named General Banking, and three product areas; named Capital Markets, Fixed Income & Currencies (FI&C) and
Transaction Banking & Investor Services.
Wealth Management serves companies and institutional investors in the markets in which the Group operates. The unit offers a broad range of products and
services within wealth and asset management, investments, pension savings and insurance. The unit encompasses expertise from Danica Pension, Danske
Invest and Asset Management.
Northern Ireland serves retail and commercial customers through a network of branches and business centres in Northern Ireland alongside digital channels.
Non-core includes certain customer segments that are no longer considered part of the core business. The Non-core unit is responsible for the controlled
winding-up of this part of the loan portfolio. The portfolio consists primarily of loans to customers in the Baltics and liquidity facilities for Special Purpose
Vehicles (SPVs) and conduit structures.
Other Activities encompasses Group Treasury