Assets
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Revenue
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The full data:
Management's report
Financial statements
Financial highlights - Danske Bank Group
Executive summary
Financial review
Banking DK
Banking Nordic
Corporates & Institutions
Wealth Management
Northern Ireland
Non-core
Other Activities
4
5
8
15
17
19
22
24
26
28
Income statement
Statement of comprehensive income
Balance sheet
Statement of capital
Cash flow statement
Notes
Statements
Statement by the management
Independent Auditor's report
Supplementary information
32
33
34
35
38
39
78
79
80
Danske Bank / Interim report – first quarter 2020 3/80
Danske Bank / Interim report – first quarter 2020 4/80
Financial highlights – Danske Bank Group
Income statement
(DKK millions)
Net interest income
Net fee income
Net trading income
Other income
Total income
Operating expenses
Impairment charges on goodwill
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.
Q1
2020
5,479
3,673
291
163
9,606
6,764
-
2,842
4,251
-1,409
-254
-1,663
-374
-1,289
195
Q1
2019
5,520
3,569
1,586
127
10,802
6,145
-
4,657
357
4,300
-288
4,012
1,024
2,988
Index
20/19
99
103
18
128
89
110
-
61
-
-
-
-
-
-
194
101
Q4
2019
5,541
4,440
1,718
454
12,153
8,342
1,603
2,208
703
1,505
-244
1,261
-3,780
5,041
199
Index
Q1/Q4
Full year
2019
99
83
17
36
79
81
-
129
-
-
-
-
-
-
21,877
15,201
5,441
2,463
44,982
27,548
1,603
15,831
1,516
14,315
-493
13,822
-1,249
15,072
98
786
*Q4 2019, 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 period)
(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
99,277
336,609
1,781,846
706,541
292,797
496,792
6,168
287,661
171,169
319,906
1,793,049
468,414
264,909
424,824
15,319
257,324
58
105
99
151
111
117
40
112
81,941
346,708
1,821,309
495,313
284,873
463,816
7,519
259,571
121
97
98
143
103
107
82
111
81,941
346,708
1,821,309
495,313
284,873
463,816
7,519
259,571
Total assets
4,007,691
3,714,914
108
3,761,050
107
3,761,050
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
96,839
307,804
995,249
762,026
351,612
603,008
534,025
2,492
155,653
31,968
14,428
152,587
141,753
254,444
909,354
751,185
367,794
423,324
458,521
5,596
215,474
28,891
14,421
144,156
68
121
109
101
96
142
116
45
72
111
100
106
98,828
232,271
962,865
795,721
350,190
452,190
504,714
2,501
159,529
31,733
14,237
156,271
98
133
103
96
100
133
106
100
98
101
101
98
98,828
232,271
962,865
795,721
350,190
452,190
504,714
2,501
159,529
31,733
14,237
156,271
Total liabilities and equity
4,007,691
3,714,914
108
3,761,050
107
3,761,050
Ratios and key figures
Dividend per share (DKK)*
Earnings per share (DKK)
Return on avg. shareholders' equity (% p.a.)
Net interest income as % p.a. of loans and deposits
Cost/income ratio (%)
Total capital ratio (%)
Common equity tier 1 capital ratio (%)
Share price (end of period) (DKK)
Book value per share (DKK)
Full-time-equivalent staff (end of period)
-
-1.7
-3.8
0.79
70.4
22.3
17.6
76.9
178.8
22,032
-
3.3
7.7
0.82
56.9
21.8
16.7
116.8
168.7
20,978
105
8.5
5.7
12.6
0.80
81.8
22.7
17.3
107.8
183.1
22,006
8.5
16.7
9.6
0.80
64.8
22.7
17.3
107.8
183.1
22,006
100
*As announced on 20 April 2020, the Board of Directors has decided to propose to the general meeting that no dividends be paid for 2019.
The financial highlights represent alternative performance measures that are non-IFRS measures. Note G3 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 29.
Danske Bank / Interim report – first quarter 2020 5/80
Executive summary
“The first two months of 2020 showed good momentum in the underlying business, with solid customer activity and lending growth in most markets.
However, the coronavirus pandemic impacted the results significantly towards the end of the quarter. The key drivers were impairments made
mainly because of the assumptions of a worsened macroeconomic scenario, the decline in oil prices and charges against exposure to certain sec-
tors. We also saw the highly turbulent markets result in extraordinarily low trading income. Danske Bank continues to be one of the best-capitalised
banks in Europe, which puts us in a good position to continue to support our customers through the downturn with a broad range of initiatives, and
this remains our key priority. Our more than 20,000 colleagues have done a tremendous job keeping the bank fully operational and serving our
customers while working from home, and we also continued to make real progress on our plan to become a better bank for all our stakeholders,”
says Chief Executive Officer Chris Vogelzang.
The beginning of the first quarter of 2020 was markedly
different from the end of the quarter due to the outbreak of
the coronavirus pandemic. At the beginning of the year,
lending continued to rise, especially at Banking Nordic, and
lower interest rates continued to drive remortgaging activity
in Denmark in the first two months of the quarter. The last
part of the quarter, however, was characterised by a
significant change in the global macroeconomic outlook,
shifts in interest rates and turbulent financial markets due to
the coronavirus pandemic and the government restrictions
imposed to avoid further contagion. This had a negative
impact on impairments, which increased significantly due to
in macroeconomic model assumptions and
changes
appropriate charges for certain sectors, for which we
recognised a substantial effect already in the first quarter.
Further, net trading income was adversely affected by the
turbulence in the financial markets. However, despite the
difficult situation, lending in local currency increased 2%, net
interest income remained at a good level and fee income rose
from the level in the first quarter of 2019.
Danske Bank posted a net loss of DKK 1.3 billion for the first
quarter of 2020, against a profit of DKK 3.0 billion for the
same period in 2019. This was due primarily to our timely
approach and adaptation to the macroeconomic and sector
effects of the coronavirus pandemic, which meant that we
return on
recognised significant
shareholders’ equity was -3.8%, against 7.7% in the first
quarter of 2019.
impairments. The
Danske Bank retains strong capital and liquidity positions,
and we are thus well placed to help our customers through
the downturn.
On 15 March, as a consequence of the impact of the
coronavirus pandemic on the economy, Danske Bank
launched a number of initiatives to help both commercial and
retail customers that find themselves in a difficult situation.
As Denmark’s
largest bank and a significant financial
institution in all the other Nordic economies, we play a vital
role in minimising the damage this is causing to society, and
we are doing our utmost to help our customers through these
challenging times.
However, the extraordinary situation requires a joint effort
from all parts of society, and we are pleased that the
governments and the parliaments in the countries in which
we operate as well as the central banks and the supervisory
authorities have acted with great determination and taken a
series of initiatives aimed at minimising the economic impact.
To support the government intervention, we, along with the
rest of the Danish banking sector, have pledged to support
the Danish economy by providing financial support to retail
and commerical customers affected by the crisis. This
approch of course also applies to our Nordic markets and
Northern Ireland.
The initiatives taken by Danske Bank across the markets
include deferred payments, new or extended overdraft and
credit facilities, bridge financing, interest-only loans, raising
the threshold for the charging of negative interest on
deposits and many other actions. We are also offering our
start-up customers virtual coronavirus briefings to help them
navigate in a difficult situation.
Internally, we are offering employees with a health care or
military background the opportunity to sign up to provide
healthcare services for a period of six months. Most of our
employees are now working from home, and despite the
difficult working conditions this entails, our
integrated
procedures and IT systems combined with the dedication of
our employees have enabled us to continue serving and
helping our customers.
On 16 March, we postponed our 2020 annual general
meeting. The general meeting will be called when possible,
and the Board of Directors continuously monitors the
situation.
On 20 April, the Board of Directors decided to propose that
no dividend be paid for 2019. The decision is made to support
the economic
the
consequences of the coronavirus pandemic.
initiatives aimed at minimising
Despite the turbulence caused by the coronavirus pandemic
in the last part of the quarter, the first three months of 2020
also saw progress in terms of our transformation towards
becoming a better bank for all our stakeholders. We are
continuing our strong
focus on compliance and the
prevention of financial crime, on the digitalisation of
processes and on enhanced trade surveillance and
transaction monitoring. At the same time, we have launched
an agile transformation programme, a group-wide cost
programme, started to change and simplify the customer
Danske Bank / Interim report – first quarter 2020 6/80
journey for buying and owning real estate in Denmark, and
completed a group-wide culture survey among 10,000
employees to improve employee engagement. In addition, we
are continuing our efforts to digitalise end-to-end processes
and simplify our product offerings, and we have made the first
additional investments to support our progress towards
becoming a better bank.
Expenses in the first quarter of 2020 were 10% higher than
in the same period in 2019. This was due mainly to the
upstaffing within compliance and AML throughout 2019,
which now has full financial impact. Other costs for regulatory
compliance and investments to combat financial crime as
well as costs for the Estonia case also contributed to the
increase.
Financials
In the first quarter of 2020, lending declined 2% from the
level at the end of 2019. This was driven mainly by currency
effects and value adjustments that offset the effect of
increased lending to large corporates seen at Corporates &
Institutions. Towards the end of the quarter, we saw a strong
increase in requests for liquidity facilities from our corporate
customers due to the economic uncertainty caused by the
coronavirus pandemic.
At Banking DK, lending was down 2% from year-end 2019
due to negative market value adjustments of the mortgage
book. Underlying, lending was flat. Remortgaging activity
continued early in the first quarter of 2020, although at a
lower pace, as interest rates declined further in the first two
months. However, this came to a halt in March. The shift
towards longer-term but lower-margin mortgage products
among both retail and commercial customers continued,
which is positive for credit quality but puts a downward
pressure on net interest income in the longer term.
At Banking Nordic, lending declined 4% from the level at the
end of 2019. However, this was due to adverse currency
effects, as both the Swedish krona and the Norwegian krone
depreciated vis-à-vis the Danish krone. Adjusted for currency
effects, Banking Nordic saw lending growth in all market
areas. Sweden saw growth among retail customers, whereas
retail lending in Norway and Finland was flat.
In the first quarter of 2020, net interest income was down
1% from the level in 2019, due to margin pressure, currency
effects and a shift in mortgage lending towards longer-term
mortgages as well as continually high funding costs. The
introduction of negative interest rates for retail customers in
Denmark will not come into effect until June and therefore did
not affect net interest income for the first quarter.
Net fee income was up 3% from the level in the first quarter
of 2019. This was due mainly to the remortgaging activity in
Denmark in the first part of the quarter, as interest rates
declined
in the first part of that period. At Wealth
Management, fee income declined due to lower assets under
management (AuM).
Trading income in the first quarter stood at DKK 291 million,
a decline of 82% from the level in the first quarter of 2019.
This was due to the turbulent financial markets, which
affected both our rates business at Corporates & Institutions
and our pensions subsidiary Danica Pension.
The turbulence on both equity and rates markets meant that
Danica Pension had both lower AuM and losses on risk
assets, impacting equity negatively at the end of the quarter.
We saw impairment charges of DKK 4.3 billion in the first
quarter of 2020, which were mainly related to the outbreak
of the coronavirus pandemic and the subsequent economic
downturn and significant decline
in oil prices. The
impairments were driven by three main factors. Firstly,
macroeconomic scenarios used to calculate expected credit
losses under IFRS 9 have been adjusted downwards to
reflect a significant decline in economic activity in 2020
followed by a recovery in 2021 supported by government
support packages. Secondly, sector-wide impairments have
been recognised against exposures to highly-affected
industries such as retailing, hotels, restaurants, and oil and
gas. Lastly,
loans with ongoing
restructuring, particularly in the oil and gas industry, the
unprecedented drop in oil prices had a negative effect on
expected outcomes for restructuring, leading to higher
impairment charges. Prior to the outbreak of the coronavirus
pandemic, loan impairments were in line with the previous
impairment trend and our expectations.
for non-performing
Estonia
We continue our internal investigation of the non-resident
portfolio at the Estonian branch and still expect to complete
this investigation in the fourth quarter of 2020. We remain
under investigation by authorities in Denmark, the US,
Estonia and France. The overall timing of completion and the
outcome of
investigations by, and subsequent
discussions with, the authorities are uncertain.
the
Danske Bank continues to defend itself against the Danish
civil claims (presently a total value
in the range of
approximately DKK 7.9-8.4 billion). In addition to the pending
claims, Danske Bank could be joined to the claim of around
DKK 2.7 billion against its former CEO, Thomas F. Borgen.
The timing of completion of any
lawsuits (pending or
threatening) and their outcome are uncertain.
Capital, liquidity and regulation
Our capital position remained strong, with a total capital ratio
of 22.3% and a CET1 capital ratio of 17.6%. This is in line
with the Group’s target of a CET1 capital ratio of above 16%
in the short term and a total capital ratio of above 20%.
to
the outbreak of
Due
the coronavirus pandemic,
regulatory authorities in Denmark and Sweden reduced their
to 0%, while the
countercyclical buffer requirements
Norwegian countercyclical buffer requirement was reduced
to 1%. This was done in order to provide banks with greater
opportunity to help customers in need during the economic
downturn and meant a reduction in our regulatory CET1
capital requirement to now 13.2%.
At 31 March 2020, our liquidity coverage ratio stood
at 154%, against 140% at the end of 2019.
Danske Bank / Interim report – first quarter 2020 7/80
Outlook for 2020
The uncertainty connected with the economic situation and
the impact of the coronavirus pandemic meant that on 16
March, we suspended our financial outlook for 2020.
As uncertainty as a result of the impact of the coronavirus
pandemic prevails, the uncertainty related to our guidance is
also higher than usual, reflecting the limited visibility for the
macroeconomic situation and developments in the financial
markets.
On that basis, we now aim for a net profit of at least DKK 3
billion. This represents our best estimate based on a timely
assessment of the current situation and the likely impact on
our business for the rest of the year.
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 lower than the level in 2019
due to
is subject to
significant uncertainty regarding assets under management,
customer activity and market developments.
lower remortgaging activity and
Expenses are expected to be in the range of DKK 28-29
billion, driven by an acceleration of investments of up to
DKK 2 billion and a continued increase in compliance costs.
Loan impairment charges are expected to be significantly
higher due to the impact of the coronavirus pandemic on the
economic outlook, with a large part recognised in the first
quarter of the year.
We maintain our ambition for a return on shareholders’
equity of 9-10% in 2023.
The outlook is subject to uncertainty and depends on
economic conditions, including developments in monetary
policy at central banks.
Financial review
In the first quarter of 2020, the Danske Bank Group delivered
a loss before tax from core activities of DKK 1.4 billion,
against a profit of DKK 4.3 billion in the first quarter of 2019.
The result was affected primarily by a significant increase in
loan impairment charges of DKK 3.9 billion that was directly
related to the outbreak of the coronavirus, the subsequent
economic downturn and significant decline in oil prices, and a
decrease in net trading income of DKK 1.3 billion due to the
turbulence in the financial markets.
Income
Total income amounted to DKK 9.6 billion, a decrease of 11%
from the level in the first quarter of 2019.
Net interest income amounted to DKK 5.5 billion, a decrease
of 1%. Net interest income was negatively affected by lower
lending margins, continually high funding costs as well as
adverse exchange rate developments. The structural FX
hedge position and structural change to internal funding and
liquidity management as well as higher deposit and lending
volumes had a partly offsetting effect.
Net fee income amounted to DKK 3.7 billion, an increase of
3% from the level in the first quarter of 2019. At Banking DK,
net fee income benefited from strong remortgaging activity
and additional performance fees resulting from above-
market performance on investments in 2019 and settled in
the first quarter 2020. At Corporates & Institutions, net fee
income increased due to a good start to the quarter and
increased demand for exchange rate risk management
towards the end of the quarter. However, the positive effect
was partly offset by a decrease in net fee income at Wealth
Management, Danica Pension, as result of the decline in
assets under management following the development in the
financial markets.
Net trading income amounted to DKK 0.3 billion, a decrease
of 82% from the level in the first quarter of 2019. The
decrease was due to the turbulence in the financial markets,
which affected primarily Corporates & Institutions and
Wealth Management. At Corporates & Institutions, income
decreased as a result of lower trading income from FI&C
along with negative developments in value adjustments of the
derivatives portfolio. At Wealth Management, the decrease
in net trading income was related primarily to a negative
investment return in the health and accident business.
Expenses
Operating expenses amounted to DKK 6.8 billion, an increase
of 10% from the level in the first quarter of 2019. Operating
expenses increased primarily as a result of higher costs for
regulatory compliance and investments to combat financial
crime and costs for the Estonia case.
Danske Bank / Interim report – first quarter 2020 8/80
Loan impairments
Loan impairments in core activities amounted to DKK 4.3
billion for the first quarter of 2020, against an impairment
charge of DKK 0.4 billion in the first quarter of 2019. Loan
impairments are based on the use of timely estimates of the
effect of the coronavirus pandemic in the impairment model,
affecting both individual customers and the macroeconomic
outlook for the coming quarters.
Changes due to macroeconomic scenarios and post-model
adjustments amounted to DKK 1.7 billion. This includes
some reductions of existing post-model adjustments,
including on agriculture in Denmark. In addition, specific
adjustments for industries highly affected by the coronavirus
pandemic amounted to DKK 0.5 billion.
Impairments due to a deterioration of the creditworthiness of
specific customers amounted to DKK 2.1 billion. The credit
assessment of these customers was made on an ongoing
basis throughout the quarter, and
impairments were
revisited in light of the change in outlook. This affected mainly
the oil and gas industry at Corporates & Institutions, mostly
in Norway, and the retailing industry. The decline in credit
quality outside these industries is currently limited.
Prior to the outbreak of the coronavirus pandemic, loan
impairments were in line with the previous impairment trend
and our expectations.
Due to the extensive and timely changes to forward-looking
estimates
in the first quarter of 2020, a substantial
downside for the affected portfolios was included in first
quarter calculations. Impairments are therefore expected to
be significantly lower in coming quarters, assuming no
further deterioration in macroeconomic assumptions.
Impact of the coronavirus pandemic
The uncertainty following the outbreak of the coronavirus
pandemic resulted
impairment
charges.
increase
in an
loan
in
to reflect appropriate
Impairment charges increased due to an update of the
macroeconomic scenarios in the IFRS 9 impairment model
following the macroeconomic uncertainty. Scenarios are
impairment charges
adjusted
calculated on the basis of historical losses during economic
downturns. The model is now based on a base scenario that
reflects a significant decline in economic activity in 2020
followed by a recovery in 2021 supported by government
support packages. A further severe downside scenario is
introduced with a likelihood of 25% to reflect the risk that
government support packages will prove insufficient to
sustain the recovery. This scenario builds on a prolonged
recovery with a continued decline in economic activity in
2021 and includes substantial increases in unemployment
and decreases in house prices. Including this scenario in the
model is considered appropriate in light of the uncertainty
surrounding the shape of the recovery. The impact of the
scenarios in the coming years is in line with the scenarios
published by the Danish central bank. The changed outlook
therefore results in more exposures being classified as
exposures with a significant increase in credit risk since
initial recognition
(stage 2). Furthermore, post-model
adjustments have been made against sectors severely
affected by the coronavirus pandemic, including hotels,
leisure and transportation, to which the Group’s exposure is
limited, however. Overall, loan impairments for the first
quarter of 2020 were thus driven by an update of the
macroeconomic scenario, charges against single-name
exposures and post-model adjustments. Further details are
given in the credit exposure disclosures in the financial
statements.
We expect further impairments related to the coronavirus
pandemic during the year. However, the extensive changes to
forward-looking estimates in the first quarter of 2020 are
believed
from
macroeconomic deterioration of the affected portfolios.
the substantial downside
to capture
Corporates & Institutions saw loan impairments mainly
against single-name exposures, mainly in the shipping, oil and
gas, and retailing industries. This reflects the rapid decline in
the oil price following the outbreak of the coronavirus
leading to a deteriorating outlook for non-
pandemic,
performing loans with ongoing restructuring. Banking Nordic
saw
the changed
macroeconomic scenario and made impairments against
single-name exposures, mainly in the construction industry.
impacted primarily by the changed
Banking DK was
macroeconomic scenario in the IFRS 9 impairment model.
impairments
increased
following
Loan impairment charges
Q1 2020
Q1 2019
(DKK millions)
Charges
% of net
credit
exposure*
% of net
credit
exposure*
Charges
Banking DK
Banking Nordic
Corporates &
Institutions
Northern Ireland
Other Activities
Total
945
952
2,181
165
7
4,251
0.40
0.59
3.66
1.22
0.50
0.90
205
-49
221
-14
-5
357
0.09
-0.03
0.37
-0.11
-0.30
0.08
* Relating to lending activities in core segments.
Tax
Tax on profit for the period amounted to an income of
DKK 0.4 billion, or 22.5% of profit before tax, against 25.5%
of profit before tax for the first quarter of 2019. The rate for
the first quarter of 2019 was higher due partly to
adjustments regarding previous years.
Q1 2020 vs Q4 2019
In the first quarter of 2020, the Group posted a loss before
tax of DKK 1.7 billion, against a profit before tax of DKK 1.3
billion in the fourth quarter of 2019. The loss before tax was
due primarily to an increase in loan impairment charges that
Danske Bank / Interim report – first quarter 2020 9/80
was directly related to the coronavirus outbreak and the
subsequent economic downturn and significant decline in oil
prices. A decline in net trading income due to the turbulence
in the financial markets and large negative value adjustments
of the derivatives portfolio of DKK 344 billion also
contributed to the loss. Profit before tax in the fourth quarter
of 2019 was affected by goodwill impairment charges and an
increase in operating expenses.
Profit before loan impairment charges in core activities
amounted to DKK 2.8 billion in the first quarter of 2020, an
increase of 29% from the level in the fourth quarter of 2019.
The increase was due to the fourth quarter of 2019 being
adversely affected by primarily goodwill impairment charges.
Net interest income amounted to DKK 5.5 billion, a 1%
decrease from the level in the fourth quarter of 2019. Net
interest income was adversely affected by exchange rate
developments and higher capital costs. Fewer interest days
in the first quarter also had a negative effect. Primarily higher
deposit margins and lending margins and, to a lesser extent,
deposit volumes had a partly offsetting effect.
Net fee income amounted to DKK 3.7 billion and decreased
17% from the level in the fourth quarter of 2019. The
decrease was due primarily to the decline in assets under
management following the development in the financial
markets in the first quarter of 2020 and higher performance
fees from asset management at Wealth Management in the
fourth quarter of 2019.
Net trading income amounted to DKK 0.3 billion, a decrease
of 83% from the level in the fourth quarter of 2019. The
decrease was due to lower income from the rates business
and a large negative value adjustment of the derivatives
portfolio of DKK 344 million at Corporates & Institutions.
Further, net trading income in the fourth quarter of 2019
benefited from the sale of LR Realkredit A/S.
Operating expenses amounted to DKK 6.8 billion, a decrease
of 19% from the level in the fourth quarter of 2019. The
decrease was due to the first quarter of 2020 benefiting
from lower costs relating to the Estonia case, AML and
compliance, and the fourth quarter of 2019 being adversely
affected by a provision for operational risk-related losses and
the adjustment of the expected value of a distribution
contract.
Loan impairments amounted to DKK 4.3 billion, against
DKK 0.7 billion in the fourth quarter of 2019. Changes due to
macroeconomic scenarios and post-model adjustments
amounted to DKK 2.2 billion, including specific adjustments
for highly affected industries of DKK 0.5 billion. Impairments
due to a deterioration of the creditworthiness of specific
customers amounted to DKK 2.1 billion. This affected mainly
the oil and gas industry at Corporates & Institutions, mostly
in Norway, and the retailing industry. The decline in credit
quality outside these industries is currently limited. Prior to
the outbreak of the coronavirus pandemic, loan impairments
were in line with the previous impairment trend and our
expectations.
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
Total lending
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
Danske Bank / Interim report – first quarter 2020 10/80
Q1
2020
927.0
606.8
216.5
0.1
51.2
2.2
22.1
Q1
2019
941.1
626.1
195.3
0.2
52.6
-4.3
18.0
1,781.8
1,793.0
Index
20/19
99
97
111
50
97
-
123
99
Q4
2019
943.7
635.0
209.1
0.1
54.3
-3.0
18.0
1,821.3
Index
Q1/Q4
98
96
104
100
94
-
123
98
363.5
269.8
301.4
0.2
70.1
-9.7
995.2
762.0
33.2
795.2
173.8
89.3
263.1
335.8
252.5
264.3
0.1
65.5
-8.8
909.4
751.2
53.0
804.2
191.1
58.3
249.4
108
107
114
200
107
-
109
101
63
99
91
153
105
105
358.0
270.5
270.7
0.2
70.9
-7.4
962.9
795.7
9.7
805.4
176.5
61.9
238.4
2,006.7
90.8
102
100
111
100
99
-
103
96
-
99
98
144
110
102
Total deposits and issued mortgage bonds etc.
2,053.5
1,963.0
Lending as % of deposits and issued mortgage bonds etc.
86.8
91.3
Lending
At the end of March 2020, total lending was down 2% from
the level at the end of December 2019. At Banking DK,
lending decreased primarily due to negative market value
adjustments of mortgage loans. At Banking Nordic, lending
decreased due to the depreciation of the Norwegian krone
and the Swedish krona. The decrease in lending was partly
offset by an increase in lending at Corporates & Institutions.
In Denmark, new gross
loans,
amounted to DKK 13.1 billion. Lending to retail customers
accounted for DKK 2.8 billion of this amount.
lending, excluding repo
Our market share of total lending in Denmark, excluding repo
loans, decreased 0.4 percentage points to 25.8%. In Norway,
our market share increased 0.2 percentage points. In
Sweden and Finland, our market shares increased 0.1
percentage points.
Market shares of lending
(%)
29 February 31 December
2019
2020
Denmark incl. RD (excl. repo)
Finland
Sweden (excl. repo)
Norway
25.8
9.7
5.6
6.3
26.2
9.6
5.5
6.1
Source: Market shares are based on data from central banks at the time
of reporting.
Lending equalled 86.8% of the total amount of deposits,
mortgage bonds and other covered bonds, against 90.8% at
the end of 2019.
Deposits
At the end of March 2020, total deposits were up 3% from
the level at the end of 2019.
Our market shares in Denmark and Sweden were unchanged
at 29.0% and 4.3%, respectively. Our market share in
Norway increased 0.8 percentage points primarily related to
deposits from corporates and the public sector. Our market
share in Finland decreased 0.1 percentage points. The Group
maintained its strong funding position.
Market shares of deposits
(%)
29 February 31 December
2019
2020
Denmark (excl. repo)
Finland
Sweden (excl. repo)
Norway
29.0
10.6
4.3
7.2
29.0
10.7
4.3
6.4
Source: Market shares are based on data from central banks at the time
of reporting.
Credit exposure
Credit exposure from lending activities in core segments
increased to DKK 2,477 billion, against DKK 2,444 billion at
the end of 2019, driven primarily by an increase in loan
commitments at Corporates & Institutions and at Banking
DK. Demand deposits with central banks and due from credit
institutions and central banks increased DKK 47 billion from
the level at the end of 2019.
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 strong in most segments in the first
quarter of 2020. The effects of the coronavirus pandemic are
expected to materialise in coming quarters, and apart from
existing portfolios that are challenged, the rate of new non-
performing loans was therefore limited in the first quarter.
Total net non-performing loans (NPL) increased DKK 0.7
billion from the end of 2019, with the increase being driven
by a few single-name exposures to the shipping, oil and gas,
and retailing industries at Corporates & Institutions. The NPL
coverage ratio decreased to 74% from 78% at the end of
2019.
The risk management notes on pp. 62-77 provide more
information about non-performing loans.
Danske Bank / Interim report – first quarter 2020 11/80
At DKK 24.1 billion, or 1.3% of lending and guarantees,
accumulated
impairments increased from 1.1% at 31
December 2019.
Allowance account
by business units
(DKK millions)
Banking DK
Banking Nordic
C&I
Northern Ireland
Other
31 Mar. 2020
Accum.
impairm.
charges
% of net
credit
exposure *
31 Dec. 2019
Accum.
impairm.
charges
% of net
credit
exposure *
12,466
5,029
5,746
865
14
1.30
0.79
2.46
1.62
0.02
11,662
4,333
3,718
730
8
1.21
0.68
1.61
1.37
0.01
1.08
Total
24,121
1.27
20,451
1 Relating to lending activities in core segments.
Trading and investment activities
Credit exposure from trading and investment activities
amounted to DKK 1,334 billion at 31 March 2020, against
DKK 1,124 billion at the end of 2019.
The Group has made netting agreements with many of its
counterparties concerning positive and negative market
values of derivatives. The net exposure was DKK 125.2
billion, against DKK 76.4 billion at the end of 2019. The
increase was due to pressure on market rates in relation to
the coronavirus pandemic in March 2020.
The value of the bond portfolio was DKK 539 billion. Of the
total bond portfolio, 76% was recognised at fair value and
24% at amortised cost.
Bond portfolio
(%)
31 March 31 December
2019
2020
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
35
1
47
12
2
3
32
1
53
10
2
2
Total holdings
100
100
Non-performing loans (NPL) in core segments
(DKK millions)
31 Mar.
2020
31 Dec.
2019
Bonds at amortised cost included in total
holdings
24
26
Gross NPL
NPL allowance account
Net NPL
37,223
15,221
34,713
13,367
22,002 21,346
Collateral (after haircut)
16,765
17,479
NPL coverage ratio (%)
NPL coverage ratio of which is in default (%)
NPL as a percentage of total gross exposure (%)
74.4
70.0
1.5
77.6
73.6
1.4
The NPL coverage ratio is calculated as allowance account NPL
exposures relative to gross NPL net of collateral (after haircuts).
The financial highlights on page 4 provide information about
the balance sheet.
Trading portfolio assets and trading portfolio
liabilities
increased from net assets of DKK 43.1 billion at the end of
2019 to net assets of DKK 103.5 billion at the end of March
2020. The increase in net assets was due to an increase in
bond holdings and in the net market values of derivatives. The
increase in the net market values of derivatives was due
primarily to the changes in market rates.
Other balance sheet items
Assets under insurance contracts and Liabilities under
insurance contracts
increased DKK 33.0 billion and
DKK 29.3 billion, respectively, from the end of 2019,
primarily as a result of an increase in the market value of
derivatives.
Implications of the coronavirus pandemic for capital
The coronavirus pandemic had significant implications for
the Group’s capital position at the end of March 2020.
A weakened macroeconomic outlook and turmoil on the
financial markets significantly affected the Group’s earnings
while increasing its risk exposure.
In order to minimise the financial consequences of the
coronavirus pandemic, the Board of Directors has proposed
that no dividends be paid for 2019 – effectively increasing
regulatory capital by DKK 7.3 billion at the end of March
2020.
The Group’s excess capital level was further supported by the
release or decrease of national countercyclical buffer rates
in core markets, leading to a 1.1% percentage point decrease
in the Group’s combined buffer requirement.
Capital ratios
At the end of March 2020, the total capital ratio was 22.3%,
and the CET1 capital ratio was 17.6%, against 22.7% and
17.3%, respectively, at the end of 2019. The movement in
the capital ratios during the first quarter of 2020 was driven
by the cancellation of dividends for 2019, which was partly
countered by an increase in the total REA and a net loss for
the period due to the higher level of impairment charges. The
movement in the total capital ratio was further affected by the
deduction of additional tier 1 (AT1) capital instruments that
were redeemed in April 2020.
During the first quarter of 2020, the total REA rose
approximately DKK 6 billion, due mainly to increased REAs
for counterparty credit and market risks. Counterparty credit
risk was driven mainly by exposure increases due to interest
rate movements, while high volatility in the financial markets
led to the increase in market risk.
At the end of March 2020, the Group’s leverage ratio was
4.5% under the transitional rules and 4.4% 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 March 2020, the Group’s solvency need ratio
was 12.5%, a decrease of 0.2 percentage points from the
level at the end of 2019.
Danske Bank / Interim report – first quarter 2020 12/80
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 amount of 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 March 2020, the Group’s
combined capital buffer requirement was 5.6%.
In March 2020, the Danish government decided to release
the countercyclical buffer requirement and cancel the
planned increases intended to take effect later this year as a
result of the coronavirus pandemic. The Swedish FSA also
released the Swedish buffer requirement, while the
Norwegian Ministry of Finance decreased the Norwegian
buffer requirement from 2.5% to 1% with immediate effect.
the
Consequently,
institution-specific
countercyclical buffer requirement was 0.1% at the end of
March 2020, a decrease of 1.1 percentage points from the
end of 2019.
Group’s
Capital ratios and requirements
(% of the 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
31 March
2020
Fully
phased-in*
17.6
22.3
13.2
0.1
2.5
3.0
18.2
4.4
4.2
17.4
22.1
13.2
0.1
2.5
3.0
18.2
4.2
3.9
* Based on fully phased-in rules and requirements including 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 March
2020.
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 March 2020, the requirement was
equivalent to DKK 250 billion. The MREL-eligible liabilities
amounted to DKK 265 billion.
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.
The transition to the full MREL has been relatively shorter for
the Group than for its peers. In combination with a relatively
high Danish MREL, the Group has issued a significant amount
of non-preferred senior debt over the past couple of years.
During the first quarter of 2020, the nominal value of non-
preferred senior bonds increased DKK 9.4 billion.
Capital targets
The Group’s capital targets are unchanged from the
increased levels set by the Board of Directors in 2019 as a
result of the increase in capital requirements and general
uncertainty about future regulation.
The CET1 capital ratio target is kept at above 16% in the
short term to ensure a sufficiently prudent buffer in relation
to the capital requirement. The total capital target is kept at
above 20%. Danske Bank fully meets these capital targets.
The Board of Directors reassesses the capital targets on an
ongoing basis.
Capital distribution policy
In order to minimise the financial consequences of the
coronavirus pandemic, the Board of Directors on 20 April
2020 proposed to the general meeting that no dividends be
paid for 2019.
The proposal for no dividend payments for 2019 does not
change the Group’s general dividend policy, which is still to
pay out 40-60% of net profit for the year.
Danske Bank has strong capital and liquidity positions, and
the Board of Directors monitors the situation closely and
remains committed
to
shareholders when the economic impact of the pandemic is
clear.
to returning excess capital
Credit ratings
Fitch Ratings
(Fitch) and Moody’s
(Moody’s) took rating actions in the first quarter of 2020.
Investors Service
On 31 March, Fitch placed its long-term ratings on Danske
Bank on Watch Negative due to the sharp deterioration of
economic conditions caused by the coronavirus pandemic. At
the same time, it downgraded its Subordinated Tier2 debt
ratings to ‘BBB+’ from ‘A-‘ and upgraded its Additional Tier1
Capital Instrument ratings to ‘BBB-‘ from ‘BB+’. Theses
changes reflect previously announced changes to ratings
criteria.
Danske Bank / Interim report – first quarter 2020 13/80
On 26 March, Moody’s lowered its outlook for the Danish
banking system to Negative on the basis of its expectation
that the coronavirus pandemic will negatively affect earnings
as well as costs and impairments for the industry as a whole.
While this decision does not immediately trigger downgrades
of bank ratings, it is a leading indicator of coming rating
actions.
To date, S&P Global (S&P) has not taken any rating actions
as a result of the coronavirus pandemic.
Danske Bank’s ratings 31 March 2020
Moody’s
S&P
Fitch
Counterparty rating
A1/P-1
A+/A-1
A+
A2/Negative/
Deposits
Senior debt
P-1
-
A+/F1
A3/P-2
A/A-1
A+/F1
Issuer rating
A3/P-2
A/A-1
A/F1
Outlook
Stable
Stable
Watch
Negative
Non-preferred
senior debt
Tier 2
AT1
Baa3
BBB+
A
-
-
BBB
BB+
BBB+
BBB-
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 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.
in outlook
At the same time, Fitch affirmed its ratings and revised its
outlook on Realkredit Danmark to Negative from Stable. The
change
the expected
consequences of the coronavirus pandemic. However, Fitch
expects the effects for Realkredit Danmark to be less
negative than for the Group as a whole and more manageable
relative to earnings and capitalisation.
is also reflecting
Danske Bank / Interim report – first quarter 2020 14/80
At 31 March 2020, the total nominal value of outstanding
long-term funding, excluding equity-accounted additional tier
1 capital and debt issued by Realkredit Danmark, was
DKK 368 billion, against DKK 370 billion at the end of 2019.
Danske Bank excluding Realkredit Danmark 31 March 31 December
2019
(DKK billions)
2020
Covered bonds
Preferred senior bonds
Non-preferred senior bonds
Subordinated debt
Total
173.8
66.2
96.3
31.8
176.5
75.3
86.9
31.6
368.1
370.2
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 March 2020, 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 and revised standards
for REA calculations (Basel IV). Due to the coronavirus
pandemic, the BCBS has delayed the implementation of the
Basel IV standards from 2022 to 2023. This will delay the
process for implementation of the standards in the EU, which
was initially planned to kick off with a legislative proposal from
the EU Commission in June 2020.
Changes to the Board of Directors and executive
management
Jens Due Olsen did not seek re-election to the Board of
Directors and was due to step down at the annual general
meeting scheduled for 17 March 2020. However, due to the
extraordinary circumstances caused by the coronavirus
pandemic, the general meeting was postponed, and Jens Due
Olsen stepped down from his position as member of the
Board of Directors on 7 April 2020.
On 18 March 2020, Frans Woelders took up his position as
member of the Executive Leadership Team and Group COO.
On 1 April 2020, Stephan Engels took up his position as
member of the Executive Leadership Team and Group CFO.
ESG rating agency
CDP Worldwide, UK
Imug, Germany
ISS ESG, USA
Score at
31 March 2020
Score at
31 Dec 2019
C
C
Neutral (CCC)
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.
Imug’s downgrade of Danske Bank on 21 February 2020 was
due to
its assessment of Danske Bank’s social and
governance performance as weaker in 2018 than in 2017.
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
The coronavirus pandemic and the expected detrimental
macroeconomic impact led the market for credit to widen
sharply in line with the decline in equities from the latter part
of February. Late in March, central bank actions and the
policy response by governments had stabilised the markets,
albeit at wide levels.
During the first quarter of 2020, the Group issued non-
preferred senior bonds of DKK 10.1 billion, senior debt of
DKK 0.8 billion and covered bonds of DKK 15.1 billion
bringing total long-term wholesale funding to DKK 26 billion.
Almost all issuance was made prior to the outbreak of the
coronavirus pandemic in Europe.
First quarter issuance implies that we are already well
advanced in meeting our 2020 funding requirement of 70-90
billion. We remain dedicated to our strategy of securing more
funding directly in our main lending currencies, including NOK
and SEK, but we will also utilise central bank facilities to
obtain funding in the most cost efficient manner.
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 the first quarter of 2020,
our liquidity coverage ratio stood at 154%, (31 December
2019: 140%) with an LCR reserve of DKK 504 billion, (31
December 2019: 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.
Danske Bank / Interim report – first quarter 2020 15/80
Banking DK
In the first quarter of 2020, Banking DK posted a profit before tax of DKK 0.6 billion, a decrease of 58% from the same period last
year. Loan impairment charges increased significantly, reflecting the coronavirus pandemic. Furthermore, continued margin
pressure and increases in costs for regulatory compliance and investments to combat financial crime adversely affected the result.
However, these effects were partly offset by stronger remortgaging activity among retail customers and higher investment fees
from private wealth management activities.
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
Q1
2020
2,203
1,179
329
45
3,756
2,187
1,569
945
Q1
2019
2,346
1,011
313
55
3,725
2,023
1,702
205
Profit before tax
624
1,497
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 (%)
Full-time-equivalent staff
927,025
11,011
363,514
793,044
1,452
38,370
0.69
6.5
58.2
4,792
941,150
11,165
335,816
799,777
1,402
36,430
0.75
16.4
54.3
4,288
Index
20/19
94
117
105
82
101
108
92
-
42
98
99
108
99
104
105
112
Q4
2019
2,231
1,209
318
53
3,812
2,523
1,289
-261
1,549
943,723
10,235
357,967
804,130
1,425
36,287
0.70
17.1
66.2
4,588
Index
Q1/Q4
Full year
2019
99
98
103
85
99
87
122
-
40
98
108
102
99
102
106
104
9,111
4,397
1,176
227
14,912
8,736
6,176
-342
6,518
943,723
10,235
357,967
804,130
1,425
36,430
0.72
17.9
58.6
4,588
*Covered bonds issued is before the elimination of the Group’s holding of own covered bonds. Fact Book Q1 2020 provides financial highlights at customer
type level for Banking DK. Fact Book Q1 2020 is available at danskebank.com/ir.
lockdown with
Q1 2020 vs Q1 2019
In mid-March, the coronavirus hit Denmark and led to a
national
immediate, adverse effects on
society, businesses and households. As the largest bank in
Denmark, we have a special responsibility to help mitigate the
effects of this extraordinary situation as much as possible,
and we have taken multiple initiatives to help our customers
through the situation in the best way possible.
initiatives
These
include extended access to overdraft
facilities, interest-only payments on loans, postponement of
loan repayment, postponement or payment in instalments of
credit card debt, increase and extension of credit facilities,
and offers to provide financing to businesses until they
receive money under the coronavirus relief packages
introduced by the Danish government. In addition, we raised
the threshold for the charging of negative interest on the
deposits of small businesses from DKK 0.2 million to
DKK 0.5 million. As of end-March, we had made liquidity in
the double-digit billion range available to our customers all
over Denmark, and more will follow. As customers start to
utilise these facilities, we will see an impact on our figures.
lending was
Customer activity
Lending fell 2% from the level in the first quarter of 2019 due
to negative market value adjustments of our mortgage book.
flat, reflecting pre-coronavirus
Underlying
demand for subsidised housing and commercial property
financing among our large real estate customers. In addition,
remortgaging activity continued, primarily among our retail
customers, although the level was lower than the historically
high level seen in 2019. Since the coronavirus pandemic hit,
we have seen a decline in mortgage finance lending but high
demand among customers for meetings and advice on the
financing of their property.
Since mid-March, we have seen extraordinarily high business
activity, especially in the commercial segment, and have been
very busy helping customers with relevant advice and
solutions. We also reached out proactively to many of our
more than 100,000 commercial customers to offer advice
on business planning and on how to protect their businesses.
The second half of March was also characterised by many
retail customers calling us for advice on and help to deal with
urgent matters, for example help to pay bills because of
income loss due to the coronavirus pandemic. At the end of
March, we saw the first loans, credit facilities, etc. granted
Danske Bank / Interim report – first quarter 2020 16/80
The average loan-to-value (LTV) level decreased by 0.8
percentage points during the period.
Loan-to-value ratio,
home loans
Retail
Total
31 Mar. 2020
31 Dec. 2019
Average
LTV (%)
59.8
59.8
Net credit
exposure
(DKK bn)
501
501
Average
LTV (%)
60.6
60.6
Net credit
exposure
(DKK bn)
508
508
Credit exposure
Credit exposure saw a decrease to DKK 1,023 billion in the
first quarter of 2020, driven mainly by the commercial
portfolio. The decrease of DKK 23 billion in the commercial
portfolio was caused by a decrease in exposure to the Danish
central bank.
(DKK millions)
31 Mar. 2020
31 Dec. 2019
Net credit exposure
Retail
Commercial
559,753
463,624
567,125
486,987
Total
1,023,377
1,054,111
Impairments
(ann.) (%)
31 Mar. 2020
0.20%
0.67%
0.40%
Q1 2020 vs Q4 2019
Profit before tax decreased 60% to DKK 0.6 billion owing to
a significant increase in loan impairment charges related to
the coronavirus pandemic.
Lending volume fell 2% in the period due to negative market
value adjustments and reduced lending activity. Deposits
increased 2%.
Operating expenses decreased 13% due to seasonality.
The first quarter of 2020 saw a net loan impairment charge
of DKK 945 million, against a net reversal of DKK 261 million
in the fourth quarter of 2019. Given the macroeconomic
uncertainty resulting from the coronavirus pandemic, the
macroeconomic scenarios for impairments were updated
and specific coronavirus-related post-model adjustments
were introduced.
related directly to the coronavirus pandemic, and we expect
demand to increase in the coming period. We are ready to
help as many customers as we possibly can and to find
solutions to the challenges caused by this difficult situation.
Financial results
Against this background, Banking DK posted a profit before
tax of DKK 0.6 billion for the first quarter, a decrease of 58%
from the same period last year. In addition to the coronavirus
situation in Denmark and the resulting significant increase in
loan impairment charges, the period was characterised by
continued margin pressure on lending. However, this was
offset by strong remortgaging activity and higher investment
fee income, and total income was up 1%.
Deposit levels significantly increased from the same period
of 2019, and both our retail and commercial market shares
grew. To balance the development in deposits, we will
introduce negative interest rates for retail customers on
deposits above specific thresholds from 1 June 2020.
Net interest income decreased 6% from the level a year ago.
The low interest rate environment in Denmark continues to
encourage customers to switch to loan and mortgage
products with lower margins. Furthermore, net interest
income was adversely affected by strong competition.
Net fee income benefited from strong remortgaging activity
and additional performance fees resulting from above-
market performance on investments in 2019 and settled in
the first quarter of 2020.
Operating expenses rose 8% owing to increased costs for
regulatory compliance and investments to combat financial
crime, primarily in anti-money laundering activities, such as
monitoring and controls, staff training and IT.
Loan impairment charges for the quarter amounted to a net
charge of DKK 945 million, of which Realkredit Danmark
accounts for DKK 691 million. Impairments were heavily
impacted by the economic uncertainty resulting from the
coronavirus pandemic and the resulting change in the
macroeconomic outlook. A large part of the charge thus
related
introduction of a more negative
macroeconomic scenario in the IFRS 9 impairment model
and additional coronavirus-related post-model adjustments.
the
to
Credit quality
Credit quality remained strong with the effects of the
coronavirus situation expected to materialise in the coming
quarters. This
large net
impairment charge recognised in the first quarter of 2020.
We have implemented initiatives to help retail as well as
commercial customers manage the situation, for example by
offfering increased limits and interest-only periods.
in the relatively
is reflected
Credit quality at Realkredit Danmark remained solid in the
first quarter of 2020 despite the negative effect of the
coronavirus pandemic.
Danske Bank / Interim report – first quarter 2020 17/80
Banking Nordic
In the first quarter of 2020, Banking Nordic delivered a profit before tax of DKK 0.2 billion, a decline of 83%. This was due to a
significant increase in loan impairments of DKK 1 billion from the level in the first quarter of 2019 resulting from the outbreak of
the coronavirus pandemic. However, profit before loan impairment charges was DKK 1.2 billion, an increase of 2% from the level in
the first quarter of 2019. The increase was the result of the growth strategy and a benign interest rate environment, especially in
Norway.
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
Q1
2020
1,999
477
67
149
2,692
1,537
1,155
952
Q1
2019
1,959
463
70
155
2,647
1,519
1,128
-49
Profit before tax
203
1,177
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 (%)
Full-time-equivalent staff
606,799
4,554
269,789
248,096
476
37,070
0.90
2.2
57.1
2,509
626,062
3,631
252,488
235,864
375
34,126
0.91
13.8
57.4
2,628
Index
20/19
102
103
96
96
102
101
102
-
17
97
125
107
105
127
109
95
Q4
2019
1,992
479
72
136
2,678
1,757
921
511
410
634,974
3,880
270,522
223,604
451
34,283
0.90
4.8
65.6
2,599
Index
Q1/Q4
Full year
2019
100
100
93
110
101
87
125
186
50
96
117
100
111
106
108
97
7,839
1,857
280
592
10,567
6,269
4,298
510
3,788
634,974
3,880
270,522
223,604
451
34,371
0.89
11.0
59.3
2,599
*Covered bonds issued is before the elimination of the Group’s holding of own covered bonds. Fact Book Q1 2020 provides financial highlights at customer
level for Banking Nordic. Fact Book Q1 2020 is available at danskebank.com/ir.
Q1 2020 vs Q1 2019
During March, Banking Nordic’s markets were hit by the
coronavirus pandemic. The pandemic created significant
turmoil on the global markets, and many countries decided on
a lockdown, which impacted businesses and societies as a
whole.
Banking Nordic continued to actively support societies and
customers as much as possible and launched a variety of
initiatives. These initiatives include offers for interest-only
periods on mortgage loans for our retail customers in all
markets, and a range of streaming services and live chats set
up to answer questions, especially in relation to investment
products.
in the
large number of customers
A
large-customer
segments have been contacted with advice, and we have
the various coronavirus relief packages
focused on
introduced by governments as well as on giving advice on
tools to
including establishment or
extension of credit lines.
increase
liquidity,
Banking Nordic saw an increase in income of 2% from the
level in the first quarter of 2019 due to a benign interest rate
environment combined with growth in all markets as well as
good investment activity at the beginning of the year.
However, in combination with the significant increase in loan
impairments as a result of the coronavirus pandemic, profit
before tax decreased 83% from the level in the first quarter
of 2019.
Adjusted for currency effects, Banking Nordic saw lending
growth in all market areas from the level at the end of 2019.
The Norwegian krone and the Swedish krona both
depreciated vis-à-vis the Danish krone from the first quarter
of 2019 to the first quarter of 2020.
In the retail and private banking segments, Sweden saw
increased customer activity and growth, whereas Finland
and Norway were on par with the level at the end of 2019. In
the first quarter of 2020, our focus was on expanding our
business with existing customers.
Banking Nordic also experienced growth in deposits, mainly
in the commercial sector, due to a combination of customer
actions taken as a result of the coronavirus pandemic as well
as onboarding of new customers, especially in the public
sector.
Net interest income benefited from the development in the
interest rate environment, especially the rate cuts made by
the Norwegian central bank in March. In combination with the
Danske Bank / Interim report – first quarter 2020 18/80
Net credit exposure
(DKK millions)
31 Mar. 2020 31 Dec. 2019
Sweden
Norway
Finland
Other
Total
286,152
217,122
174,371
51,722
289,206
249,001
172,857
53,159
729,367
764,224
Impairments
(ann.) (%)
31 Mar. 2020
0.82%
0.15%
0.92%
0.33%
0.59%
Q1 2020 vs Q4 2019
Profit before tax decreased 50% due to
impairment charges.
increased
Total income was on par with income in the preceding
quarter.
Net interest income increased slightly, due mainly to a benign
interest rate environment in Norway and increased activity
within Asset Finance.
Operating expenses decreased 13%, as the cost level was
high in the preceding quarter due mainly to year-end bookings
related to investments in compliance and activities related to
the combating of financial crime as well as an adjustment of
the expected value of a distribution contract in Finland.
Loan impairments amounted to a charge of DKK 952 million
in the first quarter of 2020, against a charge of DKK 511
million in the fourth quarter of 2019. The figure for the first
quarter of 2020 represents a more uncertain economic
environment, the implications of the coronavirus pandemic
and charges against a few single-name exposures.
results of the growth strategy pursued in the preceding
years, when our partnerships played a significant role as a
core lever, net interest income increased 2% from the level
in the first quarter of 2019, despite adverse currency effects.
Net fee income increased 3% from the level in the first
quarter of 2019, driven mainly by good investment activity at
the beginning of the year, mainly in Finland.
Other income decreased 4% from the same period in 2019,
due partly to the closing down of real estate activities in
Finland.
Banking Nordic saw an increase in operating expenses of 1%
from the level in the first quarter of 2019. The development
in costs benefited from the depreciation of currencies.
Underlying, Banking Nordic saw an increase in costs due to
continued costs for regulatory compliance and investments
to combat financial crime. However, general business costs
decreased due to the strong focus on cost control.
Loan impairments amounted to a charge of DKK 952 million,
driven primarily by the commercial portfolio. Both Banking
Sweden and Banking Finland exhibited high impairment
charges as a result of the changed macroeconomic scenario
in the IFRS 9 model and impairments against a few single-
name exposures. On the other hand, Banking Norway was
supported by
impairment reversals on single-name
exposures. Generally, the strong quality of the Banking Nordic
portfolio makes it less sensitive to scenario changes, despite
the charges recognised in the first quarter of 2020.
Credit quality
Credit quality remained strong in the first quarter of 2020.
However, some of the effects of the coronavirus pandemic
are expected to start becoming evident in the coming
quarters. This
large net
impairment charge in the first quarter of 2020. We have
implemented initiatives to help retail as well as commercial
customers manage the situation, for example by offering
increased limits and interest-only periods.
in the relatively
is reflected
Loan-to-value
ratio, home loans
31 Mar. 2019
31 Dec. 2019
Average LTV
(%)
Net credit
exposure
(DKK bn)
Average LTV
(%)
Net credit
exposure
(DKK bn)
Retail Sweden
Retail Norway
Retail Finland
Total
62.9
62.0
61.8
62.2
84
108
86
63.6
62.7
61.8
278
62.7
87
125
86
297
Credit exposure
Credit exposure decreased to DKK 729 billion in the first
quarter of 2020. The decrease came mainly from the
Norwegian portfolio due to the depreciation of the Norwegian
krone vis-à-vis the Danish krone from the level at the end of
2019.
Danske Bank / Interim report – first quarter 2020 19/80
Corporates & Institutions
Profit before tax at Corporates & Institutions was negative by DKK 1.9 billion for the first quarter of 2020 as the result of
significantly higher loan impairment charges and lower trading income in FI&C and Equities. The macroeconomic environment saw
a significant negative impact from the coronavirus pandemic, which in March led to unprecedented market volatility and a surge in
corporates asking for short-term liquidity facilities along with a strong increase in the need for risk hedging.
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
hereof loans in General Banking
Allowance account, loans
Allowance account, credit institutions
Deposits, excluding repo deposits
hereof 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 (%)
Full-time-equivalent staff
Total income
(DKK millions)
FI&C
hereof xVA**
Capital Markets
General Banking
Total income
Q1
2020
893
772
-158
-
1,507
1,235
-
272
2,181
-1,909
-1,909
216,524
178,245
5,065
19
301,443
249,621
16,800
662
34,590
0.74
-22.1
82.0
1,666
Q1
2019
930
692
914
-
2,536
1,204
-
1,332
221
1,111
1,111
195,318
162,415
2,443
9
264,260
225,138
17,846
15
31,586
0.81
14.1
47.5
1,702
222
-344
151
1,134
1,086
-164
296
1,154
1,507
2,536
Index
20/19
96
112
-
-
59
103
-
20
-
-
-
111
110
207
211
114
111
94
-
110
-
-
-
98
20
-
51
98
59
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
0.84
-2.0
87.9
1,665
805
-25
382
1,227
2,413
Index
Q1/Q4
Full year
2019
91
92
-
-
62
94
-
93
-
-
-
104
104
160
211
111
110
106
120
102
-
-
-
100
28
-
40
92
62
3,656
2,909
2,114
8
8,688
4,834
803
3,051
1,348
1,703
2,506
209,148
171,478
3,156
9
270,685
227,131
15,856
552
32,684
0.79
5.2
64.9
1,665
2,845
-283
1,211
4,631
8,688
*Covered bonds issued is before the elimination of the Group’s holding of own covered bonds.
**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.
Q1 2020 vs Q1 2019
Customer activity was high during the quarter, with a surge
in activity in March, but the financial result was adversely
impacted by sharply lower energy prices affecting loan
impairment charges and by significantly
lower trading
income as volatility in the financial markets reached the
highest level since the global financial crisis.
In March, Corporates & Institutions executed on the Group
business continuity plan as the coronavirus pandemic
escalated, thereby enabling most employees to work from
home, while at the same time continuing to support
customers with advisory services, execution and liquidity.
Despite the challenges of having most staff operating from
home work stations, we have been able to keep operations
close to normal and to serve our customers through this
challenging period.
Total income was DKK 1.5 billion in the first quarter of 2020,
a decline of 41% from the first quarter of 2019. This
reflected slightly lower net interest income, higher fee
income and negative net trading income, including negative
value adjustments on the derivatives portfolio.
Net interest income was 4% lower than in the first quarter of
2019 due mainly to a lower level of upfront fees than the
strong first-quarter level in 2019. Lending and deposit
volumes
increased during the first quarter of 2020,
contributing to higher income. However, this effect was partly
offset by higher funding costs for Danske Bank. The increase
in market volatility and large contraction in economic activity
amid the coronavirus pandemic led to a significant increase
in corporate demand for credit facilities during March.
In order to support our customers in managing the impact of
the coronavirus pandemic, we have extended substantial
credit via both lending and off-balance-sheet committed
facilities. In March, we saw a significant increase in requests
for new credit facilities. As the increase in volumes occurred
towards the end of the quarter, it had a limited impact on net
interest income for the period. We do not expect all facilities
to be utilised, but some uncertainty about this exists as it
remains unclear how long our customers will be affected by
the current restrictions imposed on society.
Net fee income increased 12% from the level in the first
quarter of 2019. Customer activity was high in Debt Capital
Markets, and we supported our customers
in raising
DKK 645 billion through the primary debt market in the first
quarter, a significant increase from the same period last year.
We were also involved in more equity market transactions in
the first quarter of 2020, although activity in both the debt
and equity markets came to a standstill in March as primary
markets froze. Fee income from Equities increased, driven by
high customer activity during the quarter amid higher market
volatility. The high market volatility also resulted in increased
customer demand for hedging solutions in our Currencies &
Liquidity area.
Net trading income was negative in the first quarter of 2020,
and DKK 1.1 billion lower than in the same period last year,
including negative value adjustments of the derivatives
portfolio (xVA) of DKK 344 million in the quarter. The
negative performance was driven mainly by a negative impact
in March, with the significantly wider spreads affecting our
mortgage and credit desks in FI&C, as well as lower trading
income in Equities.
Operating expenses were 3% higher than in the first quarter
of 2019, reflecting higher costs for regulatory compliance
and investments to combat financial crime. Direct staff costs
were down 11% from the first quarter of 2019 as the result
of the cost savings in the Markets area communicated in the
third quarter of 2019 along with lower provisions for
performance-based compensation.
Fixed Income & Currencies
From the first quarter of 2020, our DCM business
(previously part of Capital Markets) is fully integrated into our
FI&C business as a result of the organisational changes
Danske Bank / Interim report – first quarter 2020 20/80
implemented in November 2019. Total income in FI&C was
80% lower than in the first quarter of 2019. The significant
decline was driven mainly by lower income from Fixed Income
and Credit trading, which was impacted considerably by the
volatility and spread widening that followed the outbreak of
the coronavirus pandemic in March.
Primary Credit Markets saw a strong start to the year, with
very high customer activity across all home markets, until
activity came to a standstill in the middle of March as primary
markets
from
increased customer hedging activity amid higher market
volatility.
froze. Currencies & Liquidity benefited
Value adjustments of the derivatives portfolio
(xVA)
contributed to the negative trading result with a loss of
DKK 344 million in the first quarter of 2020, against a loss
of 164 million in the first quarter of 2019. This was driven
mainly by higher funding spreads for Danske Bank, leading to
a funding valuation adjustment loss. During the period, most
of the FX, interest rate, and credit spread risk on the xVA desk
was hedged, thereby limiting the effect on the first-quarter
result of the large market movements.
Capital Markets
With effect from the first quarter of 2020, Investment
Solutions became part of our Capital Markets business
(previously part of FI&C). Capital Markets’ total income
decreased 49% in the first quarter of 2020 from the level in
the same period in 2019. The decline was due mainly to
negative trading income in Equities amid extraordinary price
movements in equity options markets and a value adjustment
of a bridge loan in Loan Capital Markets following significantly
wider credit spreads and challenging primary markets.
Overall, we saw lower activity in Leveraged Finance in the first
quarter of 2020 than in same period last year and a decrease
in originate-to-distribute income as markets were disrupted
in March.
Capital Markets continued to see increased customer and
investor demand for sustainable financing, a trend we expect
to continue.
General Banking
Total income from General Banking was on par with the first
quarter of 2019. Underlying income from bank lending
increased, driven by higher average volumes, but this was
partly countered by higher funding costs. Income from
deposits also increased, and deposit volumes increased
towards the end of the quarter.
Fee income from cash management and trade finance was
broadly stable, and we continued to see growth in fees from
Investor Services as new customers were onboarded to the
Danske Bank offering.
Credit quality
Credit quality remained strong despite the macroeconomic
uncertainty caused by the coronavirus pandemic and the
drop in oil prices. Customer credit assessments were made
on an ongoing basis throughout the quarter and impacted
mainly the shipping, oil and gas, and retailing industries. C&I
is taking responsibility for providing credit to creditworthy
customers adversely affected by the coronavirus pandemic.
Q1 2020 vs Q4 2019
Danske Bank / Interim report – first quarter 2020 21/80
For the first three months of 2020, loan impairments
amounted to a net charge DKK 2,181 million. The
impairment charge is heavily impacted by the economic
uncertainty resulting from the coronavirus pandemic and the
resulting change in the macroeconomic outlook. The majority
of the impairment charge is attributable to the shipping and
oil and gas portfolios, which are negatively affected by the
rapid decline in oil prices. The retailing portfolio also saw an
increase in impairments.
Net credit exposure from lending activities amounted to
DKK 508 billion at the end of March 2020, an increase of
DKK 65 billion from the level at the end of 2019. Exposure to
central banks and credit institutions increased as did
exposure to corporate customers in the form of loans and
loan offers.
(DKK millions)
31 Mar. 2020
31 Dec. 2019
Net credit exposure
Sovereign
Financial Institutions
Corporate
Other
31,169
113,319
363,666
32
23,056
84,347
335,783
36
Impairments
(ann.) (%)
31 Dec. 2019
0.00%
0.61%
4.60%
Total
508,186
443,223
3.66%
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.
Profit before tax decreased DKK 1.7 billion from the fourth
quarter of 2019, driven by lower trading income and
extraordinarily high loan impairments.
FI&C income decreased 72% due to significantly lower
in value
income and negative developments
trading
adjustments.
Capital Markets income decreased 60% from the last
quarter of 2019, with the decrease driven by seasonality in
Corporate Finance income and a value adjustment in Loan
Capital Markets.
General Banking income decreased 8% from the fourth
quarter of 2019, mainly as a result of lower upfront fees
booked as net interest income.
Operating expenses decreased 6% from the fourth quarter
as a result of lower severance pay and costs for regulatory
compliance being extraordinarily high in the fourth quarter of
2019.
The first quarter of 2020 saw a net loan impairment charge
of DKK 2,181 million, against a charge of DKK 459 million in
the fourth quarter of 2019. The first-quarter 2020 figure
reflects the rapid decline
following the
coronavirus outbreak, leading to a deteriorating outlook for
non-performing loans with ongoing restructuring.
in oil prices
Danske Bank / Interim report – first quarter 2020 22/80
Wealth Management
Profit before tax amounted to DKK 0.2 billion, a decrease of 70% from the level in the first quarter of 2019. Net fee income and net
trading income were significantly impacted by the negative developments on the financial markets due to the coronavirus pandemic,
leading to negative net trading income, including a negative investment return in the health and accident business, and a drop in
assets under management of 12%.
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
Breakdown of assets under management*
(DKK billions)
Life conventional
Asset management
Assets under advice
Total assets under management
Breakdown of net fee income
(DKK millions)
Management fees
Performance fees
Risk allowance fees
Total net fee income
Q1
2020
-84
1,222
-81
-23
1,034
865
-
169
169
Q1
2019
-48
1,360
136
-37
1,410
852
-
558
558
16,127
4.2
83.7
1,527
14,104
15.8
60.4
1,595
184
814
430
191
965
474
1,428
1,630
846
9
367
1,044
3
314
1,222
1,360
Index
20/19
175
90
-
-
73
102
-
30
30
114
-
-
96
96
84
91
88
81
300
117
90
Q4
2019
-75
1,885
-249
127
1,688
879
800
9
809
16,383
0.2
99.5
1,563
194
934
489
1,616
1,193
358
334
1,885
Index
Q1/Q4
Full year
2019
112
65
33
-
61
98
-
-
21
98
-
-
98
95
87
88
88
71
3
110
65
-248
5,902
340
1,405
7,398
3,589
800
3,009
3,809
15,569
19.3
59.3
1,563
194
934
489
1,616
4,236
376
1,290
5,902
*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.
**As described in Annual Report 2019, a restatement has been made between the income lines and an adjustment made to Assets under management.
Comparative figures have been restated accordingly.
Q1 2020 vs Q12019
Profit before tax amounted to DKK 169 million, a decrease of
70% from the level in the first quarter of 2019. Profit before
tax for Danica Pension amounted to DKK 99 million, against
DKK 400 million in the first quarter of 2019, and for Asset
Management, profit before tax amounted to DKK 70 million,
against DKK 158 in the first quarter of 2019. A higher VA
component offered a positive contribution to the financial
performance of Danica Pension.
buffers for the life conventional (Danica Traditionel) products
and the equity in Danica Pension.
During the first quarter of 2020, Wealth Management
continued to provide our customers with new solutions
within pensions, savings and investments. However, our
focus at the end of the quarter was on assisting and
supporting pension and investment customers affected by
the consequences of the coronavirus pandemic.
In the first quarter of 2020, the financial markets were
characterised by low returns on the equity markets and an
increase in interest rates. The low investment result hit
especially customers with unit-linked products, but also the
It is important that we take responsibility in this uncertain
situation, and we seek to help our customers wherever
relevant. Danica Pension wants to offer advice that helps
customers feel secure, and we have therefore focused
extensively on how to create the highest possible level of
security in the extraordinary situation that the coronavirus
pandemic has brought about.
We are able to offer our customers help on the phone, and
several of our business partners offer help via video
consultation, telephone service or apps.
in
Among other things, Danica Pension has ensured,
collaboration with “Pension for Selvstændige” – a Danish
pension fund for the self-employed, that 30,000 self-
employed people in Denmark are able to defer payments to
their pension schemes until the end of June 2020. However,
they still have critical insurance cover in case of injury or
illness.
We have also launched a number of new initiatives to reduce
sick leave; our many self-employed customers have been
offered advice and help during the crisis, and our health
professionals have been given the opportunity to help the
public sector while receiving their full salary from Danica
Pension. In addition, we have also been in dialogue with a
number of business tenants to help them with deferment of
rent payments.
For customers who are no longer employed, the insurance
policies, such as policies covering critical illness, loss of
earning capacity and death, will continue to be in force for
three months even if customers do not take any action or
stop making payments to their pension scheme.
Financial results
Net fee and net trading income were significantly affected by
the negative developments in the financial markets due to the
coronavirus pandemic, leading to negative net trading income
and a drop in assets under management of 12%.
Net fee income amounted to DKK 1.2 billion and was down
9% from the level in the first quarter of 2019, due primarily
to Danica Pension and the decline
in assets under
management and losses on guarantees.
Net trading income amounted to a negative DKK 81 million,
against DKK 136 million in the first quarter of 2019. The
decrease related primarily to the investment result in the
health and accident business in Danica Pension, but the
effect was offset somewhat by the positive impact of a higher
VA component.
Other income amounted to a negative DKK 23 million, against
a negative DKK 37 million in the first quarter of 2019.
Operating expenses were up 3% from the level in the first
quarter of 2019. This was due partly to increased costs for
regulatory compliance in Asset Management.
Assets under Management
Assets under Management consists of our life conventional
business (Danica Traditionel), asset management (Danica
Danske Bank / Interim report – first quarter 2020 23/80
unit-linked and Asset Management) as well as assets under
advice, where the customer makes the investment decision.
Assets under Management decreased DKK 188 billion,
primarily because of negative developments on the financial
markets. At the end of the first quarter of 2020, Assets
under Management totalled DKK 1,428 billion – a decrease
of 12% since the end of 2019.
Premiums in Danica Pension amounted to DKK 8.5 billion,
against DKK 7.8 billion in the first quarter of 2019. The
increase was driven primarily by higher single premiums.
Investment return on customer funds
In the first quarter of 2020, the financial markets were
characterised by negative returns on equities as well as on
fixed income investments. Looking overall at our funds, 50%
of investment products generated above–benchmark returns
in the first quarter of 2020, against 53% in the first quarter
of 2019. On a 3-year horizon, 66% 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.
Hedge funds
2020
3-year
50%
62%
49%
25%
22%
66%
54%
85%
38%
80%
*Source:
Investment Performance Standard.
Investment Performance, based on results from Global
Customers with Danica Balance Mix achieved returns on
investments of a negative 6.8% for low-risk profiles with 0
years to retirement and a negative 18.6% 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 a negative 15.0%.
Q1 2020 vs Q4 2019
In the first quarter of 2020, profit before tax decreased
DKK 0.6 billion to DKK 0.2 billion, due primarily to the
deterioration of conditions on the financial markets.
Total income decreased 38% to DKK 1.0 billion.
Net fee income decreased due to lower performance fees
from Asset Management and
lower Assets under
Management, and net trading income decreased due to a
lower investment return in the health and accident business.
Operating expenses were on the same level as in the fourth
quarter of 2019.
Danske Bank / Interim report – first quarter 2020 24/80
Northern Ireland
At DKK 49 million, profit before tax fell substantially, driven by provisions for potential future loan impairments made as a result of
the coronavirus pandemic. Profit before loan impairment charges was up 1% from the level in the same period last year as lending
in local currency grew.
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.
Q1
2020
Q1
2019
Index
20/19
Q4
2019
Index
Q1/Q4
Full year
2019
375
83
52
4
515
300
215
165
49
51,218
819
70,075
46
6,512
1.19
3.0
58.3
1,334
386
96
30
3
515
302
213
-14
227
52,615
755
65,487
37
6,565
1.30
13.8
58.6
1,356
97
86
173
133
100
99
101
-
22
97
108
107
124
99
98
391
89
-3
3
480
344
136
-5
141
54,287
696
70,943
34
6,341
1.24
8.9
71.7
1,285
96
93
-
133
107
87
158
-
35
94
118
99
135
103
104
1,524
363
110
14
2,011
1,216
794
5
789
54,287
696
70,943
34
6,425
1.26
12.3
60.5
1,285
Q1 2020 vs Q1 2019
Towards the end of the quarter, the coronavirus disruption
began, and we mobilised and reacted at pace to help
customers. Measures for business customers included
quick adoption and roll out of the UK government-backed
Coronavirus Business Interruption Loan Scheme, and the
delaying of Asset Finance repayments for up to six months.
Measures for personal customers included the cancellation
of interest payments on all existing overdrafts for three
months, allowing mortgage and personal loan payment
holidays for three months, and keeping all branches open.
Financial results
Profit before tax decreased 78% to DKK 49 million for the
first quarter of 2020. This included an increase in loan
impairments given the impact of the coronavirus pandemic
on the Northern Ireland economy and customers.
Profit before loan impairment charges grew 1% to DKK 215
million.
Total income amounted to DKK 515 million and was
maintained flat despite UK interest rate cuts and reduced
customer activity in the latter part of the quarter. Both net
interest and net fee income were negatively affected by the
coronavirus pandemic. However, this effect was offset in the
quarter by higher trading income, reflecting mark-to-market
valuation increases in respect of hedging in place to mitigate
interest rate risk.
At DKK 300 million, operating expenses were at around the
same level as in the same period last year. This was due to
continued efficiency improvements being partially offset by
ongoing investments in improving customer solutions and
additional costs
incurred to support customers and
colleagues in the current environment.
Q1 2020 vs Q1 2019 in local currency
Profitability also fell in local currency, driven by higher
impairment charges, with both income and costs reduced.
Income was lower, reflecting the impact of the coronavirus
pandemic, although lending and deposits increased 1% and
8%, respectively.
Credit quality
The economic outlook for 2020 remains challenging and this
is reflected in higher loan impairments given the expectation
that a greater number of customers will experience financial
difficulties. Hence, while there has been no material
deterioration to date in credit quality at customer level as a
result of the pandemic, forward-looking macroeconomic
scenarios under IFRS9 have been revised to reflect the
worsening outlook, and that is the primary driver of the loan
impairment charge in the first quarter of 2020.
Danske Bank / Interim report – first quarter 2020 25/80
Net credit exposure
(DKK millions)
31 Mar. 2020 31 Dec. 2019
Retail customers
Public institutions
Financial customers
Commercial customers
26,104
22,449
617
29,256
26,812
19,934
459
31,332
Total
78,426
78,537
Impairments
(ann.) (%)
31 Mar. 2020
1.87%
0.03%
4.42%
1.02%
1.22%
Q1 2020 vs Q4 2019
Profitability movement in the quarter was dominated by
additional loan impairment provisions. The income uplift
reflects higher trading income and the fact that costs were
significantly lower than in the fourth quarter of 2019.
Danske Bank / Interim report – first quarter 2020 26/80
Non-core
Profit before tax for the first quarter of 2020 was a negative DKK 254 million, against a negative DKK 288 million in the first quarter
of 2019. Total lending stood at DKK 6.7 billion at the end of March 2020, against DKK 15.4 million at the end of March 2019. 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
Loan impairment charges
(DKK millions)
Non-core banking*
Non-core conduits etc.
Total
Q1
2020
-35
126
-161
93
-254
6,732
954
1,542
19
1,850
0.86
-54.9
-360.0
83
Q1
2019
66
93
-27
261
-288
15,388
722
3,734
32
2,602
1.33
-44.3
140.9
326
13
80
93
273
-13
261
Index
20/19
-
135
-
36
-
44
132
41
59
71
25
5
-
36
Q4
2019
-224
126
-350
-106
-244
7,456
842
1,668
19
2,123
1.05
-46.0
-56.3
159
-205
99
-106
Index
Q1/Q4
-
100
-
-
-
90
113
92
100
87
52
-
81
-
Full year
2019
-61
219
-280
213
-493
7,456
842
1,668
19
2,379
1.27
-20.7
-359.0
159
19
194
213
* Loans, excluding reverse transactions before impairments includes loans held for sale in the Baltics.
** Non-core banking encompasses the Group’s activities in Lithuania and Non-core Ireland.
Q1 2020 vs Q1 2019
The Non-core unit posted a loss before tax of DKK 254
million, against a loss before tax of DKK 288 million in the
first quarter of 2019.
Operating expenses amounted to DKK 126 million, an
increase of DKK 33 million from the level in the first quarter
of 2019 due to losses related to the final exit from Estonia.
Net credit exposure totalled DKK 8.8 billion, against
DKK 10.4 billion at the end of 2019.
Total lending amounted to DKK 6.7 billion, against DKK 7.5
billion at the end of 2019. Lending consisted mainly of
exposure to commercial customers and public institutions in
the Baltics, as well as conduits.
In addition to the exit from banking activities in Estonia and
Russia at the end of 2019, the Group had also exited from all
banking activities in Latvia by the end of the first quarter of
2020. In December 2019 and January 2020, the Group
entered into agreements to sell its personal customer loan
portfolios in Latvia and Lithuania. The sale of the Latvian
portfolio was settled in the first quarter of 2020. The sale of
the Lithuanian portfolio is expected to be settled in the
second quarter 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 3.0 billion,
against DKK 3.7 billion at the end of 2019. The portfolio
consists mainly of liquidity facilities for conduits.
(DKK millions)
Non-core banking
-of which personal
customers
-of which
commercial
customers
-of which public
institutions
Non-core conduits
etc.
Net credit exposure
Expected credit loss
31 Mar.
2020
31 Dec.
2019
31 Mar.
2020
31 Dec.
2019
5,746
6,653
259
222
864
983
20
21
3,292
3,696
239
201
1,590
1,974
-
-
3,037
3,749
732
640
Total
8,784
10,402
992
862
Danske Bank / Interim report – first quarter 2020 27/80
Total impairments amounted to DKK 93 million, against
DKK 261 million
in the first quarter of 2019. Loan
impairments in the first quarter of 2020 related primarily to
a single-name exposure in a legacy portfolio, while the first
quarter of 2019 was adversely affected by a negative value
adjustment.
Q1 2020 vs Q4 2019
Profit before tax amounted to a negative DKK 254 million,
against a negative DKK 244 million in the fourth quarter of
2019. The increase in the loss before tax in the first quarter
of 2020 was due mainly to higher loan impairments, as
impairments went from a net reversal to a net charge.
Danske Bank / Interim report – first quarter 2020 28/80
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
Q1
2020
93
-60
81
-12
102
640
-538
7
-545
-310
221
195
-651
-545
Q1
2019
-52
-53
123
-49
-31
244
-275
-5
-270
-33
-13
194
-418
-270
Index
20/19
-
-
66
-
-
262
196
-
-
-
-
101
156
202
Q4
2019
18
-57
993
127
1,081
1,521
-439
-1
-438
836
-51
197
-1.421
-438
Index
Q1/Q4
Full year
2019
-
-
8
-
9
42
-
-
-
-
-
99
46
-5
-227
1,421
217
1,407
2,903
-1,497
-5
-1,491
825
59
785
-3.160
124
-1.491
Q1 2020 vs Q1 2019
Other Activities posted a loss before tax of DKK 545 million
in the first quarter of 2020, against a loss before tax of
DKK 270 million in the first quarter of 2019.
Net interest income amounted to DKK 93 million, against a
negative DKK 52 million in the first quarter of 2019. Income
related to the structural FX hedge of Danske Bank’s CET 1
capital, which was implemented in the second quarter of
2019, and internal funding optimisation contributed to the
increase. The hedge is dedicated to REA allocation at the
three most significant branches in terms of balance-sheet
currencies, namely EUR, NOK and SEK.
Net trading income amounted to DKK 81 million, against
DKK 123 million in the first quarter of 2019. The decrease
was due mainly to negative value adjustments of interest rate
hedges and bond portfolios held at fair value.
Operating expenses amounted to DKK 640 million, against
DKK 244 million in the first quarter of 2019. The increase in
the first quarter of 2020 was the result primarily of higher
costs for the Estonia case.
Q1 2020 vs Q4 2019
Other Activities posted a loss before tax of DKK 545 million,
against a loss before tax of DKK 438 million in the fourth
quarter of 2019.
Net interest income amounted to DKK 93 million, against
DKK 18 million in the fourth quarter of 2019, driven partly by
differences between accrued and allocated funding costs at
the Internal Bank.
Net trading income amounted to DKK 81 million, against
DKK 993 million in the fourth quarter of 2019. The fourth
quarter of 2019 benefited primarily 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 640 million, against
DKK 1,521 million in the fourth quarter of 2019. The
decrease was due to lower costs relating to the Estonia case
in the first quarter of 2020. Further, the fourth quarter of
2019 was negatively affected by a provision for operational
risk-related losses.
Danske Bank / Interim report – first quarter 2020 29/80
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. Note G3 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 4 and in other sections of the Management’s report:
Ratios and key figures
Dividend per share (DKK)
Definition
The dividend is the proposed dividend in the Annual report and paid to shareholders the subsequent year.
Accordingly, for 2018, it is the dividend paid in 2019.
Return on average shareholders’ equity (% p.a.)
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 for Q1 2020 is reduced by interest expenses of DKK 195 million (full-year 2019:
DKK 786 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 14,433
million (2019: 17,744 million) compared to a simple average of total equity (beginning and the end of the
period).
Net interest income as % p.a. of loans and deposits
Net interest income in the financial highlights divided by the daily average of the sum of loans and deposits.
If the ratio was calculated applying the sum of loans and deposits end of period, the ratio for 2020 would
be 0.79% (full-year 2019: 0.79%) with to the daily average of the sum of loans and deposits being DKK 5.4
billion higher 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 net credit exposure
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 4,251 million (full-year 2019: DKK 1,516
million) from the financial highlights. 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 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 net credit exposure
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 24.1 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 992.6 billion, Loans at fair
value of DKK 791.3 billion, and guarantees of DKK 68.5 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 10, 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.
Danske Bank / Interim report – first quarter 2020 30/80
Market shares
Market shares 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 2019
included November 2019 data for Finland, Sweden and Norway as December 2019 data was not
available at the time of publication of Annual Report 2019. Subsequently, in Interim report – first
quarter 2020, the comparative data for market shares in Finland, Sweden and Norway was
updated with December 2019 data.
Danske Bank / Interim report – first quarter 2020 31/76
Income statement
Statement of comprehensive income
Balance sheet
Statement of capital
Cash flow statement
Notes
32
33
34
35
38
39
Note G1: Significant accounting policies and estimates
42
Note G2: Changes in accounting policies implemented 1 January 2020
44
Note G3: Business model and business segmentation
Note G4: Income
49
Note G5: Loan impairment charges and reconciliation of total allowance account 50
51
Note G6: Loans at fair value
51
Note G7: Deposits
51
Note G8: Issued bonds, subordinated debt and additional tier 1 capital
53
Note G9: Assets held for sale and Liabilities in disposal groups held for sale
53
Note G10: Other assets and other liabilities
53
Note G11: Foreign currency translation reserve
54
Note G12: Guarantees, commitments and contingent liabilities
56
Note G13: Assets provided or received as collateral
57
Note G14: Fair value information for financial instruments
62
Risk Management
62
Breakdown of credit exposure
63
Credit exposure from core lending activities
Credit exposure from Non-core lending activities
72
Counterparty credit risk and credit risk from trading and investment securities 74
74
Bond portfolio
77
Market risk
Income statement – Danske Bank Group
Note
(DKK millions)
G4
G4
G4
G4
G4
G4
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
G5
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)*
Danske Bank / Interim report – first quarter 2020 32/80
Q1
2020
6,258
12,079
12,070
6,267
4,229
1,460
-22,860
-
-25
1,421
7,998
-14,906
7,795
-
2,681
4,344
-1,663
-374
-1,289
-1,484
195
-1,289
-1.7
-1.7
-
Q1
2019
6,919
11,240
11,234
6,926
4,131
1,764
23,585
-
162
703
6,568
28,792
6,890
-
4,630
618
4,012
1,024
Full year
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
2,988
15,072
2,794
194
2,988
3.3
3.3
-
14,285
786
15,072
16.7
16.7
8.5
*As announced on 20 April 2020 the Board of Directors has decided to propose to the general meeting that no dividends be paid for 2019.
Statement of comprehensive income – Danske Bank Group
Danske Bank / Interim report – first quarter 2020 33/80
(DKK millions)
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
Q1
2020
Q1
2019
Full year
2019
-1,289
2,988
15,072
184
-90
94
-5,699
3,313
-
-400
-11
403
-2,395
-2,300
-3,590
-3,784
195
-3,590
-4
17
13
426
-658
-
120
-18
120
-10
3
228
-21
207
692
-324
5
9
3
47
432
639
2,992
15,711
2,798
194
2,992
14,925
786
15,711
Total assets
4,007,691
3,761,050
3,714,914
Balance sheet – 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
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*
G6
G9
G10
G7
G7
G8
G8
G9
G10
G8
G8
G11
Shareholders of Danske Bank A/S (the Parent Company)
Additional tier 1 capital holders
G8
Total equity
Total liabilities and equity
Danske Bank / Interim report – first quarter 2020 34/80
31 March
2020
31 December
2019
31 March
2019
127,708
140,530
706,546
292,797
997,490
1,084,623
99,908
496,792
1,372
9,097
5,111
45,717
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
47,593
231,503
468,444
264,909
1,004,334
1,059,489
92,952
424,824
69,053
11,150
3,695
36,966
274,462
603,017
1,127,523
767,172
247,757
100,378
534,025
89
2,179
53,396
98,709
31,968
155,246
452,202
1,140,726
802,501
256,355
111,537
504,714
110
2,172
46,191
87,054
31,733
226,145
423,359
1,084,157
765,284
290,490
98,448
458,521
64,987
8,068
44,781
63,206
28,891
3,840,676
3,590,541
3,556,337
8,622
-2,758
-309
147,032
-
152,587
14,428
8,622
-372
102
140,590
7,329
156,271
14,237
8,960
-976
192
135,981
-
144,156
14,421
167,015
170,508
158,577
4,007,691
3,761,050
3,714,914
*As announced on 20 April 2020, the Board of Directors has decided to propose to the general meeting that no dividends be paid for 2019.
Danske Bank / Interim report – first quarter 2020 35/80
Statement of capital – Danske Bank Group
Changes in equity
Shareholders of Danske Bank A/S (the Parent Company)
(DKK millions)
Total equity as at 31 December 2019
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
Proposed dividends reversed*
Acquisition of own shares and additional tier 1 capital
Sale of own shares and additional tier 1 capital
Tax
Share capi-
tal
8,622
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Foreign
currency
translation
reserve
Reserve for
bonds at fair
value (OCI)
Retained
earnings
Proposed
dividends
Total
Additional
tier 1
capital**
Total
102
-
140,590
-1,484
7,329
-
156,271
-1,484
14,237
195
170,508
-1,289
-372
-
-
-5,699
3,313
-
-
-
-
-
-
-400
-11
-
184
-
-
-
-
313
-2,386
-411
497
-2,386
-411
-987
-
-
-
-
-
-
-
-
184
-5,699
3,313
-400
-11
313
-2,300
-
-
-
-
-
-
-
184
-5,699
3,313
-400
-11
313
-2,300
-3,784
195
-3,590
-
-
-
-
-
-
-
-
-
-
-
7,329
-10,225
10,291
34
-
-7,329
-
-
-
-
-
-10,225
10,291
34
-33
-
29
-
-
-33
-
-10,196
10,291
34
Total equity as at 31 March 2020
8,622
-2,758
-309 147,032
- 152,587
14,428 167,015
*As announced on 20 April 2020, the Board of Directors has decided to propose to the general meeting that no dividends be paid for 2019. The previously
proposed dividends have been reversed to Retained earnings in 2020.
**Non-controlling interests amounted to DKK 1 million (31 March 2019: DKK 0 million) and are presented under ‘Additional tier 1 capital’ as other holders
of equity than shareholders of the parent company.
Danske Bank / Interim report – first quarter 2020 36/80
Statement of capital – Danske Bank Group
Changes in equity
Shareholders of Danske Bank A/S (the Parent Company)
(DKK millions)
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
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
Acquisition of own shares and additional tier 1 capital
Sale of own shares and additional tier 1 capital
Tax
Share
capital
8,960
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Foreign
currency
translation
reserve
Reserve for
bonds at fair
value (OCI)
Retained
earnings
Proposed
dividends
Additional
tier 1 capital
Total
Total
-745
-
-
426
-658
-
-
-
-231
-231
-
-
-
-
-
90
-
132,768
2,794
7,616
-
146,688
2,794
14,299
194
162,988
2,988
-
-
-
120
-18
-
-4
-
-
-
-
137
102
133
102
2,927
-
-
-
-
-
-
-
-
-4
426
-658
120
-18
137
3
-
-
-
-
-
-
-
-4
426
-658
120
-18
137
3
2,798
194
2,992
-
-
-
-
-
-
366
-1,958
1,830
47
-
-7,616
-
-
-
-
-7,250
-1,958
1,830
47
-36
-
-36
-
-
-36
-7,250
-1,994
1,830
47
Total equity as at 31March 2019
8,960
-976
192 135,981
- 144,156
14,421 158,577
Statement of capital – Danske Bank Group
(DKK millions)
Share capital (DKK)
Number of shares
Number of shares outstanding
Average number of shares outstanding for the period
Average number of shares outstanding, including dilutive shares, for the period
Total capital and total capital ratio
(DKK millions)
Total equity
Revaluation of domicile property at fair value
Tax effect of revaluation of domicile property at fair value
Total equity calculated in accordance with the rules of the Danish FSA
Additional tier 1 capital instruments included in total equity
Accrued interest on additional tier 1 capital instruments
Tax on accrued interest on additional tier 1 capital instruments
Common equity tier 1 capital instruments
Adjustment to eligible capital instruments
IFRS 9 reversal due to transitional rules
Prudent valuation
Prudential filters
Proposed dividends*
Intangible assets of banking operations
Deferred tax on intangible assets
Deferred tax assets that rely on future profitability, excluding temporary differences
Defined benefit pension plan assets
Statutory deduction for insurance subsidiaries
Other statutory deductions
Common equity tier 1 capital
Additional tier 1 capital instruments
Tier 1 capital
Tier 2 capital instruments
Total capital
Total risk exposure amount
Danske Bank / Interim report – first quarter 2020 37/80
31 March 2020 31 December 2019
8,621,846,210
862,184,621
853,550,107
856,773,260
856,956,193
8,621,846,210
862,184,621
853,704,915
854,354,479
854,911,769
31 March 2020 31 December 2019
167,015
264
-31
167,247
-14,099
-329
72
152,892
-231
1,771
-1,120
-245
-
-6,315
411
-12
-2,203
-8,507
-
136,441
18,574
155,015
17,593
172,608
773,306
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
174,206
767,177
Common equity tier 1 capital ratio (%)
17.3
Tier 1 capital ratio (%)
20.4
Total capital ratio (%)
22.7
*As announced on 20 April 2020, the Board of Directors has decided to propose to the general meeting that no dividends be paid for 2019. The previously
proposed dividends have been added back to common equity tier 1 capital in 2020.
17.6
20.0
22.3
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.
The Internal Capital Adequacy Assessment report provides more details about Danske Bank’s solvency need. The report is available at dans-
kebank.com/investorrelations/reports. The Internal Capital Adequacy Assessment report is not covered by the independent auditors’ review.
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
Cash flow from financing activities
Issue of subordinated debt
Redemption of subordinated debt
Issue of non-preferred senior bonds
Dividends paid
Paid interest on additional tier 1 capital
Principal portion of lessee lease payments
Cash flow from financing activities
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
Danske Bank / Interim report – first quarter 2020 38/80
Q1
2020
-1,663
-1,795
5,601
2,143
121,923
-60,410
95
-7,924
63,602
-13,202
-42,309
-3,666
-819
Q1
2019
4,012
-2,230
2,805
2019
13,822
-5,245
10,369
4,587
18,946
-22,369
-19,493
-163
22,809
-20,862
25,037
12,314
-6,213
-17,729
-96,693
-17,527
-278
-8,449
-108,208
81,606
14,533
988
-11,690
59,433
-22,082
-126,772
-
-188
-105
5
-
-161
-75
1
-288
-235
-
-
10,037
-
-33
-181
5,550
-
35,096
-7,250
-36
-181
1,683
-878
-666
12
151
11,791
-3,467
59,808
-7,239
-787
-729
9,823
33,179
59,377
199,608
-2,730
68,968
264,836
1,724
10,862
264,836
2,016
-67,244
265,847
277,422
199,608
5,128
122,580
138,139
7,808
39,785
229,829
6,235
92,800
100,574
265,847
277,422
199,608
Danske Bank / Interim report – first quarter 2020 39/80
Notes – Danske Bank Group
G1. Significant accounting policies and estimates
(a) General
The report has been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the EU, and additional Danish disclosure require-
ments for listed financial companies. The report is condensed and should be read in conjunction with the Group’s Annual Report 2019 approved by the
Board of Directors and published the 5 February 2020. The Annual Report 2019 has not yet been approved by the General Meeting, as the meeting
originally scheduled for 17 March 2020, has been postponed due to uncertainty about whether the meeting could be held in accordance with the health
and safety guidelines issued by the Danish authorities. As announced on 20 April 2020 and in light of the economic situation caused by the coronavirus
(COVID-19) pandemic, the Board of Directors has decided to propose to the general meeting that no dividends be paid for 2019.
On 1 January 2020, the Group implemented the amendments to IAS 1 and IAS 8 (definition of material) IFRS 3, Business Combinations (definition of a
business) and amendments to references to the Conceptual Framework in IFRS Standards. The implementation of the amendments had no impact on the
Group’s financial statements.
Further information on the changes to accounting policies in 2020 can be found in note G2(a). Except for these changes, the Group has not changed its
significant accounting policies from those applied in the Annual Report 2019. Annual Report 2019 provides a full description of the significant accounting
policies.
For changes in the Group’s financial highlights and segment reporting, see note G2(b).
Financial statement figures are stated in Danish kroner and whole millions, unless otherwise stated. As a result, rounding discrepancies may occur
because sum totals have been rounded off and the underlying decimals are not presented to financial statement users.
(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 of the Annual
Report 2019), 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 of the Annual Report 2019). An overview of the classification and measurement basis for financial instruments can be
found in note G1(c) of the Annual report 2019.
Further, the determination of the carrying amounts of some assets and liabilities requires the estimation of 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 reporting period could differ from those on which management’s estimates are based.
Measurement of expected credit losses on loans, financial guarantees and loan commitments and debt instruments measured at amortised
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 (stage 2 and 3). In determining the impairment for expected credit
losses, management exercises judgement and uses estimates and assumptions as explained below.
The expected credit loss is calculated for all individual facilities as a function of probability of default (PD), exposure at default (EAD) and loss given default
(LGD) and incorporates forward-looking information. The estimation of expected credit losses involves forecasting future economic conditions over a
number of years. Such forecasts are subject to management judgement and those judgements may be sources of measurement uncertainty that have
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. Due to the COVID-19 pandemic, the scenarios used in Q1 2020 were changed to reflect the worsening of the macroeconomic
outlook, see further in the separate section below. Thus, scenarios were adjusted so the expected credit losses are now based on a base case scenario
that reflects a significant decline in economic activity in 2020 followed by a recovery in 2021 supported by government support packages. A further
severe recession scenario is introduced as the downside scenario with a likelihood of 25%, to reflect the risk that government support packages will
prove insufficient to sustain the recovery.
With the new suite of scenarios, the base case scenario enters with a probability of 65% (31 December 2019: 60%), the upside scenario with a proba-
bility of 10% (31 December 2019: 10%) and the downside scenario with a probability of 25% (31 December 2019: 30%). On the basis of these assess-
ments, the allowance account as at 31 March 2020 amounted to DKK 25.1 billion (31 December 2019: DKK 21.3 billion). If the base case scenario was
assigned a probability of 100%, the allowance account would decrease DKK 1.6 billion (31 December 2019: 0.7 billion). Compared to the base case
scenario, the allowance account would increase DKK 7.3 billion (31 December 2019: DKK 2.4 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 2.4 billion (31 December 2019: DKK 0.5 billion)
compared to the base case scenario. However, note that the applied scenarios differ from the scenarios used at 31 December 2019, and the changes in
sensitivities from end of 2019 to end of the first quarter 2020 are therefore not directly comparable. Further, it shall be noted that the expected credit
losses in the individual scenarios does not represent expected credit loss (ECL) forecasts.
Danske Bank / Interim report – first quarter 2020 40/80
Notes – Danske Bank Group
(b) Significant accounting estimates continued
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
31 March 2020, the allowance account would increase by DKK 0.03 billion (31 December 2019: DKK 0.03 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 the lifetime PD was considered a significant increase in credit risk.
Management applies judgement when determining the need for post-model adjustments. As at 31 March 2020, the post-model adjustments amounted
to DKK 4.0 billion (31 December 2019: DKK 4.0 billion). Around half of the adjustments relate to high-risk industries such as agriculture and oil and gas
within the Group’s shipping, oil and gas exposure, where the Group has no specific expected credit loss models in place, and consequently makes supple-
mentary calculations in order to ensure sufficient impairment coverage. Such adjustments are also introduced in Q1 2020 to capture the immediate
effects on industries most clearly affected by the COVID-19 pandemic, see further in the separate section below. Remaining adjustments are made to
take into account non-linear downside risks, for instance related to the property market in Copenhagen for which 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 exists 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. Excluding the post-model adjustment related to the COVID-19 pandemic, the post-model
adjustments decreased from 31 December 2019 to 31 March 2020 as part of the post-model adjustments at 31 December 2019 are now covered
through the scenarios used at 31 March 2020 to reflect the worsening of the macroeconomic outlooks in Q1 2020.
Loan impairment charges for the period ended 31 March 2020 amounted to DKK 4,344 million (31 March 2019: DKK 618 million). The increase was
driven mainly by the impact from the COVID-19 pandemic.
Accounting treatment of the impacts from the COVID-19 pandemic
The effect of the COVID-19 pandemic began to affect the Group’s credit portfolio in the first quarter of 2020. Based on the measures taken by govern-
ments across the world and in the Group’s market areas to contain the virus, economies are seeing lower activity in the short-term. This will impact the
credit quality of the Group’s credit exposure. Due to the forward-looking elements of the IFRS 9 impairment model, this affects the Group’s accounting
approach already in the first quarter.
For most of the Group’s credit portfolio, the negative impacts on individual specific customers from the COVID-19 pandemic is expected to materialise
over the coming quarters. However, customer assessments have been ongoing throughout the quarter and impairments have been revisited in light of
the changed outlooks. While customer activity in the first quarter was higher than usual, most customers are still assessing the consequences and the
financial consequences will not be clear in the short term. Therefore, most of the disclosures on the credit portfolio in the risk management notes do not
yet capture the full impact of the COVID-19 pandemic. This applies particularly for the disclosures on rating categories and PDs and for the assessment
of the transfer of exposures from stage 1 to stage 2 and 3.
The Group’s forbearance practices have been updated to pay particular attention to customers affected by the COVID-19 pandemic. This includes addi-
tional guidance to ensure that COVID-19 concessions are considered forbearance only if they relate to customers that are not deemed creditworthy
combined with the customer’s long-term financial position being further weakened by the outbreak. For the majority of the credit portfolio, short-term
concessions to otherwise creditworthy customers are not considered forbearance. In practice, this means that concessions to customers in rating
categories 1 to 5 during the first quarter of 2020 are not considered a forbearance measure. This is in line with the EBA definition of forbearance, which
requires that customers must be in financial difficulties, but regulatory guidance has shown a further need to emphasise this given the increased volume
of concessions expected to be made due to the COVID-19 pandemic.
A large part of the impact on the expected credit losses resulting from the COVID-19 pandemic relates to changes to the forward-looking information.
The macroeconomic scenarios applied have been changed from those applied in Q4 2019. The Group’s base case scenario reflects a downturn in 2020
followed by a recovery in 2021 as the Group sees a significant mitigating effect from the unprecedented financial support packages being introduced by
governments across the Group’s market areas. In Q4 2019, the downside scenario showed the same expected macroeconomic development as the base
case scenario in Q1 2020. As a result, a further recession scenario was introduced as the new downside scenario in Q1 2020. This scenario is aligned
with the severe recession scenarios applied in the Group’s ICAAP processes and is similar in nature to regulatory stress tests. The base case scenario
is considered the most likely scenario with a likelihood of 65% while the downside scenario is attached a likelihood of 25%. Further information on the
macroeconomic scenarios can be found in the risk management notes.
For some directly affected industries, management has judged it appropriate to recognise further post-model adjustments. This relates to industries for
which the macroeconomic scenarios themselves do not lead to a sufficient increase in expected credit losses. The Group has limited exposure to most
of the industries that are highly affected by the COVID-19 pandemic, including retailing, hotels and restaurants (within the Hotels, Restaurants and Leisure
industry) as well as oil and gas (within the Shipping, Oil and Gas industry), and the models may therefore not adequately capture a severe downturn to the
extent currently experienced. A targeted adjustment related to such sectors of DKK 0.5 billion, has been introduced in addition to the impact from the
scenario changes.
Danske Bank / Interim report – first quarter 2020 41/80
Notes – Danske Bank Group
(b) Significant accounting estimates continued
Except as described above, all other policies and principles remain in place. Staging criteria are unchanged, including the 30 days past due criteria and
PD-based criteria for transfer to stage 2. Staging transfers will largely be reflected in the coming months as specific information on customers becomes
available.
Note G15 of the Annual Report 2019 and the risk management notes provide more details on expected credit losses. As at 31 March 2020, financial
assets covered by the expected credit loss model accounted for approximately 54% of total assets (31 December 2019: 57%).
Fair value measurement of financial instruments
Due to the COVID-19 pandemic, the financial markets were very volatile during March 2020 and some segments have been stressed and illiquid. As
liquidity returned to most market segments by the end of March, it did not result in unusual challenges to obtain reliable pricing apart from insignificant
parts of the portfolio. The majority of valuation techniques continues to employ only observable market data and there have been no significant increase
in financial instruments measured on the basis of valuation techniques that are based on one or more significant unobservable inputs. The latter contin-
ues to include only unlisted shares, certain bonds and some long-dated derivatives for which there is no active market. Further information can be found
in note G14. 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. As at 31 March 2020, the adjustments totalled DKK 2.7 billion (31 December
2019: DKK 1.5 billion), including the adjustment for credit risk on derivatives that are credit impaired. The increase is driven by increased credit spreads
and funding spreads. Note G33(a) of the Annual Report 2019 provides more details on the fair value measurement of financial instruments.
The Group uses derivatives to hedge the fixed interest rate 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. In
2019, the Group 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) of the Annual Report 2019.
Measurement of goodwill
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. In connection with the quarterly reporting, management performs an impairment review to assess whether there
are indications that goodwill might be impaired. This includes a review of declines in income, increase in loan impairment charges, declines in the market
value of assets under management, major restructurings, macroeconomic developments etc. In the fourth quarter of 2019, a total impairment charge of
DKK 1.6 billion was recognised on goodwill in FI&C and Capital Markets at Corporates & Institutions and in Danica Pension at Wealth Management
leaving no excess value for those units.
The goodwill in FI&C and Capital Markets of DKK 2.1 billion (31 December 2019: DKK 2.1 billion) is highly sensitive to changes in allocated capital, growth
in the terminal period and the discount rate. The goodwill in Danica Pension of DKK 1.6 billion (31 December 2019: DKK 1.6 billion) is highly sensitive to
changes in solvency capital requirements, growth in the terminal period and the discount rate. The review of indications of impairment in the first quarter
of 2020 was performed as an update of the 2019 test, taking into account the expected decline in income in 2020 and impact on solvency capital
requirements in Danica Pension caused by the COVID-19 pandemic as well as management actions and other known changes since the test in the fourth
quarter of 2019. No indications of impairment were noted.
The remaining goodwill mainly consists of DKK 1.8 billion (31 December 2019: DKK 1.8 billion) in Danske Capital at Wealth Management and DKK 0.5
billion (31 December 2019: DKK 0.5 billion) in General Banking at Corporates & Institutions, both showing significant amounts of excess value in the
impairment test in the fourth quarter of 2019. Although the expected future cash flows of Danske Capital are negatively impacted by the expectation of
lower fee income in 2020 triggered by a decline in asset under management and the expected future cash flows of General Banking are negatively im-
pacted by the expectation of lower income and higher loan impairment charges in 2020 caused by the COVID-19 pandemic, no indications of impairment
were noted.
Note G19 of the Annual Report 2019 provides more information about 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. For some insurance contracts, the policyholders are guaranteed a certain long-term return on their funds. For such contracts, a collective
bonus potential exists, and it consists of the accumulated excess return on the assets earmarked for policyholders not yet allocated to the individual
contracts. The collective bonus potential is accounted for as an insurance liability and serves as a buffer to absorb future insufficient returns on the
assets. The negative return on assets during the first quarter of 2020 following the outbreak of the COVID-19 pandemic decreased the collective bonus
potential from DKK 13.9 billion at 31 December 2019 to DKK 9.5 billion at 31 March 2020. Note G18 and the risk management notes of the Annual
Report 2019 provide more information about the accounting for insurance liabilities and sensitivity to changes in assumptions.
Danske Bank / Interim report – first quarter 2020 42/80
Notes – Danske Bank Group
G2. Changes in accounting policies, financial highlights and segment reporting
(a) Changes in accounting policies
On 1 January 2020, the Group implemented amendments to IAS 1 and IAS 8 (definition of material), IFRS 3, Business Combinations (definition of a
business) and amendments to references to the Conceptual Framework in IFRS Standards.
The amendments to IAS 1 and IAS 8 clarify the definition of material and aligns the definition of material used in the Conceptual Framework with that in
the IFRS standards. The amendments are effective for annual periods beginning on or after 1 January 2020.
The amendments to IFRS 3 clarifies the definition of a business, with the objective of assisting a preparer to determine whether a transaction should be
accounted for as a business combination or as the acquisition of an assets. The clarifications are applicable for business combinations after 1 January
2020.
The implementation of the amendments had no impact on the Group’s financial statements.
(b) Changes in financial highlights and segment reporting
From 1 January 2020, the presentation in the financial highlights and segment reporting has been changed to align the presentation within Wealth Manage-
ment:
•
•
In June 2018, Danica Pension acquired Danica Pensionsforsikring (formerly SEB Pension Danmark). Danica Pensionsforsikring merged into Danica Pen-
sion in 2019. The subsequent integration and conversion revealed some differences between the presentation of Danica Pensionsforsikring and Danica
Pension in the financial highlights and segment reporting for Wealth Management. As of the first quarter of 2020, income from the hedge of assets under
insurance contracts in Danica Pensionsforsikring has been reclassified from net fee income to net trading income in the financial highlights and segment
reporting for Wealth Management to align with the presentation for Danica Pension. At the same time, the method for presentation of the value of hedges
in Danica Pensionsforsikring has been aligned with the method in Danica Pension, which affects assets under management.
In 2019, the business segmentation of Danica Pension was changed. The changes included a bundling of the health and accident insurance business with
the life insurance business. Therefore, the risk result from health and accident insurance has been reclassified from other income to net fee income in
the financial highlights and segment reporting for Wealth Management as of the first quarter of 2020 to align with the presentation for life insurance,
which is presented as net fee income.
In addition, on 5 September 2019 the Group announced adjustments to its organisation. The adjusted organisation was implemented in the fourth quarter of
2019 with a restatement of comparative information. For further information, see note G3(a) of the Annual Report 2019.
The impact on each affected business unit and financial highlights for first quarter 2019 is shown in the table below. These changes do not affect the presen-
tation in the IFRS income statement or balance sheet.
Danske Bank / Interim report – first quarter 2020 43/80
Notes – Danske Bank Group
G2. Changes in accounting policies, financial highlights and segment reporting continued
Adjustments to organisation
Financial High-
lights
Q1 2019
Banking DK
Banking Nordic
Wealth Manage-
ment
Alignment of
presentation,
Wealth Manage-
ment
Adjusted Financial
Highlights
(DKK millions)
Net interest income
Net fee income
Net trading income or loss
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
5,520
3,869
1,299
115
10,802
6,145
-
4,657
357
4,300
-288
4,012
165
222
32
-
420
246
-
174
-1
175
-
175
58
66
4
-
128
97
-
31
-2
33
-
33
-223
-288
-36
-
-548
-343
-
-205
3
-208
-
-208
Loans, excluding reverse transactions
Other assets
1,793,049
1,921,864
59,165
44,175
17,802
11,882
-76,967
-56,057
Total assets
3,714,914
103,340
29,684
-133,024
Deposits, excluding repo transactions
Other liabilities
Allocated capital
909,354
2,805,560
144,156
49,996
53,344
3,019
20,737
8,947
824
-70,733
-62,291
-3,843
Total liabilities and equity
3,714,914
103,340
29,684
-133,024
Profit before tax as % of allocated capital (avg.)
Cost/income ratio (%)
Assets under management (DKK billions)
10.9
59.8
1,642
0.5
0.8
-0.2
1.8
-0.7
-2.2
-12
-
-299
287
12
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,520
3,569
1,586
127
10,802
6,145
-
4,657
357
4,300
-288
4,012
1,793,049
1,921,864
3,714,914
909,354
2,805,560
144,156
3,714,914
10.9
59.8
1,630
Danske Bank / Interim report – first quarter 2020 44/80
Notes – Danske Bank Group
G3. Business model and business segmentation
(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.
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 acquisi-
tions. 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, sup-
ported 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. In the first quarter of 2020, the business segmentation of FI&C and Capital Markets was changed, as Debt Capital Markets
(DCM) was moved from Capital Markets to FI&C and Investment Solutions from FI&C to Capital Markets.
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. In addition to the exit from banking activities in Estonia and Russia at the end of 2019, the Group had also exited
from all banking activities in Latvia by the end of the first quarter of 2020.
Other Activities encompasses Group Treasury, Group support functions and eliminations, including the elimination of returns on own shares and issues,
as well as interest on additional tier 1 capital, which is reported as an interest expense in the business units. Group Treasury is responsible for the
Group’s liquidity management and funding.
Presentation in the financial highlights and in the segment reporting
Segment reporting and the financial highlights are based on the information provided to management.
An explanation of the items making up the Reclassification column, reconciling the financial highlights and segment reporting presentation to the IFRS
financial statements is provided further on in this note.
Danske Bank / Interim report – first quarter 2020 45/80
Notes – Danske Bank Group
G3. Business model and business segmentation continued
Business segments Q1 2020
(DKK millions)
Net interest income
Net fee income
Net trading income
Other income
Net premiums
Net insurance benefits
Total income
Operating expenses
Profit before loan impair-
ment charges
Loan impairment charges
Banking
DK
Banking
Nordic
2,203
1,179
329
45
-
-
3,756
2,187
1,999
477
67
149
-
-
2,692
1,537
1,569
945
1,155
952
Profit before tax, core
Profit before tax, Non-core
624
-
203
-
C&I
893
772
-158
-
-
-
1,507
1,235
272
2,181
-1,909
-
Wealth
Man.
Northern
Ireland
Non-
core
Other Ac-
tivities
Elimina-
tions
Financial
highlights
Reclassi-
fication
-84
1,222
-81
-23
-
-
1,034
865
169
-
169
-
375
83
52
4
-
-
515
300
215
165
49
-
-
-
-
-
-
-
-
-
-
-
-
-254
93
-60
-137
112
-
-
8
680
-672
7
-679
-
-1
-
218
-124
-
-
93
-40
134
-
134
-
5,479
3,673
291
163
-
-
9,606
6,764
788
-905
-23,150
1,233
7,998
-14,906
870
1,031
2,842
4,251
-1,409
-254
-161
93
-254
254
IFRS finan-
cial state-
ments
6,267
2,768
-22,860
1,396
7,998
-14,906
10,476
7,795
2,681
4,344
-1,663
-
Profit before tax
624
203
-1,909
169
49
-254
-679
134
-1,663
-
-1,663
Loans, excluding reverse
transactions
Other assets
Total assets in Non-core
916,014 602,245
134
373,985 97,936 3,627,992 642,684
-
211,459
-
-
-
50,399
36,312
-
-
34,497
- 3,497,554
-
6,168
-32,903 1,781,846
-6,056,786 2,219,677
6,168
-
4,878 1,786,724
1,290 2,220,967
-
-6,168
Total assets
1,289,999 700,182 3,839,452 642,818
86,711
6,168 3,532,050 -6,089,688 4,007,691
- 4,007,691
Deposits, excluding repo
deposits
Other liabilities
Allocated capital
Total liabilities in Non-core
301,443
161
363,514 269,789
888,046 392,843 3,501,957 626,494
36,051 16,163
-
38,438 37,550
-
-
-
70,075
10,094
6,542
-
3,021
-
- 3,514,862
17,843
-
-
2,492
-12,754
995,249
-6,076,934 2,857,362
152,587
2,492
-
-
1,542
996,791
950 2,858,312
152,587
-
-
-2,492
Total liabilities and equity 1,289,999 700,182 3,839,452 642,818
86,711
2,492 3,535,726 -6,089,688 4,007,691
- 4,007,691
Profit before tax as % p.a.
of allocated capital (avg.)
Cost/income ratio (%)
Full-time-equivalent staff,
end of period
6.5
58.2
2.2
57.1
-22.1
82.0
4.2
83.7
3.0
58.3
-
-
-10.3
-
4,792
2,509
1,666
1,527
1,334
83
10,120
-
-
-
-4.3
70.4
22,032
-
-
-
-4.3
74.4
22,032
Danske Bank / Interim report – first quarter 2020 46/80
Notes – Danske Bank Group
G3. Business model and business segmentation continued
Business segments Q1 2019
(DKK millions)
Net interest income
Net fee income
Net trading income
Other income
Net premiums
Net insurance benefits
Total income
Operating expenses
Profit before loan
impairment charges
Loan impairment charges
Profit before tax, core
Profit before tax, Non-core
Banking
DK1
Banking
Nordic1
2,346
1,011
313
55
-
-
3,725
2,023
1,702
205
1,497
-
1,959
463
70
155
-
-
2,647
1,519
1,128
-49
1,177
-
C&I
930
692
914
-
-
-
2,536
1,204
1,332
221
1,111
-
Wealth
Man.1
Northern
Ireland
Non-
core
Other
Activities
Elimina-
tions
Financial
highlights1
Reclassi-
fication1
-48
1,360
136
-37
-
-
1,410
852
558
-
558
-
386
96
30
3
-
-
515
302
213
-14
227
-
-
-
-
-
-
-
-
-
-
-
-
-288
-74
-53
32
-11
-
-
-106
285
-391
-5
-385
-
22
-
91
-37
-
-
75
-41
116
-
116
-
1,406
5,520
3,569
-1,202
1,586 21,999
739
127
-
6,568
- 28,792
10,802
6,145
718
745
4,657
357
4,300
-288
-27
261
-288
288
IFRS
financial
statements
6,926
2,367
23,585
865
6,568
28,792
11,520
6,890
4,630
618
4,012
-
Profit before tax
1,497
1,177
1,111
558
227
-288
-385
116
4,012
-
4,012
Loans, excluding reverse
transactions
Other assets
Total assets in Non-core
161
929,984 622,431
336,448 58,257 2,900,920 618,057
-
192,875
-
-
-
51,860
30,513
26,630
-
- 3,027,235
-
-30,892 1,793,049 11,167 1,804,216
4,153 1,910,698
-
-5,064,883 1,906,545
15,319
-15,319
-
- 15,319
Total assets
1,266,432 680,688 3,093,795 618,218
82,372 15,319 3,053,865 -5,095,776 3,714,914
- 3,714,914
Deposits, excluding repo
deposits
Other liabilities
Allocated capital
Total liabilities in Non-core
264,260
335,816 252,488
141
893,808 393,830 2,797,894 604,002
31,640 14,076
-
36,809 34,370
-
-
-
65,487
10,303
6,583
-
-
3,611
- 3,039,298
20,679
-
-
5,596
-12,448
909,354
-5,083,327 2,655,808
144,156
5,596
-
-
3,734
913,088
1,862 2,657,670
144,156
-
-
-5,596
Total liabilities and equity 1,266,432 680,688 3,093,795 618,218
82,372
5,596 3,063,588 -5,095,776 3,714,914
- 3,714,914
Profit before tax as % p.a.
of allocated capital (avg.)
Cost/income ratio (%)
Full-time-equivalent staff,
end of period
16.4
54.3
13.8
57.4
14.1
47.5
15.8
60.4
13.8
58.6
-
-
-7.3
-268.9
4,288
2,628
1,702
1,595
1,356
326
9,083
-
-
-
10.9
56.9
20,978
-
-
-
10.9
59.8
20,978
1 Comparative information has been restated, as described in the section ‘Changes in financial highlights and segment reporting of note G2(b).
Danske Bank / Interim report – first quarter 2020 47/80
Notes – Danske Bank Group
G3. Business model and business segmentation continued
(b) Reconciliation of the financial highlights and segment reporting to the IFRS financial statements
The ‘Reclassification’ column in the tables above shows the reconciliation between the presentation in the financial highlights and segment reporting and
the presentation in the IFRS financial statements. The policies for the reclassifications between the financial highlights and the IFRS financial statements
are as follow:
Sale of operating lease assets where the Group act 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 devel-
opment 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 consider-
ably 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, except FI&C’s share of margins on customer derivatives, and fee income on primary issuances of corporate bonds
at DCM, is presented as Net trading income
Trading-related income at Capital Markets is presented as Net trading income. However, income contributed by Equity Finance (also part of Corpo-
rates & Institutions, Capital Markets) is presented as Net fee income
All income in Group Treasury, except income at Internal Bank, income on bonds held to collect and bonds held to collect and sell, are presented as
Net trading income
•
•
Danica Pension
In the IFRS income statement, income and expenses in Danica Pension (part of Wealth Management) is consolidated on a line-by-line basis. In the financial
highlights, the following reclassifications are made to better reflect income from the services provided to customers:
•
•
•
•
The risk allowance, the risk result from the health and accident business and income from the unit-link business are presented as Net fee income
The return on assets related to the health and accident business is presented as Net trading income
The risk and guarantee result, 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, income and expense items from the Non-core segment are included in the various income and expense lines, as the seg-
ment does not fulfil the requirements in IFRS 5 on 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.
Each of the reclassifications explained above are presented in the table below.
Danske Bank / Interim report – first quarter 2020 48/80
Notes – Danske Bank Group
G3. Business model and business segmentation continued
Reclassifications Q1 2020
(DKK millions)
Net interest income
Net fee income
Net trading income
Other income
Net premiums
Net insurance benefits
Total income
Operating expenses
Profit before loan impairment charges
Loan impairment charges
Profit before tax, core
Profit before tax, Non-core
Profit before tax
Reclassification Q1 2019
(DKK millions)
Net interest income
Net fee income
Net trading income
Other income
Net premiums
Net insurance benefits
Total income
Operating expenses
Profit before loan impairment charges
Loan impairment charges
Profit before tax, core
Profit before tax, Non-core
Profit before tax
IFRS financial
statements
Sale of
operating
lease assets
FI&C, Capital
Markets and
Group Treasury
6,267
2,768
-22,860
1,396
7,998
-14,906
10,476
7,795
2,681
4,344
-1,663
-
-1,663
-
-
-
-953
-
-
-953
-953
-
-
-
-
-
44
-23
-61
39
-
-
-
-
-
-
-
-
-
Danica
Pension
-817
930
23,157
-317
-7,998
14,906
48
48
-
-
-
-
-
Non-core Reclassification
Financial
highlights
-15
-2
54
-2
-
-
35
-126
161
-93
254
-254
-
-788
905
23,150
-1,233
-7,998
14,906
-870
-1,031
161
-93
254
-254
5,479
3,673
291
163
-
-
9,606
6,764
2,842
4,251
-1,409
-254
-
-1,663
IFRS financial
statements
Sale of
operating
lease assets
FI&C, Capital
Markets and
Group Treasury
Danica
Pension1
Non-core Reclassification1
Financial
highlights1
6,926
2,367
23,585
865
6,568
28,792
11,520
6,890
4,630
618
4,012
-
4,012
-
-
-
-812
-
-
-812
-812
-
-
-
-
-
-134
34
97
2
-
-
-
-
-
-
-
-
-
-1,213
1,169
-22,092
72
-6,568
-28,792
160
160
-
-
-
-
-
-60
-1
-4
-1
-
-
-66
-93
27
-261
288
-288
-
-1,406
1,202
-21,999
-739
-6,568
-28,792
-718
-745
27
-261
288
-288
5,520
3,569
1,586
127
-
-
10,802
6,145
4,657
357
4,300
-288
-
4,012
1 Comparative information has been restated, as described in the section ‘Changes in financial highlights and segment reporting of note G2(b).
Danske Bank / Interim report – first quarter 2020 49/80
Notes – Danske Bank Group
G4. Income
Interest income and interest expense
Negative interest income during the period ending March 2020 amounted to DKK 612 million (31 March 2019: DKK 1,224 million). Negative interest
expenses amounted to DKK 654 million (31 March 2019: DKK 1,169 million). In the income statement, negative interest income is recognised as interest
expenses and negative interest expenses are recognised as interest income.
Fee income
Note G6 of the Annual Report 2019 provides additional information on the Group’s accounting policy for fee income, including the description by fee type.
Fee income Q1 2020
(DKK millions)
Investment
Pension and Insurance
Money transfers, account fees and cash management
Lending and Guarantees
Capital markets
Total
Fee income Q1 2019
(DKK millions)
Financial
highlights - net
fee income
1,330
701
722
579
340
3,673
Financial
highlights - net
fee income1
Reclassifica
tions
IFRS - net fee
income
Fee expense
IFRS - gross fee
income
-129
-661
24
143
-282
-905
1,201
40
747
722
58
2,768
1,066
-
328
66
-
1,460
2,267
40
1,075
788
58
4,229
Reclassifica-
tions1
IFRS - net fee
income
Fee expense
IFRS - gross fee
income
Investment
Pension and Insurance
Money transfers, account fees and cash management
Lending and Guarantees
Capital markets
Total
1,227
856
702
509
275
3,569
-259
-821
-21
161
-262
968
36
680
670
13
-1,202
2,367
1,324
-
384
56
-
1,764
2,291
36
1,064
727
13
4,131
1 Comparative information has been restated, as described in the section ‘Changes in financial highlights and segment reporting of note G2(b).
Other income
Other income amounted to DKK 1,421 million for the three months ending 31 March 2020 (31 March 2019: DKK 703 million). Other income includes
primarily income from lease assets, investment property and real estate brokerage.
Danske Bank / Interim report – first quarter 2020 50/80
Notes – Danske Bank Group
G5. Loan impairment charges and reconciliation of total allowance account
Loan impairment charges include impairment charges for expected credit losses on loans, lease receivables, bonds at amortised cost and fair value
through other comprehensive income, certain loan commitments and financial guarantee contracts as well as fair value adjustments of the credit risk on
loans measured at fair value.
Loan impairment charges
(DKK millions)
ECL on new assets
ECL on assets derecognised
Impact of net remeasurement of ECL (incl. changes in models)
Write-offs charged directly to income statement
Received on claims previously written off
Interest income, effective interest method
Total
Reconciliation of total allowance account
(DKK millions)
ECL allowance account as at 1 January 2019
Transferred to stage 1 during the period
Transferred to stage 2 during the period
Transferred to stage 3 during the period
ECL on new assets
ECL on assets derecognised
Impact of net remeasurement of ECL (incl. changes in models)
Write-offs debited to the allowance account
Foreign exchange adjustments
Other changes
Q1 2020
Q1 2019
1,401
-1,687
4,666
131
-102
-65
4,344
1,339
-1,097
293
303
-154
-66
618
Stage 1
Stage 2
Stage 3
Total
1,601
797
-358
-35
266
-328
-613
-
4
-18
5,450
-711
1,073
-553
1,182
-1,187
745
-5
22
-55
14,118
-87
-714
587
2,463
-2,972
1,388
-799
93
-44
21,170
-
-
-
3,911
-4,487
1,520
-804
120
-117
ECL allowance account as at 31 December 2019
1,316
5,963
14,033
21,313
Transferred to stage 1 during the period
Transferred to stage 2 during the period
Transferred to stage 3 during the period
ECL on new assets
ECL on assets derecognised
Impact of net remeasurement of ECL (incl. changes in models)
Write-offs debited to the allowance account
Foreign exchange adjustments
Other changes
297
-157
-4
101
-108
51
-
-19
-5
-276
443
-413
516
-473
2,175
6
-112
-311
-21
-286
417
785
-1,107
2,440
-210
-180
253
-
-
-
1,401
-1,687
4,666
-204
-311
-64
ECL allowance account as at 31 March 2020
1,471
7,518
16,124
25,113
The movements on the allowance account are determined by comparing the classification and amount in the balance sheet at the beginning and the end
of the period. The table above excludes the allowance account of DKK 4 million (31 December 2019: DKK 4 million) relating to bonds at amortised cost
or fair value through other comprehensive income (all in stage 1). For further information on the decomposition of the allowance account on facilities in
stages 1-3 under IFRS 9, see the notes on credit risk.
Danske Bank / Interim report – first quarter 2020 51/80
Notes – Danske Bank Group
G6. Loans at fair value
Loans at fair value consists of loans granted by the subsidiary Realkredit Danmark and loans in the trading units of Corporates & Institutions. The loans in the
trading units consist primarily of reverse transactions and short-term loans. As at 31 March 2020, these loans amounted to DKK 293,309 million (31
December 2019: DKK 319,469 million).
G7. Deposits
The Group’s deposit base consists of the following deposits:
(DKK millions)
Deposits from other credit institutions
hereof repo transactions
Other deposits
hereof repo transactions
Total deposits excluding repo transactions
31 March
2020
31 December
2019
274,462
177,072
1,127,523
130,732
155,246
56,078
1,140,726
176,193
1,094,181
1,063,701
G8. Issued bonds, subordinated debt and additional tier 1 capital
Issued bonds
In general, issued bonds are measured at amortised cost. However, bonds issued by Realkredit Danmark and commercial papers and certificates of deposits
issued by the trading units of Corporates & Institutions are measured at fair value through profit or loss.
The Group issues perpetual bonds with discretionary interest payments that fulfil the requirements for additional tier 1 capital under the CRR. If a trigger
event occurs, those issued bonds must either be written down temporarily or converted into a variable number of ordinary shares, depending on the terms of
the bond issue. Bonds that will be temporarily written down are accounted for as equity while bonds that convert into a variable number of ordinary shares
are accounted for as liabilities.
Issued bonds at fair value
(DKK millions)
Bonds issued by Realkredit Danmark (covered bonds)
Commercial papers and certificates of deposits
Issued bonds at fair value, total
Issued bonds at amortised cost
(DKK millions)
Commercial papers and certificates of deposits
Preferred senior bonds
Covered bonds
Issued bonds at amortised cost, total
Non-preferred senior bonds
31 March 31 December
2019
2020
762,026
5,146
795,721
6,780
767,172
802,501
31 March 31 December
2019
2020
6,359
65,584
175,814
4,043
70,395
181,918
247,757
256,355
98,709
87,054
Danske Bank / Interim report – first quarter 2020 52/80
Notes – Danske Bank Group
G8. Issued bonds, subordinated debt and additional tier 1 capital continued
Nominal value
(DKK millions)
Commercial papers and certificate of deposits
Preferred senior bonds
Covered bonds
Non-preferred senior bonds
1 January
2020
10,821
75,280
176,489
86,891
Issued
Redeemed
9,378
791
15,053
10,076
8,576
10,339
9,879
-
Foreign cur-
rency
translation
61
497
-7,823
-638
31 March
2020
11,684
66,228
173,840
96,330
Other issued bonds
349,481
35,298
28,794
-7,903
348,081
Nominal value
(DKK millions)
Commercial papers and certificate of deposits
Preferred senior bonds
Covered bonds
Non-preferred senior bonds
1 January
2019
20,359
93,941
188,568
26,441
Issued
Redeemed
67,987
2,232
25,794
59,911
78,088
21,982
37,740
-
Foreign
currency 31 December
2019
translation
562
1,088
-134
539
10,821
75,280
176,489
86,891
Other issued bonds
329,309
155,925
137,808
2,055
349,481
Subordinated debt and additional tier 1 capital
During the three months ended 31 March 2020, the Group did not issue or redeem any additional tier 1 or tier 2 capital instruments. During 2019, the Group
issued DKK 11,901 million and redeemed DKK 3,467 million of tier 2 capital.
As at 31 March 2020, the total nominal value of issued additional tier 1 capital amounted to DKK 24,429 million (31 December 2019: DKK 24,219 million)
of which DKK 14,203 million (31 December 2019: 14,205 million) is accounted for as equity. Danske Bank A/S may, at its sole discretion, omit interest
payments to bondholders. Any interest payments are paid out of distributable items, which primarily consist of retained earnings in Danske Bank A/S and
Danske Bank Group (see section 5.4.3 of Risk Management 2019 for further information). As at 31 March 2020, distributable items for Danske Bank A/S
amounted to DKK 121.3 billion (31 December 2019: DKK 121.1 billion). The additional tier 1 capital will be temporarily written down or converted into a
variable number of ordinary shares, depending on the terms of each issued bond, if the common equity tier 1 capital ratio falls below 7% for Danske Bank A/S
or Danske Bank Group. As at 31 March 2020 the common equity tier 1 capital ratio was 21.1% (31 December 2019: 20.1%) for Danske Bank A/S. The
ratios for the Danske Bank Group are disclosed in the Statement of capital.
Danske Bank / Interim report – first quarter 2020 53/80
Notes – Danske Bank Group
G9. Assets held for sale and Liabilities in disposal groups held for sale
Assets held for sale and Liabilities in disposal groups held for sale includes assets and liabilities that falls under IFRS 5.
Assets held for sale
(DKK millions)
Loans held for sale
Other
Total
31 March
2020
31 December
2019
900
472
938
414
1,372
1,352
In December 2019 and January 2020, the Group entered into agreements to sell portfolios of loans with and deposits from personal customers in
Lithuania and Latvia. The transaction on the portfolio in Latvia settled in the first quarter of 2020, while the transaction on the loan portfolio in Lithuania
is expected to settle in the second quarter of 2020. The deposits are presented as Liabilities in disposal groups held for sale in the balance sheet.
Assets held for sale also includes lease assets (where the Group acts as lessor) put up for sale at the end of the lease and properties taken over by the
Group under non-performing loan agreements. The Group expects to sell the properties through a real estate agent within 12 months from the date of
acquisition. The properties comprise properties in Denmark and in other countries.
G10. Other assets and other liabilities
Other assets amounted to DKK 45,717 million (31 December 2019: DKK 37,679 million), including holdings in associates of DKK 295 million (31 December
2019: DKK 341 million), investment property of DKK 2,612 million (31 December 2019: DKK 2,644 million), tangible assets of DKK 8,335 million (31
December 2019: DKK 8,450 million) and right-of-use lease assets of DKK 5,355 million (31 December 2019: DKK 5,634 million), consisting of domicile
property of DKK 4,384 million (31 December 2019: DKK 4,650 million) and other tangible assets of DKK 971 million (31 December 2019: DKK 984 million).
Other liabilities amounted to DKK 53,396 million (31 December 2019: DKK 46,191 million), including accrued interest and commissions due of DKK 7,026
million (31 December 2019: DKK 6,833 million), lease liabilities of DKK 5,266 million (31 December 2019: 5,526), other staff commitments of DKK 1,814
million (31 December 2019: DKK 1,993 million) and the provision of DKK 1,500 million (31 December 2019: DKK 1,500 million) relating to the donation of
the estimated gross income from the non-resident portfolio at the Estonian branch. Any confiscated or disgorged gross income will be deducted from the
donation to the foundation.
G11. Foreign currency translation reserve
The Group has granted loans to its branches in Sweden, Norway and Finland in the currency of the foreign unit for a total of DKK 34,440 million (31 December
2019: DKK 33,206 million). The loans represent part of the capital allocated to these units. The settlement of the loans is neither planned nor likely to occur
in the foreseeable future and the loans are part of the net investment in those units. Therefore, the foreign currency gains/losses on these loans are recognised
in Other comprehensive income. Until May 2019, the currency risk on the loans was hedged by establishing funding arrangements with third parties in the
matching currencies and the foreign currency gains/losses on these funding arrangements were also recognised in Other comprehensive income. In May
2019, part of the funding was changed to DKK in order to create so-called structural FX hedge positions in accordance with banking regulations, i.e. to reduce
the impact on capital ratios resulting from changes in the risk exposure amount due to changes in currency rates. This strategy of partly hedging the sensitivity
to capital ratios from volatility in foreign currency rates, increases the volatility in Other comprehensive income and the Foreign currency translation reserve
in equity under IFRS since it decreases the hedge of the currency risk on the net investments in those units. As at 31 March 2020, the structural FX hedge
position totalled DKK 29,803 million (31 December 2019: DKK 29,988 million) and a loss of DKK 2,271 million has been recognised in Other comprehensive
income during the first quarter of 2020, primarily due to a significant weakening of NOK and to a lesser degree a weakening of SEK against DKK throughout
the first quarter of 2020.
Danske Bank / Interim report – first quarter 2020 54/80
Notes – Danske Bank Group
G12. Guarantees, commitments and contingent liabilities
Contingent liabilities consist of possible liabilities arising from past events. The existence of such liabilities will be confirmed only by the occurrence or
non-occurrence of one or more uncertain future events not wholly within the Group’s control. Contingent liabilities that can, but are not likely to, result in
an outflow of economic resources are disclosed.
The Group uses a variety of loan related financial instruments to meet customers’ financial requirements. Instruments include loan offers and other
credit facilities, guarantees and instruments not recognised in the balance sheet. If an instrument is likely to result in a payment obligation, a liability is
recognised under Other liabilities corresponding to the present value of expected payments.
(a) Guarantees
(DKK millions)
Financial guarantees
Other guarantees
Total
(b) Commitments
(DKK millions)
Loan commitments shorter than 1 year
Loan commitments longer than 1 year
Other unutilised loan commitments
Total
31 March 31 December
2019
2020
7,248
61,546
68,795
4,661
64,403
69,064
31 March 31 December
2019
2020
238,611
166,585
186
405,382
204,610
174,211
283
379,104
In addition to credit exposure from lending activities, loan offers made and uncommitted lines of credit granted by the Group amounted to DKK 206 billion
(31 December 2019: DKK 213 billion). These items are included in the calculation of the total risk exposure amount in accordance with the CRR.
(c) Regulatory and legal proceedings
Estonia matter
Danske Bank remains in dialogue with various authorities regarding the terminated non-resident portfolio at the Bank’s Estonian branch, which was active
between 2007 and 2015. This includes criminal and regulatory investigations by authorities in Estonia, Denmark, France and the United States. The Bank
continues to cooperate with all authorities.
In 2018, the Estonian Office of the Prosecutor General opened a criminal investigation into former employees of the Estonian branch.
In November 2018, Danske Bank was preliminary charged by the Danish State Prosecutor for Serious Economic and International Crime (“SØIK”) with vio-
lating the Danish AML Act 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 of the Tribunal de Grande Instance de Paris in the context of
an on-going French criminal investigation and on the grounds of money laundering suspicions relating to certain transactions in the terminated portfolio of
non-resident customers of the Bank’s Estonian branch, amounting to around DKK 160 million and performed between 2007 and 2014. The Bank has posted
bail in the amount of DKK 80 million.
The Bank is reporting to, responding to and cooperating with various authorities, including the U.S. Department of Justice (DOJ) and the U.S. Securities and
Exchange Commission (SEC), relating to the Bank’s Estonian branch.
The overall timing of completion and the outcome of the investigations by, and subsequent discussions with, the authorities are uncertain. It is not yet possible
to reliably estimate the timing, form of resolution, or amount of potential settlement or fines, if any, which could be material.
Based on orders from the Danish FSA, Danske Bank’s solvency need has been increased in 2018 by a Pillar II add-on of in total DKK 10 billion to ensure
adequate capital coverage of the increased compliance and reputational risks in relation to the Estonian AML matter.
On 9 January 2019, an action was filed in the United States District Court for the Southern District of New York by an alleged holder of Danske Bank’s
American Depositary Receipts, representing its ordinary shares, against the Bank and certain of its officers and former officers and/or directors. The
complaint alleges that the defendants violated Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 by, among other things, making
false and misleading statements and/or failing to disclose adverse information regarding the Bank’s business and operations in relation to AML matters
relating to the Bank’s Estonian branch and related matters. The complaint seeks unspecified damages on behalf of a putative class of purchasers of the
Bank’s American Depositary Receipts between 9 January 2014 and 29 April 2019. The Bank intends to defend against these claims. The timing of the
completion of the lawsuit and the outcome are uncertain.
Danske Bank / Interim report – first quarter 2020 55/80
Notes – Danske Bank Group
G12. Guarantees, commitments and contingent liabilities continued
On 3 March 2019, a court case was initiated against Danske Bank for approval of a class action lead by a newly formed association with the aim to
represent former and current shareholders in a liability action relating to the Estonian AML matter. In March 2019 (168), October 2019 (64), January
2020 (9), and March 2020 (38), in total 279 separate cases were initiated against the Bank with a total claim amount of approximately DKK 7.1 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 court actions filed with the Copenhagen City Court relate to alleged violations in the Bank’s branch in Estonia of the rules on prevention of money
laundering and alleged failure to timely inform the market of such violations. The Bank intends to defend itself against these claims. The timing of comple-
tion of any such lawsuits (pending or threatening) and their outcome are uncertain.
On 20 February 2020, Danske Bank received a procedural notification in a case initiated against Thomas F. Borgen by 72 institutional investors, and
funded by the litigation funder Deminor Recovery Services. The total claim amount is approximately DKK 2.7 billion. Under Danish law, the purpose of a
procedural notification is to make a formal reservation of rights to bring a potential claim against the notified party in the future.
Other
Owing to its business volume, Danske Bank is continually a party to various other lawsuits and disputes and has an ongoing dialogue with public authori-
ties, such as the Danish FSA on other matters. On 14 November 2019, Danske Bank was preliminarily charged by SØIK for violating the Danish Executive
Order on Investor Protection in connection with the Flexinvest Fri case. Danske Bank cooperates fully with SØIK. In general, Danske Bank does not expect
the outcomes of any of these other pending lawsuits and disputes or its dialogue with public authorities to have any material effect on its financial position.
Provisions for litigations are included in Other liabilities, see note G10.
(d) Further explanation
A limited number of employees are employed under terms which, if they are dismissed before reaching their normal retirement age, grant them a sever-
ance and/or pension payment in excess of their entitlement under ordinary terms of employment. As the sponsoring employer, the Group is also liable
for the pension obligations of a number of company pension funds.
The Group participates in the Danish Guarantee Fund and the Danish Resolution Fund. The funds’ capital must amount to at least 0.8% and 1%, respec-
tively, of the covered deposits of all Danish credit institutions by 31 December 2024. The Danish Guarantee Fund is currently fully funded, but if the fund
subsequently does not have sufficient means to make the required payments, extraordinary contributions of up to 0.5% of the individual institution’s
covered deposits may be required. Extraordinary contributions above this percentage require the consent of the Danish FSA. The first contribution to the
Danish Resolution Fund was made in December 2015. Danske Bank A/S and Realkredit Danmark A/S make contributions to the Resolution Fund on the
basis of their size and risk relative to other credit institutions in Denmark. The contribution to the Danish Resolution Fund is recognised as operating
expenses.
If the Resolution Fund does not have sufficient means to make the required payments, extraordinary contributions of up to three times the latest annual
contributions may be required. In addition, Danish banks participate in the Danish Restructuring Fund, which reimburses creditors if the final dividend is
lower than the interim dividend in respect of banks that were in distress before 1 June 2015. Similarly, Danish banks have made payment commitments
(totalling DKK 1 billion) to cover losses incurred by the Danish Restructuring Fund for the withdrawal of distressed banks from data centres etc. Payments
to the Danish Restructuring Fund are calculated on the basis of the individual credit institution’s share of covered deposits relative to other credit insti-
tutions in Denmark. However, each institution’s contribution to the Danish Restructuring Fund may not exceed 0.2% of its covered deposits.
The Group is a member of deposit guarantee schemes and other compensation schemes in Norway, the UK and Luxembourg. As in Denmark, the contri-
butions to the schemes in these countries are annual contributions combined with extraordinary contributions if the means of the schemes are not
sufficient to cover the required payments.
Danske Bank A/S is taxed jointly with all Danish entities of Danske Bank Group and is jointly and severally liable with these for payment of Danish corpo-
ration tax and withholding tax, etc.
Danske Bank A/S is registered jointly with all significant Danish entities of Danske Bank Group for financial services employer tax and VAT, for which
Danske Bank A/S and the entities are jointly and severally liable.
Danske Bank / Interim report – first quarter 2020 56/80
Notes – Danske Bank Group
G13. Assets provided or received as collateral
As at 31 March 2020, the Group had deposited securities worth DKK 75.2 billion as collateral with Danish and international clearing centres and other
institutions (31 December 2019: DKK 8.6 billion). The increase relates to the use of central bank facilities to establish a liquidity buffer to mitigate the
impact from potential increase in lending following the COVID-19 pandemic.
As at 31 March 2020, the Group had provided cash and securities worth DKK 138.6 billion as collateral for derivatives transactions (31 December
2019: DKK 107.4 billion).
As at 31 March 2020, the Group had registered assets (including bonds and shares issued by the Group) under insurance contracts worth DKK 412.8
billion (31 December 2019: DKK 450.9 billion) as collateral for policyholders’ savings of DKK 405.9 billion (31 December 2019: DKK 437.4 billion).
As at 31 March 2020, the Group had registered loans at fair value and securities (including bonds issued by the Group) worth a total of DKK 803.1 billion
(31 December 2019: DKK 816.8 billion) as collateral for bonds issued by Realkredit Danmark. Similarly, the Group had registered loans and other assets
worth DKK 321.5 billion (31 December 2019: DKK 294.6 billion) as collateral for covered bonds issued under Danish, Finnish and Swedish law.
The table below shows assets provided as collateral for liabilities or contingent liabilities. Assets provided as collateral under repo transactions are
shown separately whereas the types explained above are included in the column ‘Other’.
(DKK millions)
Due from credit institutions
Trading portfolio securities
Loans at fair value
Loans at amortised cost
Assets under insurance contracts
Other assets
Total
Own issued bonds
31 March 2020
Other
Repo
-
270,938
-
-
-
-
67,036
149,540
791,314
340,073
318,674
62
Total
67,036
420,478
791,314
340,073
318,674
62
31 December 2019
Repo
Other
-
186,473
-
-
-
-
43,230
75,876
802,579
277,395
359,246
72
Total
43,230
262,349
802,579
277,395
359,246
72
270,938
1,666,699
1,937,637
186,473
1,558,398
1,744,871
35,825
131,967
167,792
43,322
81,354
124,675
Total, including own issued bonds
306,763
1,798,666
2,105,429
229,795
1,639,752
1,869,547
Securities provided as collateral under agreements that entitle the counterparty to sell the securities or provide them as collateral for other loans
amounted to DKK 270.9 billion as at 31 March 2020 (31 December 2019: DKK 186.5 billion).
As at 31 March 2020, the Group had received securities worth DKK 400.7 billion (31 December 2019: DKK 401.3 billion) as collateral for reverse repo
transactions, securities lending, derivatives transactions and other transactions entered into on the standard terms for such transactions. As the party
receiving the collateral, the Group is entitled in most cases to sell the securities or provide the securities as collateral for other loans in exchange for
returning similar securities to the counterparty at the expiry of the transactions. As at 31 March 2020, the Group had sold securities or provided secu-
rities as collateral worth DKK 165.8 billion (31 December 2019: DKK 152.5 billion).
The Group also receives many other types of assets as collateral in connection with its ordinary lending activities. The Group has not received the own-
ership of these assets. The risk management notes of the Annual report 2019 provide more details on assets received as collateral in connection with
ordinary lending activities.
Danske Bank / Interim report – first quarter 2020 57/80
Notes – Danske Bank Group
G14. Fair value information for financial instruments
Financial instruments are recognised in the balance sheet at fair value or amortised cost.
(DKK millions)
Financial 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
Loans held for sale
31 March 2020
Fair value
Amortised cost
31 December 2019
Fair value
Amortised cost
-
41,419
706,546
162,088
-
1,084,623
99,908
468,536
-
127,708
99,111
-
130,709
997,490
-
-
-
900
-
24,354
495,321
163,782
-
1,122,048
111,089
434,945
-
99,035
81,320
-
121,091
1,028,011
-
-
-
938
Total
2,563,120
1,355,918
2,351,538
1,330,395
Financial 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 in disposal groups held for sale
Non-preferred senior bonds
Subordinated debt
Loan commitments and guarantees
129,138
603,017
143,607
767,172
-
100,378
-
-
-
-
145,324
-
983,917
-
247,757
-
89
98,709
31,968
2,038
79,877
452,202
184,755
802,501
-
111,537
-
-
-
-
75,369
-
955,970
-
256,355
-
110
87,054
31,733
2,485
Total
1,743,312
1,509,801
1,630,872
1,409,076
Investment securities at fair value includes bonds measured at fair value through other comprehensive income, see the table on bonds in the Risk ma-
nagement notes. All other financial assets in the column ‘Fair value’ are mandatorily measured at fair value through profit or loss under IFRS 9. Except
for the held for trading portfolio, all other financial liabilities are measured at fair value through profit or loss using the fair value option.
Financial instruments at fair value
Note G33 of the Annual Report 2019 provides more information about fair value calculation methods for financial instruments.
Financial instruments valued on the basis of quoted prices in an active market are recognised in the Quoted prices category. Financial instruments valued
substantially on the basis of other observable input are recognised in the Observable input category. This category covers instruments such as derivatives
valued on the basis of observable yield curves and exchange rates and illiquid mortgage bonds valued by reference to the value of similar, liquid bonds.
Other financial instruments valued substantially on the basis of non-observable input are recognised in the Non-observable input category. This category
covers instruments such as unlisted shares, some unlisted bonds and a very limited portion of the derivatives portfolio.
If, at the balance sheet date, a financial instrument's classification differs from its classification at the beginning of the year, the classification of the
instrument changes. Changes are considered to have taken place at the balance sheet date. Developments in the financial markets have resulted in re-
classification between the categories. Some bonds have become illiquid and have therefore been moved from the Quoted prices to the Observable input
category, while other bonds have become liquid and have been moved from the Observable input to the Quoted prices category. The amounts transferred
are insignificant.
Danske Bank / Interim report – first quarter 2020 58/80
Notes – Danske Bank Group
G14. Fair value information for financial instruments continued
(DKK millions)
31 March 2020
Financial assets
Due from credit institutions and central banks
Derivatives
Interest rate contracts
Currency contracts etc.
Trading portfolio bonds
Trading portfolio shares
Investment securities, bonds
Investment securities, shares
Loans at fair value
Assets under pooled schemes and unit-linked investment contracts
Assets under insurance contracts, bonds
Danish mortgage bonds
Other covered bonds
Assets under insurance contracts, shares
Assets under insurance contracts, derivatives
Quoted prices
Observable input
Non-observable
input
Total
-
41,419
-
41,419
15,738
35
226,146
10,313
137,007
40
-
99,908
21,641
160,888
75,299
3,633
276,278
148,811
21,109
-
23,996
-
1,084,623
-
1,870
17,650
2,388
140,494
4,044
3,809
-
263
-
1,045
-
-
42
3,971
39,094
1,566
296,060
152,655
247,255
10,576
161,003
1,085
1,084,623
99,908
23,553
182,509
116,781
145,693
Total
750,648
1,758,638
53,835
2,563,120
Financial liabilities
Due to credit institutions and central banks
Derivatives
Interest rate contracts
Currency contracts etc.
Obligations to repurchase securities
Deposits
Issued bonds at fair value
Deposits under pooled schemes and unit-linked investment contracts
-
129,138
-
129,138
14,482
36
164,707
-
767,172
-
254,526
162,606
1,066
143,607
-
100,378
3,914
1,637
44
-
-
-
272,922
164,279
165,817
143,607
767,172
100,378
Total
946,397
791,321
5,595
1,743,312
Danske Bank / Interim report – first quarter 2020 59/80
Notes – Danske Bank Group
G14. Fair value information for financial instruments continued
(DKK millions)
31 December 2019
Financial assets
Due from credit institutions and central banks
Derivatives
Interest rate contracts
Currency contracts etc.
Trading portfolio bonds
Trading portfolio shares
Investment securities, bonds
Investment securities, shares
Loans at fair value
Assets under pooled schemes and unit-linked investment contracts
Assets under insurance contracts, bonds
Danish mortgage bonds
Other covered bonds
Assets under insurance contracts, shares
Assets under insurance contracts, derivatives
Quoted prices
Observable
input
Non-observable
input
Total
-
24,354
-
24,354
3,636
59
173,852
12,028
133,953
53
-
111,089
67,292
107,686
101,432
2,225
220,829
64,387
15,260
-
28,393
-
1,122,048
-
8,751
9,090
2,304
89,990
3,963
1,107
-
200
-
1,383
-
-
427
3,672
39,813
2,263
228,428
65,553
189,112
12,228
162,346
1,436
1,122,048
111,089
76,470
120,448
143,549
94,478
Total
713,305
1,585,405
52,828
2,351,538
Financial liabilities
Due to credit institutions and central banks
Derivatives
Interest rate contracts
Currency contracts etc.
Obligations to repurchase securities
Deposits
Issued bonds at fair value
Deposits under pooled schemes and unit-linked investment contracts
-
79,877
-
79,877
3,545
64
151,590
-
802,501
-
201,525
89,707
744
184,756
-
111,537
3,634
1,219
173
-
-
-
208,704
90,990
152,507
184,756
802,501
111,537
Total
957,700
668,146
5,026
1,630,872
Danske Bank / Interim report – first quarter 2020 60/80
Notes – Danske Bank Group
G14. Fair value information for financial instruments continued
Financial instruments valued on the basis of non-observable input
The tables below shows financial instruments valued on the basis of non-observable input.
(DKK millions)
31 March 2020
Unlisted shares
allocated to insurance contract policyholders
other
Illiquid bonds
Derivatives, net fair value
31 December 2019
Unlisted shares
allocated to insurance contract policyholders
other
Illiquid bonds
Derivatives, net fair value
Sensitivity (change in fair value)
Gains/losses for the period
Carrying amount
Increase
Decrease
Realised
Unrealised
39,094
1,264
4,013
3,868
39,813
1,410
4,099
2,480
-
126
77
-
-
141
90
-
-
126
77
-
-
141
90
-
17
118
-15
-
1,357
208
-25
-
-1,306
14
-187
3,231
1,898
345
260
1,690
For unlisted shares, the market volatility and movements in the liquid markets for listed shares during Q1 2020 has been incorporated as an input to
measure the fair value of the Group’s holdings of unlisted shares. For unlisted shares allocated to insurance contract policyholders, the policyholders
assume most of the risk on the shares. Therefore, changes in the fair value of those shares will only to a limited extent affect the Group’s net profit. The
Group’s remaining portfolio of unlisted shares consists primarily of banking-related investments and holdings in private equity funds. The sensitivity of
the fair value measurement to changes in the unobservable input disclosed in the table is calculated as a 10% increase or 10 % decrease in fair value.
Under current market conditions, a 10 % decrease in the fair value is considered to be below a possible alternative estimate of the fair value at the end
of the period. The unrealised adjustments in in the three month period ended 31 March 2020 were attributable to various unlisted shares.
The estimated fair value of illiquid bonds depends significantly on the estimated credit spread. In the table, the sensitivity of the fair value measurement
to changes in non-observable input is calculated as a 50bps widening or narrowing of the credit spread.
A substantial number of derivatives valued on the basis of non-observable input are hedged by similar derivatives or are used for hedging the credit risk
on bonds also valued on the basis of non-observable input. Changing one or more of the non-observable inputs to reflect reasonable, possible alternative
assumptions would not change the fair value of the derivatives significantly above what is already covered by the reserve related to fair value adjustment
for model risk.
Shares, bonds and derivatives valued on the basis of non-observable input
Reconciliation from beginning to end of period
(DKK millions)
31 March 2020
31 December 2019
Shares
Bonds Derivatives
Shares
Bonds
Derivatives
Fair value at 1 January
Value adjustment through profit or loss
Acquisitions
Sale and redemption
Transferred from quoted prices and observable input
Transferred to quoted prices and observable input
41,223
-1,157
867
-575
-
-
4,099
-202
418
-302
-
-
2,480
3,231
726
-1,814
-1
-752
34,730
3,808
20,437
-17,752
-
-
4,131
235
8,512
-8,779
-
-
3,497
1,690
-233
-2,455
-
-19
Fair value end of period
40,358
4,013
3,868
41,223
4,099
2,480
The value adjustment through profit or loss is recognised under Net trading income or loss. The transfer of derivatives to the Observable input category
consists primarily of maturity reductions, implying that the yield curves have become observable.
Danske Bank / Interim report – first quarter 2020 61/80
Notes – Danske Bank Group
G14. Fair value information for financial instruments continued
Financial instruments at amortised cost
Note G33 of the Annual Report 2019 provides information about the fair value calculation methods for financial instruments measured at amortised cost.
In the table below, fair value is presented for classes of financial instruments for which the carrying amount is not a reasonable approximation of fair value.
31 March 2020 (DKK millions)
Financial assets
Investment securities
Loans at amortised cost
Financial liabilities
Other issued bonds
Subordinated debt
31 December 2019 (DKK millions)
Financial assets
Investment securities
Loans at amortised cost
Financial liabilities
Other issued bonds
Subordinated debt
Carrying
amount
Fair value Quoted prices
Observable
input
Non-observable
input
130,709
997,490
132,120
996,855
108,683
-
23,437
9,794
-
987,061
346,466
31,968
339,748
28,041
281,953
25,048
35,645
2,994
22,150
-
121,091
1,028,011
122,785
1,028,261
100,517
-
22,268
9,837
-
1,018,424
343,409
31,733
346,057
32,486
293,141
29,398
20,430
3,088
32,485
-
Danske Bank / Interim report – first quarter 2020 62/80
Notes – Danske Bank Group
Risk Management
The consolidated financial statements for 2019 provide a detailed description of the Group’s risk management practices.
Breakdown of credit exposure
Lending activities
(DKK billions)
31 March 2020
Balance sheet items
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
Loans held for sale
Off-balance-sheet items
Guarantees
Loan commitments shorter than 1 year
Loan commitments longer than 1 year
Other unutilised commitments
Total
31 December 2019
Balance sheet items
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
Loans held for sale
Off-balance-sheet items
Guarantees
Loan commitments shorter than 1 year
Loan commitments longer than 1 year
Other unutilised commitments
Total
Core
Non-core
Counterparty
credit risk
Trading and
investment
securities
Customer-
funded invest-
ments
122.6
140.5
706.5
292.8
997.5
1,084.6
99.9
496.8
0.9
68.8
238.6
166.6
0.2
122.3
99.1
-
-
992.6
791.3
-
-
-
68.5
236.4
166.4
-
4,416.3
2,476.6
92.8
105.7
495.3
284.9
1,028.0
1,122.0
111.1
463.8
0.9
69.1
204.6
174.2
0.3
92.4
81.9
-
-
1,022.3
802.6
-
-
-
68.7
202.2
173.7
-
0.3
-
-
-
4.9
-
-
-
0.9
0.3
2.2
0.2
-
8.8
0.4
0.1
-
-
5.7
-
-
-
0.9
0.3
2.5
0.5
-
-
41.4
448.7
-
-
293.3
-
-
-
-
-
-
-
-
-
257.8
292.8
-
-
-
-
-
-
-
-
0.2
-
-
-
-
-
-
99.9
496.8
-
-
-
-
-
783.4
550.8
596.7
-
23.7
294.0
-
-
319.5
-
-
-
-
-
-
-
-
-
201.3
284.9
-
-
-
-
-
-
-
-
0.3
-
-
-
-
-
-
111.1
463.8
-
-
-
-
-
Total
4,152.7
2,443.8
10.4
637.1
486.5
574.9
In addition to credit exposure from lending activities, Danske Bank had made uncommitted loan offers and granted uncommitted lines of credit of DKK
206 billion at 31 March 2020 (31 December 2019: DKK 213 billion). These items are included in the calculation of the total risk exposure amount in
accordance with the Capital Requirements Directive.
Danske Bank / Interim report – first quarter 2020 63/80
Notes – Danske Bank Group
Credit exposure
Credit exposure from core lending activities
Credit exposure from lending activities in the Group’s core banking business includes loans, amounts due from credit institutions and central banks,
guarantees and irrevocable loan commitments. The exposure is measured net of expected credit losses and includes repo loans at amortised cost. For
reporting purposes, all collateral values are net of haircuts and capped at the exposure amount. The credit exposure from Non-core lending activities is
disclosed further on in these notes.
For details about the Group’s credit risk management and the use of information on expected credit losses for risk management purposes, see Risk
Management 2019.
Classification of customers
The main objectives of risk classification are to rank the Group’s customers according to risk and to estimate each customer’s probability of default (PD). As
part of the credit process, the Group classifies customers according to risk and updates their classifications upon receipt of new information. Risk classifica-
tion comprises rating and credit scoring of customers. While all large customers are rated, the Group uses fully automated and statistically-based scoring
models for small customers such as personal customers and small businesses. Credit scores are updated monthly in a process subject to automated con-
trols.
The Group has developed a number of classification models to assess customer PD and to classify customers in various segments.
In its credit risk management, the Group uses point in time (PIT) PD estimates for risk classification. These PIT PD estimates express a customer’s
probability of default within the next 12 months in the current economic situation. The Group’s classification scale consists of 11 main rating categories
with fixed PD bands. During a downturn, a customer’s PIT PD may increase, and the customer may migrate to a lower rating category. The effect from a
downturn is thus larger when PIT PD is used than if the classification were based on through-the-cycle (TTC) PD, which the Group uses to calculate the
risk exposure amount for credit risk.
The classification of facilities between stage 1 and 2 for the purpose of calculating expected credit losses under IFRS 9 depends on whether the credit
risk has increased significantly since initial recognition. The assessment of whether the credit risk has increased significantly since initial recognition is
performed by considering the change in the risk of default occurring over the remaining life of the individual facility and incorporating forward-looking
information. A facility is transferred from stage 1 to stage 2 on the basis of observed increases in the probability of default:
•
•
For facilities originated below 1% in PD: an increase in the facility’s 12-month PD of at least 0.5 of a percentage point since initial recognition and a
doubling in the facility’s lifetime PD since origination.
For facilities originated above 1% in PD: an increase in the facility’s 12-month PD of 2 percentage points since origination or a doubling of the
facility’s lifetime PD since origination.
In addition, facilities that are more than 30 days past due are moved to stage 2. 30 days past due is considered a backstop. Finally, customers subject to
forbearance measures are placed in stage 2, if the Group, in the most likely outcome, expects no loss or the customers are in the two-year probation
period for performing forborne exposures.
A facility is transferred from stage 2 to stage 3 when it becomes credit-impaired. A facility becomes credit-impaired when one or more events that have
a detrimental impact on the estimated future cash flows have occurred. This includes observable data about (a) significant financial difficulty of the issuer
or the borrower; (b) a breach of contract, such as a default or past due event; (c) the borrower, for financial or contractual reasons relating to the bor-
rower’s financial difficulty, having been granted a concession that would not otherwise have been considered; (d) it is becoming probable that the borrower
will enter into bankruptcy or other financial restructuring; and (e) the purchase or origination of a financial asset at a deep discount that reflects the
incurred credit loss. It may not be possible to identify a single discrete event – instead, the combined effect of several events may cause a financial asset
to become credit-impaired. Credit-impaired facilities are placed in rating category 10 or 11. For customers in rating category 10, the stage 3 classifica-
tion applies only to customers where a loss is expected in the most likely scenario. For rating category 11 (default), all facilities are classified as stage 3
exposures.
Exposures which are considered to be in default for regulatory purposes will always be categorised as stage 3 exposures under IFRS 9. This applies to
90-days-past-due considerations and unlikely-to-pay factors leading to regulatory default.
Danske Bank / Interim report – first quarter 2020 64/80
Notes – Danske Bank Group
Credit exposure continued
Credit portfolio in core activities broken down by rating category and stages
31 March 2020
(DKK billions)
PD level
Upper
Lower
Gross exposure
Stage 1 Stage 2 Stage 3
Expected credit loss
Stage 1 Stage 2 Stage 3
Net exposure
Net exposure, ex collateral
Stage 1 Stage 2 Stage 3
Stage 1 Stage 2 Stage 3
1
2
3
4
5
6
7
8
9
10
11 (default)
Total
31 December 2019
(DKK billions)
1
2
3
4
5
6
7
8
9
10
11 (default)
Total
0.01
-
0.03
0.01
0.06
0.03
0.14
0.06
0.31
0.14
0.63
0.31
1.90
0.63
1.90
7.98
7.98 25.70
25.70 99.99
100.00 100.00
165.2
227.7
510.2
526.3
459.6
232.4
95.4
6.6
1.8
0.8
0.3
0.1
0.6
1.7
8.2
29.4
47.4
77.6
37.6
10.1
11.1
0.3
-
-
0.1
0.4
0.2
0.4
0.3
0.3
0.3
23.2
25.2
-
-
-
0.6
0.2
0.2
0.3
0.1
-
-
-
-
-
-
-
0.2
0.5
1.5
3.2
0.9
1.2
-
-
-
-
-
-
-
-
-
-
5.9
9.3
165.2
227.7
510.2
525.7
459.3
232.1
95.2
6.6
1.8
0.8
0.3
0.1
0.6
1.7
8.2
29.2
46.9
76.1
34.4
9.1
9.9
0.3
-
-
0.1
0.4
0.2
0.4
0.3
0.3
0.3
17.3
16.0
151.7
123.6
218.4
208.6
149.3
81.7
31.8
1.6
0.4
0.6
0.1
-
0.1
0.4
3.9
14.0
14.4
19.7
6.5
1.2
3.3
0.1
-
-
-
0.1
-
-
0.1
-
0.1
5.8
4.4
2,226.4
223.9
50.5
1.5
7.5
15.2
2,224.9
216.4
35.3
967.9
63.7
10.4
PD level
Net exposure, ex collateral
Lower Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
Expected credit loss
Gross exposure
Net exposure
Upper
-
0.01
0.03
0.06
0.14
0.31
0.63
1.90
7.98
25.70
0.01
0.03
0.06
0.14
0.31
0.63
1.90
7.98
25.70
99.99
100.00 100.00
151.6
199.2
469.7
562.1
479.2
258.8
135.1
10.3
0.9
0.3
0.1
0.2
0.3
1.0
3.6
10.7
23.4
53.4
36.4
10.2
14.7
0.4
-
-
-
0.3
0.1
0.2
0.4
0.2
0.1
19.9
21.4
-
-
-
0.1
0.2
0.3
0.3
0.4
-
-
-
-
-
-
-
0.1
0.2
1.0
2.2
1.2
1.0
-
-
-
-
-
-
-
-
-
-
4.8
8.5
151.6
199.2
469.7
562.0
479.1
258.5
134.8
9.9
0.9
0.3
0.1
0.2
0.3
1.0
3.6
10.6
23.1
52.4
34.2
9.0
13.7
0.4
-
-
-
0.3
0.1
0.2
0.4
0.2
0.1
15.1
13.0
139.8
106.3
180.4
215.7
140.2
87.3
39.7
1.8
0.1
0.1
-
-
-
0.2
1.4
4.5
7.1
15.0
7.8
1.2
5.3
0.1
-
-
-
-
-
-
-
-
-
4.4
3.3
2,267.3
154.2
42.8
1.3
5.8
13.4
2,266.0
148.5
29.4
911.5
42.6
7.8
Danske Bank / Interim report – first quarter 2020 65/80
Notes – Danske Bank Group
Credit exposure continued
Credit portfolio in core activities broken down by industry (NACE) and stages
The table below breaks down credit exposure by industry. The industry segmentation is based on the classification principles of the Statistical Classifi-
cation of Economic Activities in the European Community (NACE) standard that has been adapted to the Group’s business risk approach used for the
active management of the credit portfolio.
Expected credit losses increased throughout the portfolio due to the changes to macroeconomic outlooks following the outbreak of the COVID-19 pan-
demic.
31 March 2020
(DKK billions)
Gross exposure
Expected credit loss
Net exposure
Net exposure, ex collateral
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
Public institutions
Financials
Agriculture
Automotive
Capital goods
Commercial property
Construction and building materials
Consumer goods
Hotels, restaurants and leisure
Metals and mining
Other commercials
Pharma and medical devices
Private housing co-ops and non-profit
associations
Pulp, paper and chemicals
Retailing
Services
Shipping, oil and gas
Social services
Telecom and media
Transportation
Utilities and infrastructure
Personal customers
199.3
146.4
46.8
33.1
65.6
270.4
43.3
61.3
10.8
12.1
15.0
54.5
193.4
30.4
22.2
53.6
15.0
28.0
16.8
5.8
56.4
846.3
0.3
3.5
19.8
2.1
4.0
33.1
6.3
7.9
4.3
0.8
1.2
1.2
6.6
2.4
2.7
4.3
30.0
1.2
0.9
8.6
0.3
82.5
-
0.6
6.7
0.2
3.8
5.8
2.4
1.2
0.7
0.2
0.1
-
2.5
0.5
2.7
0.9
11.7
0.9
0.2
0.8
0.1
8.4
-
0.1
0.1
-
-
0.2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.7
-
0.1
1.2
0.1
0.1
1.3
0.4
0.3
0.1
-
-0.1
0.1
0.2
0.1
0.2
0.2
0.6
0.1
-
0.1
-
2.3
-
0.3
1.6
0.1
0.8
1.3
0.7
0.4
0.1
-
-
-
0.3
0.1
1.0
0.5
4.1
0.3
0.1
0.1
-
3.3
199.3
146.3
46.7
33.1
65.6
270.2
43.3
61.2
10.8
12.1
15.0
54.4
193.4
30.4
22.1
53.5
15.0
28.0
16.8
5.8
56.4
845.6
0.3
3.3
18.6
2.0
3.9
31.8
5.8
7.6
4.2
0.8
1.3
1.1
6.3
2.3
2.5
4.1
29.4
1.2
0.9
8.5
0.3
80.2
-
0.3
5.1
0.1
3.1
4.6
1.7
0.8
0.7
0.1
-
-
2.2
0.3
1.6
0.4
7.6
0.6
0.1
0.7
-
5.2
193.4
137.9
11.5
24.5
57.8
59.0
32.3
47.3
2.9
9.8
13.5
51.7
35.2
22.4
13.3
43.2
11.0
10.3
15.2
3.1
42.5
129.8
-
1.8
2.8
0.8
2.6
7.0
2.5
5.1
1.9
0.4
0.4
0.8
1.0
0.8
1.4
2.3
11.3
0.6
0.6
4.1
0.1
15.6
-
0.1
0.7
-
2.6
0.3
1.1
0.4
0.2
0.1
-
-
0.5
0.1
1.1
0.1
1.8
0.3
-
0.3
-
0.6
Total
2,226.4
223.9
50.5
1.5
7.5
15.2
2,224.9
216.4
35.3
967.9
63.7
10.4
Danske Bank / Interim report – first quarter 2020 66/80
Notes – Danske Bank Group
Credit exposure continued
31 December 2019
(DKK billions)
Public Institutions
Financials
Agriculture
Automotive
Capital goods
Commercial Property
Construction & Building materials
Consumer goods
Hotels, restaurants and leisure
Metals and Mining
Other Commercials
Pharma and medical devices
Private Housing Co-ops. & Non-Profit
Associations
Pulp and Paper, Chemicals
Retailing
Services
Shipping, Oil & Gas
Social services
Telecom & Media
Transportation
Utilities and infrastructure
Personal Customers
Gross exposure
Expected credit loss
Net exposure
Net exposure, ex collateral
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
193.6
103.7
52.4
35.9
63.1
293.3
43.3
61.6
15.2
11.2
20.8
38.4
190.4
30.6
21.5
55.4
41.3
29.2
18.2
13.9
46.5
887.6
0.1
2.2
16.0
1.6
3.5
19.3
6.0
3.9
1.7
0.7
0.4
1.2
6.1
1.9
3.3
3.6
9.4
1.1
0.8
2.2
0.6
68.8
-
0.4
5.6
0.3
4.1
5.2
1.9
1.0
0.3
0.1
-
-
2.0
0.4
1.5
0.9
9.4
0.8
0.2
0.2
-
8.5
-
0.1
0.1
-
-
0.2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.7
-
-
1.1
-
0.1
0.7
0.3
0.2
0.1
-
-
-
0.2
0.1
0.3
0.2
0.2
-
-
-
-
2.1
0.0
0.3
1.7
0.1
0.5
1.3
0.7
0.4
0.1
-
-
-
0.3
0.1
0.7
0.4
2.9
0.3
0.1
0.1
-
3.2
193.6
103.7
52.3
35.9
63.1
293.1
43.3
61.5
15.2
11.2
20.8
38.4
190.4
30.6
21.5
55.4
41.3
29.2
18.2
13.9
46.5
887.0
0.1
2.1
14.9
1.5
3.4
18.6
5.6
3.7
1.6
0.7
0.4
1.2
5.9
1.8
3.0
3.5
9.2
1.1
0.8
2.1
0.5
66.6
-
0.1
3.9
0.2
3.5
3.9
1.2
0.5
0.2
-
-
-
1.7
0.3
0.8
0.4
6.4
0.6
0.1
0.1
-
5.3
187.1
89.0
11.0
27.0
54.9
63.4
30.7
45.1
5.0
8.7
18.4
35.5
29.5
22.5
12.4
44.2
21.5
10.9
16.6
7.6
32.7
138.0
0.1
1.4
2.5
0.7
2.3
3.6
3.0
2.3
0.6
0.4
0.2
1.0
1.4
0.6
2.0
2.0
4.6
0.5
0.6
0.5
0.1
12.4
-
-
0.5
-
3.2
0.1
0.8
0.2
-
-
-
-
0.2
0.1
0.4
-
1.0
0.3
-
-
-
0.9
Total
2,267.3
154.2
42.8
1.3
5.8
13.4 2,266.0
148.5
29.4
911.5
42.6
7.8
Danske Bank / Interim report – first quarter 2020 67/80
Notes – Danske Bank Group
Credit exposure continued
The table below breaks down credit exposure by core business unit and underlying segment.
Credit portfolio in core activities broken down by business unit and stages
31 March 2020
Gross exposure
Expected credit loss
Net exposure
Net exposure, ex collateral
(DKK billions)
Stage 1 Stage 2 Stage 3
Stage 1 Stage 2 Stage 3
Stage 1
Stage 2 Stage 3
Stage 1
Stage 2
Stage 3
512.9
405.1
45.5
48.0
6.1
18.2
0.6
0.4
1.6
2.5
2.6
4.8
512.3
404.8
43.9
45.5
3.5
13.4
60.5
101.3
9.0
11.6
918.1
93.5
24.3
1.0
4.1
7.4
917.1
89.4
16.9
161.8
20.6
Retail
Commercial
Banking DK
Sweden
Norway
Finland
Other
259.6
194.0
154.0
32.8
26.3
21.6
18.4
18.9
1.8
2.4
3.8
0.8
Banking Nordic
640.4
85.2
8.8
C&I1
462.9
35.3
15.7
Wealth Management
4.5
-
-
Northern Ireland
68.0
9.6
1.7
132.5
0.2
-
Other
Total
0.2
0.1
0.1
-
0.3
0.1
-
-
-
0.9
0.4
0.5
0.4
2.2
0.8
0.5
0.4
1.3
0.3
259.4
193.9
153.9
32.8
25.4
21.2
18.0
18.5
1.3
2.0
2.5
0.4
99.0
63.6
41.4
12.4
9.4
7.1
4.0
4.0
2.6
640.1
83.1
6.2
216.4
24.5
4.8
462.8
34.5
10.9
419.2
15.9
-
-
4.5
-
-
1.7
0.3
0.5
67.9
-
-
132.5
9.3
0.2
1.2
36.5
-
132.3
-
2.5
0.2
0.7
2.0
2.8
0.6
0.8
0.8
-
2.1
5.3
-
0.2
-
2,226.4
223.9
50.5
1.5
7.5
15.2
2,224.9
216.4
35.3
967.9
63.7
10.4
1The Corporates & Institutions (C&I) segment comprises large corporate customers and financial institutions. As these customers typically have business activities in multiple countries,
a geographical split is not applicable.
Credit portfolio in core activities broken down by business unit and stages
31 December 2019
Gross exposure
Expected credit loss
Net exposure
Net exposure, ex collateral
(DKK billions)
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
Retail
Commercial
Banking DK
Sweden
Norway
Finland
Other
528.1
446.6
37.8
31.6
5.9
15.8
0.6
0.3
1.5
1.9
2.6
4.9
527.5
446.3
36.3
29.7
3.3
11.0
64.4
126.5
6.2
7.5
974.7
69.4
21.7
0.9
3.4
7.4
973.8
66.0
14.3
191.0
13.7
265.7
229.7
158.3
41.8
23.2
17.9
13.0
11.5
1.4
2.4
3.1
0.6
0.1
0.1
0.1
-
0.6
0.3
0.4
0.3
0.5
0.5
1.1
0.3
265.6
229.6
158.2
41.7
22.6
17.6
12.6
11.2
1.0
1.8
2.0
0.3
98.8
74.2
40.2
14.9
7.8
6.4
2.2
2.6
Banking Nordic
695.4
65.6
7.5
0.3
1.6
2.4
695.2
64.0
5.1
228.1
18.9
C&I1
422.2
13.0
11.7
0.1
0.6
3.0
422.1
12.4
8.7
356.4
7.8
Wealth Management
4.1
-
-
-
-
-
4.1
-
-
1.1
-
0.7
1.4
2.1
0.4
0.5
0.5
-
1.4
4.0
-
Northern Ireland
71.3
6.2
1.8
0.1
0.2
0.5
71.2
6.1
1.3
36.0
2.1
0.3
Other
Total
99.5
0.1
-
-
-
-
99.5
0.1
-
99.0
-
-
2,267.3
154.2
42.8
1.3
5.8
13.4
2,266.0
148.5
29.4
911.5
42.6
7.8
1 The Corporates & Institutions (C&I) segment comprises large corporate customers and financial institutions. As these customers typically have business activities in multiple countries,
a geographical split is not applicable.
Danske Bank / Interim report – first quarter 2020 68/80
Notes – Danske Bank Group
Credit exposure continued
Forbearance practices and repossessed assets
The Group adopts forbearance plans to assist customers in financial difficulty. Concessions granted to customers include interest-reduction schedules,
interest-only schedules, temporary payment holidays, term extensions, cancellation of outstanding fees, waiver of covenant enforcement and settlements.
Forbearance plans must comply with the Group’s Credit Policy. They are used as an instrument to retain long-term business relationships during eco-
nomic downturns if there is a realistic possibility that the customer will be able to meet its obligations again, or are used for minimising losses in the
event of default.
If it proves impossible to improve the customer’s financial situation by forbearance measures, the Group will consider whether to subject the customer’s
assets to a forced sale or whether the assets could be realised later at higher net proceeds. As at 31 March 2020, the Group had recognised properties
taken over in Denmark at a carrying amount of DKK 22 million (31 December 2019: DKK 15 million) and there were no properties taken over in other
countries (31 December 2019: DKK 0 million). The properties are held for sale and included under Other assets in the balance sheet.
Forbearance measures lead to changes in staging for impairment purposes, and impairments relating to forborne exposures are handled according to
the principles described in the Annual Report 2019, note G15.
In 2020, the Group has increased the use of concessions to assist customers affected by the COVID-19 pandemic. This had a limited impact in the first
quarter of 2020 but is expected to lead to increases during the year. The assessment of forbearance measures is described in note G1.
The table below shows the exposures that are subject to forbearance measures and is based on the EBA's definition as described in the Annual Report
2019.
Exposures subject to forbearance measures
(DKK millions)
Active forbearance
Under probation
Total
31 March 2020
31 December 2019
Performing Non-performing1
Performing
Non-performing1
6,240
6,721
12,961
9,438
-
9,438
8,161
4,933
13,094
9,341
-
9,341
1These loans are part of the total non-performing loan amount. For more details, see the “Non-performing loans in core activities” table.
Danske Bank / Interim report – first quarter 2020 69/80
Notes – Danske Bank Group
Credit exposure continued
Non-performing loans
The Group defines non-performing loans as stage 3 exposures. However, for non-retail exposures with one or more non-performing loans, the entire
amount of the customer’s exposure is considered to be non-performing. For retail exposures, only impaired facilities are included in non-performing loans.
The Group excludes exposures in stage 3 with no impairment charges or where the allowance account is considered immaterial to the gross exposure.
The impact of the COVID 19 pandemic on total NPL exposures was limited in Q1 2020 but is expected to increase during the year.
The table below shows the reconciliation as at 31 March 2020 between the gross exposure in stage 3 and gross non-performing loans.
Non-performing loan bridge
(DKK billions)
31 March 2020
31 December 2019
Non-default
Default
Total Non-default
Default
Total
Gross exposure in stage 3
None or an immaterial allowance account
25.2
8.5
25.2
4.7
16.7
6.2
10.5
Gross non-performing loans
Expected credit loss
Net non-performing loans
Non-performing loans in core activities
(DKK millions)
Total non-performing loans
- portion from customers in default1
Coverage ratio (default) (%)
Coverage ratio (non-default) (%)
Coverage ratio (total non-performing loans) (%)
Non-performing loans as a percentage of total gross exposure (%)
1Part of which is also shown in the ”Exposures subject to forbearance measures” table.
Allowance account in core activities
(DKK millions)
ECL allowance account as at 1 January 2019
Transferred to stage 1 during the period
Transferred to stage 2 during the period
Transferred to stage 3 during the period
ECL on new assets
ECL on assets derecognised
Impact of net remeasurement of ECL (incl. changes in models)
Write-offs debited to the allowance account
Foreign exchange adjustments
Other changes
50.5
13.2
37.2
15.2
20.5
9.0
11.5
22.0
21.2
4.1
21.5
3.9
17.1
5.1
12.0
17.6
8.3
9.4
42.8
8.0
34.7
13.4
21.3
31 March 2020 31 December 2019
22,002
11,512
21,346
9,372
70
82
74
1.5
74
85
78
1.4
Stage 1
Stage 2
Stage 3
Total
1,574
784
-357
-34
263
-320
-602
-
4
-7
5,375
-699
1,067
-542
1,174
-1,183
726
-5
22
-27
13,405
-86
-710
576
2,461
-2,875
1,141
-791
82
33
20,353
-
-
-
3,898
-4,377
1,264
-796
109
-
ECL allowance account as at 31 December 2019
1,306
5,908
13,237
20,451
Transferred to stage 1 during the period
Transferred to stage 2 during the period
Transferred to stage 3 during the period
ECL on new assets
ECL on assets derecognised
Impact of net remeasurement of ECL (incl. changes in models)
Write-offs debited to the allowance account
Foreign exchange adjustments
Other changes
296
-154
-4
100
-106
53
-
-19
-5
-274
440
-413
515
-472
2,189
6
-112
-311
-21
-285
417
758
-1,024
2,302
-236
-193
226
-
-
-
1,373
-1,602
4,544
-231
-324
-90
ECL allowance account as at 31 March 2020
1,465
7,476
15,180
24,121
Danske Bank / Interim report – first quarter 2020 70/80
Notes – Danske Bank Group
Credit exposure continued
Allowance account in core activities broken down by segment
(DKK millions)
ECL allowance account as at 1 January 2019
ECL on new assets
ECL on assets derecognised
Impact on remeasurement of ECL (incl. change in models)
Write-offs debited to allowance account
Foreign currency translation
Other changes
Banking DK
12,593
1,631
-2,296
24
-397
-1
109
Banking
Nordic
4,149
935
-1,062
415
-104
13
-13
C&I
2,806
1,278
-843
798
-281
54
-94
ECL allowance account as at 31 December 2019
11,662
4,333
3,718
ECL on new assets
ECL on assets derecognised
Impact on remeasurement of ECL (incl. change in models)
Write-offs debited to allowance account
Foreign currency translation
Other changes
311
-618
1,270
-162
-
3
281
-321
1,011
-53
-220
-1
757
-632
2,081
-11
-74
-93
ECL allowance account as at 31 March 2020
12,466
5,029
5,746
Northern
Ireland
Allowance
account Total
Other
792
52
-172
29
-14
44
-
730
21
-29
175
-4
-28
-
865
12
3
-5
-1
-
-
-1
8
2
-1
7
-1
-2
1
20,353
3,898
-4,377
1,264
-796
109
-
20,451
1,373
-1,602
4,544
-231
-324
-90
14
24,121
The method used for calculating expected credit losses is described in detail in note G15 of the Annual Report 2019.
The incorporation of forward-looking elements reflects the expectations of the Group’s senior management and involves the creation of scenarios (base-
case, upside and downside scenarios), 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 forward-looking information is based on a three-year forecast period converging to steady state in year seven. The base case is based on the macro-
economic outlook as disclosed in the Group’s Nordic Outlook reports. The base-case is an extension of the Group’s official view of the Nordic economies
(the Nordic Outlook report). For Q1 2020, this is based on a recession scenario in 2020 with a recovery in 2021. This base case is more negative than
the scenario applied in Q4 2019, despite including expectations of substantial government support packages mitigate the macroeconomic impacts from
the COVID-19 pandemic. A further severe downside scenario is introduced as the new downside scenario with a likelihood of 25%, to reflect the risk that
government support packages are not sufficient to sustain the recovery. This scenario builds on a prolonged recovery with continued declines in economic
activity in 2021.
Forecasts are produced for the coming three years. After this period, the outlook returns to a steady-state level after a further four years. The macroe-
conomic parameters in the base case and the severe recession scenario (the new downside scenario) entering into the ECL calculation for the first two
years of the forecast horizon as an average across the Group’s core markets are included below. The base case scenario reflects a decline in economic
activity in 2020 followed by a recovery in 2021 supported by government support packages. The downside scenario reflects the risk that government
support packages are not sufficient to sustain the recovery. This scenario includes substantial increases in unemployment and decreases in house prices.
31 March 2020
Group average
GDP
Industrial Production
Unemployment
Inflation
Consumption Expenditure
Property prices - Residential
Interest rate - 3 month
Interest rate - 10 year
Base case
2020
-0.13
-0.30
6.23
0.95
0.15
-2.13
-0.38
-0.45
2021
1.55
2.88
6.08
1.38
0.75
-0.35
-0.02
-0.13
Severe recession
2020
-4.20
-6.30
7.33
-0.20
-2.48
-13.13
-0.39
-0.90
2021
-1.48
-2.21
8.35
-0.68
-0.68
-8.25
-0.49
-0.95
After the first two years of the forecast horizon, the macroeconomic scenarios revert slowly towards a long-term average.
The upside scenario represents a better outlook than the base case scenario across the macroeconomic parameters and assumes a recovery already
in 2020, mainly to capture uncertainty to the upside.
Danske Bank / Interim report – first quarter 2020 71/80
Notes – Danske Bank Group
Credit exposure continued
At 31 December 2019, the following scenarios were used:
Base case scenario – average 2020-2022
Denmark
Finland
Norway
Sweden
GDP
Industrial Production
Unemployment
Inflation
Private Consumption Expenditure
Property prices - Residential
Interest rate - 3 month
Interest rate - 10 year
1.5
2.9
4.0
1.4
1.7
2.9
-0.36
-0.48
1.2
1.4
6.5
1.5
1.1
1.1
-0.41
-0.23
2.2
2.8
2.2
2.1
2.2
2.4
2.04
1.34
1.2
1.7
7.6
1.6
1.5
1.8
-0.16
-0.05
At 31 December 2019, the upside scenario represents a slightly better outlook than the base case scenario across the macroeconomic parameters,
mainly to capture uncertainty to the upside and the downside scenario is based on a mild recession in the first year of the forecast horizon with a gradual
recovery after that.
The base-case scenario enters with a probability of 65% (31 December 2019: 60%), the upside scenario with a probability of 10% (31 December 2019:
10%) and the downside scenario with a probability of 25% (31 December 2019: 30%). On the basis of these assessments, the allowance account as at
31 March 2020 amounted to DKK 24.1 billion (31 December 2019: 20.5 billion). If the base case scenario was assigned a probability of 100%, the
allowance account would decrease DKK 1.6 billion (31 December 2019: 0.7 billion). Compared to the base case scenario, the allowance account would
increase DKK 7.3 billion (31 December 2019: 2.4 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 by DKK 2.3 billion (31 December 2019: 0.5 billion) compared to the base-case scenario.
However, note that the applied scenarios differ from the scenarios used at 31 December 2019, and the changes in sensitivities from end of 2019 to end
of the first quarter 2020 are therefore not directly comparable. Further, it should be noted that the expected credit losses in the individual scenarios (i.e.
without the weighting) do not represent forecasts of expected credit losses (ECL).
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. 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 the
lifetime PD was considered a significant increase in credit risk, the allowance account would increase by DKK 0.03 billion (31 December 2019: DKK 0.0
billion).
The Group applies post-model adjustments of DKK 4.0 billion (31 December 2019: 4.0 billion). Around half of all the adjustments relate to high-risk
industries, such as agriculture as well as oil and gas within the Group’s shipping, oil and 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. Such adjustments are also
introduced in Q1 2020 to capture the immediate effects on industries most clearly affected by the COVID-19 pandemic. Remaining adjustments are
made to take into account non-linear downside risks, such as the property market in Copenhagen for which 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 exists for properties in Copenhagen. Finally, post-model adjustments are made for portfolios where the credit risk process has identified under-
estimation of the expected credit losses. Excluding the post-model adjustment related to the COVID-19 pandemic, the post-model adjustments decreased
from 31 December 2019 to 31 March 2020 as part of the post-model adjustments at 31 December 2019 are now covered through the scenarios used
at 31 March 2020 to reflect the worsening of the macroeconomic outlooks in Q1 2020.
Danske Bank / Interim report – first quarter 2020 72/80
Notes – Danske Bank Group
Credit exposure continued
Credit exposure from Non-core lending activities
The Non-core business unit 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.
In December 2019 and January 2020, the Group entered into agreements to sell portfolios of loans of DKK 938 million of personal customers in Latvia and
Lithuania. The transaction on the sale of the portfolio in Latvia settled in the first quarter of 2020, while the transaction on the sale of the portfolio in Lithuania
is expected to settle in the second quarter of 2020. Further information can be found in note G9.
Credit portfolio in non-core activities broken down by industry (NACE) and stages
(DKK millions)
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
Gross exposure
Expected credit loss
Net exposure
Net exposure, ex collateral
Non-core banking
Personal customers
Commercial customers
Public Institutions
Non-core conduits etc.
5,318
725
3,027
1,566
2,893
321
110
186
24
-
367
49
318
-
876
Total
8,212
321
1,243
6
1
5
-
-
7
42
11
31
-
-
211
8
203
-
732
5,312
724
3,022
1,566
2,893
279
99
155
24
-
155
41
115
-
144
3,341
724
1,167
1,450
293
175
94
59
23
-
42
944
8,205
279
299
3,634
175
-
-
-
-
-
-
Credit portfolio in non-core activities broken down by industry (NACE) and stages
31 December 2019
(DKK millions)
Non-core banking
Personal customers
Commercial customers
Public Institutions
Non-core conduits etc.
Gross exposure
Expected credit loss
Net exposure
Net exposure, ex collateral
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
6,247
976
3,327
1,944
3,340
308
24
254
30
141
320
4
316
-
908
10
3
7
-
-
10
55
17
37
-
-
157
-
156
-
639
6,236
973
3,320
1,944
3,340
253
7
216
30
141
163
3
160
-
268
3,284
25
1,609
1,650
578
105
-
78
26
-
55
796
9,576
394
432
3,862
104
35
1
34
-
-
35
Total
9,586
449
1,228
Danske Bank / Interim report – first quarter 2020 73/80
Notes – Danske Bank Group
Credit exposure continued
Credit portfolio in non-core activities broken down by rating category and stages
(DKK millions)
Upper
PD level
Net exposure, ex collateral
Lower Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
Expected credit loss
Gross exposure
Net exposure
1
2
3
4
5
6
7
8
9
10
11 (default)
Total
-
0.01
0.03
0.06
0.14
0.31
0.63
1.90
7.98
25.70
0.01
0.03
0.06
0.14
0.31
0.63
1.90
7.98
25.70
99.99
100.00 100.00
137
1,581
2,445
1,126
1,176
598
505
257
61
11
316
-
25
63
38
62
31
33
36
17
1
16
-
14
35
21
34
17
15
35
2
13
1,056
8,212
321
1,243
-
-
-
1
1
2
1
1
-
-
-
7
-
-
-
-
-
-
6
22
13
-
-
-
-
-
-
-
-
-
27
-
13
904
137
1,581
2,444
1,125
1,175
596
503
256
61
11
316
-
25
63
38
62
31
26
14
3
1
16
-
14
35
21
34
17
15
8
2
-
153
-
473
1,020
663
571
290
268
164
5
79
99
-
25
51
24
32
16
15
4
-
5
6
42
944
8,205
279
299
3,634
175
-
-
-
-
-
-
-
-
-
-
-
-
Credit portfolio in non-core activities broken down by rating category and stages
31 December 2019
(DKK millions)
1
2
3
4
5
6
7
8
9
10
11 (default)
Total
PD level
Net exposure, ex collateral
Lower Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
Expected credit loss
Gross exposure
Net exposure
Upper
-
0.01
0.03
0.06
0.14
0.31
0.63
1.90
7.98
25.70
0.01
0.03
0.06
0.14
0.31
0.63
1.90
7.98
25.70
99.99
100.00 100.00
137
1,793
2,773
1,670
1,279
743
482
215
66
50
379
-
26
60
39
52
28
29
35
21
146
15
-
17
39
26
34
18
17
2
2
7
1,067
-
-
-
1
2
3
3
2
-
-
-
-
-
-
-
-
-
6
30
18
-
-
-
-
-
-
-
-
5
-
-
3
788
137
1,793
2,773
1,669
1,277
740
479
212
66
50
379
-
26
60
39
52
28
23
4
3
146
15
-
17
39
26
34
18
12
2
2
4
278
-
639
1,333
683
475
143
113
131
44
-
300
-
26
49
-
13
1
2
-
2
-
11
-
14
14
-
6
-
-
-
1
-
-
9,586
449
1,228
10
55
796
9,576
394
432
3,862
104
35
Notes – Danske Bank Group
Credit exposure continued
Counterparty credit risk and credit exposure from trading and investment securities
(DKK billions)
Counterparty credit risk
Derivatives with positive fair value
Reverse transactions and other loans at fair value1
Credit exposure from other trading and investment securities
Bonds
Shares
Other unutilised commitments2
Total
Danske Bank / Interim report – first quarter 2020 74/80
31 March 31 December
2019
2020
448.7
334.7
539.0
11.7
0.2
294.0
343.1
472.5
13.7
0.3
1,334.3
1,123.6
1 Reverse transactions and other loans at fair value included as counterparty credit risk are loans at the trading units of Corporates & Institutions. These loans consist of reverse transactions of
DKK 333.8 billion (31 December 2019: DKK 342.0 billion), of which DKK 41.1 billion relates to credit institutions and central banks (31 December 2019: DKK 23.6 billion), and other primarily
short-term loans of DKK 0.9 billion ((31 December 2019: DKK 1.1 billion), of which DKK 0.3 billion (31 December 2019: DKK 0 billion) relates to credit institutions and central banks.
2 Other unutilised commitments comprise private equity investment commitments and other obligations.
Derivatives with positive fair value
(DKK millions)
Derivatives with positive fair value before netting
Netting (under accounting rules)
Carrying amount
Netting (under capital adequacy rules)
Net current exposure
Collateral
Net amount
Derivatives with positive fair value after netting for accounting purposes:
Interest rate contracts
Currency contracts
Other contracts
31 March
2020
31 December
2019
910,863
462,148
448,715
323,475
125,240
84,686
622,353
328,372
293,980
217,620
76,361
42,189
40,555
34,172
296,060
148,644
4,011
228,427
64,374
1,178
448,715
293,980
Total
Bond portfolio
(DKK millions)
31 March 2020
Held-for-trading (FVPL)
Managed at fair value (FVPL)
Held to collect and sell (FVOCI)
Held to collect (AMC)
Central and
local govern-
ment bonds
Quasi-
government
bonds
Danish
mortgage
bonds
Swedish
covered
bonds
Other
covered
bonds
Corporate
bonds
123,278
13,532
13,930
36,353
2,175
417
2,342
1,143
57,959
33,201
80,544
84,486
47,377
2,552
8,028
6,838
3,690
458
3,997
1,702
12,776
1,082
920
187
Total
247,255
51,242
109,761
130,709
Total
187,093
6,077
256,190
64,796
9,847
14,965
538,967
31 December 2019
Held-for-trading (FVPL)
Managed at fair value (FVPL)
Held to collect and sell (FVOCI)
Held to collect (AMC)
96,642
9,520
9,737
36,972
1,549
631
1,550
854
52,694
40,151
83,474
73,847
27,206
3,066
8,589
7,211
3,510
458
4,164
2,021
7,511
561
445
187
189,112
54,387
107,959
121,092
Total
152,872
4,583
250,166
46,072
10,152
8,705
472,550
At 31 March 2020, the Group had an additional bond portfolio, including bond-based unit trust certificates, worth DKK 206,062 million (31 December
2019: DKK 196,918 million) recognised as assets under insurance contracts and thus not included in the table above. The section on insurance risk on
the Annual Report 2019 provides more information. For bonds classified as hold-to-collect, fair value exceeded amortised cost as at 31 March 2020
and 31 December 2019.
Danske Bank / Interim report – first quarter 2020 75/80
Notes – Danske Bank Group
Bond portfolio continued
Bond portfolio broken down by geographical area
(DKK millions)
31 March 2020
Denmark
Sweden
UK
Norway
USA
Spain
France
Luxembourg
Finland
Ireland
Italy
Portugal
Austria
Netherlands
Germany
Belgium
Other
Total
31 December 2019
Denmark
Sweden
UK
Norway
USA
Spain
France
Luxembourg
Finland
Ireland
Italy
Portugal
Austria
Netherlands
Germany
Belgium
Other
Total
Central and
local govern-
ment bonds
Quasi-
government
bonds
Danish
mortgage
bonds
Swedish
covered
bonds
Other
covered
bonds
Corporate
bonds
36,167
28,105
4,844
9,345
20,402
7,672
11,826
-
13,264
9,917
6,501
540
6,593
8,215
16,321
7,381
-
-
-
-
-
1,027
-
-
4,233
618
-
-
-
-
-
-
5
194
256,190
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
64,796
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1
1,571
6,222
-
1
201
-
635
4
-
-
-
18
833
6
354
1,769
5,368
1,299
3,180
9
5
19
14
1,769
38
7
-
22
379
295
-
791
Total
294,126
98,270
7,714
18,747
21,438
7,678
12,046
4,247
16,286
9,959
6,508
540
6,615
8,612
17,449
7,392
1,339
187,093
6,077
256,190
64,796
9,847
14,965
538,967
30,552
24,040
5,237
5,416
21,213
7,396
10,176
-
8,483
7,978
5,334
272
4,041
4,718
16,787
1,228
-
-
1
-
-
1,105
-
-
2,597
635
-
-
-
-
-
-
-
243
250,166
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
46,072
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,546
5,774
-
1
384
-
829
4
-
-
-
119
1,343
6
145
827
2,415
824
2,908
12
4
22
1
704
6
7
-
2
256
154
5
559
281,545
72,528
7,608
14,098
22,330
7,401
10,582
2,599
10,651
7,989
5,341
272
4,043
5,093
18,284
1,239
947
152,872
4,583
250,166
46,072
10,152
8,705
472,550
Danske Bank / Interim report – first quarter 2020 76/80
Notes – Danske Bank Group
Bond portfolio continued
Bond portfolio broken down by external ratings
(DKK millions)
31 March 2020
AAA
AA+
AA
AA-
A+
A
A-
BBB+
BBB
BBB-
BB+
BB
BB-
Sub-inv. grade or unrated
Total
31 December 2019
AAA
AA+
AA
AA-
A+
A
A-
BBB+
BBB
BBB-
BB+
BB
BB-
Sub-inv. grade or unrated
Total
Central and
local govern-
ment bonds
Quasi-
government
bonds
Danish
mortgage
bonds
Swedish
covered
bonds
Other
covered
bonds
Corporate
bonds
117,088
12,975
29,928
2,476
-
11,075
-
6,513
807
6,223
8
-
-
-
5,694
88
295
-
-
-
-
-
-
-
-
-
-
-
256,074
-
-
-
-
77
-
-
39
-
-
-
-
-
64,793
-
3
-
-
-
-
-
-
-
-
-
-
-
8,925
230
669
-
-
5
-
-
-
-
-
-
-
19
1,089
3
2,136
673
589
4,337
1,635
1,373
2,088
385
352
176
15
113
Total
453,663
13,296
33,031
3,149
589
15,494
1,635
7,886
2,934
6,608
360
176
15
132
187,093
6,077
256,190
64,796
9,847
14,965
538,967
101,484
10,941
18,235
1,224
-
8,434
-
6,940
376
5,224
7
-
-
8
4,354
3
225
-
-
-
-
-
-
-
-
-
-
-
250,107
-
-
-
-
4
15
-
39
-
-
-
-
-
46,070
-
3
-
-
-
-
-
-
-
-
-
-
-
8,876
734
531
-
-
5
-
-
-
-
-
-
-
7
597
4
1,133
437
459
2,315
1,228
408
1,138
321
285
148
1
231
411,487
11,682
20,127
1,661
459
10,758
1,243
7,348
1,553
5,545
292
148
1
246
152,872
4,583
250,166
46,072
10,152
8,705
472,550
Danske Bank / Interim report – first quarter 2020 77/80
Notes – Danske Bank Group
Market risk
The notes on market risk provides an update on the 2019 Annual report where it has been assessed that an update is required as a result of the COVID-
19 pandemic.
Trading-related market risk at Corporates & Institutions
The trading-related activities at Corporates & Institutions cover trading in fixed income products, derivatives, foreign exchange, money markets, debt capital
markets and equities. Corporates & Institutions acts mainly as a market maker processing large client flows.
The table below shows the VaR for the trading-related activities at Corporates & Institutions.
Value-at-Risk for trading-related activities at C&I
(DKK millions)
Total
Q1 2020
2019
Average
End of period
Average
End of year
26
43
26
26
In the first quarter of 2020, the average trading-related market risk was unchanged at DKK 26 million compared to the average for 2019. However, the
market risk increased to a medium level in March 2020 due to the market turmoil caused by the COVID-19 pandemic. The increase was primarily related
to an increase in bond spread risk and interest rate risk.
Market risk in the banking book
The Group’s total interest rate sensitivity in the banking book (economic value-based measure) measured as the change in the net present value of assets,
liabilities and off-balance sheet items in the banking book subject to a parallel interest rate curve shift of +100bp and -100bp is shown in the table below.
The net risk position decreased from DKK 2.7 billion as at 31 December 2019 to DKK 0.8 billion as at 31 March 2020. The decrease is primarily due to
changes in the volume of floored deposits combined with model changes on the duration of certain demand deposits (net reducing the interest rate risk
on liabilities) and increases in the average duration of the liquidity buffer bond portfolio (increasing the interest rate risk on assets).
Interest rate risk in the banking book (a parallel yield curve shift of 100 points)
At last business day (DKK millions)
+100bp
-100bp
+100bp
-100bp
Total
2,086
-829
4,433
-2,681
31 March 2020
31 December 2019
Earnings-at-Risk (EaR) is a regulatory measure that seeks to stress the net interest income under a number of different scenarios using defined param-
eters. Using a parallel downward yield curve shift of 1%, the Group’s Earnings-at-Risk would be DKK 367 million lower than the base scenario as at 31
March 2020 (31 December 2019: DKK 6 million higher than a base scenario calculation).
The Group uses a credit spread risk in the banking book measure based upon a 10-day 99% VaR approach. Due to the volatility experienced during
March, this measure increased to DKK 274 million as at 31 March (31 December 2019: DKK 99 million).
Danske Bank / Interim report – first quarter 2020 78/80
Statement by the management
The Board of Directors and the Executive Leadership Team (the management) have considered and approved Interim report – first
quarter 2020 of the Danske Bank Group.
The interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the EU.
Furthermore, the interim report has been prepared in accordance with Danish disclosure requirements for interim reports of listed
financial institutions.
In our opinion, the interim financial statements give a true and fair view of the Group’s assets, liabilities, total equity and financial
position at 31 March 2020 and of the results of the Group’s operations and the consolidated cash flows for the period starting on
1 January 2020 and ending on 31 March 2020. Moreover, in our opinion, the management’s report includes a fair review of
developments in the Group’s operations and financial position and describes the significant risks and uncertainty factors that may
affect the Group
Copenhagen, 30 April 2020
Executive Leadership Team
Chris Vogelzang
CEO
Jacob Aarup-Andersen
Berit Behring
Stephan Engels
Carsten Rasch Egeriis
Jakob Groot
Glenn Söderholm
Philippe Vollot
Frans Woelders
Board of Directors
Karsten Dybvad
Chairman
Carol Sergeant
Vice Chairman
Jan Thorsgaard Nielsen
Vice Chairman
Bente Avnung Landsnes
Lars-Erik Brenøe
Christian Sagild
Gerrit Zalm
Bente Bang
Elected by the employees
Kirsten Ebbe Brich
Elected by the employees
Thorbjørn Lundholm Dahl
Elected by the employees
Charlotte Hoffmann
Elected by the employees
Danske Bank / Interim report – first quarter 2020 79/80
Independent auditors’ review report
To the shareholders of Danske Bank A/S
Independent auditors’ review report on the consolidated interim financial statements
We have reviewed the consolidated interim financial statements of Danske Bank A/S for the financial period 1 January to 31 March
2020, pp. 32-77 which comprise the income statement, statement of comprehensive income, balance sheet, statement of capital,
cash flow statement and notes.
Management’s responsibility for the consolidated interim financial statements
Management is responsible for the preparation of the consolidated interim financial statements in accordance with IAS 34 Interim
Financial Reporting as adopted by the EU and Danish disclosure requirements for listed financial companies, and for such internal
control as Management determines is necessary to enable the preparation of consolidated interim financial statements that are
free from material misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express a conclusion on the consolidated interim financial statements. We conducted our review in
accordance with the International Standard on Engagements to Review Interim Financial Information Performed by the Independent
Auditor of the Entity and additional requirements under Danish audit regulation. This requires us to conclude whether anything has
come to our attention that causes us to believe that the consolidated interim financial statements, taken as a whole, have not been
prepared, in all material respects, in accordance with the applicable financial reporting framework. This also requires us to comply
with relevant ethical requirements.
A review of financial statements in accordance with the International Standard on Engagements to Review Interim Financial
Information Performed by the Independent Auditor of the Entity is a limited assurance engagement. The auditor performs
procedures primarily consisting of inquiries of management and others within the entity, as appropriate, and applying analytical
procedures, and evaluates the evidence obtained.
The procedures performed in a review is substantially less in scope than those performed in an audit conducted in accordance with
International Standards on Auditing. Accordingly, we do not express an audit opinion on these consolidated interim financial
statements.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the consolidated interim financial statements
for the financial period 1 January to 31 March 2020 have not been prepared, in all material respects, in accordance with IAS 34
Interim Financial Reporting as adopted by the EU and Danish disclosure requirements for listed financial companies.
Emphasis of matter
We draw attention to note G1 to the consolidated interim financial statements which describes the uncertainty related to the
financial impacts of COVID-19 on the measurement of the group’s exposures.
We also draw attention to note G12 to the consolidated interim financial statements that includes a description of the contingent
liability regarding the uncertainty as to the outcome of the investigations by the authorities in Estonia, Denmark, France and the
USA into the terminated non-resident portfolio at Danske Bank’s Estonian Branch.
We agree to the accounting treatment of these matters in the consolidated interim financial statements, and accordingly our
conclusion is not modified.
Copenhagen, 30 April 2020
Deloitte
Statsautoriseret Revisionspartnerselskab
Business Registration No. 33 95 35 56
Erik Holst Jørgensen
State-Authorised
Public Accountant
Identification No
(MNE) mne9943
Jens Ringbæk
State-Authorised
Public Accountant
Identification No
(MNE) mne27735
Supplementary information
Danske Bank / Interim report – first quarter 2020 80/80
Financial calendar
TBD
17 July 2020
4 November 2020
Contacts
Stefan Engels
Chief Financial Officer
Claus Ingar Jensen
Head of Investor Relations
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