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
3
4
5
9
11
13
15
17
18
19
Income statement
Statement of comprehensive income
Balance sheet
Statement of capital
Cash flow statement
Notes
Statements
Statement by the management
Supplementary information
22
23
24
25
27
28
61
62
Danske Bank / Interim report – first nine months 2020 3/62
Q2
2020
Index
Q3/Q2
Q3
2019
Index
20/19
Full year
2019
Financial highlights – Danske Bank Group
Income statement
(DKK millions)
Net interest income
Net fee income
Net trading income
Other income
Total income
Operating expenses
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
Q1-Q3
2019
Index
20/19
Q1-Q3
2020
16,498
10,680
3,763
482
31,423
20,409
-
11,014
6,287
4,727
-483
4,244
1,105
16,336
10,761
3,723
2,009
32,829
19,206
-
13,623
813
12,810
-248
12,562
2,531
101
99
101
24
96
106
-
81
-
37
195
34
44
31
74
Q3
2020
5,509
3,369
1,463
202
10,543
6,692
-
3,851
1,018
2,833
-37
2,795
692
5,510
3,638
2,009
117
11,274
6,953
-
4,321
1,018
3,304
-192
3,112
787
100
93
73
173
94
96
-
89
100
86
19
90
88
90
97
5,445
3,703
1,121
226
10,495
6,382
-
4,113
343
3,771
22
3,793
782
3,011
197
101
91
131
89
100
105
-
94
297
75
-
74
88
70
59
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
786
Attributable to additional tier 1 etc.
433
587
3,139
10,031
2,103
2,325
117
121
*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
39,224
301,693
84,013
374,852
1,801,438 1,817,630
612,071
285,920
527,979
11,417
248,837
674,422
300,304
510,008
4,541
396,405
39,224
301,693
42,550
47
80
336,669
99 1,801,438 1,822,545
655,578
298,758
523,427
4,815
377,261
674,422
300,304
510,008
4,541
396,405
110
105
97
40
159
84,013
92
90
374,852
99 1,817,630
612,071
285,920
527,979
11,417
248,837
103
101
97
94
105
81,941
47
80
346,708
99 1,821,309
495,313
284,873
463,816
7,519
259,571
110
105
97
40
159
Total assets
4,028,035 3,962,718
102 4,028,035 4,061,603
99 3,962,718
102 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
109,384
240,209
1,128,720
772,670
368,553
499,121
550,564
4,331
153,245
35,014
8,690
157,534
128,422
269,399
926,318
813,893
368,282
541,773
563,835
4,917
154,467
25,948
14,400
151,064
85
89
109,384
240,209
94,876
297,949
122 1,128,720 1,092,735
749,168
373,196
541,912
560,512
2,712
152,253
31,790
8,573
155,927
772,670
368,553
499,121
550,564
4,331
153,245
35,014
8,690
157,534
95
100
92
98
88
99
135
60
104
115
81
103
103
99
92
98
160
101
110
101
101
128,422
269,399
926,318
813,893
368,282
541,773
563,835
4,917
154,467
25,948
14,400
151,064
85
89
122
95
100
92
98
88
99
135
60
104
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
4,028,035 3,962,718
102 4,028,035 4,061,603
99 3,962,718
102 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 de-
posits
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)
-
3.2
2.3
0.76
64.9
23.3
18.2
86.1
184.8
22,582
-
11.1
8.5
0.80
58.5
21.0
16.4
95.4
176.9
21,960
-
2.3
5.1
0.74
63.5
23.3
18.2
86.1
184.8
22,582
-
2.6
5.7
0.76
61.7
22.1
17.6
88.3
182.9
22,191
-
-
-
-
-
-
-
-
-
102
-
3.3
7.6
0.79
60.8
21.0
16.4
95.4
176.9
21,960
-
-
-
-
-
-
-
-
-
103
-
16.7
9.6
0.80
64.8
22.7
17.3
107.8
183.1
22,006
103
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 20.
Executive summary
Steady progress in a challenging environment
Despite the outbreak of the coronavirus pandemic in the
spring and the subsequent lockdown of societies, the Nordic
economies held up relatively well in the first nine months of
2020, and our underlying business remained stable. We
have seen good business activity in the first nine months,
driven primarily by Banking Nordic and large corporate
customers. Visibility regarding the global economic recovery
is still limited, however, and many uncertainties remain. But
with strong capital and liquidity positions, Danske Bank is well
prepared to face these uncertainties and to continue to
support our customers.
income and net trading
Our net interest income for the first nine months reflects the
steady progress in our business and was slightly higher than
level, despite a challenging business
the year-earlier
environment. Net fee
income
maintained the good momentum from last year, despite
lower remortgaging activity and difficult
significantly
conditions in the financial markets in the beginning of the
period. Excluding a positive effect from one-offs in 2019, total
income was on par with income in the first nine months of
2019. Given the continuous increase in deposits in a low-rate
environment, we have announced initiatives to adapt to
current market conditions.
We are seeing the effect of our cost management initiatives,
and costs were lower in the third quarter than in the second
quarter. Costs in the first nine months came in higher than in
the same period the year before as a result of the planned
costs for the Better Bank transformation as well as costs for
ongoing compliance remediation and the Estonia case. To
make sure that we can continue to be competitive in a low-
rate and low-margin environment, we have announced that
we are discontinuing up to 1,600 positions over the next 6-
12 months. Part of the reduction is expected to be achieved
things, voluntary redundancy
through, among other
agreements and natural attrition. Reducing the cost base is a
key part of our 2023 plan to become a better bank.
Credit quality remained overall strong, and the level of
impairments was due primarily to our timely approach and
adaptation to the macroeconomic and sector effects of the
coronavirus pandemic as well as charges against oil-related
exposures. Overall, our results were affected by post-model
adjustments of DKK 2.0 billion as we continue our cautious
approach to risks and visibility is limited.
Overall, Danske Bank posted a net profit of DKK 3.1 billion for
the first nine months of 2020, against a net profit of
DKK 10.0 billion for the same period in the year before,
which, however, included a DKK 1.3 billion one-off gain from
the sale of Danica Pension Sweden in the second quarter of
2019. The return on shareholders’ equity was 2.3%, against
8.5% in the first nine months of 2019.
Danske Bank / Interim report – first nine months 2020 4/62
On 25 August, we announced changes to the organisation
and to the Executive Leadership Team (ELT). The aim of the
redesigned organisation is to reduce complexity, increase
efficiency and become even more competitive for our
customers. Going forward, our commercial activities will be
organised in two business units, Personal & Business
Customers headed by Glenn Söderholm and Large
Corporates & Institutions headed by Berit Behring. On 8
October, we also announced that we are establishing a new
Commercial Leadership Team (CLT), comprising 12 senior
leaders from across the business in addition to the ELT.
In the first nine months of 2020, we started an agile
transformation project called ‘Better Ways of Working’ to
change the way in which we work at Danske Bank. The aim is
to enable us to respond better and faster to customers'
changing expectations, ensure a better and more digital
customer experience as well as to bring down costs. The
changes will directly affect more than 4,000 employees
across Danske Bank.
We have also begun to significantly simplify the product
offering at Banking Nordic, streamlining and aligning our
portfolio across Norway, Sweden and Finland. This will make
it even easier to become a customer at Danske Bank and for
customers to do their day-to-day banking with us.
We continued to make progress on digitalising our know-
your-customer and ongoing due diligence processes in order
to reduce costs and to improve the customer experience.
Estonia
Our internal investigation into the non-resident portfolio at
the now closed Estonian branch is progressing as planned,
and we still expect to finish our investigation in the fourth
quarter of 2020. We continue to be in close dialogue with
authorities in Denmark, the US, Estonia and France, however,
we remain unable to estimate any potential outcome of these
dialogues. This, as well as timing, remains uncertain.
Outlook for 2020
The outlook has been updated. As stated in company
announcement no. 11 of 27 October 2020, we now expect a
net profit of DKK 4-4.5 billion. Previously, we guided for a full-
year net profit of at least DKK 3 billion.
is based on generally
The upward revision
improved
developments in the financial markets, continually good
progress in the underlying business as well as lower costs.
We now expect costs, including the planned costs for the
Better Bank transformation, to amount to around DKK 28
billion, against our previous guidance of DKK 28-29 billion.
We maintain our ambition for a return on shareholders’
equity of 9-10% in 2023.
Better Bank update
We continue to make tangible progress on our journey
towards becoming a better bank for all our stakeholders.
The outlook is subject to uncertainty and depends on
economic conditions,
including government support
packages.
Financial review
loan
First nine months 2020 vs first nine months 2019
Profit before
impairment charges decreased to
DKK 11.0 billion (Q1-Q3 2019: DKK 13.6 billion), mainly
because profit for the first nine months of 2019 benefited
from the DKK 1.3 billion gain from the sale of Danica Pension
Sweden. Further, operating expenses increased DKK 1.2
billion, due primarily to the planned costs for the Better Bank
transformation, ongoing compliance remediation and costs
relating to the Estonia case.
Profit before tax was also affected by the corona crisis,
primarily in the form of loan impairment charges, which
increased to DKK 6.3 billion (Q1-Q3 2019: DKK 0.8 billion).
Income
Net interest income increased 1% to DKK 16.5 billion (Q1-
Q3 2019: DKK 16.3 billion) due to higher income from
lending and deposit volumes. There was also a positive effect
from structural changes to the Group’s funding and liquidity
management and from an improvement in deposit margins
due to higher short-term market rates. The positive
developments were partly offset by adverse exchange-rate
developments, higher capital and long-term funding costs,
lending
due primarily to MREL compliance, and lower
margins.
Net fee income decreased to DKK 10.7 billion (Q1-Q3 2019:
DKK 10.8 billion), due primarily to the effects of the corona
crisis at Banking DK and at the Northern Ireland unit. The
negative effects were partly offset by an increase in net fee
income at Wealth Management, Danica Pension, due to
higher risk allowance fees and positive results from, for
example, the health and accident business. Further, net fee
income in the first nine months of 2019 was affected by the
compensation paid to customers in relation to the Flexinvest
Fri product, the effect of which was partly offset by high
remortgaging activity.
Net trading income increased 1% to DKK 3.8 billion (Q1-Q3
2019: DKK 3.7 billion). The increase was due to higher net
trading income at Corporates & Institutions, FI&C, including
positive developments in value adjustments (xVA), which
more than offset a decrease in net trading income at Wealth
Management, Danica Pension, caused by market
developments and a decrease in the interest yield curve,
which affected the investment result in the health and
accident business.
Other income amounted to DKK 0.5 billion (Q1-Q3 2019:
DKK 2.0 billion). Other income in the first nine months of
2019 benefited from the DKK 1.3 billion gain from the sale of
Danica Pension Sweden.
Expenses
Operating expenses amounted to DKK 20.4 billion (Q1-Q3
2019: DKK 19.2 billion). The increase from the year-earlier
period was due primarily to the planned costs for the Better
Bank transformation, ongoing compliance remediation and
costs relating to the Estonia case. The effect of our
Danske Bank / Interim report – first nine months 2020 5/62
transformation efforts are, however, beginning to show, as
costs showed a downward trend in the third quarter of 2020
from the level in the second quarter of 2020.
Loan impairments
Loan impairments in core activities amounted to DKK 6.3
billion (Q1-Q3 2019: DKK 0.8 billion). On the basis of timely
estimates applied in the Group’s impairment process, loan
impairments include a charge of DKK 2.2 billion to cover the
effects of the limited visibility caused by the corona crisis. The
impairments are a combination of specific adjustments for
industries expected to be impacted by the corona crisis and
charges due to the updating of macroeconomic scenarios.
Impairments relating to specific customers amounted to
DKK 4.1 billion, of which a part also relates to the corona
crisis. This includes charges regarding the oil and gas
industry, due mainly to continued uncertainty in the offshore
segment. Despite the above, credit quality remained overall
strong.
Corporates & Institutions saw loan impairments primarily
against single-name exposures, mainly in the oil and gas
industry and, to a smaller extent, in the retailing industry.
in total
Banking Nordic was affected by an
impairments following impairments made against single-
name exposures and the changed macroeconomic outlook.
At Banking DK, charges were driven by the continued limited
visibility relating to the effects of the corona crisis, however,
with limited credit deterioration observed.
increase
Loan impairment charges
Q1-Q3 2020
Q1-Q3 2019
(DKK millions)
Charges
% of net
credit
exposure1
% of net
credit
exposure1
Charges
Banking DK
Banking Nordic
C&I
Northern Ireland
Other Activities
Total
837
1,472
3,676
295
7
6,287
0.12
0.31
2.05
0.72
0.17
0.44
-82
-1
889
11
-4
813
-0.01
-0.00
0.50
0.03
-0.07
0.06
1 Relating to lending activities in core segments.
Q3 2020 vs Q2 2020
Profit before loan impairment charges decreased to DKK 3.9
billion (Q2 2020: DKK 4.3 billion). The decrease was due to
decreases in net trading income and net fee income. A
decline in operating expenses had a partly offsetting effect.
Net interest income was stable from the second to the third
quarter. Net interest income increased due to reduced
deposit rates, higher deposit volumes, a positive effect from
the number of interest days in the quarter, an increase in
amortisation of loan origination fees as well as positive
exchange rate developments. These effects were offset by
lower deposit margins as a result of the normalisation of
short-term market rates, lower lending volumes as well as
higher capital and long-term funding costs.
Net fee income amounted to DKK 3.4 billion, a decrease of
7%. Net fee income in the second quarter benefited from
extraordinarily high income at Wealth Management, Danica
Pension, due primarily to income related to products with
investment guarantees. Net fee income also decreased from
the second to the third quarter as a result of lower income
from equities at Corporates & Institutions, Capital Markets.
Net trading income decreased to DKK 1.5 billion from
DKK 2.0 billion in the second quarter. The decrease was due
to normalisation
financial markets affecting
Corporates & Institutions, FI&C, and a decrease in net trading
income at Wealth Management, Danica Pension, due to
market developments.
the
in
Operating expenses amounted to DKK 6.7 billion, a decrease
of 4%. The decrease was due to the Group’s continued focus
on costs and its transformation efforts as well as seasonality.
Loan impairments were stable at DKK 1.0 billion (Q2 2020:
DKK 1.0 billion). Impairments relating to specific customers
amounted to DKK 0.7 billion. During the third quarter, the
macroeconomic scenarios remained unchanged for the
Nordic countries. Hence, the scenarios continue to be based
on the Group’s Nordic Outlook that reflects a contraction in
the economies in 2020 with a recovery already in 2021, thus
overall following an expected v-shaped recovery. In the third
quarter of 2020, the outlook became more positive for all key
macroeconomic drivers, leading to a reversal of impairments
of DKK 1.0 billion based on the macroeconomic outlook.
However, given clouded visibility following the corona crisis,
additional impairments of DKK 1.3 billion are booked to cover
specific adjustments for industries likely to be affected by the
corona crisis.
End of September 2020 vs end of December 2019
Lending and deposits
The changes in lending and deposits were driven by the
corona crisis. Lending decreased 1%, primarily at Banking
DK, as a result of direct government support measures and
liquidity management.
our customers’ timely cost and
Deposits increased a significant 22% due to low consumer
spending, direct government support to customers and to
corporate customers that have secured backup liquidity.
loans,
In Denmark, new gross
amounted to DKK 66.3 billion (Q1-Q3 2019: DKK 87.7
billion). Lending to retail customers accounted for DKK 18.5
billion (Q1-Q3 2019: DKK 45.4 billion) of this amount.
lending, excluding repo
Our market share of total lending in Denmark, excluding repo
loans, decreased to 25.5% (end-2019: 26.2%) due primarily
to a decreasing market share in the retail segment of the
mortgage credit market and in the commercial segment of
the banking market. In Norway, Sweden and Finland, our
market shares increased.
Danske Bank / Interim report – first nine months 2020 6/62
Credit exposure and quality
Credit exposure from lending activities in core segments
increased to DKK 2,588 billion (end-2019: DKK 2,444
billion), driven by higher deposits with central banks in Other
Activities and an
loan commitments at
Corporates & Institutions.
increase
in
Credit quality remained overall strong in most segments in
the first nine months of 2020. The effects of the corona crisis
are expected to materialise in the coming quarters, and apart
from existing portfolios that are challenged, the volume of
new non-performing loans was limited in the first nine
months of 2020. Total net non-performing loans (NPL)
decreased DKK 1.2 billion from the end of 2019. The
decrease was due to a single-name exposure in the capital
goods industry at Corporates & Institutions, with the effect
being partly offset by an increase in NPL related to single-
name exposures in the retailing industry at Corporates &
Institutions and in the hotels, restaurants and leisure and
consumer goods industries at Banking Nordic.
The NPL coverage ratio increased to 82% from 78% at the
end of 2019, primarily because of higher impairments
against customers in the oil and gas industry.
The risk management notes on pp. 48-61 provide more
information about non-performing loans.
Non-performing loans (NPL) in core segments
(DKK millions)
30 Sep.
2020
31 Dec.
2019
Gross NPL
NPL allowance account
Net NPL
34,260
34,713
14,089 13,367
20,172 21,346
Collateral (after haircut)
17,032
17,479
NPL coverage ratio (%)
NPL coverage ratio of which is in default (%)
NPL as a percentage of total gross exposure (%)
81.8
97.8
1.3
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).
Accumulated impairments increased to 1.3% (end-2019:
1.1%) of lending and guarantees due to impairment charges
against single-name exposures, mainly in the oil and gas
industry, updates of macroeconomic scenarios and post-
model adjustments.
Allowance account
by business units
(DKK millions)
Banking DK
Banking Nordic
C&I
Northern Ireland
Other
30 Sep. 2020
Accum.
impairm.
charges
% of
gross credit
exposure 1
31 Dec. 2019
Accum.
impairm.
charges
% of
gross credit
exposure 1
11,732
5,602
5,295
945
14
1.24
0.87
2.20
1.72
0.18
11,662
4,333
3,718
730
8
1.21
0.68
1.61
1.37
0.09
Total
23,588
1.25
20,451
1.08
Our market share of deposits generally increased.
1 Relating to lending activities in core segments.
Capital ratios and requirements
The 0.9 percentage point increase in the CET1 capital ratio
during the first nine months of 2020 was largely driven by the
cancellation of dividends for 2019 as well as the realised net
profit and changes to the IFRS 9 transitional arrangements.
The total capital ratio was further affected by the redemption
of additional tier 1 (AT1) capital instruments in April
2020,which was partly countered by an issue of tier 2 capital
in September 2020, resulting in a 0.6 percentage point
increase in the total capital ratio.
During the first nine months of 2020, the total REA
decreased slightly by DKK 0.7 billion. The minor movement
was attributable primarily to decreased REA for market risk.
REA for market risk has decreased steadily over the past
quarter from the high level seen at the end of June 2020 that
was due to the corona crisis.
Danske Bank determines its solvency need as part of the
Internal Capital Adequacy Assessment Process (ICAAP). 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 September 2020, the Group’s solvency need
ratio was 12.6%. The solvency need still includes the DKK 10
billion CET1 requirement as a consequence of the orders
issued by the Danish FSA in 2018 in relation to the Estonia
case.
A combined buffer requirement applies in addition to the
solvency need ratio. At the end of September 2020, the
Group’s combined capital buffer requirement was 5.6%.
In March 2020, as a result of the corona crisis, the Danish
government decided to release the countercyclical buffer
requirement and cancel the planned increases intended to
take effect later this year. 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.
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
Solvency need ratio
30 Sep
2020
Fully
phased-in*
18.2
23.3
13.3
0.1
2.5
3.0
12.6
17.9
23.0
13.3
0.1
2.5
3.0
12.6
Total capital requirement
18.2
18.2
Danske Bank / Interim report – first nine months 2020 7/62
* 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.
but
includes
Minimum requirement for own funds and eligible liabilities
The requirement is set at two times the total capital
requirement
institution-specific
countercyclical buffer only once. At the end of September
2020, the requirement was equivalent to DKK 239 billion.
Taking the deduction of capital and debt buffer requirements
in Realkredit Danmark
into account, the MREL-eligible
liabilities amounted to DKK 280 billion.
the
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.
On 1 May 2020, the Danish FSA announced a reduction in
the minimum amount of subordinated debt required to meet
the MREL requirement. By doing so, the subordination
requirement for Danish SIFIs is effectively equivalent to the
maximum subordination cap according to the revised Bank
Recovery and Resolution Directive (BRRD2) without applying
the gradual transition to 2024.
At the end of September 2020, the subordination
requirement was equivalent to DKK 196 billion. The
subordinated MREL-eligible liabilities stood at DKK 242
billion.
Leverage ratio
With the adoption of the Capital Requirements Regulation 2
(CRR2), a minimum leverage ratio requirement of 3% will be
introduced in the second quarter of 2021. At the end of
September 2020, the Group’s leverage ratio was 4.4%
under both the transitional rules and the fully phased-in rules.
Capital targets and capital distribution
The Group’s 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%.
In order to support the initiatives aimed at minimising the
economic consequences of the corona crisis, no dividends
were paid for 2019. The decision for no dividend payments in
2020 does not change the Group’s general dividend
ambition, which is still to pay out 40-60% of its net profit.
Excess capital
CET 1 capital
Total capital
4.9
5.1
4.6
4.8
Danske Bank has strong capital and liquidity positions, and
the Board of Directors monitors the situation closely and
to
remains committed
to returning excess capital
Danske Bank / Interim report – first nine months 2020 8/62
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 corona crisis, the
BCBS has delayed the implementation of the Basel IV
standards from 2022 to 2023. This will also delay the
process for implementation of the standards in the EU, and
the EU Commission is now expected to publish a legislative
proposal in the first quarter of 2021.
The Danish implementation of the EU banking package (CRD
IV and BRRD II) will be presented to the Danish parliament in
the fourth quarter of 2020 with expected application from 1
January 2021. The Group
the Danish
implementation of the EU banking package to have a limited
impact of the Group’s capital and REA.
expects
As part of the European Banking Authority’s (EBA) roadmap
to enhance internal models used to calculate credit risk,
Danske Bank has started implementing the revised set of
EBA guidelines and technical standards. In the fourth quarter
of 2020, we expect an impact on REA for credit risk from
model updates related to further implementation of EBA
guidelines amounting to DKK 20-30 billion, all else equal, and
with further increases in 2021.
Changes to the Executive Leadership Team
On 25 August 2020, Jakob Groot, member of the Executive
Leadership Team and Head of Corporates & Institutions, left
his position at Danske Bank. At the same time, Karsten
Breum, Chief People Officer, joined the Executive Leadership
Team.
shareholders when the economic impact of the corona crisis
is clear.
Funding and liquidity
The corona crisis continued to impact the market for credit
in the third quarter of 2020, though credit markets generally
improved from the conditions in the first half of the year.
By the end of September 2020, the Group had issued tier 2
debt of DKK 3.7 billion, non-preferred senior bonds of
DKK 23.7 billion, senior debt of DKK 19.3 billion and covered
bonds of DKK 29.4 billion, bringing total long-term wholesale
funding to DKK 76.1 billion.
The completed issuance implies that we are well advanced in
terms of meeting our funding requirement for 2020. We
remain dedicated to our strategy of securing more funding
directly in our main lending currencies, including in NOK and
SEK, but we will also utilise central bank facilities to obtain
funding in the most cost-efficient manner. Note G6 provides
more information about the issuance of bonds in the first nine
months of 2020.
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 nine months of
2020, our liquidity coverage ratio stood at 160% (31
December 2019: 140%), with an LCR reserve of DKK 651
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.
At 30 September 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 382 billion (31 December 2019:
DKK 370 billion).
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 September 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.
Danske Bank / Interim report – first nine months 2020 9/62
Banking DK
In the first nine months of 2020, Banking DK launched several initiatives to support customers through the turmoil resulting from
the corona crisis, and they have been well received. Banking DK continued to make progress on the journey towards becoming a
better bank by launching a number of business initiatives, including the launch of a fixed-rate FlexLife® loan type. A new set-up for
serving retail customers and a new offering to mass-affluent customers to be implemented in 2021 were also announced. In relation
to commercial customers, Banking DK continued the efforts to become a strong strategic financial adviser. Profit before tax was,
however, affected by the corona crisis.
Banking DK
(DKK millions)
Net interest income
Net fee income
Net trading income
Other income
Total income
Operating expenses
Profit before loan impairment charges
Loan impairment charges
Profit before tax
Loans, excluding reverse transactions before
impairments
Allowance account, loans
Deposits, excluding repo deposits
Allocated capital (average)
Q1-Q3
2020
6,770
3,041
714
127
6,880
3,188
858
175
10,652
7,022
11,100
6,213
3,630
837
4,887
-82
2,793
4,969
927,270
10,194
396,648
37,925
948,948
10,650
348,191
36,478
Q1-Q3
2019
Index
20/19
Q2
Index
2020 Q3/Q2
Q3
2019
Index
20/19
Full year
2019
Q3
2020
2,289
925
173
41
3,428
2,377
1,051
228
2,277
937
213
40
3,468
2,457
1,010
-337
101
99
81
103
99
97
104
-
2,251
1,235
288
59
3,834
2,070
1,764
-109
823
1,347
61
1,873
927,270
10,194
396,648
37,003
925,992
10,313
385,981
38,417
100
99
103
96
948,948
10,650
348,191
36,460
0.70
8.9
69.3
4,718
0.71
14.0
70.8
4,798
0.71
20.5
54.0
4,501
98
98
95
83
73
96
113
74
-
56
98
96
114
104
105
102
75
60
69
89
115
60
-
44
98
96
114
101
105
9,111
4,397
1,176
227
14,912
8,736
6,176
-342
6,518
943,723
10,235
357,967
36,430
0.72
17.9
58.6
4,588
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
0.70 0.72
9.8 18.2
65.9 56.0
4,718 4,501
Fact Book Q3 2020 provides financial highlights at customer type level for Banking DK. Fact Book Q3 2020 is available at danskebank.com/ir.
Danske Bank / Interim report – first nine months 2020 10/62
Q3 2020 vs Q2 2020
Profit before tax decreased to DKK 0.8 billion due to
increased loan impairment charges, while profit before
impairments was up slightly from the level in the second
quarter of 2020.
Net interest income remained on par with the second quarter
of 2020 following rising interest rate levels as well as pricing
actions on deposits, which were offset mainly by downward
traction in terms of lending volumes and margin pressure.
Net fee income declined slightly due to a minor provision.
Net trading income declined due to lower activity. The second
quarter of 2020 benefited from high remortgaging activity.
Operating expenses decreased 3% due to continued focus on
costs and to seasonality.
The third quarter of 2020 saw net loan impairment charges
of DKK 0.2 billion, against a reversal of DKK 0.3 billion in the
second quarter of 2020. The loan impairment charges cover
additional post-model adjustments following the clouded
visibility resulting from the coronavirus pandemic.
First nine months 2020 vs first nine months 2019
Profit before tax decreased to DKK 2.8 billion (Q1-Q3 2019:
DKK 5.0 billion) due mainly to increasing loan impairment
charges and operating expenses.
Net interest income decreased 2% following a decrease in
lending volumes to commercial customers as customers
less need for credit and were helped by
experienced
government support packages. Negative interest rates were
introduced for all types of customers with significant
deposits, which somewhat offset the adverse effect on net
interest income.
Net fee income decreased 5% due to the corona crisis, with
the effect materialising mainly as a decline in card use and in
transaction fees. Additionally, the level in the first nine
months of 2019 was very high because of the high
remortgaging activity caused by historically low interest
rates.
Net trading income decreased due to value adjustments.
Operating expenses increased 13% due to costs for ongoing
compliance remediation as well as the planned costs for the
Better Bank transformation.
The increase in impairment charges to DKK 0.8 billion was
driven largely by the limited visibility related to the corona
crisis and was the result of both additional post-model
adjustments and an update of the macroeconomic scenarios.
Lending volumes decreased due to direct government
support and our customers’ timely cost and
liquidity
management. Deposits increased due to low consumer
spending combined with direct government support to
customers.
Danske Bank / Interim report – first nine months 2020 11/62
Banking Nordic
Banking Nordic continued to support customers through the effects of the corona crisis. Furthermore, Banking Nordic continued
to make progress in relation to the Better Bank transformation, most recently with the Better Nordic Retail Bank transformation
initiative to create a stronger and more harmonised set-up for serving retail customers across the Nordic countries combined with
an acceleration of our digital offerings. Despite the global turmoil, Banking Nordic experienced a large inflow of retail customers in
Sweden and Norway in particular in the first nine months of 2020. In Norway, the value proposition for our partnership customers
facilitated growth, and in Sweden, we saw increased deposits in particular on the back of a successful migration of HSB partnership
customers. Profit before tax was, however, affected by the corona crisis.
Q1-Q3
2019
Index
20/19
Q2
Index
2020 Q3/Q2
Q3
2019
Index
20/19
Full year
2019
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-Q3
2020
6,102
1,367
180
412
8,060
4,774
3,286
1,472
5,848
1,378
208
455
7,889
4,512
3,377
-1
Profit before tax
1,814
3,378
Loans, excluding reverse transactions before
impairments
Allowance account, loans
Deposits, excluding repo deposits
Allocated capital (average)
634,314
5,060
304,891
36,780
626,406
3,544
258,072
34,400
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
0.89 0.89
6.6 13.1
59.2 57.2
2,493 2,696
104
99
87
91
102
106
97
-
54
101
143
118
107
92
Q3
2020
2,055
438
60
135
2,688
1,585
1,102
364
2,048
451
53
128
2,680
1,651
1,029
155
100
97
113
105
100
96
107
235
1,959
470
61
133
2,623
1,480
1,143
86
738
874
84
1,058
634,314
5,060
304,891
36,547
637,185
4,838
298,108
36,729
100
105
102
100
626,406
3,544
258,072
34,550
0.87
8.1
59.0
2,493
0.90
9.5
61.6
2,467
0.88
12.2
56.4
2,696
101
105
93
98
102
102
107
96
-
70
101
143
118
106
92
7,839
1,857
280
592
10,567
6,269
4,298
510
3,788
634,974
3,880
270,522
34,371
0.89
11.0
59.3
2,599
Fact Book Q3 2020 provides financial highlights at customer level for Banking Nordic. Fact Book Q3 2020 is available at danskebank.com/ir.
Danske Bank / Interim report – first nine months 2020 12/62
First nine months 2020 vs first nine months 2019
Profit before tax decreased to DKK 1.8 billion (Q1-Q3 2019:
DKK 3.4 billion) due to increasing loan impairment charges
and operating expenses.
Q3 2020 vs Q2 2020
Profit before tax decreased to DKK 0.7 billion in the third
quarter of 2020 due to impairment charges increasing from
the level in the second quarter of 2020.
Net interest income increased 4%, benefiting from the
development in the interest rate environment, especially the
several rate cuts made by the Norwegian central bank. The
increase was also a result of the growth via partnerships
strategy.
Operating expenses increased due to ongoing compliance
remediation as well as the planned costs for the Better Bank
transformation. Underlying costs decreased due
to
restructuring and tight cost control.
Impairments increased, driven primarily by the effect of the
corona crisis and single-name exposures. The increase was
seen mainly for the commercial portfolios in Sweden and
Finland.
Lending volumes increased 5% adjusted for currency effects,
mainly in retail banking in Norway and Sweden. Deposits
increased due to a combination of the onboarding of HSB
customers
in Sweden, government support packages
introduced as a result of the corona crisis as well as low
consumer spending.
Total income was on par with income in the second quarter.
Net interest income remained stable, due mainly to an appre-
ciation of the Swedish krona and the Norwegian krone vis-à-
vis the Danish krone offsetting a decrease caused by margin
pressure on deposits in Finland and Sweden.
Net fee income decreased 3% due to a decline in transaction
fees as well as a minor provision.
Operating expenses decreased 4% due to a decline in busi-
ness costs driven by our continued focus on costs and by sea-
sonality.
Loan impairments amounted to a charge of DKK 0.4 billion in
the third quarter of 2020, against a charge of DKK 0.2 billion
in the second quarter of 2020. The increase was driven
mainly by impairment charges against single-name expo-
sures in Banking Sweden.
Danske Bank / Interim report – first nine months 2020 13/62
Corporates & Institutions
Total income increased 25% in the first nine months of 2020 amid high customer activity and market volatility. The increase was
driven by improved net trading income, including positive value adjustments, and higher net interest income as a result of the credit
facilities provided to support customers during the corona crisis and significantly higher deposit volumes. Corporates & institutions
continued to support customers with ESG transactions by providing support in the primary debt market to customers wanting to
raise capital with a strong sustainable focus and by providing green loans. Profit before tax was negatively impacted by increased
loan impairment charges against exposures in the oil and gas industry and increasing costs for compliance-related activities and
the planned costs for the Better Bank transformation.
Q1-Q3
2019
Index
20/19
Q2
2020
Index
Q3/Q2
Q3
2019
Index
20/19
Full year
2019
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
Q1-Q3
2020
3,010
2,101
2,712
7
7,831
3,913
-
3,918
3,676
242
242
2,671
2,074
1,528
1
6,275
3,516
-
2,759
889
1,870
1,870
Q3
2020
1,060
630
1,094
-
2,783
1,282
-
1,502
406
1,058
699
1,777
7
3,541
1,396
-
2,144
1,089
100
90
62
-
79
92
-
70
37
1,096
1,055
104
1,096
1,055
104
885
673
182
-
1,739
1,128
-
612
369
243
243
Loans, excluding reverse trans. before impairments
hereof loans in General Banking
Allowance account, loans
Deposits, excluding repo deposits
hereof deposits in General Banking
Allocated capital (average)
203,926
167,402
4,312
354,380
295,887
36,990
210,254
165,970
2,653
261,607
216,526
32,268
203,926
167,402
4,312
354,380
295,887
36,903
227,516
182,284
5,951
341,249
286,734
39,450
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
0.75 0.77
0.9 7.7
50.0 56.0
1,684 1,704
-
-
-
99
0.73
11.9
46.1
1,684
0.77
10.7
39.4
1,647
90
92
72
104
103
94
-
-
-
102
210,254
165,970
2,653
261,607
216,526
33,781
0.76
2.9
64.9
1,704
113
101
177
-
125
111
-
142
-
13
13
97
101
163
135
137
115
120
94
-
-
160
114
-
245
110
-
-
97
101
163
135
137
109
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
270,685
227,131
32,684
-
-
-
99
0.79
5.2
64.9
1,665
Total income
(DKK millions)
FI&C
hereof xVA*
Capital Markets
General Banking
Total income
3,441
166
657
3,733
2,039
-258
831
3,405
169
-
79
110
1,265
314
212
1,306
1,954
196
294
1,293
65
160
72
101
363
-40
233
1,143
-
-
91
114
2,845
-283
1,211
4,631
7,831
6,275
125
2,783
3,541
79
1,739
160
8,688
*The xVA acronym covers Credit (CVA), Debit (DVA), Funding (FVA) and Collateral (ColVA) Valuation Adjustments to the fair value of the derivatives portfolio.
Danske Bank has a centralised xVA desk responsible for quantifying, managing and hedging xVA risks. The PnL result of the xVA desk is thus the combined
effect of the net xVA position and funding and collateral costs of the trading book.
Danske Bank / Interim report – first nine months 2020 14/62
Q3 2020 vs Q2 2020
Profit before tax increased slightly from the level in the
second quarter of 2020.
Total income fell 21% from the level in the second quarter of
2020 when net trading income in FI&C was high as a result
of the normalisation in the financial markets following the
sell-off in risk assets in March.
Net fee income decreased 10%, as income in Capital
Markets fell owing to lower income from Equities Sales and
Equity Capital Markets transactions.
Operating expenses decreased 8% from the second quarter,
primarily because of lower provisions for performance-based
compensation.
The total number of FTEs rose as a result of the merging of
Asset Management Sales from Wealth Management into
Institutional Banking.
Net loan impairment charges amounted to DKK 0.4 billion,
against DKK 1.1 billion in the second quarter of 2020, and
remained driven mainly by the oil and gas portfolio.
First nine months 2020 vs first nine months 2019
Profit before tax fell to DKK 0.2 billion, despite a 25%
increase in total income. Total income increased DKK 1.6
billion, driven primarily by higher net trading income in FI&C
and higher net interest income in General Banking. The
increase was offset by higher loan impairment charges and
higher operating expenses.
Net interest income increased as the result of higher average
deposit and lending volumes. The large contraction of
economic activity amid the corona crisis led to an increase in
corporate demand for credit, and we extended substantial
short-term facilities. A large and increasing share of these
remains unutilised and serves as backup liquidity facilities for
our customers. Deposit volumes also increased significantly,
especially those from corporate customers.
Net trading income increased significantly from the level in
the same period in 2019, as FI&C benefited from higher
customer activity and improved market conditions. Positive
developments in value adjustments (xVA) also contributed to
the result. Net trading income in Capital Markets was
negatively affected by Equities derivatives trading and a one-
off value adjustment in the first quarter in Loan Capital
Markets.
Operating expenses increased 11%, due primarily to ongoing
compliance remediation as well as the contribution to the
Danish resolution fund and the planned costs for the Better
Bank transformation. Direct staff costs fell as the result of
fewer FTEs.
Loan impairments in the first nine months of 2020 amounted
to a net charge of DKK 3.7 billion, a significant increase from
the level in 2019. Most of the net charge was attributable to
oil- and gas-related exposures. With initial impairments
driven by the rapid decline in oil prices, the continued
uncertainty in the asset-heavy offshore service and drilling
segments led to additional impairments during the period.
The overall credit quality of the portfolio remained strong
despite continued uncertainty about the outlook for the oil
industry and a potential second round effect from the
coronavirus pandemic.
Danske Bank / Interim report – first nine months 2020 15/62
Wealth Management
Danica Pension introduced its newest investment solution, Danica Balance Sustainable Choice, which gives customers the
possibility of investing pension savings with an even stronger focus on sustainability. In addition, Danske Invest launched a new fund
product called Danske Invest Global Sustainable Future, which invests in companies that have a leading role in the work towards a
more sustainable future. Profit before tax amounted to DKK 1.5 billion, against DKK 1.7 billion in the first nine months of 2019,
when adjusting for the DKK 1.3 billion gain from the sale of Danica Pension Sweden in 2019.
Q1-Q3
2019
Index
20/19
Q2
2020
Index
Q3/Q2
Q3
2019
Index
20/19
Full year
2019
Wealth Management
(DKK millions)
Net interest income
Net fee income
Net trading income
Other income
Total income
Operating expenses
Goodwill impairment charges
Q1-Q3
2020
-214
4,162
64
-15
3,997
2,519
-
-173
4,017
588
1,277
5,710
2,711
-
Profit before tax
1,478
2,999
Profit before tax and goodwill impairment charges
1,478
2,999
Q3
2020
-70
1,371
20
14
1,334
876
-
459
459
-
104
11
-
70
93
-
49
49
-60
1,569
125
-5
1,629
779
-
850
850
Allocated capital (average)
Profit before tax as % p.a. of allocated capital (avg.)
Cost/income ratio (%)
Full-time-equivalent staff
16,468
15,295
12.0 26.1
63.0 47.5
1,568 1,567
108
-
-
100
17,166
10.7
65.7
1,568
16,100
21.1
47.8
1,515
-
87
16
-
82
112
-
54
54
107
-
-
103
-69
1,286
452
-54
1,615
784
-
831
831
16,336
20.3
48.5
1,567
101
107
4
-
83
112
-
55
55
105
-
-
100
-248
5,902
340
1,405
7,398
3,589
800
3,009
3,809
15,569
19.3
59.3
1,563
Breakdown of assets under management*
(DKK billions)
Life conventional
Asset management
Assets under advice
190
918
525
196
918
450
97
100
117
190
918
525
187
879
494
102
104
106
196
918
450
97
100
117
194
934
489
Total assets under management
1,632
1,564
104
1,632
1,560
105
1,564
104
1,616
*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.
First nine months 2020 vs first nine months 2019
Profit before tax fell DKK 0.2 billion when adjusting for the
DKK 1.3 billion gain from the sale of Danica Pension Sweden
in 2019. The decrease was due primarily to lower net trading
income in Danica Pension.
Net fee income increased 4% due to higher risk allowance
fees and positive results generated, among other things, by
the health and accident business in Danica Pension. In Asset
Management, net fee income decreased as a result of lower
average assets under management due to market turmoil
and customers retracting funds during the first half of 2020.
Net trading income fell to DKK 0.1 billion, largely as a result
of market developments and a decrease in the yield curve
that affected the investment result in the health and accident
business in Danica Pension.
Operating expenses decreased 7% as expenses in the first
nine months of 2019 were affected by extraordinary costs
for the integration of SEB Pension and the compensation paid
to certain Flexinvest Fri customers.
Assets under management increased DKK 68 billion, largely
because of increases in the retail and private banking
segment.
Net sales in the institutional segment improved in the first
nine months of 2020 from the level in the first nine months
of 2019. Net sales in the retail segment, although still
challenged, had fewer outflows in the first nine months of
2020 than in the same period in 2019.
Danske Bank / Interim report – first nine months 2020 16/62
Q3 2020 vs Q2 2020
Profit before tax decreased 46% to DKK 0.5 billion, driven
primarily by a decrease in net fee income.
Net fee income decreased DKK 0.2 billion to DKK 1.4 billion.
In the second quarter of 2020, net fee income was unusually
high due to positive results from products with investment
guarantees, while net fee income in the third quarter of 2020
was more in line with expectations.
Net trading income decreased DKK 0.1 billion as a result,
among other things, of a decrease in the yield curve that
affected the investment result in the health and accident
business in Danica Pension.
Operating expenses increased 12% to DKK 0.9 billion in the
third quarter of 2020. The increase was due, among other
things, to IT development costs and the planned costs
relating to the Better Bank transformation.
Assets under management increased DKK 72 billion largely
due to increases in the Asset Management, retail and private
banking segments as a result of positive market
developments.
Net sales in the institutional segment showed a positive
trend in the third quarter of 2020 after a challenging first half
of the year. Net sales in the retail segment were still
challenged in the third quarter of 2020.
Danske Bank / Interim report – first nine months 2020 17/62
Northern Ireland
Profit before tax amounted to DKK 136 million in the first nine months of 2020, against DKK 648 million in the same period last
year. This reflects higher loan impairment charges, sharply reduced UK interest rates and continued activity disruption as a result
of the corona crisis. In a competitive marketplace, our service efforts continue to be recognised, with customer satisfaction rankings
of no. 1 in both personal banking and business banking.
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
Allocated capital (average)*
Q1-Q3
2020
1,035
198
91
13
1,336
905
431
295
136
1,133
274
113
11
1,530
872
658
11
648
54,122
883
81,360
6,289
52,563
663
66,944
6,453
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
1.06 1.27
2.9 13.4
67.7 57.0
1,347 1,323
* Allocated capital equals the legal entity’s capital.
Q1-Q3
2019
Index
20/19
Q3
2020
Q2
2020
Index
Q3/Q2
Q3
2019
Index
20/19
Full year
2019
91
72
81
118
87
104
66
-
21
103
133
122
97
102
332
64
13
4
414
310
103
43
60
327
50
26
4
408
295
113
87
102
128
50
100
101
105
91
49
368
86
43
4
500
277
222
-4
26
231
226
54,122
883
81,360
6,172
51,054
842
75,467
6,186
0.99
3.9
74.9
1,347
0.99
1.7
72.3
1,365
106
105
108
100
99
52,563
663
66,944
6,066
1.24
14.9
55.4
1,323
90
74
30
100
83
112
46
-
27
103
133
122
102
102
1,524
363
110
14
2,011
1,216
794
5
789
54,287
696
70,943
6,425
1.26
12.3
60.5
1,285
First nine months 2020 vs first nine months 2019
Profit before tax decreased to DKK 136 million (Q1-Q3
2019: DKK 648 million). The decrease was driven primarily
by higher loan impairment charges and lower income.
Q3 2020 vs Q2 2020
Profit before tax increased to DKK 60 million from DKK 26
million in the second quarter of 2020, due primarily to lower
loan impairment charges than in the second quarter.
Profitability improved in the third quarter, reflecting some
recovery in activity-related fee income.
Loan impairment charges decreased, with continued charges
for sectors impacted by the corona crisis, but at a lower level
than in the second quarter of 2020.
Lending increased 6% due to the volume of UK government-
guaranteed corona-related business support loans, with
deposits still rising in the third quarter of 2020, although at
a slower rate.
interest
Net
income decreased 9%, reflecting sharply
reduced UK interest rates since late March. Lending and
deposit volumes both increased.
Net fee income and net trading income decreased 28% and
19%, respectively, reflecting very
levels,
particularly in the second quarter of 2020, as a result of
coronavirus-related lockdown measures.
low activity
Operating expenses increased 4%, with higher IT-related
costs and central regulatory compliance costs offsetting the
positive impact of ongoing cost reduction initiatives.
Loan impairment charges increased to DKK 295 million,
reflecting the weaker UK economic outlook and charges for
potential future loan impairments in sectors that are heavily
impacted by the corona crisis.
Lending increased 3% due to the volume of UK government-
guaranteed corona-related business support loans.
Deposits saw an increase of 22%, reflecting the additional
liquidity being held by both personal and business customers.
Danske Bank / Interim report – first nine months 2020 18/62
Non-core
The winding-up of the Non-core portfolios is proceeding according to plan. Profit before tax for the first nine months of 2020 was a
negative DKK 483 million, against a negative DKK 248 million in the first nine months of 2019. Total lending stood at DKK 5.4
billion at the end of September 2020, half the amount at the end of September 2019, which led to lower capital requirements for
the Group.
Q1-Q3
2020
Q1-Q3
2019
Index
20/19
Q3
2020
Q2
2020
Index
Q3/Q2
Q3
2019
Index
20/19
Full year
2019
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
Allocated capital (average)
-87
209
-296
187
164
93
70
319
-483
-248
5,441
962
2,109
1,547
11,528
790
1,734
2,465
-
225
-
59
-
47
122
122
63
18
19
44
-25
12
-37
5,441
962
2,109
1,377
-71
40
-110
82
-192
5,414
971
1,751
1,421
1.57
-10.7
231.6
50
0.99
-54.0
-56.3
64
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
1.09 1.32
-41.6 -13.4
-240.2 56.7
50 284
Loan impairment charges
(DKK millions)
Non-core banking**
Non-core conduits etc.
Total
72
115
187
225
94
319
32
122
59
-14
27
12
74
8
82
* 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.
-
110
23
15
-
100
99
120
97
78
-
-
15
55
83
-28
-50
22
11,528
790
1,734
2,218
1.70
4.0
150.9
284
35
53
-
-
-
47
122
122
62
18
-61
219
-280
213
-493
7,456
842
1,668
2,379
1.27
-20.7
-359.0
159
-50
-
-50
19
194
213
-
-
Q3 2020 vs Q2 2020
Profit before tax amounted to a negative DKK 37 million,
against a negative DKK 192 million in the second quarter of
2020.
The improved result was due primarily to a decline in loan
impairments as a result of the sale of Baltic loan portfolios.
First nine months 2020 vs first nine months 2019
The Non-core unit posted a loss before tax of DKK 483
million (Q1-Q3 2019: a loss of DKK 248 million) due mainly
to losses related to the final exit from Estonia. Further,
operating expenses
in 2019
benefited from a positive adjustment of VAT regarding
previous years. The decrease in loan impairment charges
related to the sale of Baltic loan portfolios.
increased as expenses
The Group has exited its banking activities in Estonia, Russia
and Latvia. At the Lithuanian branch, the only portfolio
remaining is a small portfolio of commercial loans that are
actively managed down. In June 2020, an agreement to sell
part of the portfolio was entered into. The sale was settled in
October 2020.
The sale of most of the Baltic loan portfolios has resulted in a
reduction of total lending in Non-core to DKK 5.4 billion, half
the amount at the end of September 2019, which led to lower
capital requirements for the Group.
Danske Bank / Interim report – first nine months 2020 19/62
Other Activities
Other Activities includes Group Treasury and Group support functions as well as eliminations. 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.
Q1-Q3
2020
Q1-Q3
2019
Index
20/19
Q3
2020
Q2
2020
Index
Q3/Q2
Q3
2019
Index
20/19
Full year
2019
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
-206
-188
2
-61
-453
1,275
-1,729
7
-23
-170
428
90
325
1,382
-1,057
-4
-
-
-
-
-
92
-
-
-
-157
-59
104
8
-104
261
-365
-23
-142
-69
-184
-57
-451
374
-825
23
-342
-849
Profit before tax
-1,736
-1,054
Profit before tax
(DKK millions)
Group Treasury
Own shares and issues
Additional tier 1 capital
Group support functions
Total Other Activities
-706
128
434
-1,592
-12
110
588
-1,739
-
116
74
-
-172
-11
117
-276
-224
-82
122
-665
-1,736
-1,054
-
-342
-849
-
-
-
-
-
70
-
-
-
-
-
96
-
-
52
-47
96
83
184
643
-459
1
-460
39
68
197
-765
-460
-
-
108
10
-
41
-
-
-
-5
-227
1,421
217
1,407
2,903
-1,497
-5
-1,491
-
-
59
-
825
59
785
-3,160
-
-1,491
First nine months 2020 vs first nine months 2019
Profit before tax decreased to a loss of DKK 1.7 billion (Q1-
Q3 2019: a loss of DKK 1.1 billion). This was due primarily to
lower operating expenses being more than offset by a
decrease in net trading income and net interest income.
Q3 2020 vs Q2 2020
Other Activities posted a loss before tax of DKK 342 million
(Q2 2020: a loss before tax of DKK 849 million). The
decrease in the loss was due primarily to higher net trading
income and lower operating expenses.
Net trading income increased to DKK 104 million (Q2 2020:
a loss of DKK 184 million) due primarily to elimination of the
gain on own shares and issues.
Operating expenses decreased to DKK 261 million (Q2:
DKK 374 million) due to the Group’s continued focus on
costs and its transformation efforts as well as a net reversal
of provisions for operational risk-related losses. The write-
down of domicile property had a partly offsetting effect.
Net interest income decreased to a negative DKK 206
million due to a decline in income from allocated liquidity
costs that were affected by higher deposit volumes. This
effect was partly offset by an increase in income from
structural changes to the Group’s funding and liquidity
management.
Net trading income decreased to DKK 2 million in the first
nine months of 2020 from DKK 428 million in the first nine
months of 2019. The decrease was due mainly to negative
value adjustments of interest rate risk hedges and lower
income from interest rate risk management in general. In
addition, there was a lower return on investments.
Operating expenses decreased 8% to DKK 1.3 billion.
Contributing to the decrease was the Group’s continued
focus on costs as well as a net reversal of provisions for
operational risk-related losses. Part of the effect was offset
by higher costs for the Estonia case and a write-down of
domicile property.
Danske Bank / Interim report – first nine months 2020 20/62
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 3 and in other sections of the Management’s report:
Ratios and key figures
Dividend per share (DKK)
Definition
The dividend per share proposed in the Annual report and paid to shareholders in the subsequent year.
Accordingly, for 2018, it is the dividend paid in 2019. For 2019, no dividend was paid in 2020. Further
information can be found in note G1(a).
Return on average shareholders’ equity (% p.a.)
Net profit as disclosed in the financial highlights divided by the average of the quarterly average sharehold-
ers’ 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 first nine months 2020 is reduced by interest expenses of DKK 433 million (full-year 2019: DKK
786 million). The denominator represents equity, excluding additional tier 1 capital and other non-control-
ling interests equal to a reduction in the average of the quarterly average of equity of DKK 13,227 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 0.75% (full-year 2019: 0.79%) with the daily average of the sum of loans and deposits being DKK 51.6
billion lower than calculating the ratio by applying the end of period sum of loans and deposits. The purpose
of the ratio is to show if the growth in net interest income follows the growth in loans and deposits. The
daily average is a more faithful representation of the growth in loans and deposits.
Cost/income ratio (%)
Operating expenses divided by total income. All amounts are from the financial highlights.
Book value per share
Shareholders’ equity (that is, excluding equity-accounted additional tier 1 capital) divided by the number of
shares outstanding at the end of the period.
Loan impairment charges as % of net credit exposure
This ratio is calculated on the basis of loan impairment charges and loans and guarantees in core seg-
ments. The nominator is the loan impairment charges of DKK 6,287 million (full-year 2019: DKK 1,516
million) from the financial highlights and annualised. 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 gross credit exposure
This ratio is calculated on the basis of the allowance account and loans and guarantees in core segments.
Market shares
The nominator is the allowance account of DKK 23.6 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 state-
ments. The denominator is the sum of Loans at amortised cost of DKK 996.7 billion, Loans at fair value of
DKK 806.9 billion, and Guarantees of DKK 66.5 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 state-
ments increased by the allowance account of DKK 23.6 billion. The ratio is calculated for each business
unit.
Market shares are based on data from central banks at the time of reporting. Comparative infor-
mation is updated on the basis of the latest available data, for example Annual Report 2019 in-
cluded 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 up-
dated with December 2019 data.
Danske Bank / Interim report – first nine months 2020 23/63
Income statement
Statement of comprehensive income
Balance sheet
Statement of capital
Cash flow statement
Notes
22
23
24
25
27
28
Note G1: Significant accounting policies and estimates
Note G2: Changes in accounting policies,
31
financial highlights and segment reporting
33
Note G3: Business segments
36
Note G4: Income
Note G5: Loan impairment charges and reconciliation of total allowance account 37
38
Note G6: Issued bonds, subordinated debt and additional tier 1 capital
39
Note G7: Assets held for sale and Liabilities in disposal groups held for sale
39
Note G8: Other assets and other liabilities
39
Note G9: Foreign currency translation reserve
40
Note G10: Guarantees, commitments and contingent liabilities
42
Note G11: Assets provided or received as collateral
43
Note G12: Fair value information for financial instruments
47
Risk Management
47
Breakdown of credit exposure
48
Credit exposure from core lending activities
Credit exposure from Non-core lending activities
56
Counterparty credit risk and credit risk from trading and investment securities 57
57
Bond portfolio
60
Market risk
Income statement – Danske Bank Group
Danske Bank / Interim report – first nine months 2020 22/62
Note
(DKK millions)
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
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)*
*For 2019, no dividends were paid in 2020. See note G1(a) for further information.
The income statement is condensed compared to the annual report 2019.
Q1-Q3
2020
17,729
31,144
28,064
20,809
11,498
4,039
6,429
-131
3,492
21,075
24,794
23,621
-
10,718
6,474
4,244
1,105
Q1-Q3
2019
18,508
32,824
30,594
20,739
11,813
4,528
28,766
399
4,326
18,763
44,998
21,587
-
13,693
1,131
12,562
2,531
Q3
2020
5,753
8,845
7,634
6,965
3,762
1,467
9,397
362
1,228
6,631
15,288
7,763
-
3,826
1,031
2,795
692
Q3
2019
6,223
11,025
10,416
6,832
4,129
1,471
-1,057
155
1,192
6,310
4,675
7,330
-
4,085
292
3,793
782
Full year
2019
24,754
45,065
41,927
27,892
16,437
6,079
34,533
386
6,736
26,316
58,106
30,960
1,603
15,551
1,729
13,822
-1,249
3,139
10,031
2,103
3,011
15,072
2,706
433
9,443
587
1,986
117
2,814
197
14,285
786
3,139
10,031
2,103
3,011
15,072
3.2
3.2
-
11.1
11.1
-
2.3
2.3
-
3.3
3.3
-
16.7
16.7
8.5
Danske Bank / Interim report – first nine months 2020 23/62
Statement of comprehensive income – Danske Bank Group
(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
Q1-Q3
2020
Q1-Q3
2019
Q3
2020
Q3
2019
Full year
2019
3,139
10,031
2,103
3,011
15,072
64
7
70
-4,312
2,483
-
176
-12
165
-1,500
-1,430
30
28
58
-326
329
-
119
6
-37
91
149
-326
109
-217
-732
406
-
126
3
19
-178
-395
-100
43
-57
-
-765
357
-
-71
14
1
-463
-520
228
-21
207
-
692
-324
5
9
3
47
432
639
1,709
10,180
1,708
2,491
15,711
1,276
433
9,592
587
1,591
117
2,294
197
14,925
786
Total comprehensive income
1,709
10,180
1,708
2,491
15,711
Total assets
4,028,035
3,761,050
3,962,718
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*
G7
G8
G6
G6
G7
G8
G6
G6
G9
Shareholders of Danske Bank A/S (the Parent Company)
Additional tier 1 capital holders
G6
Total equity
Total liabilities and equity
*For 2019, no dividends were paid in 2020. See note G1(a) for further information.
Danske Bank / Interim report – first nine months 2020 24/62
30 September
2020
31 December 30 September
2019
2019
239,388
77,243
674,426
300,304
999,157
1,068,430
108,385
510,008
2,292
9,105
4,507
34,790
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
96,803
121,218
612,102
285,920
1,018,773
1,144,030
96,921
527,979
3,706
11,070
4,256
39,941
201,320
499,128
1,280,880
780,400
252,152
109,231
550,564
138
2,038
42,275
108,671
35,014
155,246
452,202
1,140,726
802,501
256,355
111,537
504,714
110
2,172
46,191
87,054
31,733
218,324
541,809
1,109,773
827,259
267,696
101,773
563,835
327
8,445
44,846
87,220
25,948
3,861,811
3,590,541
3,797,255
8,622
-2,201
267
150,847
-
157,534
8,690
8,622
-372
102
140,590
7,329
156,271
14,237
8,622
-742
190
142,994
-
151,064
14,400
166,224
170,508
165,464
4,028,035
3,761,050
3,962,718
Danske Bank / Interim report – first nine months 2020 25/62
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 2020
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
Redemption of 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
capital
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
2,706
7,329
-
156,271
2,706
14,237
433
170,508
3,139
-372
-
-
-4,312
2,483
-
-
-
-
-
-
176
-12
-
64
-
-
-
-
171
-1,829
165
235
-1,829
165
2,941
-
-
-
-
-
-
-
-
64
-4,312
2,483
176
-12
171
-1,430
-
-
-
-
-
-
-
64
-4,312
2,483
176
-12
171
-1,430
1,276
433
1,709
-
-
-
-
-
-
-
-
-
-
-
-
-
-5
7,329
-24,484
24,450
26
-
-
-7,329
-
-
-
-
-5
-
-24,484
24,450
26
-427
-5,596
-
-
42
-
-427
-5,600
-
-24,484
24,492
26
Total equity as at 30 September 2020
8,622
-2,201
267 150,847
- 157,534
8,690 166,224
*For 2019, no dividends were paid in 2020. The previously proposed dividends have been reversed to Retained earnings in 2020. See note G1(a) for further information.
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
Share capital reduction
Acquisition of own shares and additional tier 1 capital
Sale of own shares and additional tier 1 capital
Tax
8,960
-
-
-
-
-
-
-
-
-
-
-
-338
-
-
-
-745
-
-
-326
329
-
-
-
3
3
-
-
-
-
-
-
90
-
132,768
9,443
7,616
-
148,688
9,443
14,299
587
162,988
10,031
-
-
-
119
6
-26
99
99
-
-
-
-
-
-
30
-
-
-
-
16
46
9,490
-
393
338
-13,406
13,364
48
-
-
-
-
-
-
-
-
30
-326
329
119
6
-10
149
-
-
-
-
-
-
-
30
-326
329
119
6
-10
149
9,592
587
10,180
-
-7,616
-
-
-
-
-
-7,223
-
-13,406
13,364
48
-428
-
-
-60
-
-
-428
-7,222
-
-13,466
13,364
48
Total equity as at 30 September 2019
8,622
-742
190
142,994
-
151,064
14,400 165,464
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 (subject to final approval)
(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
Common equity tier 1 capital ratio (%)
Tier 1 capital ratio (%)
Total capital ratio (%)
Danske Bank / Interim report – first nine months 2020 26/62
30 September 2020 31 December 2019
8,621,846,210
862,184,621
852,638,864
856,161,811
856,937,707
8,621,846,210
862,184,621
853,704,915
854,354,479
854,911,769
30 September 2020 31 December 2019
166,224
263
-31
166,456
-8,516
-173
38
157,805
-115
2,158
-801
-168
-1,883
-6,388
411
-11
-2,060
-9,478
-
139,470
17,835
157,305
21,200
178,505
766,493
18.2
20.5
23.3
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
17.3
20.4
22.7
*For 2019, no dividends were paid in 2020. The previously proposed dividends have been added back to common equity tier 1 capital in 2020.
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.
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
Redemption of equity accounted additional tier 1 capital
Paid interest on equity accounted 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 nine months 2020 27/62
Q1-Q3
2020
4,244
-2,981
9,625
Q1-Q3
2019
Full year
2019
12,562
-3,877
4,189
13,822
-5,245
10,369
10,888
12,874
18,946
49,895
-132,179
8
-15,431
75,998
140,154
-28,298
-343
-1,621
-31,522
-44,700
-102
26,842
-120,354
50,653
53,346
-4,054
-45,695
-96,693
-17,527
-278
-8,449
-108,208
81,606
14,533
988
-11,690
99,071
-102,712
-126,772
5
-711
-265
9
-962
3,721
-
23,610
-
-5,600
-427
-484
1,668
-599
-417
6
658
5,550
-3,455
57,259
-7,223
-
-428
-542
1,683
-878
-666
12
151
11,791
-3,467
59,808
-7,239
-
-787
-729
20,820
51,161
59,377
199,608
-3,185
118,929
264,836
1,071
-50,893
264,836
2,016
-67,244
315,352
215,014
199,608
5,530
233,857
75,965
5,564
91,239
118,211
6,235
92,800
100,574
315,352
215,014
199,608
Danske Bank / Interim report – first nine months 2020 28/62
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.
As announced on 20 April 2020 and in light of the economic situation caused by the coronavirus pandemic, the Board of Directors decided to propose
to the general meeting that no dividends be paid for 2019. The impact from the change to proposed dividends was recognised in Interim report – first
quarter of 2020 as a reversal in the first quarter of 2020. On 15 May 2020, the Group published the document ‘Supplement to Annual Report 2019’
illustrating the impact on the Annual Report 2019 on a condensed basis. The Annual Report 2019 and the changed proposal for allocation of dividends
were approved by the general meeting on 9 June 2020.
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 descrip-
tion 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. The interim report for the first
nine months of 2020 has not been audited or reviewed.
(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. See further in the section below on the impact from the corona crisis on macroeconomic scenarios used.
Danske Bank / Interim report – first nine months 2020 29/62
Notes – Danske Bank Group
(b) Significant accounting estimates continued
The base case scenario enters with a probability of 70% (31 December 2019: 60%), the upside scenario with a probability of 10% (31 December 2019:
10%) and the downside scenario with a probability of 20% (31 December 2019: 30%). On the basis of these assessments, the allowance account as at
30 September 2020 amounted to DKK 24.6 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 0.8 billion (31 December 2019: 0.7 billion). Compared to the base case scenario, the allowance account
would increase DKK 4.4 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 0.6 billion (31 December 2019: DKK 0.5 billion) compared to the base case
scenario. It shall be noted that the expected credit losses in the individual scenarios does not represent expected credit loss (ECL) forecasts.
In determining the expected credit losses, management is required to exercise judgement in defining what is considered a significant increase in credit
risk. According to the Group’s definition of a significant increase in credit risk, i.e. when a loan is transferred from stage 1 to stage 2, facilities with an
initial PD below 1% are transferred to stage 2 if the facility’s 12-month PD has increased by at least 0.5 of a percentage point and the facility’s lifetime
PD has doubled since origination. The allowance account is relatively stable in terms of changes to the definition of significant increase in credit risk. At
30 September 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 30 September 2020, the post-model adjustments
amounted to DKK 5.6 billion (31 December 2019: DKK 4.0 billion) and continue to include the immediate risks arising from the corona crisis that were
introduced in the first quarter of 2020, see further in the separate section below. On the types of risks covered by post-model adjustments, more infor-
mation can be found in the risk management notes.
Loan impairment charges for the period ended 30 September 2020 amounted to DKK 6,474 million (30 September 2019: DKK 1,131 million). While
impairments in the first half of 2020 were driven primarily by the update of the macroeconomic scenarios as a result of the corona crisis and credit
deterioration for the oil and gas exposure (within the Shipping, oil and gas industry), impairments in the third quarter of 2020 was driven by credit
deterioration on selected customers, largely within the oil and gas exposure due to the continued uncertainty within the offshore segment.
Accounting treatment of the impacts on expected credit losses from the corona crisis
The effect of the coronavirus pandemic began to affect the Group’s credit portfolio in the first quarter of 2020. We still remain to see further credit
deterioration as the effect is currently limited and mitigated by the government support packages. Based on the measures taken by governments across
the world and in the Group’s market areas to contain the virus, economies are seeing lower activity in the short-term, although especially in the Nordic
economies, the activity in many sectors was back to a normal activity level already in the second quarter of 2020 after the reopening of societies. How-
ever, significant continued uncertainty remains. Although new lock-downs in the Nordics are considered less likely, economic activity is likely to be im-
pacted and it is yet unknown to which extent government will continue to support the economies.
For most of the Group’s credit portfolio, the negative impact on individual customers of the corona crisis is expected to materialise over the coming
quarters. Customer assessments were made on an ongoing basis throughout the second and third quarters of 2020, and impairments were revisited in
light of the changed outlook. While customer activity in the first three quarters of 2020 was higher than usual, portfolio impact still awaiting as customers
are still assessing the consequences. As a result the financial consequences still remain to be seen, for instance, when government support comes to an
end and as the pandemic evolves.
The Group’s forbearance practices have been updated to pay particular attention to customers affected by the corona crisis. This includes additional
guidance to ensure that concessions due to the corona crises are considered forbearance only if they relate to customers that are not deemed credit-
worthy 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 short-term concessions to custom-
ers in rating categories 1 to 5 during the first three quarters of 2020 are not considered a forbearance measure when taking the ongoing customer
assessments into account. For customers in rating categories 6 and 7, an individual assessment of the customer’s financial strength is made, whereas
concessions to lower-rated customers are considered forbearance. From the fourth quarter of 2020, normal forbearance practices will apply again.
Danske Bank / Interim report – first nine months 2020 30/62
Notes – Danske Bank Group
(b) Significant accounting estimates continued
Compared to at the end of June 2020, a smaller part of the impact on expected credit losses resulting from the corona crisis relates to changes to
forward-looking information. The macroeconomic scenarios applied for the Nordic region and the weighting assigned to each scenario remain unchanged
from the second quarter 2020 as no new Nordic Outlook reports have been issued during the third quarter of 2020. The Group’s base case reflects a
significant decline in economic activity in 2020 followed by a recovery in 2021. The downside scenario reflects a longer-lasting corona crisis scenario
that includes a steeper decline than during the global financial crisis with a close to double-digit decrease in GDP. Further information on the macroeco-
nomic scenarios used can be found in the risk management notes. The base case scenario is considered the most likely scenario with a likelihood of 70%
while the downside scenario has a likelihood of 20%. As the base case macroeconomic scenario reflects a recovery in 2021, being in the third quarter
of 2020, the forward-looking information is more positive than at the end of June 2020, leading to a reversal of the modelled expected credit losses in all
main industries of DKK 1 billion, including commercial property and personal customer. Due to the continued significant uncertainty related to the mag-
nitude of the pandemic and to the extent to which government will continue to support the economies, the management has deemed it appropriate to
increase the post-model adjustment in the third quarter of 2020.
The post-model adjustment relates to industries directly affected by the corona crisis and for which, the macroeconomic scenarios themselves do not
lead to a sufficient increase in expected credit losses. This includes retailing, hotels and restaurants (within the Hotels, restaurants and leisure industry)
as well as oil and gas (within the Shipping, oil and gas industry). It also includes expected, but not yet materialised, credit deterioration in relation to the
Personal customers and Commercial property industries in Denmark as government support ends. The targeted post model adjustment related to such
industries amounts to DKK 1.8 billion. Further information on the allocation of post-model adjustment to the underlying exposures can be found in the
text below the table ‘Credit portfolio in core activities broken down by rating category and stages’ in the risk management notes.
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 30 September 2020, financial
assets covered by the expected credit loss model accounted for approximately 52% of total assets (31 December 2019: 57%).
Fair value measurement of financial instruments
At the end of September 2020, no unusual challenges in obtaining reliable pricing apart from insignificant parts of the portfolio remain. 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 continues 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 G12. 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 30 September 2020, the adjustments totalled DKK 1.9 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. EUR
denominated swaps cleared on a CCP have been converted to ESTR discounting and this conversion had no significant impact on the Group’s hedge
accounting values. 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, lower profits and the discount rate.
Danske Bank / Interim report – first nine months 2020 31/62
Notes – Danske Bank Group
(b) Significant accounting estimates continued
Following the outbreak of the coronavirus pandemic, the assessment of whether indication of impairment existed at the end of September 2020 was
considered at a more detailed level than usual. This assessment was performed as a high level 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 corona crisis as well as management actions
and other known changes since the test in the fourth quarter of 2019. Based on this assessment, it was concluded that 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 corona crisis, 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 nine months of 2020 following the outbreak of the coronavirus pandemic decreased the collective
bonus potential from DKK 13.9 billion at 31 December 2019 to DKK 11.2 billion at 30 September 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.
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.
Danske Bank / Interim report – first nine months 2020 32/62
Notes – Danske Bank Group
G2. Changes in accounting policies, financial highlights and segment reporting continued
(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 three quarters of 2019 is shown in the table below. These changes do not
affect the presentation in the IFRS income statement or balance sheet.
Business segments first nine months 2019
Adjustments to organisation
Banking DK
Banking Nordic
Wealth
Management
Alignment of
presentation,
Wealth
Management
(DKK millions)
Net interest income
Net fee income
Net trading income or loss
Other income
Total income
Operating expenses
Profit before loan impairment charges
Loan impairment charges
Profit before tax, core
Profit before tax, non-core
Profit before tax
Financial
highlights
16,336
11,681
2,907
1,905
32,829
19,206
13,623
813
12,810
-248
12,562
480
704
91
0
1,276
771
504
-21
525
0
525
176
192
12
0
381
331
50
1
49
0
49
-656
-897
-104
0
-1,656
-1,102
-554
20
-574
0
-574
Loans, excluding reverse transactions
Other assets
1,817,630
2,145,089
63,901
46,616
17,877
11,334
-81,778
-57,950
Total assets
3,962,718
110,518
29,211
-139,729
Deposits, excluding repo transactions
Other liabilities
Allocated capital
926,318
2,885,336
151,064
51,282
56,269
2,966
20,438
7,922
852
-71,720
-64,191
-3,817
Total liabilities and equity
3,962,718
110,518
29,211
-139,729
Profit before tax as % of allocated capital (avg.)
Cost/income ratio (%)
Assets under management (DKK billions)
11.2
58.5
1,610
0.5
0.6
0
-0.1
1.5
0
1.1
-4.3
0
Adjusted
Financial
highlights
16,336
10,761
3,723
2,009
32,829
19,206
13,623
813
12,810
-248
12,562
1,817,630
2,145,089
3,962,718
926,318
2,885,336
151,064
3,962,718
11.2
58.5
1,564
0
-921
816
104
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0.0
0.0
-46
Danske Bank / Interim report – first nine months 2020 33/62
Notes – Danske Bank Group
G3. Business segments
Business segments first nine months 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
Profit before tax, core
Profit before tax, Non-core
Banking
DK
Banking
Nordic
6,770
3,041
714
127
-
-
10,652
7,022
3,630
837
2,793
-
6,102
1,367
180
412
-
-
8,060
4,774
3,286
1,472
1,814
-
C&I
3,010
2,101
2,712
7
-
-
7,831
3,913
3,918
3,676
242
-
Wealth
Man.
Northern
Ireland
Non-
core
Other
Activities
Elimina-
tions
Financial
highlights
Reclassi-
fication
-214
4,162
64
-15
-
-
3,997
2,519
1,478
-
1,478
-
1,035
198
91
13
-
-
1,336
905
431
295
136
-
-
-
-
-
-
-
-
-
-
-
-
-483
-203
-189
-127
329
-
-
-191
1,397
-1,588
7
-1,595
-
-3
1
129
-390
-
-
-263
-122
-141
-
-141
-
16,498
10,680
3,763
482
4,311
-3,222
2,666
2,879
- 21,075
- 24,794
31,423
20,409
2,916
3,212
11,014
6,287
4,727
-483
-296
187
-483
483
IFRS
financial
statements
20,809
7,458
6,429
3,361
21,075
24,794
34,339
23,621
10,718
6,474
4,244
-
Profit before tax
2,793
1,814
242
1,478
136
-483
-1,595
-141
4,244
-
4,244
Loans, excluding reverse
transactions
Other assets
Total assets in Non-core
917,076 629,254
58
418,307 121,650 3,690,777 661,092
-
199,614
-
-
-
53,238
44,403
-
-
35,432
- 3,807,013
-
4,541
-33,234 1,801,438
-6,521,186 2,222,056
4,541
-
2,458 1,803,896
2,083 2,224,139
-
-4,541
Total assets
1,335,382 750,903 3,890,391 661,150
97,641
4,541 3,842,445 -6,554,419 4,028,035
- 4,028,035
Deposits, excluding repo
deposits
Other liabilities
Allocated capital
Total liabilities in Non-core
354,380
396,648 304,891
155
901,793 409,278 3,500,199 644,374
35,812 16,621
-
36,942 36,735
-
-
-
81,360
10,186
6,095
-
-
1,227
- 3,816,098
25,330
-
-
4,331
-9,942 1,128,720
-6,544,478 2,737,450
157,534
4,331
-
-
2,109 1,130,829
2,222 2,739,672
157,534
-
-
-4,331
Total liabilities and equity 1,335,382 750,903 3,890,391 661,150
97,641
4,331 3,842,655 -6,554,419 4,028,035
- 4,028,035
Profit before tax as % p.a.
of allocated capital (avg.)
Cost/income ratio (%)
Full-time-equivalent staff,
end of period
9.8
65.9
6.6
59.2
0.9
50.0
12.0
63.0
2.9
67.7
-
-
-7.8
-
4,718
2,493
1,684
1,568
1,347 50
10,722
-
-
-
3.6
64.9
22,582
-
-
-
3.6
68.8
22,582
Danske Bank / Interim report – first nine months 2020 34/62
Notes – Danske Bank Group
G3. Business segments continued
Business segments first nine months 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 impair-
ment charges
Loan impairment charges
Profit before tax, core
Profit before tax, Non-core
Banking
DK1
Banking
Nordic1
6,880
3,188
858
175
-
-
11,100
6,213
4,887
-82
4,969
-
5,848
1,378
208
455
-
-
7,889
4,512
3,377
-1
3,378
-
C&I
2,671
2,074
1,528
1
-
-
6,275
3,516
2,759
889
1,870
-
Wealth
Man.1
Northern
Ireland
Non-
core
Other
Activities
Elimina-
tions
Financial
highlights1
Reclassi-
fication1
-173
4,017
588
1,277
-
-
5,710
2,711
2,999
-
2,999
-
1,133
274
113
11
-
-
1,530
872
658
11
648
-
-
-
-
-
-
-
-
-
-
-
-
-248
-174
-170
369
451
-
-
476
1,504
-1,028
-4
-1,024
-
151
-
59
-362
-
-
-151
-122
-29
-
-29
-
16,336
10,761
4,403
-3,476
3,723 25,043
2,717
2,009
- 18,763
- 44,998
32,829
19,206
2,452
2,381
13,623
813
12,810
-248
70
319
-248
248
IFRS
financial
statements
20,739
7,285
28,766
4,725
18,763
44,998
35,280
21,587
13,693
1,131
12,562
-
Profit before tax
4,969
3,378
1,870
2,999
648
-248
-1,024
-29
12,562
-
12,562
Loans, excluding reverse
transactions
Other assets
Total assets in Non-core
140
938,298 622,861
417,708 63,293 3,661,253 668,006
-
207,601
-
-
-
51,900
31,136
29,665
-
- 3,217,917
-
-32,836 1,817,630
-5,925,640 2,133,672
11,417
-
7,492 1,825,122
3,925 2,137,597
-
-11,417
- 11,417
Total assets
1,356,006 686,154 3,868,854 668,146
83,035 11,417 3,247,582 -5,958,476 3,962,718
- 3,962,718
Deposits, excluding repo
deposits
Other liabilities
Allocated capital
Total liabilities in Non-core
261,607
348,191 258,072
200
971,459 393,843 3,572,738 651,611
34,508 16,335
-
36,356 34,238
-
-
-
66,944
10,153
5,939
-
-
2,279
- 3,228,115
23,687
-
-
4,917
-10,975
926,318
-5,947,501 2,880,419
151,064
4,917
-
-
1,734
928,052
3,184 2,883,603
151,064
-
-
-4,917
Total liabilities and equity 1,356,006 686,154 3,868,854 668,146
83,035 4,917 3,254,081 -5,958,476 3,962,718
- 3,962,718
Profit before tax as % p.a.
of allocated capital (avg.)
Cost/income ratio (%)
Full-time-equivalent staff,
end of period
18.2
56.0
13.1
57.2
7.7
56.0
26.1
47.5
13.4
57.0
-
-
-4.7
316.0
4,501
2,696
1,704
1,567
1,323
284
9,883
-
-
-
11.2
58.5
21,960
-
-
-
11.2
61.2
21,960
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 nine months 2020 35/62
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 disclosed on page 85 in Annual report 2019, however, with changes implemented from 1 January 2020 and explained in note G2(b) of this report.
The decomposition of the reclassification is shown in the tables below.
Reclassifications first nine months 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 first nine months 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
20,809
7,458
6,429
3,361
21,075
24,794
34,339
23,621
10,718
6,474
4,244
-
4,244
-
-
-
-3,126
-
-
-3,126
-3,126
-
-
-
-
-
-1,569
24
1,493
52
-
-
-
-
-
-
-
-
-
Danica
Pension
-2,695
3,201
-4,215
113
-21,075
-24,794
123
123
-
-
-
-
-
Non-core Reclassification
Financial
highlights
-48
-3
55
83
-
-
87
-209
296
-187
483
-483
-
-4,311
3,222
-2,666
-2,879
-21,075
-24,794
-2,916
-3,212
296
-187
483
-483
16,498
10,680
3,763
482
-
-
31,423
20,409
11,014
6,287
4,727
-483
-
4,244
IFRS financial
statements
Sale of operating
lease assets
FI&C, Capital
Markets and
Group Treasury
Danica
Pension1
Non-core
Total
reclassification1
Financial
highlights1
20,739
7,285
28,766
4,725
18,763
44,998
35,280
21,587
13,693
1,131
12,562
-
12,562
-
-
-
-2,650
-
-
-2,650
-2,650
-
-
-
-
-
-586
132
431
23
-
-
-
-
-
-
-
-
-
-3,673
3,353
-25,465
-87
-18,763
-44,998
362
362
-
-
-
-
-
-144
-9
-9
-2
-
-
-164
-93
-70
-319
248
-248
-
-4,403
3,476
-25,043
-2,717
-18,763
-44,998
-2,452
-2,381
-70
-319
248
-248
16,336
10,761
3,723
2,009
-
-
32,829
19,206
13,623
813
12,810
-248
-
12,562
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 nine months 2020 36/62
Notes – Danske Bank Group
G4. Income
Interest income and interest expense
Negative interest income during the period ending September 2020 amounted to DKK 1,449 million (30 September 2019: DKK 1,930 million). Negative
interest expenses amounted to DKK 2,004 million (30 September 2019: DKK 1,835 million). In the income statement, negative interest income is recog-
nised 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 first nine months 2020
(DKK millions)
Investment
Pension and Insurance
Money transfers, account fees and cash management
Lending and Guarantees
Capital markets
Financial
highlights
- net fee in-
come
3,166
2,932
2,137
1,559
885
Reclassifica-
tions
IFRS
- net fee in-
come
Fee expense
-96
-2,813
11
386
-710
3,070
119
2,148
1,945
176
7,458
IFRS
- gross fee
income
5,991
119
3,079
2,133
176
2,921
-
931
188
-
Total
10,680
-3,222
4,039
11,498
Fee income first nine months 2019
(DKK millions)
Financial
highlights - net
fee income
(previously
reported)1
Financial
highlights - net
fee income
(restated)
Restate-
ment 2
Reclassifica-
tions 1
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
3,666
2,410
2,032
1,804
850
-529
201
328
-
-
3,137
2,611
2,359
1,804
850
-665
-2,509
-33
411
-680
2,472
102
2,326
2,215
170
3,240
-
1,084
204
-
5,712
102
3,410
2,419
170
Total
10,761
-
10,761
-3,476
7,285
4,528
11,813
1 Comparative information has been restated, as described in the section ‘Changes in financial highlights and segment reporting’ of note G2(b).
2 Comparative information has further been restated to reflect a refinement of the distribution of eliminations between fee types.
Other income
Other income amounted to DKK 3,492 million for the nine months ending 30 September 2020 (30 September 2019: DKK 4,326 million). Other income
includes primarily income from lease assets, investment property and real estate brokerage. Further, it includes gain and loss on sale of disposal groups,
including the gain of DKK 1.3 billion on the sale of Danica Försäkringsaktiebolag in 2019.
Danske Bank / Interim report – first nine months 2020 37/62
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
30 September
2020
30 September
2019
3,776
-3,486
5,164
1,545
-314
-212
6,474
3,377
-3,607
951
1,059
-451
-198
1,131
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
802
-131
-17
470
-216
17
-1
-34
-5
-762
644
-903
1,432
-1,050
1,997
-10
-67
-65
-40
-513
920
1,874
-2,220
3,151
-1,636
-414
42
-
-
-
3,776
-3,486
5,164
-1,647
-515
-28
ECL allowance account as at 30 September 2020
2,202
7,179
15,196
24,576
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. 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.
Notes – Danske Bank Group
G6. Issued bonds, subordinated debt and additional tier 1 capital
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
Nominal value
(DKK millions)
Commercial papers and certificate of deposits
Preferred senior bonds
Covered bonds
Non-preferred senior bonds
Danske Bank / Interim report – first nine months 2020 38/62
30 September 31 December
2019
2020
772,670
7,730
795,721
6,780
780,400
802,501
30 September 31 December
2019
2020
14,850
65,370
171,932
4,043
70,395
181,918
252,152
256,355
108,671
87,054
1 January
2020
10,821
75,280
176,489
86,891
Issued
Redeemed
30,043
19,275
29,429
23,706
19,372
23,670
29,061
-
Foreign
currency 30 September
2020
translation
-392
-2,088
-5,343
-3,527
21,101
68,797
171,514
107,070
Other issued bonds
349,481
102,453
72,103
-11,350
368,481
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
As at 30 September 2020, the nominal value of subordinated debt, including liability accounted additional tier 1 capital, amounted to DKK 34,767 million (31
December 2020: DKK 31,585 million) and the nominal value of equity accounted additional tier 1 capital to DKK 8,585 million (31 December 2019: DKK
14,205 million). During the nine months ended 30 September 2020, the Group redeemed EUR 750 million (DKK 5,600 million) of additional tier 1 capital
accounted for as equity and issued DKK 3,721 million of tier 2 capital. During 2019, the Group issued DKK 11,901 million and redeemed DKK 3,467 million
of tier 2 capital.
For the additional tier 1 capital, 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 30 September 2020, distributable items for Danske Bank A/S amounted to DKK 123.9 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 30 September 2020 the common
equity tier 1 capital ratio was 21.7% (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 nine months 2020 39/62
Notes – Danske Bank Group
G7. 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
30 September
2020
31 December
2019
2,021
271
2,292
938
414
1,352
Loans held for sale consists of loan portfolios within the non-core segment where the Group has entered into sales agreement. 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
transactions settled in the first half of 2020. In June 2020, an agreement to sell a portfolio of Estonian corporate loans managed by the Lithuania branch
was entered into. The transaction settled in October 2020. Liabilities in disposal groups held for sale consist of deposits in the same portfolios.
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.
G8. Other assets and Other liabilities
Other assets amounted to DKK 34,790 million (31 December 2019: DKK 37,679 million), including holdings in associates of DKK 274 million (31 December
2019: DKK 341 million), investment property of DKK 2,228 million (31 December 2019: DKK 2,644 million), tangible assets of DKK 8,242 million (31
December 2019: DKK 8,450 million) and right-of-use lease assets of DKK 5,013 million (31 December 2019: DKK 5,634 million), consisting of domicile
property of DKK 4,105 million (31 December 2019: DKK 4,650 million) and other tangible assets of DKK 909 million (31 December 2019: DKK 984 million).
Other liabilities amounted to DKK 42,275 million (31 December 2019: DKK 46,191 million), including accrued interest and commissions due of DKK 5,700
million (31 December 2019: DKK 6,833 million), lease liabilities of DKK 4,950 million (31 December 2019: 5,526), other staff commitments of DKK 2,453
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.
G9. 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 34,202 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 30 September 2020, the structural FX
hedge position totalled DKK 30,579 million (31 December 2019: DKK 29,988 million) and a loss of DKK 1,495 million has been recognised in Other com-
prehensive income during the first three quarters of 2020, primarily due to a significant weakening of NOK and to a lesser degree of SEK against DKK through-
out the first three quarters of 2020.
Danske Bank / Interim report – first nine months 2020 40/62
Notes – Danske Bank Group
G10. 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
30 September 31 December
2019
2020
7,100
59,549
66,649
4,661
64,403
69,064
30 September 31 December
2019
2020
251,189
195,236
182
446,607
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 222 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 addition, on
21 October 2020 Danske Bank was preliminary charged for governance and control related failures relating to the Estonian branch under Section 71 of the
Danish Financial Business Act, which is consistent with the Danish FSA's decision dated 3 May 2018.
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 Bank’s internal investigation into the non-resident portfolio is progressing as planned and expected to be completed during the fourth quarter of 2020.
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.
Danske Bank / Interim report – first nine months 2020 41/62
Notes – Danske Bank Group
G10. Guarantees, commitments and contingent liabilities continued
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. On 24 August 2020, the action was dismissed with prejudice by the United States District Court for the Southern District of
New York. The claimants have since filed a one-page notice of appeal from the dismissal. In due course, the appellate court will issue a schedule for the
appeal, which will include a timetable that will likely run into 2021.The Bank intends to defend itself against the claim. The timing of the completion of the
lawsuit and the outcome are uncertain.
On 3 March 2019, a court case was initiated against Danske Bank and Thomas F. Borgen for approval of a class action led 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 (153), October 2019
(61), January 2020 (9), March 2020 (38), and September 2020 (55), a total of 316 separate claims were filed by 316 investors against the Bank with
a total claim amount of approximately DKK 7.5 billion. On 27 December 2019 and 4 September 2020, two separate claims were filed by 93 investors
against the Bank with a total claim amount of approximately DKK 1.7 billion. On 2 September 2020, 20 separate claims were filed against the Bank with
a total claim amount of approximately DKK 1.2 billion. On 18 September 2020, a separate claim was filed by 201 investors against the Bank with a total
claim amount of approximately DKK 2.1 billion. Finally, on 18 September 2020, a separate claim was filed by two institutional investors against the Bank
and Thomas F. Borgen with a total preliminary claim amount of DKK 10 million. 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.
210 of the 316 cases filed in the period from March 2019 to September 2020 have subsequently been referred to the Eastern High Court. The Bank
intends to defend itself against the claims. The timing of completion 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 has cooperated fully with SØIK and in November 2020 accepted a
fine of DKK 9 million after which the matter has been closed. 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 G8.
(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 nine months 2020 42/62
Notes – Danske Bank Group
G11. Assets provided or received as collateral
As at 30 September 2020, the Group had deposited securities worth DKK 21.7 billion as collateral with Danish and international clearing centres and
other institutions (31 December 2019: DKK 8.6 billion).
As at 30 September 2020, the Group had provided cash and securities worth DKK 100.8 billion as collateral for derivatives transactions (31 December
2019: DKK 107.4 billion).
As at 30 September 2020, the Group had registered assets (including bonds and shares issued by the Group) under insurance contracts worth DKK
450.3 billion (31 December 2019: DKK 450.9 billion) as collateral for policyholders’ savings of DKK 438.8 billion (31 December 2019: DKK 437.4
billion).
As at 30 September 2020, the Group had registered loans at fair value and securities (including bonds issued by the Group) worth a total of DKK 817.6
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 313.0 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)
Repo
Other
Total
Repo
Other
Total
30 September 2020
31 December 2019
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
-
205,679
-
-
-
-
205,679
33,968
42,026
87,391
806,877
326,302
353,291
39
42,026
293,070
806,877
326,302
353,291
39
1,615,926
92,719
1,821,604
126,688
-
186,473
-
-
-
-
186,473
43,322
43,230
75,876
802,579
277,395
359,246
72
43,230
262,349
802,579
277,395
359,246
72
1,558,398
81,354
1,744,871
124,675
Total, including own issued bonds
239,647
1,708,645
1,948,292
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 205.7 billion as at 30 September 2020 (31 December 2019: DKK 186.5 billion).
As at 30 September 2020, the Group had received securities worth DKK 361.9 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 30 September 2020, the Group had sold securities or provided
securities as collateral worth DKK 150.2 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 nine months 2020 43/62
Notes – Danske Bank Group
G12. 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
30 September 2020
Fair value
Amortised cost
31 December 2019
Fair value
Amortised cost
-
38,357
674,426
171,816
-
1,068,430
108,385
483,763
-
239,388
38,886
-
128,488
999,157
-
-
-
2,021
-
24,354
495,321
163,782
-
1,122,048
111,089
434,945
-
99,035
81,320
-
121,091
1,028,011
-
-
-
938
Total
2,545,177
1,407,940
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
99,475
499,128
167,033
780,400
-
109,231
-
-
-
-
101,845
-
1,113,846
-
252,152
-
138
108,671
35,014
2,605
79,877
452,202
184,755
802,501
-
111,537
-
-
-
-
75,369
-
955,970
-
256,355
-
110
87,054
31,733
2,485
Total
1,655,267
1,614,271
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 nine months 2020 44/62
Notes – Danske Bank Group
G12. Fair value information for financial instruments continued
(DKK millions)
30 September 2020
Financial assets
Due from credit institutions and central banks
Derivatives
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
Assets under insurance contracts, shares
Assets under insurance contracts, derivatives
Quoted prices
Observable input
Non-observable
input
Total
-
2,353
270,757
13,078
144,697
30
-
108,385
169,239
100,608
202
38,357
357,870
25,801
-
26,055
-
1,068,430
-
22,996
2,258
145,065
-
4,424
-
143
-
1,034
-
-
6,228
35,833
1,334
38,357
364,647
296,558
13,221
170,752
1,064
1,068,430
108,385
198,463
138,699
146,601
Total
809,349
1,686,832
48,996
2,545,177
Financial liabilities
Due from credit institutions and central banks
Derivatives
Obligations to repurchase securities
Deposits
Issued bonds at fair value
Deposits under pooled schemes and unit-linked investment contracts
Total
(DKK millions)
31 December 2019
Financial assets
Due from credit institutions and central banks
Derivatives
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
Assets under insurance contracts, shares
Assets under insurance contracts, derivatives
-
2,405
149,878
-
780,400
-
99,475
342,683
321
167,033
-
109,231
-
3,801
39
-
-
-
99,475
348,889
150,238
167,033
780,400
109,231
932,683
718,743
3,840
1,655,267
Quoted prices Observable input
Non-observable
input
Total
-
3,695
173,852
12,028
133,953
53
-
111,089
174,978
101,432
2,225
24,354
285,216
15,260
-
28,393
-
1,122,048
-
17,841
2,304
89,990
-
5,070
-
200
-
1,383
-
-
4,099
39,813
2,263
24,354
293,980
189,112
12,228
162,346
1,436
1,122,048
111,089
196,918
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
Obligations to repurchase securities
Deposits
Issued bonds at fair value
Deposits under pooled schemes and unit-linked investment contracts
-
3,609
151,590
-
802,501
-
79,877
291,232
744
184,756
-
111,537
-
4,853
173
-
-
-
79,877
299,695
152,507
184,756
802,501
111,537
Total
957,700
668,146
5,026
1,630,872
Danske Bank / Interim report – first nine months 2020 45/62
Notes – Danske Bank Group
G12. 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)
30 September 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
35,833
1,138
6,228
1,957
39,813
1,410
4,099
2,480
-
114
83
-
-
141
90
-
-
114
83
-
-
141
90
-
193
198
3
-
1,357
208
-25
-
-1,705
72
-148
444
1,898
345
260
1,690
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 the nine month period
ended 30 September 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)
Shares
30 September 2020
31 December 2019
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
-1,242
6,295
-7,747
-
-1,558
4,099
-145
3,031
-757
-
-
2,480
444
88
-647
-2
-407
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
36,971
6,228
1,957
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 nine months 2020 46/62
Notes – Danske Bank Group
G12. 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.
30 September 2020 (DKK millions)
Financial assets
Investment securities
Loans at amortised cost
Financial liabilities
Issued bonds, including non-preferred senior bonds
Subordinated debt
31 December 2019 (DKK millions)
Financial assets
Investment securities
Loans at amortised cost
Financial liabilities
Issued bonds, including non-preferred senior bonds
Subordinated debt
Carrying
amount
Fair value Quoted prices
Observable
input
Non-observable
input
128,488
999,157
130,794
999,051
110,454
-
20,340
9,707
-
989,344
360,823
35,014
363,269
35,888
293,108
32,749
47,794
3,140
22,367
-
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 nine months 2020 47/62
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)
30 September 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
investments
233.9
77.2
674.4
300.3
999.2
1,068.4
108.4
510.0
2.0
66.6
251.2
195.2
0.2
233.9
38.9
-
-
996.7
806.9
-
-
-
66.5
249.7
195.2
-
4,487.1
2,587.7
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
-
-
-
-
-
2.5
-
-
-
2.0
0.2
1.5
-
-
6.2
0.4
0.1
-
-
5.7
-
-
-
0.9
0.3
2.5
0.5
-
-
38.4
364.6
-
-
261.6
-
-
-
-
-
-
-
-
-
309.8
300.3
-
-
-
-
-
-
-
-
0.2
-
-
-
-
-
-
108.4
510.0
-
-
-
-
-
664.6
610.3
618.4
-
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
222 billion at 30 September 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 nine months 2020 48/62
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.
Credit portfolio in core activities broken down by rating category and stages
The table below breaks down the credit exposure by rating categories and stages. Further information on classification of customers can be found on
page 179 in Annual report 2019.
30 September 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
Stage 1 Stage 2 Stage 3
Net exposure, ex collateral
Stage 1 Stage 2 Stage 3
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
230.5
229.0
485.2
560.7
502.7
260.8
112.8
13.3
1.6
1.7
-
0.1
0.2
1.4
3.3
8.4
25.2
60.0
29.8
12.3
23.3
0.1
-
-
0.1
0.5
0.2
1.7
0.4
0.3
0.2
26.6
18.8
-
-
0.1
0.7
0.4
0.4
0.4
0.1
-
-
-
-
-
-
-
0.1
0.3
1.3
2.7
1.0
1.8
-
-
-
-
-
-
-
-
-
-
5.2
9.0
230.5
229.0
485.1
560.0
502.3
260.4
112.4
13.2
1.5
1.7
-
0.1
0.2
1.4
3.3
8.4
24.9
58.7
27.1
11.3
21.5
0.1
-
-
0.1
0.5
0.2
1.7
0.4
0.3
0.2
21.4
9.9
215.2
113.9
187.5
233.9
163.8
87.7
34.1
4.6
0.2
1.2
-
-
0.1
0.4
1.6
3.6
7.7
21.4
6.1
0.9
9.8
-
-
-
-
0.1
-
0.8
0.1
-
-
4.8
2.4
2,398.2
164.1
48.9
2.2
7.2
14.2
2,396.0
156.9
34.7
1,042.1
51.6
8.3
31 December 2019
(DKK billions)
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
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
The breakdown of the credit portfolio by rating category in 2019 has been restated, leading to a reclassification of a gross and net exposure of DKK 9.4
billion in rating categories 10 and 11 to other rating categories. The restatement is only a matter of presentation and has no impact on the expected
credit losses, allocation between stages 1-3 or non-performing loans.
Besides increasing the expected credit losses, the post-model adjustments may lead to the transfer of part of the gross exposure covered by the post-
model adjustments from stage 1 to stage 2 through targeted PD pushes to the current point in time estimate of the PD (i.e. increases in the PD for the
underlying customers in the selected portfolios covered by the post-model adjustments) to ensure consistency between the methods used to inform both
on expected credit losses and on exposures subject to significant increase in credit risk. While the distribution of customers between the Group’s 11
rating categories remains unchanged and reflects the current point in time estimate of the underlying customers’ PDs, the PD pushes may lead to the
transfer of gross exposures to stage 2 as the assessment of the increase in credit risk is performed by comparing the initial PD to the current PD (after
the adjustment for the targeted PD pushes). During the third quarter of 2020, the Group has reassessed the estimated size of the PD pushes especially
related to the corona crisis post-model adjustment. This lead to a decrease in estimated amount of exposures transferred to stage 2 in the third quarter
of 2020 compared to in the second quarter of 2020. The method of allocation of the post-model adjustments to the underlying exposures has been
refined during the third quarter of 2020. For exposures transferred to stage 2, the difference between 12-months expected credit losses and lifetime
expected credit losses is recognised. Any remaining post-model adjustment is allocated proportionately to the underlying exposures based on their share
of total expected credit losses.
Danske Bank / Interim report – first nine months 2020 49/62
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 the macroeconomic outlook following the outbreak of the coronavirus
pandemic. Further, expected credit losses reflect a deterioration of the creditworthiness of specific customers mainly within oil and gas (in the Shipping,
oil and gas industry).
30 September 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
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
282.8
113.0
52.7
27.3
67.1
291.6
43.4
63.9
11.0
12.7
20.0
48.0
199.1
35.2
20.2
52.2
36.0
29.5
19.2
11.6
59.7
901.9
-
3.0
14.3
3.3
7.1
19.4
6.9
6.0
3.2
0.7
1.1
2.7
4.0
1.8
3.0
8.3
6.2
1.0
0.8
5.6
0.2
65.7
-
0.5
7.0
0.6
1.6
7.0
2.1
1.3
1.4
0.1
0.1
0.1
2.2
0.6
2.8
1.1
9.0
1.1
0.2
0.6
0.1
9.3
-
0.1
0.1
-
0.1
0.5
-
0.1
-
-
-
-
0.1
-
-
0.1
0.1
-
-
-
-
0.9
-
0.1
1.0
0.2
0.4
1.1
0.3
0.3
0.1
-
-
-
0.2
-
0.2
0.3
0.4
-
-
0.2
-
2.1
-
0.2
1.6
0.1
0.5
1.2
0.8
0.5
0.3
-
-
-
0.3
0.2
0.9
0.4
3.5
0.3
0.1
0.1
0.1
3.1
282.8
112.9
52.6
27.3
67.0
291.0
43.4
63.8
11.0
12.7
20.0
47.9
199.0
35.2
20.2
52.1
36.0
29.5
19.2
11.6
59.7
901.0
-
2.9
13.3
3.0
6.6
18.3
6.6
5.7
3.1
0.7
1.1
2.7
3.8
1.7
2.8
8.0
5.7
0.9
0.8
5.4
0.2
63.6
-
0.3
5.4
0.5
1.1
5.8
1.4
0.8
1.1
0.1
-
-
1.9
0.4
1.9
0.7
5.5
0.8
0.1
0.5
-
6.2
279.3
99.9
12.8
20.0
58.7
58.3
31.6
45.2
2.3
10.6
18.3
45.1
31.1
25.7
11.7
42.2
19.1
11.3
17.6
6.4
43.1
151.7
-
2.0
1.7
1.6
5.6
4.3
3.2
3.6
1.2
0.3
0.3
2.0
0.9
0.5
1.9
6.1
1.6
0.5
0.5
2.6
0.1
11.2
-
-
0.6
0.2
0.6
0.9
0.8
0.2
0.4
-
-
-
0.2
0.1
1.1
0.3
1.7
0.4
-
0.1
-
0.6
Total
2,398.2
164.1
48.9
2.2
7.2
14.2
2,396.0
156.9
34.7
1,042.1
51.6
8.3
As at 30 September 2020, oil and gas exposures (within the Shipping, oil and gas industry) represent a gross exposure of DKK 26.8 billion (31 December
2019: DKK 29.9 billion) and expected credit losses of DKK 3.5 billion (31 December 2019: DKK 2.7 billion). Those exposures represent the majority of
the exposures in stage 3 within the Shipping, oil and gas industry at the end of September 2020.
As described in the text below the table ‘Credit portfolio in core activities broken down by rating category and stages’, the post-model adjustments may,
besides increasing the expected credit losses, lead to the transfer of part of gross exposures covered by the post-model adjustments from stage 1 to
stage 2. Compared to the fourth quarter of 2019, such transfers improve the overall average credit quality of the exposures within stage 2 for some
industries. This is the case for the industries Hotels, restaurants and leisure and Services. For Hotels, restaurants and leisure, the relatively small impact
on expected credit losses in stage 2 is further due to an increase in collateral of DKK 0.9 billion compared to the end of 2019.
Danske Bank / Interim report – first nine months 2020 50/62
Notes – Danske Bank Group
Credit exposure continued
31 December 2019
(DKK billions)
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
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
-
0.3
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
Collateral
The Group uses a number of measures to mitigate credit risk, including collateral, guarantees and covenants. The main method is obtaining collateral. In
the Annual Report 2019, a table showing collateral by type (after haircut) is included. The mitigating effect from collateral at the end of September 2020
can be found as the difference between the columns ‘Net exposure’ and ‘Net exposure, ex collateral’ and amounted to DKK 1,485.6 billion at 30 Septem-
ber 2020 (31 December 2019: DKK 1,481.9 billion).
The Group uses guarantee schemes offered by the governments in our markets to mitigate the economic consequences of the corona crisis. During first
nine months 2020, loans of DKK 5.9 billion were originated under such guarantee schemes with the guarantees covering DKK 4.4 billion of the loans. A
large part of the guarantees relates to Northern Ireland.
Danske Bank / Interim report – first nine months 2020 51/62
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 in IFRS 9
30 September 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
532.1
410.2
35.1
30.7
5.3
17.3
0.8
0.7
1.4
2.2
2.4
4.2
531.3
409.5
33.7
28.5
2.9
13.1
66.8
80.4
6.7
7.7
942.3
65.8
22.7
1.5
3.7
6.6
940.8
62.1
16.1
147.2
14.4
278.0
217.5
158.8
35.3
26.5
15.5
14.7
14.5
3.2
2.7
6.2
1.2
0.1
0.1
0.1
-
0.3
0.2
1.0
0.4
0.4
0.4
2.3
1.0
0.8
0.5
1.3
0.4
277.9
217.5
158.8
35.3
25.5
15.2
14.3
14.1
2.4
2.2
4.8
0.8
103.8
70.4
43.9
13.9
10.5
5.1
2.8
3.1
3.0
689.4
69.0
10.2
232.0
21.5
4.0
476
19
407.3
14.2
Banking Nordic
689.7
71.3
13.2
C&I1
476.3
20.4
10.4
Wealth Management
4.8
-
-
-
-
-
4.8
Northern Ireland
81.9
6.5
2.6
0.1
0.2
0.6
81.7
203.3
0.1
-
-
-
-
203.3
6
-
4.8
2.0
48.1
-
202.7
-
6.4
0.1
-
1.5
0.1
Retail
Commercial
Banking DK
Sweden
Norway
Finland
Other
Other
Total
2,398.2
164.1
48.9
2.2
7.2
14.2
2,396.0
156.9
34.7
1,042.1
51.6
8.3
0.5
2.2
2.7
1.2
0.9
1.2
-
3.3
2.0
-
0.3
-
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 nine months 2020 52/62
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 30 September 2020, the Group had recognised
properties taken over in Denmark at a carrying amount of DKK 21 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 the first three quarters of 2020, the Group increased the use of concessions to assist customers affected by the corona crisis. The Group granted
such concessions representing an increase in gross exposure of around DKK 53 billion, of which around DKK 13 billion (net of expected credit losses
DKK 12 billion) is considered forbearance measures, see note G1(b) section ‘Accounting treatment of the impacts on expected credit losses from the
corona crisis’ for the definition of when such concessions are considered to be a forbearance measure. The concessions relate primarily to Personal
customers and the industries Shipping, oil and gas, Commercial property, Transportation and Consumer goods. In our Nordic markets, such concessions
are made on a voluntary basis, while in Northern Ireland, the Bank was selected by the UK Government to provide concessions through the UK govern-
ment-backed lending schemes.
The Group has implemented the European Banking Authority’s (the EBA’s) definition of loans subject to forbearance measures. The table below is based
on the EBA’s definition, which states that a minimum two-year probation period must pass from the date when forborne exposures are considered to be
performing again. Such exposures are included in the Under Probation category in the table below. Exposures with forbearance measures are divided
into performing and non-performing loans. The Group’s definition of non-performing loans is described in the next section. The increase in forborne expo-
sures relates to proactive forbearance measures taken by Danske Bank to improve the financial position of weak customers following the corona crisis.
Exposures subject to forbearance measures
(DKK millions)
Active forbearance
Under probation
Total
30 September 2020
31 December 2019
Performing Non-performing1
Performing
Non-performing1
10,483
13,166
11,457
-
8,161
4,933
23,650
11,457
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 nine months 2020 53/62
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 corona crisis on total gross NPL exposures was limited in the first three quarters of 2020. At the same time, net NPL decreased driven by
a decrease in net NPL in default partly due to an increase in the expected credit loss. The decrease for net NPL in default was partly offset by an increase
in net NPL in non-default.
The table below shows the reconciliation as at 30 September 2020 between the gross exposure in stage 3 and gross non-performing loans.
Non-performing loan bridge
(DKK billions)
Gross exposure in stage 3
None or an immaterial allowance account
Gross non-performing loans
Expected credit loss
Net non-performing loans
30 September 2020
31 December 2019
Non-default
Default
Total Non-default
Default
30.1
11.0
19.1
5.2
13.9
18.8
3.7
15.2
8.9
6.3
48.9
14.7
34.3
14.1
20.2
21.2
4.1
17.1
5.1
12.0
21.5
3.9
17.6
8.3
9.4
Total
42.8
8.0
34.7
13.4
21.3
For 2019, the amounts in the rows ‘Gross exposure in stage 3’ and ‘None or an immaterial allowance account’ have been restated. This has no impact
on non-performing loans (gross and net), as the increase in the gross exposure in stage 3 relates to collateralised exposures with an immaterial allowance
account.
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
30 September 2020 31 December 2019
20,172
6,256
21,346
9,372
98
64
82
1.3
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
800
-129
-16
469
-213
18
-1
-34
-4
-760
639
-885
1,430
-1,031
1,980
-10
-67
-54
-40
-511
901
1,733
-2,164
3,081
-1,636
-378
19
-
-
-
3,631
-3,408
5,079
-1,647
-479
-39
ECL allowance account as at 30 September 2020
2,196
7,151
14,241
23,588
Danske Bank / Interim report – first nine months 2020 54/62
Notes – Danske Bank Group
Credit exposure continued
Allowance account in core activities broken down by segment
(DKK millions)
Banking DK
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
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
1,095
-1,773
1,002
-227
-8
-19
1,328
-746
855
-59
-127
18
1,111
-797
2,931
-1,345
-285
-38
ECL allowance account as at 30 September 2020
11,732
5,602
5,295
Northern
Ireland
Allowance
account total
Other
792
52
-172
29
-14
44
-
730
89
-89
290
-17
-57
-1
945
12
3
-5
-1
-
-
-1
8
8
-3
2
-
-2
1
20,353
3,898
-4,377
1,264
-796
109
-
20,451
3,631
-3,408
5,079
-1,647
-479
-39
14
23,588
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 scenarios and the weightings
remain unchanged from the second quarter of 2020. The base case is based on the macroeconomic 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). As at 30 September 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 at the end of 2019, despite
including expectations of substantial government support packages to mitigate the macroeconomic impacts from the corona crisis. The downside sce-
nario has been updated to a longer-lasting corona crisis scenario that includes a steeper decline than during the global financial crisis with a close to
double-digit decrease in GDP and has a likelihood of 20%, 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 and includes substantial increases in unemployment
and decreases in house prices.
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 downside scenario entering into the ECL calculation for the forecast horizon as an average across the Group’s
core markets are included below.
30 September 2020
Group average
GDP
Industrial Production
Unemployment
Inflation
Consumption Expenditure
Property prices - Residential
Interest rate - 3 month
Interest rate - 10 year
Base case
2021
2020
2022
2020
Downside
2021
2022
-4.2
-6.8
6.8
0.5
-4.4
-0.6
-0.1
0.1
3.4
4.3
6.3
1.6
4.1
1.8
0.0
0.4
2.1
3.4
5.5
1.7
1.8
2.6
0.1
0.6
-9.5
-11.7
7.8
0.1
-11.5
-3.5
-0.1
0.0
-3.3
-6.2
9.0
-1.7
-0.1
-13.1
0.2
1.5
2.6
9.4
7.8
0.3
3.2
3.0
0.3
1.1
The upside scenario represents a slightly better outlook than the base case scenario across the macroeconomic parameters.
Danske Bank / Interim report – first nine months 2020 55/62
Notes – Danske Bank Group
Credit exposure continued
At 31 December 2019, the following base case 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 70% (31 December 2019: 60%), the upside scenario with a probability of 10% (31 December 2019:
10%) and the downside scenario with a probability of 20% (31 December 2019: 30%). On the basis of these assessments, the allowance account as at
30 September 2020 amounted to DKK 23.6 billion (31 December 2019: 20.5 billion). If the base case scenario was assigned a probability of 100%, the
allowance account would decrease DKK 0.8 billion (31 December 2019: 0.7 billion). Compared to the base case scenario, the allowance account would
increase DKK 0.6 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 increase by DKK 4.4 billion (31 December 2019: 0.5 billion) compared to the base-case scenario. 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).
Management applies judgement when determining the need for post-model adjustments. At 30 September 2020, the post-model adjustments amounted
to DKK 5.6 billion (31 December 2019: 4.0 billion). The post-model adjustments primarily relate to the following types of risks:
•
specific macroeconomic risks on certain industries not fully captured by the expected credit loss model, for instance the Agriculture industry and
the Shipping, oil and gas industry. For these industries, supplementary calculations are made in order to ensure sufficient impairment coverage
non-linear downside risk, for instance on the property market in Copenhagen and other high growth areas for which the macroeconomic forecasts
used in the models are based on the property market as a whole
portfolios where the credit risk assessment process has identified underestimation of the expected credit losses
upcoming model changes that will impact the credit loss model
the post-model adjustments continue to include the immediate risks arising from the corona crisis that were introduced in the first quarter of 2020.
Further information on the corona crisis post-model adjustment can be found in the section ‘Accounting treatment of the impacts on expected credit
losses from the corona crisis’ in note G1(b)
•
•
•
•
30 September 2020
(DKK millions)
Non-core banking
Personal customers
Commercial customers
Public Institutions
Non-core conduits etc.
31 December 2019
(DKK millions)
Non-core banking
Personal customers
Commercial customers
Public Institutions
Non-core conduits etc.
Danske Bank / Interim report – first nine months 2020 56/62
Notes – Danske Bank Group
Credit exposure continued
Credit exposure from Non-core lending activities
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. Further information on sales can be found in note G7.
Credit portfolio in non-core activities broken down by industry (NACE) and stages
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
27
2,094
1,354
2,441
2
134
21
-
1
312
-
817
-
5
-
-
6
-
28
-
-
-
235
-
719
27
2,089
1,354
2,441
2
106
21
-
1
77
-
98
25
1,278
1,282
112
28
955
5,911
129
176
2,697
-
64
20
-
84
-
-
-
-
-
Total
5,917
157
1,130
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
976
3,327
1,944
3,340
24
254
30
141
4
316
-
908
3
7
-
-
17
37
-
-
-
156
-
639
973
3,320
1,944
3,340
7
216
30
141
3
160
-
268
25
1,609
1,650
578
-
78
26
-
1
34
-
-
35
Total
9,586
449
1,228
10
55
796
9,576
394
432
3,862
104
Credit portfolio in non-core activities broken down by rating category and stages
30 September 2020
(DKK millions)
1
2
3
4
5
6
7
8
9
10
11 (default)
Total
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
1,373
2,270
552
455
359
310
82
25
87
267
-
11
47
12
17
13
15
23
6
3
10
-
7
29
7
10
8
7
29
1
35
996
5,917
157
1,130
-
-
-
-
1
1
2
-
-
-
-
6
-
-
-
-
-
-
3
20
5
-
-
-
-
-
-
-
-
-
27
-
22
905
137
1,373
2,270
551
454
358
308
82
25
87
267
-
11
47
12
17
13
11
3
1
3
10
-
7
29
7
10
8
7
2
1
13
91
-
298
1,231
349
319
197
124
47
23
60
50
-
11
44
8
10
5
3
-
1
2
-
28
955
5,911
129
176
2,697
84
-
-
-
-
-
-
-
-
-
-
-
-
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 nine months 2020 57/62
30 September 31 December
2019
2020
364.6
299.9
595.8
14.3
0.2
294.0
343.1
472.5
13.7
0.3
1,274.8
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 299.2 billion (31 December 2019: DKK 342.0 billion), of which DKK 38.0 billion relates to credit institutions and central banks (31 December 2019: DKK 23.6 billion), and other primarily
short-term loans of DKK 0.7 billion ((31 December 2019: DKK 1.1 billion), of which DKK 0.4 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
30 September
2020
31 December
2019
889,386
524,738
364,647
265,254
99,393
66,496
622,353
328,372
293,980
217,620
76,361
50,730
32,897
25,631
274,237
88,574
1,836
228,428
64,374
1,178
364,647
293,980
Total
Bond portfolio
(DKK millions)
30 September 2020
Held-for-trading
Managed at fair value
Held to collect and sell
Held to collect
Total
31 December 2019
Held-for-trading
Managed at fair value
Held to collect and sell
Held to collect
Total
Central and
local govern-
ment bonds
Quasi-
government
bonds
Danish
mortgage
bonds
Swedish
covered
bonds
Other
covered
bonds
Corporate
bonds
164,359
15,330
16,626
33,490
2,013
838
2,734
1,485
20,953
32,729
83,834
84,755
95,112
2,227
8,586
7,039
3,999
592
5,188
1,718
10,123
1,158
910
-
Total
296,559
52,874
117,878
128,488
229,805
7,070
222,272
112,964
11,496
12,191
595,798
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
152,872
4,583
250,166
46,072
10,152
8,705
472,550
At 30 September 2020, the Group had an additional bond portfolio, including bond-based unit trust certificates, worth DKK 198,463 million (31 Decem-
ber 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 30 September
2020 and 31 December 2019, see note G12.
Danske Bank / Interim report – first nine months 2020 58/62
Notes – Danske Bank Group
Bond portfolio continued
Bond portfolio broken down by geographical area
(DKK millions)
30 September 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
65,547
52,818
6,126
3,444
14,324
5,065
10,599
-
12,775
4,313
3,766
1,059
3,979
6,979
37,241
1,770
-
-
4
-
599
1,139
-
-
4,372
887
-
-
-
-
-
-
5
65
222,272
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
112,964
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,098
8,210
-
1
560
-
649
4
-
-
-
15
738
1
220
1,196
4,193
1,074
2,529
18
2
14
170
1,957
43
5
-
44
323
304
-
320
Total
289,015
169,978
8,299
14,782
15,481
5,069
11,173
4,541
16,267
4,360
3,771
1,059
4,022
7,316
38,283
1,775
606
229,805
7,070
222,272
112,964
11,496
12,191
595,798
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 nine months 2020 59/62
Notes – Danske Bank Group
Bond portfolio continued
Bond portfolio broken down by external ratings
(DKK millions)
30 September 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
178,872
10,882
24,478
1,370
-
5,904
-
3,475
1,191
3,635
-
-
-
-
5,956
81
1,032
-
-
-
-
-
-
-
-
-
-
-
222,009
-
-
-
-
172
-
-
90
-
-
-
-
-
112,918
-
46
-
-
-
-
-
-
-
-
-
-
-
10,677
270
525
-
-
5
-
-
-
-
-
-
-
20
989
142
1,338
429
50
2,557
1,788
705
2,554
565
267
576
12
219
Total
531,421
11,374
27,419
1,800
50
8,639
1,789
4,180
3,834
4,200
267
576
12
238
229,805
7,070
222,272
112,964
11,496
12,191
595,798
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 nine months 2020 60/62
Notes – Danske Bank Group
Market risk
The notes on market risk provides an update on the Annual Report 2019 where it has been assessed that an update is required as a result of the corona
crisis.
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. Trading-related activities in Corporates & Institutions mainly involve market making and 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
30 September 2020
31 December 2019
Average
End of period
Average
End of year
30
28
26
26
In the first nine months of 2020, the average trading-related market risk was DKK 30 million, which was slightly higher compared to the average for
2019.The market risk was fairly unchanged until the beginning of March, after which the corona crisis market stress caused an increase in the average
trading-related market risk driven by higher bond spread risk and interest rate risk. The risk remained elevated for two months, after which the average
trading-related market risk decreased.
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 1.4 billion as at 30 September 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 interest rate risk duration of the fixed rate assets (increasing the interest rate risk on assets).
Interest rate risk in banking book (a parallel yield curve shift of 100 points)
At last business day (DKK millions)
Total
30 September 2020
31 December 2019
+100bp
-100bp
+100bp
2,325
-1,383
4,433
-100bp
-2,681
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. At 30 September 2020, none of the scenarios are causing a decline in the net interest income compared to the base scenario. The worst case
scenario is the ‘short rates up’ scenario, having a positive Earnings-at-Risk impact of DKK 195 million. At 31 December 2019, the worst scenario was a
parallel downward yield curve shift of 1%, which also had a positive impact on the Group’s Earnings-at-Risk of DKK 6 million compared to the base
scenario calculation.
The Group uses a credit spread risk in the banking book measure based upon a 10-day 99% VaR approach. Partly due to volatility experienced since the
outbreak of the COVID-19 pandemic but also due to an increase in the volume and duration of the liquidity buffer bond portfolio held at fair value through
other comprehensive income, this measure increased to DKK 218 million as at 30 September 2020 (31 December 2019: DKK 99 million).
Danske Bank / Interim report – first nine months 2020 61/62
Statement by the management
The Board of Directors and the Executive Leadership Team (the management) have considered and approved Interim report – first
nine months 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 30 September 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 30 September 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, 4 November 2020
Executive Leadership Team
Chris Vogelzang
CEO
Berit Behring
Karsten Breum
Carsten Rasch Egeriis
Stephan Engels
Glenn Söderholm
Philippe Vollot
Frans Woelders
Board of Directors
Karsten Dybvad
Chairman
Jan Thorsgaard Nielsen
Vice Chairman
Carol Sergeant
Vice Chairman
Martin Blessing
Lars-Erik Brenøe
Raija-Leena Hankonen
Bente Avnung Landsnes
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
Supplementary information
Danske Bank / Interim report – first nine months 2020 62/62
Financial calendar
4 February 2021
16 March 2021
28 April 2021
23 July 2021
29 October 2021
Contacts
Stephan Engels
Chief Financial Officer
Claus Ingar Jensen
Head of Investor Relations
Links
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