The discussions with US and Danish authorities related to the Estonia matter are now at a stage where Danske Bank can reliably estimate the total financial impact of a potential coordinated resolution amounting to a total of DKK 15.5 billion. In addition to the provision booked in 2018 of DKK 1.5 billion, Danske Bank has therefore booked an additional provision of DKK 14 billion in the third quarter of 2022. Our dialogue with the authorities is ongoing, and while there is still uncertainty that a resolution will be reached, we hope that a resolution will be concluded before the end of this year.Carsten Egeriis
Historically large price increases and a severe energy crisis are currently creating challenges for and great uncertainty among consumers, businesses and society as a whole. As the uncertainty in the financial markets, the export markets and the housing markets increases, customers’ need for expert advisory services from us as their financial partner also increases. We therefore have a close dialogue with our customers across all segments to support and advise them in this challenging situation. Supporting our customers through challenging times was our key focus during the corona crisis, and we continue to do so now.
In the first nine months of the year, we saw continually good customer activity and larger lending volumes, leading to increasing net interest income for the seventh consecutive quarter and a high level of net fee income. Underlying costs continue to trend in a downward direction. We remain fully committed to our 2023 financial targets, supported by our continued commercial momentum and ongoing efficiency improvements.
CEO, Danske Bank
28.8 bn DKK (down 8%)
19.6 bn DKK (up 4%)
Provision for Estonia matter
14.0 bn DKK
Impairment charge on goodwill
1.6 bn DKK
794 m DKK against 587 m DKK
-9.2 bn DKK against 9.3 bn DKK
Return on equity
-7.4% against 7.3%
CET1 capital ratio
21.3% against 16.9%
Economies weakening from a strong starting point
The weaker consumer purchasing power and higher interest rates point to an increasing likelihood of a recession, with the global economy also showing signs of weakening. Nonetheless, the Nordic economies are weakening from a strong starting point. For instance, labour markets in the Nordic countries are still strong, providing a cushion against the impact of weaker demand.
Despite the gloomier outlook and uncertain environment, Danske Bank is making good progress, as core banking activities continue to improve, credit quality remains strong with a low level of actual impairments, and we continue to execute on our Better Bank plan to become a simpler and better bank for all our stakeholders.
This means that Danske Bank continues to be a strong Nordic bank in a good position to help customers and societies, despite the macroeconomic challenges that lie ahead.
Continued commercial momentum
We continue to launch new solutions to make Danske Bank more digital and convenient for personal customers. For instance, we implemented digital signing of mortgages in Sweden, and in Denmark, we saw good interest in loan products targeted at home energy efficiency improvements. We continue to build even more features into the ‘bank in your pocket’, and 9 of 10 customers now use our mobile banking apps.
Our efforts to remain a leader within sustainability continue. In September, Position Green, an independent consulting firm, studied how well businesses in the Nordic countries report on their sustainability efforts, and among the 100 largest listed businesses in Denmark, Danske Bank and just seven others received a mark of “outstanding” for their sustainability reporting.
The underlying cost base continued to improve on the basis of efficiency gains achieved through the agile transformation of our development organisation and other simplification initiatives. Operating expenses increased, however, as we continued to remediate our legacy issues, most importantly providing an accelerated solution for our debt collection customers. This was announced in the third quarter and resulted in a one-off cost of DKK 600 million.
The accelerated solution also added DKK 650 million to loan impairments, which otherwise remained very low, underpinning the strong credit quality. We maintain a considerable buffer in our impairments, having repurposed the corona crisis-related buffer to address the risks in the portfolios stemming from the surge in inflation and energy costs and the worsening macroeconomic outlook.
Low investment returns and rising interest rate levels resulted in a goodwill impairment charge in Danica Pension of DKK 1.6 billion being recognised in the third quarter of 2022.
Stephan Engels on the results
The third quarter was marked by low macroeconomic visibility and thus by high volatility in the financial markets. Despite these challenging market conditions, our core activities continue to deliver.Stephan Engels
Net interest income increased 9% in the third quarter as a result of increased lending, driven particularly by our corporate customers, and our repricing initiatives. Strong growth in lending to our large corporate and institutional customers means that we are capturing corporate lending market share in 2022.
Fees held up well from a high level last year, driven by good activity and everyday banking products, and this provides the strength of our diversified business model.
Our strong cost focus is continuing to pay off and, excluding the effect of elevated remediation costs, underlying costs continued the downward trend. While a number of significant one-offs impacted the profit for the first nine months of the year, we remain committed to our 2023 targets due to the solid traction in our underlying business and our continued progress towards becoming a more efficient bank.
CFO, Danske Bank
Developments in business units
Customer activity remained high, with rising interest rates driving high remortgaging activity in Denmark. Net interest income increased 2% due to a rise in income from deposits driven by higher interest rates.
The reopening of societies in 2022 has had a positive effect on trading income and service and trading fees, even though investment fees are under pressure due to the uncertainty on the financial markets.
Credit quality remained solid, but the changed macroeconomic outlook raised the level of loan impairment charges relative to the same period last year. As a result, profit before tax for the first nine months of 2022 decreased 4% to DKK 2.9 billion.
Profit before tax for the first three quarters of 2022 amounted to DKK 5 billion, an improvement of 50% from the same period last year. This was driven primarily by repricing initiatives for deposits, as well as an increase in customer activity resulting from the reopening of societies following the COVID-19 pandemic, combined with lower loan impairment charges
Net trading income recovered in the third quarter despite a reduction in risk utilisation in the markets area amid continually volatile markets. Profit before tax in the first nine months of 2022 was DKK 4 billion, a decline from the same period last year as a result of significantly lower net trading income following losses in Rates & Credit in the second quarter.
Net income from insurance business before goodwill impairments amounted to DKK -0.32 billion in the first nine months of 2022, a decline from the level in the same period last year.
UK central bank interest rates rose in the first nine months of 2022 in response to inflationary pressure, supporting an increase in net interest income, and activity levels and related fee income also increased. However, the improvement of the underlying performance was almost wholly offset by negative trading income given the impact of significantly increased expectations of rising interest rates on the bank’s hedging portfolio. This negative impact will reverse over the life of the portfolio.
Profit before tax in the first nine months of 2022 was DKK 7 million, a decline from the same period last year driven by the negative trading income.
Discussions on the Estonia matter continues
Out of the capital charge in the form of a Pillar 2 add-on of DKK 10 billion in relation to the Estonia matter, DKK 7.5 billion has been released on the basis of dialogue with the Danish FSA.
As regards our 2023 financial ambitions, we maintain our ambition of a return on shareholders’ equity of 8.5-9%.
A conference call for analysts and investors, hosted by Carsten Egeriis, CEO, and Stephan Engels, CFO, will take place on Thursday, 27 October 2022, at 04:00pm (CET).
Stefan Singh Kailay, Head of Media Relations
Tel. +45 45 14 14 00