Together with 63 other European banks, Danske Bank Group (the Group) has participated in the 2025 EU-wide stress test conducted by the European Banking Authority (the EBA).

The purpose of the stress test is to assess the resilience of the European banking sector in the event of a severely deteriorated macroeconomic environment. According to the test, the Group would use some of its combined capital buffers in a macroeconomic scenario where the countercyclical capital buffer (CCyB) is not released. However, assuming a release of the CCyB, the Group would exhibit excess CET1 capital of 0.9% of its total REA, which is around 1.6 percentage points higher than in the previous EBA stress test.

“The stress test confirms that Danske Bank Group is robust under very severe stress test conditions. The result for the Group is significantly better than in the previous EBA stress tests, notwithstanding an equivalent level of severity of the macroeconomic scenario,” says Cecile Hillary, Chief Financial Officer. She continues:

“The 2025 EU-wide stress test uses a macroeconomic scenario that is more severe than what we saw during the financial crisis, while permitting no measures by management to mitigate its effects and no supervisory actions such as the release of the countercyclical capital buffer. In this theoretical situation, we would use some of our combined capital buffers, which is precisely the purpose of such buffers.”

A base scenario and an adverse scenario
The stress test was carried out using a static balance sheet and therefore does not consider possible actions to mitigate the scenario. The adverse scenario applies a very severe economic stress with negative GDP growth, sharp falls in residential and commercial property prices and increasing unemployment. Overall, the degree of the severity of the 2025 EBA adverse scenario is similar to that of previous exercises.

In addition, the stress test applies a common methodology and top-down models provided by EBA that come with strict conditions. Among other things, the method defines several restrictions on the development in the Group’s earnings, risk exposure and balance sheet. In addition, earnings from net interest income and net fee and commission income are based on top-down models that further limit the Group’s earnings generation. The announced share buy-back programme for year-end 2024, which was fully deducted in the Group’s capital statement, is assumed to be completed in 2025 in both the adverse scenario and the base scenario.

Following the stress test, the Group’s FY 2027 common equity tier 1 (CET1) capital ratio, based on transitional figures, would be 13.6% in the adverse scenario and 19.5% in the base scenario. Based on transitional figures, the Group’s FY 2027 tier 1 capital ratio and total capital ratio would be 14.7% and 17.6% in the adverse scenario and 20.8% and 24.1% in the base scenario.

The highest impact of the stress scenario is observed by end-2026, when the Group would have to use 1.2, 2.1 and 1.9 percentage points of its combined capital buffers in the adverse scenario for CET1, tier 1 and total capital, assuming that the CCyB is not released. However, the CCyB has historically been released during severe setbacks, lastly in 2020 during the COVID-19 pandemic. A release of the CCyB would result in excess CET1 and total capital of 0.9 and 0.1 percentage points, while the Group recognises a negligible tier 1 capital shortfall of 0.04 percentage points for FY 2026.

The Group’s results based on fully phased-in CRR3 rules are available via the link below. These results are somewhat theoretical as capital requirements are expected to be adjusted to remove double counting of risks. Furthermore, the Group’s capital position would be adjusted and actions to manage the balance sheet might be initiated in the run-up to the new capital environment in 2033, when the CRR3 rules will be fully phased in.

The results of the Group’s stress test are available at danskebank.com/stress-test.