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COMPANY PROFILE

Danske Bank A/S

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PUBLICATION DATE: 26 Jul 2018
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Danske Bank A/S
TABLE OF CONTENTS

TABLE OF CONTENTS

Company Overview ........................................................................................................3

Key Facts ......................................................................................................................... 3
SWOT Analysis ...............................................................................................................4

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Danske Bank A/S
Company Overview

Company Overview

COMPANY OVERVIEW
Danske Bank A/S (Danske Bank) is a banking and financial solutions provider. The group, together with
its subsidiaries, provides a range of personal, business and institutional banking products and services.
Its portfolio of products and services includes corporate credit cards, mortgage finance, bilateral loans,
working capital financing, capex financing, non-life insurance and pension products, leasing, real-estate
brokerage and asset management. It also offers cash management, online banking, electronic data
interchange, advisory services on mergers and acquisitions, equity capital market transactions, trade and
export finance services, derivatives and commodities and equity research. Danske Bank offers
international payment processing and custody services. The bank serves personal, business and
institutional customers through a network of branches worldwide. Danske Bank is headquartered in
Copenhagen, Denmark.

The bank reported interest income of (Danish Krone) DKK58,494 million for the fiscal year ended
December 2017 (FY2017), a decrease of 1.9% over FY2016. The net interest income after loan loss
provision of the bank was DKK31,445 million in FY2017, compared to net interest income after loan loss
provision of DKK32,497 million in FY2016. In FY2017, the bank recorded a net margin of 35.7%,
compared to a net margin of 33.3% in FY2016.

The bank reported interest income of DKK13,980.0 million for the second quarter ended June 2018, a
decrease of 8.6% over the previous quarter.
Key Facts

KEY FACTS

Head Office Danske Bank A/S

Holmens Kanal 2 - 12, Koebenhavn K
Copenhagen
Copenhagen
DNK
Phone 45 70123456
Fax 45 70121080
Web Address www.danskebank.dk
Revenue / turnover (DKK Mn) 127,080.0
Revenue (USD Mn) 19,262.1
Financial Year End December
Employees 20,357
Copenhagen Stock Exchange DANSKE
Ticker

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SWOT Analysis

SWOT Analysis

SWOT ANALYSIS
Danske Bank A/S (Danske Bank) is a universal bank. Adequate capital, cost efficiency, and strong market
position are its key strengths even as its legal issues remain an area of concern. Additional capital
requirements, prolonged lower interest rates, and regulatory changes in EU may affect the group’s
performance. However, Denmark economic outlook, emergence of FinTech, and growing cards and
payments channel and the insurance segment in Denmark may offer ample growth opportunities.

Strength Weakness

Adequate Capital Legal Issues

Market Position: Nordic Region
Cost Efficiency
Opportunity Threat

Economic Outlook: Denmark Regulatory Changes: The EU

Growing Denmark Insurance Market Additional Capital Requirements
Growing Cards and Payments Channel: Denmark Prolonged Low-Interest-Rate Environment
Emergence of FinTech

Strength

Adequate Capital

Danske Bank has sound capital base ensuring capital adequacy to support its organic and inorganic
growth with the secured and unsecured nature of its lending. Sound capital management and moderate
risk weighted asset growth have enabled the group to strengthen its capital base. In FY2017, the group’s
total capital adequacy ratio and CET 1 capital ratio stood at 22.6% and 17.6%, respectively, as compared
to 21.8% and 16.3%, respectively, in FY2016. The CET 1 capital ratio is well above the group’s target
range of 14% to 15%. Both the ratios were well above the statutory minimum requirement of 14.1% and
9.5% respectively.

Market Position: Nordic Region

Danske Bank’s strong market position in the Nordic region provides economies of scale benefits. For
instance, in FY2017, Danske Bank's lending and deposit market shares in the region include Denmark,
lending market share (27%) and deposit market share (27.9%); Finland, lending market share (9.6%) and
deposit market share (12.8%); Sweden, lending market share (5.6%) and deposit market share (4.1%);
and Norway, lending market share (5.9%) and deposit market share (6.5%).

Cost Efficiency

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SWOT Analysis

Danske Bank reported stable cost efficiency in FY2017. In FY2017 and FY2016, its cost efficiency ratio
stood at 47.2%. The ratio represents operating expenses as a percentage of total income. During the
year, the group’s operating expenses grew 0.4% to DKK22,722 million from DKK22,642 million in the
previous year; whereas its total income grew 0.4% to DKK48,149 million from DKK47,959 million in
FY2016.

Weakness

Legal Issues

Legal actions initiated against the group may impact its brand image and operational performance. In
February 2018, Estonia’s Financial Supervisory Authority initiated an investigation against the group’s
branch in Estonia for violating anti-money laundering regulations in 2013. According to investigation
report, through the group’s Estonian branch, many suspicious transactions were conducted, made
through a number of shell companies owned by Putin’s family and FSB officials. Earlier, in December
2017, the Danish regulator levied a fine of DKK12.5 million on the group for violating the Danish anti-
money laundering regulations.

Opportunity

Economic Outlook: Denmark

The group stands to benefit from the growing economy in Denmark. According to the International
Monetary Fund (IMF), Denmark’s GDP is expected to reach 1.8% in 2022. Strengthening of macro-
prudential policies, reforms in property valuation and taxation, positive house price movements,
increasing demand for labor, and robust domestic demand are expected to be the growth drivers.

Growing Denmark Insurance Market

The growing life and non-life insurance segments in Denmark may provide growth opportunities for the
group. According to in-house report, the gross written premiums of life and non-life insurance segments
are expected to reach DKK189 billion (US$28.3 billion) and DKK57.2 billion (US$8.6 billion) by 2020.
Aging population, increasing life expectancy, growing demand for cyber risk insurance, and growing
construction activities are some of the key drivers for growth.

Growing Cards and Payments Channel: Denmark

The growing cards and payments channel in Denmark may provide growth opportunities for the group.
According to in-house report, the number of payment cards in circulation in the country is projected to
reach 11.4 million in 2021, including debit cards to 9.4 million and credit cards to 2 million. The
transaction value of the channel is expected to grow to DKK760.9 billion in 2021, including debit cards to
DKK709.1 billion, and credit cards to DKK51.8 billion. The growth is expected to be supported by growing
e-commerce, increasing prominence of contactless cards, and wide acceptability of Dankort cards.

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SWOT Analysis

Emergence of FinTech

The group could benefit from venturing into FinTech arena as it is fast changing the way banking is done
and challenging the regulatory structure. FinTech innovations, such as crowd-funding, mobile payments,
distributed ledgers, peer-to-peer lending, and online marketplace lending are cost effective and giving
tough competition to banking institutions. In response, banks are increasingly pursuing opportunities to
establish FinTech capabilities through partnerships or strategic collaborations, venture funding,
developing in-house capabilities, setting up business accelerators, and/or acquisitions. One of the prime
examples illustrating the FinTech focus is the collective initiative of the world's leading 22 banks in
developing blockchain-based international payments system in 2017. FinTech offers cost savings for
banks facing margin pressures from low interest rates. They also have the potential to expand
intermediation services to the underserved.

Threat

Regulatory Changes: The EU

Implementation and compliance of regulatory changes could render the group incur additional costs. For
instance in May 2018, the EU's General Data Protection Regulation (GDPR) will come into force. The
regulation aims at giving citizens and residents the control of their personal data, simplifying the
regulatory environment for global business, and pushing companies to minimize data collection. It is
applicable to all businesses, regardless of geographic location, collecting or processing EU citizens'
personal data such as name, location, ID numbers, and even their IP addresses. GDPR requires all data
from collecting and processing companies to designate a Data Protection Officer to be fully compliant.
One of the most challenging requirements of the legislation for banks is that customers can ask them to
delete their personal data that may be available publicly. Banks need to develop IT mechanisms to
ensure that personal data is processed only when necessary. Penalties to non-compliance include fines
of up to EUR20 million or 4% of global revenue, whichever is higher.

Additional Capital Requirements

The challenge on bank solvency, as a result of highly leveraged balance sheets, prompted a regulatory
response, which recommended an increase in capital. Basel III norms by Basel Committee on Banking
Supervision are intended to protect the global banking industry from financial meltdowns. The new norms
require banks to hold more and better quality capital, carry more liquid assets, and limit leverage. The
norms will not only ensure banks to hold more capital on hand, which will limit the amount of money they
can lend, but also reduce the risk of insolvency given many loan defaults.

Basel III increases the minimum Tier 1 common equity ratio to 4.5%, net of regulatory deductions, and
introduces a multi-year phase-in capital conservation buffer of an additional 2.5% of common equity to
risk-weighted assets. The capital conservation buffer, once fully phased-in, increases the target minimum
Tier 1 common equity ratio to 7%, minimum Tier 1 capital ratio from 6% to 8.5% and the minimum total
capital ratio from 8% to 10.5%. The buffer requirement began in January 2016 and the banks are required
to fully phase-in the buffer by January 2019 to avoid limitations on capital distributions and certain
discretionary incentive compensation payments. In addition, Basel III introduces a counter cyclical capital

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SWOT Analysis

buffer of up to 2.5% of common equity or other fully loss absorbing capital for periods of excess credit
growth. Basel III also introduces a non-risk adjusted Tier 1 leverage ratio of 3%, based on a measure of
total exposure rather than total assets, and new liquidity standards. Such regulations would render
financial services companies to incur high costs, and exert increased pressure on banks, which are
already in the process of improving their own governance processes.

Prolonged Low-Interest-Rate Environment

Prolonged low-interest-rate environment could pose significant challenges to a banking institution.

According to an IMF research, lower interest rates may boost banks' earnings in the short-term. However,
they adversely affect profitability in the steady state once they fall below a particular positive threshold.
With flattened yield curves, if bank deposit rates cannot fall below zero, the profitability would be
contracted further. In such a scenario, regional and deposit-funded banks are likely to be most adversely
impacted. In order to enhance yield, larger banks would increase their risk exposures in other countries
that offer higher returns and rely more on wholesale funding, whereas their smaller counterparts would
take more interest rate risk by increasing the duration of bond portfolios. Prolonged challenging interest
rate environment would result in consolidation of smaller banks.

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