Scope Ratings affirmed its A senior unsecured debt ratings of Danske Bank A/S following the recent announcement from Denmark’s Financial Supervisory Authority (FSA) in relation to the phasing in of MREL requirements for major Danish banking groups. Danske Bank’s A+ Issuer Rating remains unchanged.

On 28th March 2018 the Danish FSA, as expected, confirmed that it will require the relevant banking groups to hold MREL-eligible liabilities, subordinated to other senior unsecured claims, which must be equivalent to at least 8% of total liabilities including own funds. According to the FSA this 8% requirement will take effect on 1st January 2022. In support of this the Danish Government aims to introduce a new layer in the creditor hierarchy (non-preferred senior debt) such that banks can use this layer to fulfil the MREL requirement, expected to take effect from 1 July 2018 onwards.

To address the need for phasing in of the MREL requirement, the FSA has announced that while the total MREL requirement must be fulfilled by 1st January 2019, the subordination requirement will not kick in on that date, to give banks time to replace their existing senior unsecured debt with non-preferred senior debt to the extent needed. To allow this, debt issued prior to 1 January 2018 which meets all the MREL requirements except for legal subordination can be included in banks’ MREL measure until 1 January 2022. Scope pointed out that the MREL eligibility for Danske’s senior unsecured debt is already reflected by the A rating – one notch below the bank’s A+ Issuer Rating.

This rating approach is detailed in Scope’s bank rating methodology (last updated in May 2017), which highlights that when sufficient legal clarity is achieved – as is expected to be the case once the new Danish law is in place – the agency applies a one-notch differential between the ratings of senior unsecured debt eligible for TLAC/MREL and the ratings of non-TLAC/MREL-eligible senior debt. Accordingly, Scope clarified that when Danske Bank will issue senior unsecured debt not eligible for MREL (so-called senior preferred) it will rate it at the level of the bank’s Issuer Rating, namely one notch above the MREL-eligible senior debt ratings.
Affirmed with a Stable Outlook were Danske Bank’s A senior unsecured debt ratings. Scope added that Danske Bank’s Issuer Rating, Additional Tier 1 debt rating, and short-term rating remain unchanged with a Stable Outlook, at A+, BBB- and S-1+, respectively.

Stress testing & cash flow analysis
No stress testing was performed. No cash flow analysis was performed.

Methodology
The methodology used for this rating(s) and/or rating outlook(s) Bank rating methodology is available on www.scoperatings.com.
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The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The rating was not requested by the rated entity or its agents. The rated entity and/or its agents participated in the rating process. Scope had no access to accounts, management and/or other relevant internal documents for the rated entity or related third party.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity and third parties.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory Disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst Jennifer Ray, Executive Director
Person responsible for approval of the rating: Samuel Theodore, Group Managing Director
The ratings/outlooks were first released by Scope on 19.11.2014. The ratings/outlooks were last updated on 08.06.2017.

Potential conflicts
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