Scope Ratings today placed on review for possible upgrade Danske Bank’s A+ Issuer Rating as well as the bank’s A senior unsecured debt ratings and the BBB- rating of its Additional Tier 1 (AT1) securities. The S-1+ short-term rating and its Stable Outlook are not being reviewed. Scope noted that its rating review will focus on the execution of Danske Bank’s current growth strategy, which has shifted away from acquisitions in recent years, its risk management framework, and development of digital offerings to customers. The review will also assess management’s response to the issues raised in the recent report published by the Danish FSA concerning alleged weaknesses in governance concerning anti money-laundering controls.

The agency pointed out that following its review, Danske Bank’s ratings could be upgraded by one notch. Alternatively, they could be confirmed at the current level, either with a Stable or Positive outlook.

Scope’s analysis underpinning Danske Bank’s ratings reflects the bank’s solid and well-diversified market position in Denmark, its international diversification, the solidity of its Danish wealth management businesses, and reassuring financial and prudential metrics, which compare well with those of other major Nordic banks and elsewhere in Europe. Like the other large Nordic banks, Danske Bank also relies to a large extent on market funding, although a large portion comprises covered bonds, which have proved to be an extremely stable funding source.

When initially assigned in 2014, Danske Bank’s ratings reflected ongoing issues the bank had been facing, in particular with regard to its 2005 acquisitions in the Republic of Ireland and Northern Ireland, which generated large losses in the wake of the financial crisis. During the same period the bank also experienced agricultural sector and corporate credit losses in its Danish operations and had to downsize the Baltic operations it acquired when it bought Sampo Bank in 2005. Goodwill impairments were booked in 2014 and 2015 relating to Finland, Northern Ireland and Estonia; subsequent periods have been clean. The ratings were upgraded by one notch in June 2017 based on progress made.

Following Danske Bank’s balance-sheet clean-up (the ‘non-core’ portfolio at the end of 2017 comprised just 0.1% of total assets) and steadier subsequent performance which brings it more in line with some higher-rated peers, Scope is more reassured that Danske Bank’s credit fundamentals are likely to remain strong, as it remains in a good position to weather well any normalization of its current favourable credit costs (in negative territory due to provision reversals). Possible pockets of concern appear limited; the shipping portfolio has required added provisions in the past two years, but exposure appears well controlled.

Reviewed for possible upgrade are the following ratings of Danske Bank:

Issuer rating: A+
Senior unsecured debt rating: A
AT1 securities ratings: BBB-

The S-1+ short-term rating and its Stable Outlook are not under review.

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

Methodology
The methodology/ies used for this rating(s) and/or rating outlook(s) Bank Ratings Methodology and Capital Instruments Methodology are 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 19.04.2014. The ratings/outlooks were last updated on 12.04.2018

Potential conflicts 
Please see http://www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

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