Through acquisitions in the Republic of Ireland, Northern Ireland, Finland and the Baltic states over the past three years, the Group has developed from a local bank in selected Nordic markets to a well-positioned and competitive regional bank in selected northern European markets.
The scalability of the Group’s shared IT platform and the implementation of transformative new infrastructure, such as the digital signature, electronic land registration and CRD credit data, provide the Group with a unique foundation for accelerating product development, improving process efficiency and giving customers an even better experience at all of the Group’s units. Consequently, the Group has decided to make an extraordinary investment totalling around DKr1bn over the next two years to upgrade the platform. This investment lays the foundation for our ambitious new financial targets for the period until 2012.
These measures are intended to ensure higher and competitive returns to shareholders and thus to enable the Group to continue to attract domestic as well as international investors. Over time, the Group aims to deliver returns above the average for its peer group.
| (DKr bn) |
2012 |
2007 |
2006 |
2005 |
2004 |
| Income |
>55 |
45 |
37 |
35 |
29 |
| C/I ratio (%) |
<45 |
56 |
52 |
52 |
53 |
The Group aims to achieve an average increase in earnings per share of at least 8% per annum over the next five years.
The financial targets for 2012 assume annual average GDP growth of 2% on the Group’s markets and generally well-functioning financial markets.
Capital targets
On January 1, 2008, the Group adopted the advanced internal ratings-based (IRB) approach in its calculations of credit risk in accordance with the new Capital Requirements Directive (CRD). The approval issued by the Danish FSA for the use of the advanced IRB approach covers 83% of the Group’s loan portfolio at January 1, 2008.
Owing to the high credit quality of the Group’s loan portfolio, the approval will result in a much lower minimum capital requirement. On full implementation in 2010, the capital requirement will fall by 23% from the December 31, 2007, level. Because of the transition rules, however, the reduction is limited to 10% in 2008 and 20% in 2009.
The Group determines its overall capital requirement on the basis of the solvency requirements of the CRD and the Group’s ambition to maintain its AA rating. The Group considers the following criteria in determining its actual capital targets:
- Expected capital requirement of the CRD
- Ratings target
- Expected growth and earnings
- Stress test scenarios
The Group adjusts both capital targets and the actual capital level on an ongoing basis.
The Group wishes to maintain the existing capital target levels at present. Consequently, the implementation of the CRD does not reduce the level of capital in the Group but merely changes the capital ratios since it causes a reduction in risk-weighted assets.
| Capital |
Targets |
| Core (tier 1) capital ratio |
Min. 7.5 |
| Solvency ratio |
Min. 11.0 |
The capital targets should be seen from the perspective of the Group’s robust earnings, risk profile and geographical diversification.
In 2008 as in 2007, the Group plans to pay out 40% of its net profit in dividends. It is the Group’s policy to buy back shares with any capital that is not necessary for its expected long-term growth. Read more about Danske Bank's dividends.
Changes in the capital targets
The capital targets were changed twice during 2006. Before February 2006, the target for the core (tier 1) capital ratio was 7%, with hybrid capital accounting for about 0.5-1.0 of a percentage point.
In February 2006, the target for core (tier 1) capital ratio was was changed 6.5%-7.5%, with hybrid capital accounting for about 0.5-1.0 of a percentage point. The target for the dividend payout ratio was also changed then, from about 50% to 30%-50%.
In November 2006, upon the acquisition of Sampo Bank, the capital targets were changed again to those shown above.
Hybrid capital
Danske Bank issued hybrid capital in late 2006 and in February 2007 as part of the financing of the acquisition of Sampo Bank. The bank also issued hybrid capital in the first half of 2004, after new tax rules were introduced in 2003.
Hybrid capital ranks below supplementary capital and is part of core capital. The opportunity to include hybrid capital in core capital enables the Group to optimise the use of its capital base and thus the return on equity. In addition, the Group can hedge the solvency-related foreign currency risks of its international units with core capital, among other things.
Last updated on January 31, 2008