Morningstar DBRS Upgrades Danske Bank's Long-Term Issuer Rating to "A," Trend Remains Positive
Banking OrganizationsDBRS Ratings GmbH (Morningstar DBRS) upgraded the long-term credit ratings on Danske Bank A/S (Danske or the Bank), including the Long-Term Issuer Rating to "A" from A (low), and changed the trend on the short-term credit ratings to Positive from Stable. The trend on the long-term credit ratings remains Positive. The Bank's Intrinsic Assessment (IA) is now "A," and the Support Assessment remains SA3, meaning that timely systemic support is not expected. A full list of credit ratings is included at the end of this press release.
KEY CREDIT RATING CONSIDERATIONS
The credit ratings upgrade and the continuation of the positive Trend reflect the significant progress Danske has made in implementing rigorous anti-financial crime (AFC) processes and in resolving outstanding issues primarily the money laundering issues at the Bank's now closed Estonia branch. Operational risk has declined, significantly underscored by the Financial Crime Plan completed in 2023 and the resolution of all outstanding regulatory orders. Danske is still under corporate probation by the U.S. Department of Justice (DoJ) until 13 December 2025, but given to positive results from inspections conducted by various regulators, Morningstar DBRS expects the probation to be lifted. The positive credit rating actions also take into account the significant improvement in earnings in a supportive interest rate environment, also benefitting from a reduction in costs for financial crime prevention and the Bank's growth and efficiency initiatives.
The credit ratings are underpinned by Danske's leading retail and corporate franchise in Denmark and Northern Ireland, as well as its meaningful corporate franchise in Finland, Norway, and Sweden. The credit ratings also reflect its strong credit risk profile, supported by a well-diversified loan book in stable economies. Danske's liquidity and funding profile is resilient, consisting of deposits, covered bonds, and wholesale funding. Moreover, Danish mortgages are entirely funded by corresponding bonds. Danske's capital ratios are among the highest in Europe with cushions well above regulatory requirements, protecting the Bank well against remaining risks from outstanding civil lawsuits related to the Estonian case.
The assigned IA is at the lower end of the IA range, reflecting Danske's past challenges. However, the Positive credit rating trend reflects Morningstar DBRS' opinion that Danske has addressed these challenges and is set for a more stable performance in the future.
CREDIT RATING DRIVERS
Morningstar DBRS would upgrade Danske's credit ratings, if the probation imposed by the DoJ is lifted and the Bank is able to demonstrate sustained strong earnings generation while maintaining solid asset quality and capital levels.
Morningstar DBRS would change the trend to Stable, should the probation be extended. Conversely, the credit ratings would be downgraded if there is a material decline in profitability or significant deterioration in asset quality.
CREDIT RATING RATIONALE
Franchise Combined Building Block Assessment: Very Strong/Strong
Danske is the largest bank in Denmark by assets and the second largest in the Nordic area. Total assets amounted to DKK 3,759 billion at the end of Q1 2025 (approximately EUR 500 billion). Danske offers a wide range of products and services to private and business customers, including retail, wealth management, life insurance, leasing, and capital markets products. Danske has a leading market position in Denmark and Ireland. The Bank also has a strong market presence in Finland, while Sweden and Norway are considered challenger markets. In June 2023, Danske announced its new Forward 2028 Strategy focused on strengthening its position as a leading bank in the Nordic region, which includes becoming a leading bank for corporate and institutional customers in Denmark, Sweden, Finland, and Norway. The Bank had significant failures to prevent money laundering at its now closed Estonia branch in the past, but now has a comprehensive Financial Crime Prevention Framework in place.
Earnings Combined Building Block Assessment: Good
Morningstar DBRS views Danske's earnings generation capacity as good, although it has been somewhat inconsistent in the past because of significant fines and remediation costs related to conduct issues. As the Bank has put most of those issues behind it, results improved significantly over the past two years, also supported by the higher interest rate environment. The Bank's financial targets for 2026 include a return on equity (ROE) of 13%, a cost-to-income ratio of about 45%, metrics that were already met in 2024. In 2024, Danske reported a profit of DKK 23,629 million, up 11% year over year (YOY) compared with a profit of DKK 21,262 million in 2023. The increase was driven by growth in net interest income (NII) and fee income, well-controlled operating expenses, and a release in loan loss provisions. The ROE was 13.4% in 2024, compared with an ROE of 12.7% in 2023. In Q1 2025, Danske reported a net profit of DKK 5,757 million, up 2% YOY. Revenues were flat, as strong results in fee and trading income offset a large drop in insurance income. Morningstar DBRS sees Danske as well positioned to maintain higher levels of earnings, given the relatively beneficial interest rate environment and the Bank's growth and efficiency initiatives.
Risk Combined Building Block Assessment: Strong/Good
Morningstar DBRS views Danske's credit risk profile as good. Credit losses compare well with European peers, underpinned by benign operating environment in the Nordics, a well-diversified loan book and a conservative risk appetite. At the end of Q1 2025, Danske's nonperforming loan ratio as calculated by Morningstar DBRS was 1.6% of total gross loans, down from 1.8% a year earlier. Operational risk has declined significantly, underscored by the Financial Crime Plan completed in 2023 and the resolution of all outstanding regulatory orders. At the end of Q1 2025, Danske still had DKK 5.9 billion in post-model adjustments (PMA) as part of its loan loss reserves, and DKK 1.2 billion of the total has been allocated to global tensions and trade war uncertainties, up DKK 500 million from the end of 2024. Danske is still under corporate probation by the U.S. DoJ until 13 December 2025. Given the positive results from inspections conducted by various regulators, Morningstar DBRS does not expect an extension of the probation; however, civil lawsuits related to the Estonia case are still outstanding and could lead to further legal costs.
Funding and Liquidity Combined Building Block Assessment: Strong/Good
Morningstar DBRS views Danske's funding and liquidity profile as good and well managed. The Bank's reliance on wholesale funding is very high compared with other European peers and is also higher than some of its Nordic peers, largely as a consequence of the fact that in Denmark, mortgage loans have to be funded with covered bonds (CBs) by law. As a result, the Bank's largest source of long-term wholesale funding is in the form of CBs, mainly accessed through the Danish CB market, and to a lesser extent the Norwegian, Finnish, and Swedish markets, all of them considered by Morningstar DBRS as very stable. The Bank's liquidity position remained ample with total high-quality liquid assets of DKK 605 billion at the end of Q1 2025, up from DKK 560 billion at the end of 2024. Danske reported a strong Liquidity Coverage Ratio (LCR) of 168% and a Net Stable Funding Ratio (NSFR) of 125% at the end of Q1 2025.
Capitalisation Combined Building Block Assessment: Strong/Good
Morningstar DBRS views Danske's capitalisation as robust, supported by an improved internal capital generation capacity and a large capital cushion over minimum requirements. At the end of Q1 2025, Danske's CET1 ratio was 18.4%, up from 17.8% at the end of 2024 because of profit retention and a decrease in risk-weighted assets for credit due to a reversal of CRR3 buffers. This compares to Danske's minimum capital regulatory requirement of 14.6% at the end of Q1 2025 and includes 2.1% related to the countercyclical capital buffer and 0.7% related to the Norwegian systematic risk buffer. This leaves the Bank with a comfortable cushion over minimum requirements of 380 basis points. Danske targets a CET1 ratio of at least 16%.
Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/456992.
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
ESG Considerations had a relevant effect on the credit analysis.
Governance (G) Factors
The following Governance factors had a relevant effect on the credit analysis:
The Governance factor is significant for the credit ratings, which otherwise would be higher. This is reflected in the Bank's risk grid assessment, which takes into account Danske's role in money laundering activities in its former Estonia branch between 2007 and 2015. In December 2022, Danske Bank reached a final resolution with the DoJ, the Securities and Exchange Commission, and the Danish National Special Crime Unit on the Estonia matter. As part of the resolution, Danske Bank paid a large fine to the U.S. and Danish Authorities and had to invest significant resources in financial crime protection. Additionally, as part of the settlement with the DoJ, Danske Bank remains under corporate probation until 13 December 2025. Morningstar DBRS also notes that Danske is still exposed to civil lawsuits in relation to the Estonia case that could be material. However, the Bank has significantly strengthened financial crime controls and the impact on the Bank's franchise has been limited.
There were no Environmental or Social factors that had a significant or relevant effect on the credit analysis.
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025) https://dbrs.morningstar.com/research/454196
Notes:
All figures are in Danish krone unless otherwise noted.
The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (23 May 2025) https://dbrs.morningstar.com/research/454637. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025) https://dbrs.morningstar.com/research/454196 in its consideration of ESG factors.
The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.
The sources of information used for these credit ratings include Morningstar Inc. and company documents. Other sources include Danske Bank Annual Report 2024, Danske Bank Interim Report Q1 2025, Danske Bank Fact Book Q4 2024-Q1 2025, Danske Bank Investor Presentation Q4 2024-Q1 2025. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings to be of satisfactory quality.
With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, these are unsolicited credit ratings. These credit ratings were not initiated at the request of the issuer.
With Rated Entity or Related Third Party Participation: YES
With Access to Internal Documents: NO
With Access to Management: NO
Morningstar DBRS does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' trends and credit ratings are under regular surveillance.
For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.
The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://dbrs.morningstar.com/research/456991.
These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Sonja Forster, Senior Vice President
Rating Committee Chair: Michael Driscoll, Credit Rating Officer
Initial Rating Date: 18 January 2010
Last Rating Date: 28 June 2024
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