In recent weeks, 10 publicly-listed Danish banks have revised their 2019 profit guidance upwards from an average of 14% to an average of 32% above 2018 pre-tax profits. This, only weeks after the Danish central bank returned its policy rates to a record-low negative 0.75% and a few Danish banks implemented negative deposit rates for large retail depositors. However, despite these headwinds, Nordic Credit Rating (NCR) notes that banks are benefiting, albeit temporarily, from a refinancing surge spurred by negative rates and the ability to finance fixed mortgages of up to 30 years at around 1-1.5%.
Compared with previous year and mid-year results, the upward revisions demonstrate year-on-year improvement and continuation of already strong 2019 performances. The average pre-tax profit increase is 32% from 2018 (DKK 3.0bn), but in line with the DKK 2.0bn in pre-tax profit during the first half of 2019. For the sample, pre-tax return on equity would improve to between 13.7% and 15.3% (14.5% average) compared with levels of 12.0% and 14.5% in 2018 and 2017, respectively.
"Given the exceptional nature of the profit gains, the outlook for 2020 profits is likely to be less positive", said Sean Cotten, Lead Analyst at Nordic Credit Rating. "In all instances high mortgage loan conversion activity was provided as the primary rationale for the upward revision, indicating that the third quarter was exceptional across the market as interest rates fell sharply in response to signals of a global slowdown."
Analyst contact details:
Sean Cotten, +46 732 324 378, sean.cotten@nordiccreditrating.com
Geir Kristiansen, +47 907 845 93, geir.kristiansen@nordiccreditrating.com