Company Announcement for the First Quarter of 2023
Kamilla Hammerich Skytte, CEO, comments on the financial results:
“Realkredit Danmark reported a solid financial result for the first quarter. The increase was topline driven primarily due to income from higher interest rate levels.
Rising interest rates affected the Danish housing market in the first quarter of 2023. Persistently low losses illustrate that homeowners generally have robust personal finances that enable them to cope with higher interest rates and the ongoing downward correction in housing prices, which we expect will continue for the rest of 2023.
The financial uncertainty has made us sharpen our focus on helping customers who may be or already are affected by the situation. We have taken some initiatives to improve the financial security of our customers, amongst other we have lowered the administration margin for interest-only loans with a loan-to-value ratio above 60%. Furthermore, Realkredit Danmark has, together with Danske Bank, entered into a partnership with Tryg, which means homeowners in Denmark now can insure their mortgage payments against loss of income for up to 12 months.
As part of the Danske Bank Group, we are fully committed to our Climate Action Plan of reducing funded emissions on commercial real estate and personal mortgages in Denmark by 75% towards 2030. ESG will become one of the most important strategic focus areas for Realkredit Danmark in the years ahead. In the first quarter, we have set up a new entity in Realkredit Danmark, which in the years ahead will be undertaking the very important societal and commercial task of developing strong and sustainable customer solutions, while also embedding sustainability in the way we run our business.”
Mortgage Market
Activity in the Danish economy remains high, and employment has continued to increase into 2023. Inflation is on the way down driven by falling energy prices, but inflation is still high and the underlying inflationary pressure has been increasing. Combined with the prospect of higher wage growth in the coming years in the wake of this year’s collective bargaining, this may entail that inflation remain elevated for some time. The same trends have been seen in the euro area, leading further interest rate hikes from the ECB in the first quarter.
Growing financial turbulence in the course of March 2023 sent the interest rate pendulum swinging the other way for a while, and coupons for 30-year fixed-rate mortgages moved between 4% and 5% during the quarter. Remortgaging activity shifted down a gear, due to a combination of many homeowners already having remortgaged to reduce their debt, and rising interest rates on variable rate loans reducing the incentive to remortgage from a fixed to a variable rate.
Activity in the housing market stabilised at the beginning of the year after a clear downturn in 2022. An ongoing downward correction for the housing prices is however still expected, and prices for detached houses have so far nationwide dropped almost 10% from the peak in 2022. While the market is still adjusting to the surge in interest rates, the outlook is brighter than it was in autumn 2022, when energy prices and inflation were elevated at very high levels.
First Quarter of 2023
The Realkredit Danmark Group recorded a net profit of DKK 1,063 million in the first quarter of 2023, against DKK 961 million in the same period of 2022. The increase was topline driven primarily due to income from higher interest rate levels. Expenses decreased DKK 4 million, despite expense of DKK 32 million from termination of Danske Bank’s VAT group.
Credit quality remained solid with loan impairment charges at a low level of DKK 52 million. The total allowance account at 31 March 2023 amounted to DKK 2,943 million, against DKK 2,912 million at 31 December 2022.
The steeply increasing mortgage rates have fuelled remortgaging activity from 2022, and our customers reduced nominal outstanding debt by DKK 2.6 billion in the first quarter of 2023. Mortgage lending at nominal value increased by DKK 0.9 billion but measured at fair value, the increase was DKK 5.5 billion. The latter was attributable to higher bond prices. Gross lending amounted to DKK 31 billion, against DKK 47 billion in the first quarter of 2022. Green bond total lending amounted to DKK 22.7 billion at 31 March 2023.
Realkredit Danmark has a proprietary portfolio of DKK 46.9 billion of which DKK 32.9 billion is managed through a hold-to-maturity portfolio. This portfolio is reported at amortised cost and as of Q1 2023 the market value was
DKK 1.8 billion lower.
Realkredit Danmark expects net profit to be somewhat higher than in 2022, due to persistent higher interest rate levels.
| Financial highlights – Realkredit Danmark Group | ||||||||||||||||||
| INCOME STATEMENT | Q1 | Q1 | Index | Q1 | Q4 | Q3 | Q2 | Q1 | Full year | |||||||||
| (DKK millions) | 2023 | 2022 | 23/22 | 2023 | 2022 | 2022 | 2022 | 2022 | 2022 | |||||||||
| Administration margin | 1,410 | 1,458 | 97 | 1,410 | 1,410 | 1,423 | 1,442 | 1,458 | 5,733 | |||||||||
| Net interest income | 158 | 6 | - | 158 | 99 | 10 | -22 | 6 | 93 | |||||||||
| Net fee income | 52 | 57 | 91 | 52 | 23 | -33 | -29 | 57 | 18 | |||||||||
| Income from investment portfolios | 86 | -27 | - | 86 | 73 | -6 | 8 | -27 | 48 | |||||||||
| Other income | 19 | 25 | 76 | 19 | 16 | 18 | 25 | 25 | 84 | |||||||||
| Total income | 1,725 | 1,519 | 114 | 1,725 | 1,621 | 1,412 | 1,424 | 1,519 | 5,976 | |||||||||
| Expenses | 252 | 256 | 98 | 252 | 293 | 290 | 266 | 256 | 1,105 | |||||||||
| Profit before loan impairment charges | 1,473 | 1,263 | 117 | 1,473 | 1,328 | 1,122 | 1,158 | 1,263 | 4,871 | |||||||||
| Loan impairment charges | 52 | 31 | 168 | 52 | 38 | 201 | -58 | 31 | 212 | |||||||||
| Profit before tax | 1,421 | 1,232 | 115 | 1,421 | 1,290 | 921 | 1,216 | 1,232 | 4,659 | |||||||||
| Tax | 358 | 271 | 132 | 358 | 281 | 203 | 278 | 271 | 1,033 | |||||||||
| Net profit for the period | 1,063 | 961 | 111 | 1,063 | 1,009 | 718 | 938 | 961 | 3,626 | |||||||||
| BALANCE SHEET (END OF PERIOD) | ||||||||||||||||||
| (DKK millions) | ||||||||||||||||||
| Due from credit | ||||||||||||||||||
| institutions etc. | 13,491 | 18,688 | 72 | 13,491 | 8,761 | 9,505 | 5,515 | 18,688 | 8,761 | |||||||||
| Mortgage loans | 729,966 | 779,211 | 94 | 729,966 | 724,438 | 706,695 | 739,996 | 779,211 | 724,438 | |||||||||
| Bonds and shares | 47,668 | 45,523 | 105 | 47,668 | 46,722 | 45,648 | 46,179 | 45,523 | 46,722 | |||||||||
| Other assets | 1,834 | 3,322 | 55 | 1,834 | 2,307 | 1,317 | 1,873 | 3,322 | 2,307 | |||||||||
| Total assets | 792,959 | 846,744 | 94 | 792,959 | 782,228 | 763,165 | 793,563 | 846,744 | 782,228 | |||||||||
| Due to credit institutions etc. | 2,000 | 2,000 | 100 | 2,000 | 2,000 | 2,000 | 2,000 | 2,000 | 2,000 | |||||||||
| Issued mortgage bonds | 737,694 | 792,508 | 93 | 737,694 | 724,105 | 707,784 | 740,480 | 792,508 | 724,105 | |||||||||
| Other liabilities | 6,312 | 5,403 | 117 | 6,312 | 6,646 | 4,919 | 3,330 | 5,403 | 6,646 | |||||||||
| Shareholders' equity | 46,953 | 46,833 | 100 | 46,953 | 49,477 | 48,462 | 47,753 | 46,833 | 49,477 | |||||||||
| Total liabilities and equity | 792,959 | 846,744 | 94 | 792,959 | 782,228 | 763,165 | 793,563 | 846,744 | 782,228 | |||||||||
| RATIOS AND KEY FIGURES | ||||||||||||||||||
| Net profit for the period as % p.a. | ||||||||||||||||||
| of average shareholders' equity | 8.8 | 8.0 | 8.8 | 8.2 | 6.0 | 7.9 | 8.0 | 7.3 | ||||||||||
| Impairment charges as % p.a. of mortgage lending | 0.03 | 0.02 | 0.03 | 0.02 | 0.11 | -0.03 | 0.02 | 0.03 | ||||||||||
| Cost/income ratio (%) | 14.6 | 16.9 | 14.6 | 18.1 | 20.5 | 18.7 | 16.9 | 18.5 | ||||||||||
| Total capital ratio (%) | 28.8 | 27.9 | 28.8 | 29.1 | 31.2 | 30.1 | 27.9 | 29.1 | ||||||||||
| Tier 1 capital ratio (%) | 28.3 | 27.6 | 28.3 | 28.6 | 30.5 | 29.7 | 27.6 | 28.6 | ||||||||||
| Mortgage loans, nominal value | 802,883 | 809,465 | 802,883 | 802,024 | 803,362 | 804,115 | 809,465 | 802,024 | ||||||||||
| Full-time-equivalent staff (end of period) | 228 | 228 | 228 | 227 | 228 | 228 | 228 | 227 | ||||||||||
The company announcement for the first quarter of 2023 has not been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the EU, and additional Danish disclosure requirements for interim reports of issuers of listed bonds.
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