Profitability trend fuels better Danske outlook at Moody’s

Moody’s revised the outlook on Danske Bank’s rating from stable to positive on Tuesday because it expects the bank’s profitability to continue to improve while a high level of capital and a prudent risk profile are still maintained.

It also affirmed Danske’s rating, at Baa1. It changed the outlook because it expects the bank to show continued improvement in profitability, “substantially closing the gap in this area compared with peers, while at the same time maintaining a high level of capital and a prudent risk profile”.

Moody’s said Danske has been affected by high credit costs in Ireland and that the challenging environment in its main Danish market has resulted in comparatively low profitability for the group in recent years.

“However, Moody’s expectation of a positive trend in profitability going forward reflects a combination of expected lower levels of new provisions against non-core exposures, combined with a stabilisation of the operating environment in Denmark,” it said.

“In addition, strategic initiatives, including optimisation of price structures and improved cost efficiency, are expected to support a positive profitability trend.”

An important aspect of the conclusion of the positive outlook will be maintaining franchise strength, noted Moody’s, citing this as a key challenge for the group in its drive to improve profitability.