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DNB Bank ASA

Quarterly Report Jul 13, 2020

3579_rns_2020-07-13_6731263f-c2af-42c5-bdac-205e8e42ab2b.pdf

Quarterly Report

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DNB Bank A company in the DNB group

Second quarter and first half report 2020

(Unaudited)

Financial highlights

Income statement DNB Bank Group
2nd quarter 2nd quarter January-June Full year
Amounts in NOK million 2020 2019 2020 2019 2019
Net interest income 9 638 9 746 20 253 19 217 39 908
Net commissions and fees 1 601 1 770 3 049 3 263 6 618
Net gains on financial instruments at fair value 1 667 1 351 4 933 2 099 3 173
Other operating income 588 549 973 1 227 2 482
Net other operating income 3 856 3 670 8 955 6 588 12 272
Total income 13 494 13 417 29 208 25 805 52 181
Operating expenses (5 548) (5 489) (10 731) (10 789) (21 952)
Restructuring costs and non-recurring effects (12) (21) (27) (43) (326)
Pre-tax operating profit before impairment 7 934 7 906 18 450 14 973 29 903
Net gains on fixed and intangible assets 0 (3) (0) (3) (33)
Impairment of financial instruments (2 120) (450) (7 892) (766) (2 191)
Pre-tax operating profit 5 814 7 454 10 559 14 204 27 678
Tax expense (1 163) (1 491) (2 112) (2 841) (4 825)
Profit from operations held for sale, after taxes (17) (30) (73) (81) (49)
Profit for the period 4 634 5 933 8 374 11 281 22 805

Balance sheet

Amounts in NOK million 30 June
2020
31 Dec.
2019
30 June
2019
Total assets 2 728 738 2 470 640 2 528 706
Loans to customers 1 709 736 1 671 350 1 643 781
Deposits from customers 1 108 804 977 530 998 554
Total equity 229 557 229 619 209 769
Average total assets 2 913 612 2 564 525 2 522 506

Key figures and alternative performance measures

2nd quarter 2nd quarter January-June Full year
2020 2019 2020 2019 2019
Return on equity, annualised (per cent) 1) 8.4 11.8 7.4 11.2 11.1
Combined weighted total average spread for lending and deposits
(per cent) 1)
1.25 1.32 1.32 1.32 1.33
Average spread for ordinary lending to customers (per cent) 1) 2.14 1.85 2.04 1.88 1.84
Average spread for deposits from customers (per cent) 1) (0.07) 0.46 0.20 0.42 0.51
Cost/income ratio (per cent) 1) 41.2 41.1 36.8 42.0 42.7
Ratio of customer deposits to net loans to customers at end of period 1) 64.9 60.7 64.9 60.7 58.5
Net loans at amortised cost and financial commitments in stage 2, per
cent of net loans at amortised cost 1) 2)
12.35 6.13 12.35 6.13 6.81
Net loans at amortised cost and financial commitments in stage 3, per
cent of net loans at amortised cost 1) 2)
1.81 1.30 1.81 1.30 1.12
Impairment relative to average net loans to customers at amortised
cost, annualised (per cent) 1) 2)
(0.50) (0.11) (0.93) (0.09) (0.13)
Common equity Tier 1 capital ratio at end of period (per cent) 18.0 16.2 18.0 16.2 18.3
Leverage ratio (per cent) 6.6 7.1 6.6 7.1 7.2
Number of full-time positions at end of period 8 502 8 569 8 502 8 569 8 617

1) Defined as alternative performance measure (APM). APMs are described on ir.dnb.no.

2) Figures from 1 January 2020 are recognised excluding loans at fair value. Historical figures have been adjusted accordingly.

Second quarter and first half report 2020

Directors' report.................................................................................................................................. 4

Accounts

Income statement DNB Bank ASA 11
Comprehensive income statement DNB Bank ASA 12
Balance sheet DNB Bank ASA 13
Income statement DNB Bank Group 14
Comprehensive income statement DNB Bank Group 15
Balance sheet DNB Bank Group 16
Statement of changes in equity 17
Cash flow statement 19
Note 1
Basis for preparation 21
Note 2
Segments 21
Note 3
Capital adequacy 22
Note 4
Measurement of expected credit loss 25
Note 5
Development in gross carrying amount and maximum exposure 27
Note 6
Development in accumulated impairment of financial instruments 30
Note 7
Loans and financial commitments to customers by industry segment 34
Note 8
Financial instruments at fair value 36
Note 9
Debt securities issued and subordinated loan capital 39
Note 10
Information on related parties 41
Note 11
Contingencies 41

Statement pursuant to the Securities Trading Act ...................................................... 42

Additional information

Information about the DNB Bank Group 43
-- ------------------------------------------ --

There has been no full or partial external audit of the quarterly directors' report and accounts.

Directors' report

Second quarter financial performance

The reopening of the Norwegian economy has picked up faster than anticipated, and the DNB Bank Group's 1) activity level in the second quarter was less impacted by the COVID-19 pandemic than expected. Operating results were solid, but impairment losses, mainly within offshore, were higher than the previous year, and the net interest income was negatively impacted by the reduced interest level. There is now a more positive outlook for the Norwegian economy, although there are still significant uncertainties concerning future developments.

The profit in the quarter was NOK 4 634 million, a decrease of NOK 1 299 million from the year-earlier period. Compared with the previous quarter, profits increased by NOK 895 million.

The common equity Tier 1 (CET1) capital ratio was 18.0 per cent, up from 16.2 per cent a year earlier, and from 17.5 per cent in the first quarter of 2020.

The leverage ratio for the banking group was 6.6 per cent, down from 7.1 per cent in the second quarter of 2019, and up from 6.3 per cent in the first quarter of 2020.

Return on equity (ROE) was negatively impacted by high impairment losses and lower interest rates. However, the activity level in the quarter was less impacted by COVID-19 than expected, and ROE ended at 8.4 per cent. The comparable figures were 11.8 per cent in the second quarter of 2019, and 6.4 per cent in the first quarter of 2020.

Net interest income was down NOK 108 million, or 1.1 per cent, from the second quarter of 2019, reflecting reduced customer interest rates. Compared with the first quarter, net interest income was down NOK 977 million, or 9.2 per cent, mainly due to reduced interest rates following the change in the key policy rate of the Norwegian central bank, Norges Bank.

Net other operating income amounted to NOK 3 856 million in the second quarter, up NOK 186 million from the same period in 2019. There was a positive contribution from trading revenues in DNB Markets, lower credit spreads on bonds, positive valuation adjustments for derivatives (CVA/DVA/FVA) and other mark-tomarket adjustments. However, this was somewhat offset by negative exchange rate effects on additional Tier 1 (AT1) capital and basis swaps. Net commissions and fees decreased by 9.6 per cent from the year-earlier period, due to lower income from money transfer and banking services caused by the COVID-19 situation, and international travel coming to a halt in the quarter. Compared with the first quarter, net other operating income was down NOK 1 243 million, mainly due to negative exchange rate effects on AT1 capital and basis swaps. Net commissions and fees increased by 10.6 per cent, due to strong results driven by real estate broking and investment banking services. However, this was partly offset by reduced income from money transfer and banking services.

Operating expenses were NOK 5 560 million in the second quarter, up NOK 50 million from the same period a year earlier. The second quarter saw an increase in salaries and other personnel expenses, mainly driven by increased pension costs related to the increased return on the closed defined benefit pension scheme, where the hedging is presented as gain on financial instruments. Compared with the first quarter, operating expenses were up NOK 363 million, due to unusually low pension costs in the first quarter.

Impairment losses on financial instruments amounted to NOK 2 120 million in the second quarter. This is an increase of NOK

1 670 million from the second quarter of 2019, but a decrease of NOK 3 651 million from the first quarter of 2020. The impairment losses in the quarter were to a large extent related to customers in stage 3 within the oil, gas and offshore segment. The personal customers segment as a whole experienced low impairment losses in the quarter. In general, the portfolio credit quality remained strong and the macro forecasts were relatively stable compared with the first quarter of 2020, when the impact of the COVID-19 outbreak and the oil price fall were reflected in the forward-looking information and expected credit losses. However, there is still some uncertainty as to how the economic impact of the COVID-19 pandemic and the oil price fall will develop in the time ahead.

Important events in the second quarter

At the Annual General Meeting (AGM) held on 30 June, Julie Galbo was elected as new board member with a term of office of up to two years.

The Ministry of Finance announced the approval of a new organisational structure for the DNB Group, under which DNB Bank ASA will be the holding company of the Group, with DNB Livsforsikring AS and DNB Asset Management Holding AS as subsidiaries. Further regulatory permissions are required before DNB can proceed with the merger and the process will take place at the earliest in 2021.

For the fourth year running, DNB and StartupLab invited startups to DNB NXT Accelerator. StartupLab is DNB's partner in the programme, and it has played an important role by giving the startup companies a voice during the coronavirus situation. DNB NXT Accelerator is a strategic initiative that increases innovative power across DNB. For the first time, the Accelerator took place digitally.

DNB, the Norwegian Tax Administration and Bits were commissioned by Finance Norway and the Ministry of Finance to put together a case management system for businesses affected by COVID-19 and for the compensation scheme. The system was up and running after just three weeks.

For the fifth year running, DNB has helped children and young people to manage their personal finances with the digital learning tool A valuable lesson. Since its launch in 2015, the learning tool has never been more popular than it is now. DNB will continue to create awareness of A valuable lesson in the time ahead, so that even more children can gain greater knowledge of personal finances.

In the second quarter, DNB rolled out a new solution for instore cash services for about 1 450 shops in Norway. The service will replace the old agreement with Posten Norge (the Norwegian postal service).

In May, DNB launched the summer campaign called Neste sommer (Next summer). The goal of the campaign is to help the tourism industry and encourage people to book a holiday in Norway. The tourism industry has been severely affected by the coronavirus situation. Through its Neste sommer campaign, the bank is giving a boost to industry players that are experiencing an extremely tough period.

DNB is the first bank to offer a fully digital solution for preapproved payments. The new solution will make the job easier for a large number of accountants and their corporate customers, while also increasing efficiency.

Electronic registration, or eRegistration (eTinglysning), is now available to corporate customers. With the introduction of eRegistration for corporate customers, DNB is taking a major step towards a fully digitalised credit process. Together with the use of existing eSigning functionality, the final processing can now be entirely digital.

DNB became a partner of the women's national football team through the #huninvesterer campaign (#girlsinvest). Together with

1) DNB Bank ASA is a subsidiary of DNB ASA and part of the DNB Group. The DNB Bank Group, hereinafter called "the banking group", comprises the bank and the bank's subsidiaries. Other companies owned by DNB ASA, including DNB Livsforsikring and DNB Asset Management, are not part of the banking group. Operations in DNB ASA and the total DNB Group are not covered in this report but described in a separate report and presentation.

the Norwegian Football Association (NFF), DNB will strengthen its focus on women's football and help to address and reduce the gender inequality that still exists.

DNB Markets was named best investment bank in the highyield and investment grade category in Prospera's annual survey.

As a result of the coronavirus situation and Norges Bank's interest rate cut, the banking group lowered the mortgage rate by up to 0.4 percentage points for new and existing customers from May.

During the second quarter, Moody's and S&P maintained the long-term counterparty risk rating from previous periods, Aa2 and AA- with a stable outlook. This reflects the banks robust capitalisation, strong profitability and diversified earnings over recent years, which have contributed to the bank's healthy performance.

In May, an additional reputation survey was conducted by RepTrak. The survey is usually conducted quarterly, but due to the extraordinary circumstances caused by the COVID-19 situation, an extra survey was carried out for the period 12 March to 30 April. In this additional survey, DNB received a score of 74.2.

Half-year financial performance

The banking group recorded profits of NOK 8 374 million in the first half of 2020, down NOK 2 908 million from the first half of 2019. Return on equity was 7.4 per cent, compared with 11.2 per cent in the year-earlier period.

Net interest income increased by NOK 1 036 million from the same period last year, driven by higher volumes, positive currency effects and increased lending margins. There was an average increase in the healthy loan portfolio of 4.5 per cent parallel to a 10.2 per cent increase in average deposit volumes from the first half of 2019. The combined spreads narrowed by 1 basis point compared with the year-earlier period. Average lending spreads for the customer segments widened by 17 basis points, and deposit spreads narrowed by 22 basis points.

Net other operating income increased by NOK 2 367 million from the first half of 2019, mainly due to positive exchange rate effects on AT1 capital and basis swaps. Net commissions and fees decreased by NOK 214 million, or 6.6 per cent, compared with the first half of 2019. The reduction was due to lower income from money transfer and banking services caused by the COVID-19 situation.

Total operating expenses were down by NOK 75 million from the first half of 2019 due to decreased salaries and other personnel expenses.

There were impairment losses on financial instruments of NOK 7 892 million in the first half of 2020, an increase of NOK 7 126 million from the previous year. The increase is caused by the impact on the economy, both in Norway and globally, of the COVID-19 pandemic, in combination with the effect of the oil price fall. About 90 per cent of the impairment losses occurred in the corporate customers segment, but the COVID-19 outbreak also resulted in increased impairment losses within the personal customers segment. For corporate customers, over half of the impairment losses were in oil-related industries (mainly offshore), while the rest was spread across different industries impacted by the COVID-19 outbreak. For the personal customers segment, most of the increase compared with last year stemmed from consumer loans in stages 1 and 2, and from specific customers in stage 3. The economic situation improved in the latter part of the period, as businesses started to reopen and more people returned to work. However, there is still some uncertainty relating to how the COVID-19 pandemic and the oil price will develop in the near future.

Second quarter income statement – main items

Net interest income

Amounts in NOK million 2Q20 1Q20 2Q19
Lending spreads, customer segments 8 454 7 587 7 035
Deposit spreads, customer segments (180) 1 215 1 068
Amortisation effects and fees 909 842 817
Operational leasing 510 492 413
Contributions to the deposit guarantee
and resolution funds, Poland
7 (40) (0)
Other net interest income (63) 518 413
Net interest income 9 638 10 615 9 746

Net interest income decreased by NOK 108 million, or 1.1 per cent, from the second quarter of 2019, due to lower customer interest rates.

There was an average increase of NOK 67.7 billion, or 4.4 per cent, in the healthy loan portfolio compared with the second quarter of 2019. Adjusted for exchange rate effects, volumes were up NOK 16.6 billion, or 1.1 per cent. During the same period, deposits were up NOK 124.4 billion, or 13.2 per cent. Adjusted for exchange rate effects, there was an increase of NOK 95.0 billion, or 10.1 per cent. Average lending spreads widened by 28 basis points, and deposit spreads narrowed by 52 basis points compared with the second quarter of 2019. Volume-weighted spreads for the customer segments narrowed by 7 basis points compared with the same period in 2019.

Compared with the first quarter, net interest income decreased by NOK 977 million, or 9.2 per cent, mainly due to lower customer interest rates. Furthermore, adjustments of customer rates following Norges Bank's reduction of the key policy rate in May, were fully reflected in the second quarter. There was an average increase of NOK 21.3 billion, or 1.4 per cent, in the healthy loan portfolio, and deposits were up NOK 71.3 billion, or 7.2 per cent. Volume-weighted spreads for the customer segments narrowed by 13 basis points compared with the first quarter.

Net other operating income

Amounts in NOK million 2Q20 1Q20 2Q19
Net commissions and fees 1 601 1 448 1 770
Basis swaps (19) 1 060 740
Exchange rate effects additional Tier 1 capital (1 343) 4 097 (125)
Net gains on other financial instruments
at fair value
3 029 (1 891) 737
Net profit from associated companies 75 (96) 98
Other operating income 513 481 451
Net other operating income 3 856 5 099 3 670

Net other operating income increased by NOK 186 million from the second quarter of 2019. There was a positive contribution from trading revenues in DNB Markets. In addition, negative exchange rate effects on AT1 capital totalling NOK 1 343 million impacted income in the second quarter, compared with negative effects totalling NOK 125 million in the year-earlier period. However, this was somewhat offset by positive valuation adjustments for derivatives (CVA/DVA/FVA) and bonds due to lower credit spreads. Net commissions and fees decreased by 9.6 per cent from the year-earlier period, due to lower income from money transfer and banking services related to fewer international transactions following the COVID-19 outbreak.

Compared with the first quarter of 2020, net other operating income decreased by NOK 1 243 million. The decrease was mainly due to negative exchange rate effects on AT1 capital and basis swaps. However, there was a positive contribution from other markto market adjustments and trading revenues in DNB Markets which rebounded strongly in the second quarter as the financial markets normalised. Net commissions and fees increased by NOK 153 million, or 10.6 per cent, from the first quarter, mainly due to strong results driven by real estate broking and investment banking services. However, this was partly offset by reduced income from

money transfer and banking services, which was caused by the COVID-19 situation and international travel coming to a halt.

Operating expenses

Amounts in NOK million 2Q20 1Q20 2Q19
Salaries and other personnel expenses (3 067) (2 678) (2 971)
Restructuring expenses (12) (14) (3)
Other expenses (1 634) (1 676) (1 818)
Depreciation of fixed and intangible assets (848) (828) (718)
Impairment of fixed and intangible assets (0) (1)
Total operating expenses (5 560) (5 197) (5 510)

Operating expenses increased by NOK 50 million, compared with the second quarter of 2019. There was an increase in salaries and other personnel expenses, mainly driven by increased pension costs related to the increased return on the closed defined benefit pension scheme, where the hedging is presented as gain on financial instruments.

Compared with the first quarter of 2020, there was an increase in operating expenses of NOK 363 million, or 7.0 per cent. This was due to higher pension costs, also related to the increased return on the closed defined benefit pension scheme.

The cost/income ratio was 41.2 per cent in the second quarter.

Impairment of financial instruments

Amounts in NOK million 2Q20 1Q20 2Q19
Personal customers (43) (522) (68)
Commercial real estate 15 (143) (21)
Shipping (136) (211) 5
Oil, gas and offshore (1 863) (2 605) 54
Other industry segments (93) (2 289) (420)
Total impairment of financial instruments (2 120) (5 771) (450)

Net impairment losses amounted to NOK 2 120 million in the second quarter of 2020. This is an increase of NOK 1 670 million from the second quarter of 2019, but a decrease of NOK 3 651 million from the first quarter of 2020. In general, the economic outlook was stable compared with the previous quarter, when the COVID-19 outbreak and the oil price fall were reflected in the forecasts for key macro drivers.

Personal customers had impairment losses of NOK 43 million in the quarter. This is down NOK 25 million compared to the same quarter last year, and down NOK 479 million compared with the first quarter of 2020. The low impairment losses can be ascribed to continued low credit risk and a stable economic outlook for key risk drivers compared with the previous quarter, when the COVID-19 outbreak was reflected in the macro forecasts. The impairment this quarter was primarily related to customers in stage 3.

Net impairment losses on financial instruments in commercial real estate decreased by NOK 35 million and NOK 158 million compared with second quarter of 2019 and the first quarter of 2020, respectively. There are so far no indications that the COVID-19 outbreak will have a significant negative impact on the commercial real estate segment.

There were net impairment losses of NOK 136 million within the shipping segment in the second quarter. This is an increase of NOK 141 million compared with the second quarter of last year, and a decrease of NOK 75 million compared with the first quarter of 2020. The net impairment losses in the quarter were primarily related to a negative development for specific customers in stages 2 and 3, while the macro outlook for all shipping segments was stable compared with the previous quarter.

Net impairment losses amounted to NOK 1 863 million for the oil, gas and offshore segment in the quarter. This is an increase of NOK 1 917 million from the second quarter of 2019, and a decrease of NOK 742 million from the first quarter of 2020. The impairment losses this quarter were primarily related to customers in stage 3 within the offshore segment. The macro forecasts for this segment in the second quarter are stable compared with the

previous quarter, as the oil price is developing in line with expectations, and the challenging situation for offshore companies continues.

There were net impairment losses of NOK 93 million within other industry segments. This is a decrease of NOK 327 million and NOK 2 196 million compared with the second quarter of 2019 and the first quarter of 2020, respectively. An increase in stage 2 loans due to a negative credit migration for specific customers within the hotel and tourism industry was curtailed by a positive development for a few customers in stage 3 within the trade segment. Apart from this, there were no significant developments for specific customers, and the macro forecasts for all segments remained stable compared with the previous quarter.

Net stage 3 loans and financial commitments amounted to NOK 30 billion at end-June 2020, up from NOK 21 billion in the year-earlier period and up from NOK 27 billion in the first quarter of 2020.

Taxes

The banking group's tax expense for the second quarter has been estimated at NOK 1 163 million, or 20.0 per cent of pre-tax operating profits.

Financial performance – segments

Financial governance in the banking group is adapted to the different customer segments. Reported figures reflect total sales of products and services to the relevant segments.

Personal customers

Income statement in NOK million 2Q20 1Q20 2Q19
Net interest income 3 389 3 702 3 372
Net other operating income 884 920 1 020
Total income 4 273 4 622 4 392
Operating expenses (2 151) (2 194) (2 044)
Pre-tax operating profit before impairment 2 122 2 428 2 348
Impairment of financial instruments (82) (734) (76)
Pre-tax operating profit 2 041 1 695 2 272
Tax expense (510) (424) (568)
Profit for the period 1 530 1 271 1 704
Average balance sheet items in NOK billion
Net loans to customers 795.6 795.8 781.0
Deposits from customers 453.4 435.4 418.9
Key figures in per cent
Lending spread 1) 1.81 1.53 1.42
Deposit spread 1) (0.22) 0.68 0.61
Return on allocated capital 12.8 10.8 14.5
Cost/income ratio 50.3 47.5 46.5
Ratio of deposits to loans 57.0 54.7 53.6

1) Calculated relative to the 3-month money market rate. See ir.dnb.no for additional information about alternative performance measures (APMs).

The financial performance in the second quarter was affected by the COVID-19 situation. Pre-tax operating profit declined by 10.2 per cent from the corresponding quarter in 2019, and return on allocated capital went down 1.7 percentage points to 12.8 per cent.

The effect of the interest rate adjustments on loans to customers and deposits combined with decreasing money market rates explains the development in net interest income. Combined spreads on loans and deposits narrowed by 16 basis points from the previous quarter and by 7 basis points from the second quarter of 2019.

There was a moderate rise in average net loans of 1.9 per cent from the second quarter of 2019. The growth in the healthy home mortgage portfolio amounted to 2.7 per cent. Deposits from customers rose significantly by 8.2 per cent, and the ratio of deposits to loans improved by 3.4 percentage points compared with the year-earlier period.

Net income from payment services contributed negatively compared with the same period in 2019, mainly due to falling revenues from card sales and currency withdrawals. Income from real estate broking showed a more positive development than first expected, with a total income of NOK 461 million, down 1.7 per cent from the second quarter of 2019.

Operating expenses remained relatively stable. Lower IT activity together with seasonally higher real estate broking and marketing activities explains the development from the previous quarter.

The personal customers segment experienced impairment of financial instruments of NOK 82 million, the same level as the yearearlier period. This is equivalent to 0.04 per cent of net loans to customers.

DNB's market share of credit to households stood at 23.2 per cent at the end of May 2020, while the market share of total household savings was 30.1 per cent in the same period. DNB Eiendom had an average market share of 18.1 per cent this quarter.

During the COVID-19 period, the banking group has focused on providing customers with relevant financial advice and keeping digital services available to them. A total of 35 000 customers have been granted interest-only periods, 600 000 advisory conversations with customers have been carried out, 110 000 enquiries have been answered through the open live chat and 60 000 modules of DNB's digital learning tool for children, A valuable lesson, have been completed.

Corporate customers

Income statement in NOK million 2Q20 1Q20 2Q19
Net interest income 5 944 6 107 5 807
Net other operating income 1 523 1 382 1 688
Total income 7 467 7 489 7 496
Operating expenses (2 939) (2 865) (2 712)
Pre-tax operating profit before impairment 4 528 4 624 4 784
Net gains on fixed and intangible assets 0 (0) (0)
Impairment of financial instruments (2 030) (5 038) (371)
Profit from repossessed operations (29) (80) (47)
Pre-tax operating profit 2 469 (494) 4 365
Tax expense (617) 124 (1 064)
Profit for the period 1 852 (371) 3 301
Average balance sheet items in NOK billion
Net loans to customers 815.8 792.9 762.2
Deposits from customers 613.8 559.5 523.8
Key figures in per cent
Lending spread 1) 2.46 2.37 2.31
Deposit spread 1) 0.05 0.35 0.33
Return on allocated capital 7.0 (1.5) 13.7
Cost/income ratio 39.4 38.3 36.2
Ratio of deposits to loans 75.2 70.6 68.7

1) Calculated relative to the 3-month money market rate. See ir.dnb.no for additional information about alternative performance measures (APMs).

The effects of the COVID-19 pandemic and the oil price fall continued in the second quarter and had a negative impact on Corporate customers financial performance. Pre-tax operating profit before impairment declined by 5.4 per cent from the second quarter of 2019, and 2.1 per cent from the first quarter of 2020.

Net interest income was positively affected by consistently high loan volumes, mainly currency-driven, and widening lending spreads. Average loan volumes were up 2.9 per cent compared with the first quarter, and the underlying currency adjusted growth rate was 0.4 per cent, mainly due to activity in commercial real estate and the small and medium-sized enterprises (SME) segment. There was also continued underlying growth in deposit volumes in the second quarter, mainly from the SME segment, as well as from the public sector. Deposit spreads were, however, negatively affected by decreasing money market rates and interest rate adjustments.

In the second quarter, there was increased activity within investment banking and a somewhat more normalised level of activity within fixed income, currencies and commodities products compared with the first quarter. Income from DNB Markets products remained at the same level as the corresponding quarter last year and increased by 5.4 per cent compared with the first quarter of 2020.

Operating expenses were up 8.4 per cent compared with the second quarter of 2019, primarily due to currency effects and depreciation of operating leases. Costs were up 2.6 per cent compared with the first quarter of 2020.

Impairment of financial instruments decreased from the previous quarter and amounted to NOK 2 030 million in the second quarter of 2020. The losses were primarily related to customers in oil-related industries (mainly offshore) in stage 3. The overall credit quality in the portfolio was stable during the quarter, but negative migration was observed for certain customers in travel-related industries as a consequence of the COVID-19 outbreak, which resulted in somewhat higher impairments in stage 2. In general, the macro forecasts that affect corporate customers were relatively stable compared to the first quarter of 2020, when the impact of the COVID-19 pandemic and the oil price fall were reflected in the forward-looking macro assumptions.

In the time ahead, DNB will focus on making profitable transactions across industries and will work to maintain its activity level, both through the management of state-guaranteed loans and by making effective use of the capital available. It will continue to be important to increase turnover in the portfolio, reduce final hold and make more active use of portfolio management tools.

Other operations

This segment includes the results from risk management in DNB Markets and items not allocated to the customer segments.

Income statement in NOK million 2Q20 1Q20 2Q19
Net interest income 305 806 567
Net other operating income 1 528 3 111 1 352
Total income 1 833 3 917 1 919
Operating expenses (549) (452) (1 145)
Pre-tax operating profit before impairment 1 284 3 464 774
Net gains on fixed and intangible assets (0) 0 (2)
Impairment of financial instruments (8) (0) (3)
Profit from repossessed operations 29 80 47
Pre-tax operating profit 1 304 3 544 816
Tax expense (35) (649) 142
Profit from operations held for sale, after taxes (17) (56) (30)
Profit for the period 1 252 2 839 927
Average balance sheet items in NOK billion
Net loans to customers 110.7 119.7 97.8
Deposits from customers 73.4 55.6 25.5

The profit for the other operations segment was NOK 1 252 million in the second quarter of 2020.

Risk management income rebounded strongly in the second quarter, reaching NOK 1 166 million, up from NOK 94 million in the second quarter of 2019 and up from minus NOK 846 million in the previous quarter. A normalised financial market reversed the widening credit spreads and decreased counterparty risk. Revenues from money market activities and repurchase agreements (repo trading) increased compared with the second quarter last year.

The profit in the other operations segment is affected by several group items not allocated to the segments. Net other operating income in the second quarter was affected negatively by exchange rate effects on AT1 capital, and basis swaps. These items vary from quarter to quarter.

The banking group's share of the profit in associated companies (most importantly Luminor and Vipps) is included in this segment with a total income of NOK 75 million. There was

adecrease in profit from these companies of NOK 24 million compared with the second quarter of 2019, and an increase of NOK 170 million compared with the first quarter of 2020.

Funding, liquidity and balance sheet

The start of the second quarter was to a great extent affected by the COVID-19 pandemic, which led to high levels of uncertainty in the market and expensive funding. The banking group benefited from having issued a considerable number of senior bonds late in 2019, which contributed to the bank being well positioned and having good liquidity going into 2020. As a result, the banking group was able to delay taking out large amounts of short-term funding until the market had calmed down and interest rates had returned to lower levels. Substantial injections of liquidity by governments all over the world have helped to ensure that banks have had good access to liquidity throughout the quarter. At the end of the quarter, interest rates were back to low levels, and this situation is expected to continue. The banking group thus has good access to liquidity at favourable prices.

The uncertainty associated with the COVID-19 pandemic also contributed to high prices for long-term funding at the beginning of the quarter. During the course of April, the market continued to improve, and by the end of the quarter the market had recovered and funding costs were back to pre-pandemic levels. There has been a high level of activity in the markets for both senior bonds and covered bonds. The banking group had ample long-term funding and has not needed to issue either senior or covered bonds during the quarter. The markets for subordinated loans have also seen significant activity during the spring, and the banking group issued a NOK 4 billion subordinated loan in May that attracted considerable investor interest. The banking group has ample access to long-term funding in all markets.

The nominal value of long-term debt securities issued by the banking group was NOK 661 billion at the end of the second quarter, compared with NOK 617 billion a year earlier. The average remaining term to maturity for these long-term debt securities was 3.5 years at the end of June, compared with 4.0 years in the yearearlier period.

The short-term liquidity requirement, the Liquidity Coverage Ratio (LCR), remained stable at above 100 per cent throughout the quarter and stood at 130 per cent at the end of the second quarter. Total assets in the banking group were NOK 2 729 billion at the

end of the second quarter, and NOK 2 529 billion a year earlier.

Loans to customers increased by NOK 66.0 billion, or 4.0 per cent in the second quarter, compared with the second quarter of 2019. Customer deposits were up NOK 110.3 billion, or 11.0 per cent, during the same period. The ratio of customer deposits to net loans to customers was 64.9 per cent at end-June 2020, up from 62.2 per cent at end-March 2020.

Risk management and capital position

Four months into the COVID-19 pandemic, the banking group's capital position remains strong and is well above the regulatory requirements. Markets have normalised but there is still some uncertainty attached to future developments.

At the end of June 2020, the CET1 capital ratio was 18.0 per cent, up from 16.2 per cent a year-earlier, and from 17.5 per cent at end-March.

While no further relief on the capital requirement has been introduced in the second quarter, the CET1 'headroom' over the requirement (15.7 per cent) for the banking group is comfortable at 2.3 percentage points.

Risk-weighted assets decreased by NOK 21 billion from end-March to NOK 972 billion at end-June 2020. The retained profit and strengthening of the NOK were the main factors behind the decrease in risk-weighted assets and the higher CET1 capital from end-March.

The non-risk based leverage ratio was 6.6 per cent at end-June 2020, down from 7.1 per cent at the year-earlier period, and up from 6.3 per cent in the first quarter of 2020.

In the second half of the year, Finanstilsynet will conduct an annual supervisory review and evaluation process (SREP) in collaboration with the supervisory authorities of the DNB College, but will not make a new decision concerning capital requirements unless special circumstances are revealed to indicate a greater need for capital. The assessments will be summarised in joint decisions that are sent to the bank once they have been made, most likely by the end of the year.

Capital adequacy

The capital adequacy regulations specify a minimum primary capital requirement based on risk-weighted assets that include credit risk, market risk and operational risk. In addition to meeting the minimum requirement, the banking group must satisfy various buffer requirements (Pillar 1 and Pillar 2 requirements). The CET1 requirement is 15.7 per cent.

Capital and risk

2Q20 1Q20 2Q19
CET1 capital ratio, per cent 18.0 17.5 17.7
Tier 1 capital ratio, per cent 19.9 19.3 19.6
Capital ratio, per cent 23.3 22.9 22.6
Risk-weighted assets, NOK billion 972 993 1 003
Leverage ratio, per cent 6.6 6.3 7.1

New regulatory framework

Norway's way out of the crisis

In order to mitigate the adverse effects of the COVID-19 outbreak on Norway's economy, business community and labour market, the authorities have implemented far-reaching financial measures. The Norwegian Government has also presented an exit strategy for the coronavirus crisis, including additional measures intended to help get more people back to work and boost activity and value creation in the Norwegian business community, as well as to promote the green shift. Among the measures to be introduced are salary support for businesses that take back temporarily laid off (furloughed) employees, a reduction of the wealth tax on working capital, and more money for research, innovation and technology development.

MREL requirement – extension of grandfathering period

The EU's Bank Recovery and Resolution Directive (BRRD) has been effective in Norway since 1 January 2019. On 20 December 2019, the minimum requirement for own funds and eligible liabilities (MREL) was determined for DNB and seven other Norwegian banks. The MREL requirement applied from 30 June 2020. Initially, preferred senior debt issued before 1 January 2020, with more than one year's remaining maturity, qualified as MREL-eligible debt until 31 December 2022 (grandfathering). Due to the demanding market conditions caused by the COVID-19 pandemic, Finanstilsynet announced on 26 May 2020 that the grandfathering period was to be extended to 1 January 2024.

Expectation for the distribution of profits

In a press release published on 25 March 2020, the Ministry of Finance expressed a clear expectation that Norwegian financial institutions should refrain from distributing profits until the great economic uncertainty has subsided. On 8 June 2020, the European Systemic Risk Board (ESRB) published a recommendation to national authorities urging them to request financial institutions to refrain from distributing profits, in light of the economic uncertainty caused by the COVID-19 outbreak. The recommendation includes requesting financial institutions to refrain from distributing dividends, buying back shares and providing variable remuneration

to individual employees at least until 1 January 2021. On 1 July 2020, the Ministry of Finance sent a communication to the ESRB referring to the press release of 25 March, adding that the expectation also applies to share buy-backs.

CRR 'quick fix'

The EU has adopted certain temporary relief measures relating to the Capital Requirements Regulation for banks (CRR 2), to facilitate lending to businesses and households. The measures are intended to give banks greater flexibility to provide loans during the demanding period caused by the COVID-19 pandemic. It is still not clear how this may affect the regulatory framework for the Norwegian banking industry. Finanstilsynet is currently examining the Norwegian implementation of the EU's Banking Package, which includes the CRR 2.

Lending regulations to be evaluated

Banks' lending practices towards households are currently regulated by the Home Mortgage Regulations and the Consumer Loan Regulations. The Norwegian Ministry of Finance has asked Finanstilsynet to give advice on how banks' lending practices should be regulated after these regulations expire on 31 December 2020. The Ministry will also consider whether limits should be introduced for loans that are currently not regulated by the regulations. Finanstilsynet is to present its assessment by 28 September.

Temporary increased flexibility in the Home Mortgage Regulations

The Ministry of Finance has allowed a temporary increase in the flexibility quotas set out in the Home Mortgage Regulations to 20 per cent in the second quarter. On 11 June, the Ministry decided to extend the increased flexibility quotas to the end of the third quarter. Increased flexibility strengthens the ability of banks to help their customers through a demanding period.

New Financial Contracts Act in the pipeline

The Ministry of Justice and Public Security has presented a proposal for a new Financial Contracts Act. The draft legislation also implements new EU directives on home mortgages, payment accounts and payment services, as well as strengthening the protection and specifying the rights of the consumer and the obligations of the service provider. Among other things, it is proposed that banks be held accountable to a greater extent in cases where they fail to fulfil the obligation to assess the consumer's debt-servicing capacity, or in cases where they do not decline credit applications from customers who cannot afford to service the loans. New rules are also proposed for protecting consumers against fraud when entering into financial services agreements using electronic signatures.

Risk mitigation through Innovation Norway's growth guarantee scheme

The purpose of the growth guarantee scheme is to make bank financing more easily available to innovative or fast-growing SMEs. The guarantee scheme is based on an agreement between the European Investment Fund and Innovation Norway. Through the scheme, Innovation Norway guarantees 75 per cent of banks' losses on loans of up to NOK 4 million per company. DNB and five other banks have tested the scheme since 2017, and it is now being expanded and rolled out further. Over the next two years, Norwegian banks will be able to provide loans totalling nearly NOK 2 billion in risk capital to companies that meet the criteria. DNB has been allocated NOK 700 million of this amount.

Macroeconomic developments

The measures to stop the spread of the coronavirus resulted in a clear decline in global GDP in the first quarter, and the drop in global GDP was probably considerably greater in the second

quarter. In light of the reopening of economies in the second quarter, it seems likely that GDP reached its lowest point in the second quarter in most countries. One exception is China, which was most severely affected in the first quarter.

So far, it seems that the Norwegian economy has performed better than many other advanced economies. On 16 June, DNB Markets projected a decline in mainland GDP of 4.3 per cent in 2020. This is an improvement of 1.6 percentage points from the projected decline of 5.9 percentage points presented on 5 May. Statistics Norway and Norges Bank changed their projections by approximately the same. After the Government introduced the stringent infection control measures on 12 March, the number of fully unemployed rose rapidly to a peak of 10.4 per cent. During the course of April, however, the unemployment rate fell, and by end-June it was 4.8 per cent. Norges Bank expects the percentage to decline to 3.2 per cent in 2021. The monthly GDP figures suggest that value creation picked up throughout April. Statistics Norway's survey of investments in oil and gas indicated a smaller fall in investments this year than previously estimated, and the oil price has risen from the low levels of late April to around USD 40 per barrel in the second half of June. In the housing markets, prices for existing homes fell in March and April, but rose sharply in May and June. Sales of existing homes, which had fallen in March, also picked up in April. Home prices are now 3.5 per cent higher than in the year-earlier. In May, core inflation was 3.0 per cent. Some prices were quickly affected by the weakening of the Norwegian krone in March. DNB Markets expects the weakening of the krone to contribute to core inflation remaining at the current level in the next few months, before gradually starting to fall, and estimates annual growth of 2.8 per cent in 2020. Low wage growth could bring inflation down in the time ahead. Falling energy prices are projected to contribute to the total inflation this year ending at little over 1 per cent.

Norges Bank reduced the key policy rate from 1.50 per cent to 0.00 per cent in three phases. In its June Monetary Policy Report, Norges Bank presented a policy rate path that would suggest a rise in interest rates from the second half of 2022. In addition to cutting the key policy rate, Norges Bank has provided substantial liquidity stimulus packages, primarily in NOK, but also in USD. Moreover, Norges Bank intervened in the currency markets twice in March. In fiscal policy, support was first given to businesses and households to compensate for loss of income. Then, in step with the reopening of the economy, the measures have turned more towards stimulating aggregate demand. The authorities have also introduced special measures for, among other things, air transport and the oil and gas sector. The fiscal stimulus packages are estimated to amount to 5.5 per cent of the mainland economy. In addition, deadlines for paying tax and fees have been extended, and favourable loan schemes and guarantees have been offered.

Future prospects

DNB's financial ambitions, including the overriding financial target of a return on equity above 12 per cent, remain unchanged. However, due to the COVID-19 pandemic and the subsequent developments in the macroeconomic environment, these are unlikely to be achieved in 2020.

In the period 2020 to 2022, the annual increase in lending and deposit volumes is expected to be around 3 to 4 per cent. DNB's ambition is to have a cost/income ratio below 40 per cent.

The reduction in interest rates on customer loans and deposits following Norges Bank's 150 basis point reduction in the key policy rate, will have a negative effect on net interest income of approximately NOK 5 billion annually, effective from the second quarter. Alongside this, net commissions and fees will be affected by lower income from money transfer and banking services due to lower levels of business and travel activity.

Due to the COVID-19 pandemic, the decision on the distribution of dividends will be considered at an extraordinary general meeting due to take place in December 2020, at the latest.

Oslo, 12 July 2020 The Board of Directors of DNB Bank ASA

Olaug Svarva Kim Wahl (Chair of the Board) (Vice Chair of the Board)

Julie Galbo Eli Solhaug

Kjerstin R. Braathen (Group Chief Executive Officer, CEO)

Income statement

DNB Bank ASA 2nd quarter 2nd quarter January-June Full year Amounts in NOK million 2020 2019 2020 2019 2019 Interest income, amortised cost 9 042 10 709 20 537 21 161 44 084 Other interest income 1 223 1 082 2 480 2 188 4 257 Interest expenses, amortised cost (2 797) (5 912) (8 238) (11 926) (23 799) Other interest expenses (86) 1 430 714 2 969 5 638 Net interest income 7 382 7 309 15 493 14 392 30 180 Commission and fee income 1 921 2 090 3 817 4 028 8 343 Commission and expenses (793) (775) (1 550) (1 526) (3 168) Net gains on financial instruments at fair value 1 048 353 4 681 1 421 2 688 Net gains on investment properties 97 Other income 1 376 5 290 2 096 6 027 15 299 Net other operating income 3 552 6 957 9 043 9 950 23 260 Total income 10 934 14 266 24 536 24 342 53 440 Salaries and other personnel expenses (2 651) (2 561) (4 957) (5 046) (10 360) Other expenses (1 458) (1 641) (2 957) (3 257) (6 477) Depreciation and impairment of fixed and intangible assets (827) (695) (1 627) (1 531) (3 203) Total operating expenses (4 936) (4 897) (9 541) (9 834) (20 039) Pre-tax operating profit before impairment 5 998 9 369 14 995 14 508 33 401 Net gains on fixed and intangible assets 0 (16) (0) (16) (34) Impairment of financial instruments (2 484) (571) (6 933) (944) (2 484) Pre-tax operating profit 3 515 8 782 8 062 13 548 30 883 Tax expense (703) (1 485) (1 613) (2 439) (4 122) Profit for the period 2 812 7 296 6 449 11 109 26 761 Portion attributable to shareholders of DNB Bank ASA 2 554 7 050 5 759 10 620 25 638 Portion attributable to additional Tier 1 capital holders 258 246 690 489 1 123 Profit for the period 2 812 7 296 6 449 11 109 26 761

Comprehensive income statement

DNB Bank ASA
2nd quarter 2nd quarter January-June Full year
Amounts in NOK million 2020 2019 2020 2019 2019
Profit for the period 2 812 7 296 6 449 11 109 26 761
Actuarial gains and losses 1) (278) (11)
Financial liabilities designated at FVTPL, changes in credit risk (140) 3 34 (36) 9
Tax 35 (1) 61 9 (5)
Items that will not be reclassified to the income statement (105) 2 (183) (27) (7)
Currency translation of foreign operations 9 (16) 161 (37) (44)
Financial assets at fair value through OCI 114 (23) (240) (18) 59
Tax (28) 6 60 5 (15)
Items that may subsequently be
reclassified to the income statement 94 (33) (19) (51) 0
Other comprehensive income for the period (11) (31) (203) (78) (7)
Comprehensive income for the period 2 801 7 265 6 247 11 032 26 754

1) Pension commitments and pension funds in the defined-benefit schemes were recalculated in the first quarter of 2020 and updated with new calculation assumptions in accordance with guidance notes from the Norwegian Accounting Standards Board as of 31 March 2020.

Balance sheet

DNB Bank ASA
30 June 31 Dec. 30 June
Amounts in NOK million Note 2020 2019 2019
Assets
Cash and deposits with central banks 335 269 301 246 394 700
Due from credit institutions 390 142 394 237 416 531
Loans to customers 5, 6, 7, 8 883 348 880 203 843 921
Commercial paper and bonds 8 364 002 231 910 197 847
Shareholdings 8 3 790 6 008 6 115
Financial derivatives 8 213 813 136 255 130 094
Investment properties 144 144
Investments in associated companies 2 575 2 575 9 584
Investments in subsidiaries 108 843 113 810 104 632
Intangible assets 3 294 3 392 3 336
Deferred tax assets 6 297 6 205 2 652
Fixed assets 15 474 14 557 14 037
Other assets 15 903 11 897 10 835
Total assets 2 342 893 2 102 439 2 134 284
Liabilities and equity
Due to credit institutions 381 494 277 188 313 253
Deposits from customers 8 1 084 596 956 655 973 404
Financial derivatives 8 233 851 168 349 154 132
Debt securities issued 8, 9 355 500 416 565 439 129
Payable taxes 8 530 7 495 2 348
Deferred taxes 98 88 84
Other liabilities 55 427 52 215 26 718
Provisions 2 557 1 341 1 738
Pension commitments 3 734 3 454 3 397
Subordinated loan capital 8, 9 33 879 31 095 30 504
Total liabilities 2 159 666 1 914 446 1 944 707
Additional Tier 1 capital 18 376 26 729 18 493
Share capital 18 256 18 256 18 256
Share premium 19 895 19 895 19 895
Other equity 126 700 123 113 132 933
Total equity 183 227 187 993 189 577
Total liabilities and equity 2 342 893 2 102 439 2 134 284

Income statement

DNB Bank Group 2nd quarter 2nd quarter January-June Full year Amounts in NOK million 2020 2019 2020 2019 2019 Interest income, amortised cost 12 985 14 832 29 210 29 256 61 067 Other interest income 1 232 1 299 2 638 2 629 5 123 Interest expenses, amortised cost (2 929) (5 886) (8 661) (11 928) (23 796) Other interest expenses (1 650) (499) (2 934) (740) (2 486) Net interest income 9 638 9 746 20 253 19 217 39 908 Commission and fee income 2 387 2 529 4 582 4 773 9 758 Commission and fee expenses (786) (759) (1 533) (1 511) (3 141) Net gains on financial instruments at fair value 1 667 1 351 4 933 2 099 3 173 Profit from investments accounted for by the equity method 75 98 (21) 253 302 Net gains on investment properties (7) (11) (32) (7) 92 Other income 520 463 1 027 980 2 088 Net other operating income 3 856 3 670 8 955 6 588 12 272 Total income 13 494 13 417 29 208 25 805 52 181 Salaries and other personnel expenses (3 079) (2 974) (5 771) (5 837) (11 989) Other expenses (1 634) (1 818) (3 310) (3 572) (7 131) Depreciation and impairment of fixed and intangible assets (848) (718) (1 677) (1 423) (3 157) Total operating expenses (5 560) (5 510) (10 757) (10 832) (22 278) Pre-tax operating profit before impairment 7 934 7 906 18 450 14 973 29 903 Net gains on fixed and intangible assets 0 (3) (0) (3) (33) Impairment of financial instruments (2 120) (450) (7 892) (766) (2 191) Pre-tax operating profit 5 814 7 454 10 559 14 204 27 678 Tax expense (1 163) (1 491) (2 112) (2 841) (4 825) Profit from operations held for sale, after taxes (17) (30) (73) (81) (49) Profit for the period 4 634 5 933 8 374 11 281 22 805 Portion attributable to shareholders of DNB Bank ASA 4 381 5 688 7 690 10 793 21 686 Portion attributable to non-controlling interests (4) (1) (7) (1) (5) Portion attributable to additional Tier 1 capital holders 258 246 690 489 1 123 Profit for the period 4 634 5 933 8 374 11 281 22 805

Comprehensive income statement

DNB Bank Group
2nd quarter 2nd quarter January-June Full year
Amounts in NOK million 2020 2019 2020 2019 2019
Profit for the period 4 634 5 933 8 374 11 281 22 805
Actuarial gains and losses 1) (278) (7)
Financial liabilities designated at FVTPL, changes in credit risk (399) 53 216 (94) 232
Tax 100 (13) 15 24 (62)
Items that will not be reclassified to the income statement (299) 40 (46) (71) 163
Currency translation of foreign operations (5 275) (785) 8 062 (1 933) 463
Hedging of net investment 4 735 780 (7 010) 1 695 (459)
Financial assets at fair value through OCI 114 (23) (240) (18) 59
Tax (1 212) (189) 1 812 (419) (208)
Items that may subsequently be
reclassified to the income statement (1 638) (217) 2 624 (676) (146)
Other comprehensive income for the period (1 937) (177) 2 578 (746) 17
Comprehensive income for the period 2 697 5 755 10 951 10 535 22 821

1) Pension commitments and pension funds in the defined-benefit schemes were recalculated in the first quarter of 2020 and updated with new calculation assumptions in accordance with guidance notes from the Norwegian Accounting Standards Board as of 31 March 2020.

Balance sheet

DNB Bank Group
Amounts in NOK million Note 30 June
2020
31 Dec.
2019
30 June
2019
Assets
Cash and deposits with central banks 337 282 304 746 395 080
Due from credit institutions 116 017 101 165 129 398
Loans to customers 5, 6, 7, 8 1 709 736 1 671 350 1 643 781
Commercial paper and bonds 8 310 178 222 368 190 311
Shareholdings 8 6 196 7 479 7 474
Financial derivatives 8 200 891 125 364 117 520
Investment properties 721 741 631
Investments accounted for by the equity method 7 848 7 467 12 005
Intangible assets 3 654 3 744 3 652
Deferred tax assets 2 030 1 959 880
Fixed assets 15 797 14 882 14 295
Assets held for sale 1 315 1 274 1 180
Other assets 17 072 8 103 12 499
Total assets 2 728 738 2 470 640 2 528 706
Liabilities and equity
Due to credit institutions 304 780 202 177 230 912
Deposits from customers 8 1 108 804 977 530 998 554
Financial derivatives 8 174 537 115 871 103 700
Debt securities issued 8, 9 830 149 871 632 913 679
Payable taxes 9 207 9 810 3 777
Deferred taxes 63 60 3 393
Other liabilities 30 688 27 129 28 340
Liabilities held for sale 385 423 237
Provisions 2 831 1 726 2 336
Pension commitments 3 858 3 568 3 505
Subordinated loan capital 8, 9 33 878 31 095 30 504
Total liabilities 2 499 180 2 241 022 2 318 938
Additional Tier 1 capital 18 376 26 729 18 493
Non-controlling interests 43 45 47
Share capital 18 256 18 256 18 256
Share premium 20 611 20 611 20 611
Other equity 172 271 163 978 152 361
Total equity 229 557 229 619 209 769
Total liabilities and equity 2 728 738 2 470 640 2 528 706

Statement of changes in equity

DNB Bank ASA
Additional Net Liability
Share Share Tier 1 translation credit Other Total
Amounts in NOK million capital premium capital reserve reserve equity equity
Balance sheet as at 31 December 2018 18 256 19 895 16 194 536 (63) 121 745 176 562
Profit for the period 489 10 620 11 109
Actuarial gains and losses (18) (18)
Financial liabilities designated at FVTPL,
changes in credit risk
(36) (36)
Currency translation of foreign operations (37) (37)
Tax on other comprehensive income 9 5 14
Comprehensive income for the period 489 (37) (27) 10 606 11 032
Merger DNB Næringskreditt 163 163
Additional Tier 1 capital issued 2 700 2 700
Interest payments additional
Tier 1 capital (880) (880)
Currency movements taken to income (10) 10
Transfer of loan portfolio to subsidiary 1 1
Balance sheet as at 30 June 2019 18 256 19 895 18 493 499 (90) 132 524 189 577
Balance sheet as at 31 December 2019 18 256 19 895 26 729 492 (57) 122 678 187 993
Profit for the period 690 5 759 6 449
Actuarial gains and losses (278) (278)
Financial assets at fair value through OCI (240) (240)
Financial liabilities designated at FVTPL,
changes in credit risk 34 34
Currency translation of foreign operations 161 161
Tax on other comprehensive income (8) 130 121
Comprehensive income for the period 690 161 25 5 370 6 247
Interest payments additional
Tier 1 capital (1 110) (1 110)
Additional Tier 1 capital redeemed 1) (10 024) (10 024)
Currency movements interest payments
and redemption additional Tier 1 capital 2 091 (1 971) 120
Balance sheet as at 30 June 2020 18 256 19 895 18 376 653 (31) 126 078 183 227

1) Two additional Tier 1 capital instruments of NOK 2 150 million and USD 750 million, issued in 2015, were redeemed in the first quarter of 2020.

Statement of changes in equity (continued)

DNB Bank Group
Non- Additional Net Liability
controlling Share Share Tier 1 translation credit Other Total
Amounts in NOK million interests capital premium capital reserve reserve equity equity
Balance sheet as at 31 December 2018 18 256 20 611 16 194 5 029 (176) 148 019 207 933
Profit for the period (1) 489 10 793 11 281
Actuarial gains and losses (18) (18)
Financial liabilities designated at FVTPL,
changes in credit risk
(94) (94)
Currency translation of foreign operations (1 933) (1 933)
Hedging of net investment 1 695 1 695
Tax on other comprehensive income (424) 24 5 (396)
Comprehensive income for the period (1) 489 (662) (71) 10 780 10 535
Additional Tier 1 capital issued 2 700 2 700
Interest payments additional
Tier 1 capital (880) (880)
Currency movements taken to income (10) 10
Non-controlling interests
DNB Auto Finance OY 49 49
Group contribution to DNB ASA for 2018 (10 568) (10 568)
Balance sheet as at 30 June 2019 47 18 256 20 611 18 493 4 367 (247) 148 241 209 769
Balance sheet as at 31 December 2019 45 18 256 20 611 26 729 4 840 (2) 159 141 229 619
Profit for the period (7) 690 7 690 8 374
Actuarial gains and losses (278) (278)
Financial assets at fair value through OCI (240) (240)
Financial liabilities designated at FVTPL,
changes in credit risk 216 216
Currency translation of foreign operations 5 8 057 8 062
Hedging of net investment (7 010) (7 010)
Tax on other comprehensive income 1 752 (54) 130 1 828
Comprehensive income for the period (2) 690 2 800 162 7 301 10 951
Interest payments additional
Tier 1 capital (1 110) (1 110)
Additional Tier 1 capital redeemed 1) (10 024) (10 024)
Currency movements interest payments
and redemption additional Tier 1 capital 2 091 (1 971) 120
Balance sheet as at 30 June 2020 43 18 256 20 611 18 376 7 639 160 164 472 229 557

1) Two additional Tier 1 capital instruments of NOK 2 150 million and USD 750 million, issued by the DNB Bank Group's Parent company DNB Bank ASA in 2015, were redeemed in the first quarter of 2020.

Cash flow statement

DNB Bank ASA
January-June Full year
Amounts in NOK million 2020 2019 2019
Operating activities
Net payments on loans to customers 13 888 (56 459) (92 995)
Interest received from customers 20 066 20 261 42 475
Net receipts on deposits from customers 89 766 59 849 44 455
Interest paid to customers (2 305) (3 297) (10 892)
Net receipts on loans to credit institutions 142 714 44 535 38 538
Interest received from credit institutions 2 016 3 869 7 686
Interest paid to credit institutions (1 658) (2 954) (5 549)
Net receipts/(payments) on the sale of financial assets for investment or trading (147 076) 71 025 (43 319)
Interest received on bonds and commercial paper 2 669 3 343 5 002
Net receipts on commissions and fees 2 486 2 622 4 910
Payments to operations (9 129) (8 451) (16 279)
Taxes paid (610) (925) (1 058)
Other net receipts/payments 9 694 18 120 24 100
Net cash flow from operating activities 122 521 151 537 (2 926)
Investing activities
Net payments on the acquisition of fixed assets (2 240) (1 239) (4 067)
Net payment for investment properties (144)
Net disposal/(investment) in long-term shares 12 258 (256) (218)
Dividends received on long-term investments in shares 1 039 4 633 8 153
Net cash flow from investment activities 11 057 3 138 3 723
Financing activities
Receipts on issued bonds and commercial paper 737 582 565 794 1 068 424
Payments on redeemed bonds and commercial paper (828 581) (460 776) (909 130)
Interest payments on issued bonds and commercial paper (4 495) (5 747) (9 302)
Receipts on the raising of subordinated loan capital 4 056 9
Redemptions of subordinated loan capital (4 207) (9) (9)
Interest payments on subordinated loan capital (328) (341) (410)
Net receipts/(payments) on issue or redemption of additional Tier 1 capital (10 024) 2 700 10 436
Interest payments on additional Tier 1 capital (1 110) (880) (1 052)
Lease payments (311) (307) (557)
Group contribution payments (10 568) (10 568)
Net cash flow from funding activities (107 418) 89 866 147 840
Effects of exchange rate changes on cash and cash equivalents 6 123 (826) (50)
Net cash flow 32 283 243 715 148 588
Cash as at 1 January 306 446 157 858 157 858
Net receipts of cash 32 283 243 715 148 588
Cash at end of period *) 338 729 401 573 306 446
*) Of which:
Cash and deposits with central banks
335 269 394 700 301 246
Deposits with credit institutions with no agreed period of notice 1) 3 460 6 873 5 200

1) Recorded under "Due from credit institutions" in the balance sheet.

Cash flow statement (continued)

DNB Bank Group
January-June Full year
Amounts in NOK million 2020 2019 2019
Operating activities
Net payments on loans to customers (21 364) (51 912) (80 135)
Interest received from customers 27 515 30 163 58 082
Net receipts on deposits from customers 93 117 61 135 41 519
Interest paid to customers (2 434) (3 415) (11 289)
Net receipts on loans to credit institutions 106 707 45 042 41 700
Interest received from credit institutions 707 2 011 3 639
Interest paid to credit institutions (1 235) (2 341) (4 287)
Net receipts/(payments) on the sale of financial assets for investment or trading (36 730) 79 022 (13 684)
Interest received on bonds and commercial paper 2 248 3 253 4 882
Net receipts on commissions and fees 3 206 3 328 6 294
Payments to operations (10 468) (9 605) (18 412)
Taxes paid (1 002) (1 281) (1 878)
Other net receipts/payments 3 938 (2 408) (778)
Net cash flow from operating activities 164 205 152 992 25 653
Investing activities
Net payments on the acquisition of fixed assets (2 344) (1 105) (3 966)
Net receipts/(payments) on investment properties 21 (15) (116)
Net disposal in long-term shares (183) 3 260
Dividends received on long-term investments in shares 60 75 942
Net cash flow from investment activities (2 263) (1 227) 120
Financing activities
Receipts on issued bonds and commercial paper 735 851 598 844 1 097 101
Payments on redeemed bonds and commercial paper (848 416) (487 457) (955 115)
Interest payments on issued bonds and commercial paper (9 072) (10 403) (16 922)
Receipts on the raising of subordinated loan capital 4 056 9
Redemptions of subordinated loan capital (4 207) (9) (9)
Interest payments on subordinated loan capital (330) (344) (413)
Net receipts/(payments) on issue or redemption of additional Tier 1 capital (10 024) 2 700 10 436
Interest payments on additional Tier 1 capital (1 110) (880) (1 052)
Lease payments (267) (314) (615)
Group contributions payments (10 568) (10 568)
Net cash flow from funding activities (133 520) 91 568 122 850
Effects of exchange rate changes on cash and cash equivalents 5 204 (604) (174)
Net cash flow 33 626 242 728 148 449
Cash as at 1 January 307 623 159 173 159 173
Net receipts of cash 33 626 242 728 148 449
Cash at end of period *) 341 249 401 902 307 623
*) Of which:
Cash and deposits with central banks
337 282 395 080 304 746
Deposits with credit institutions with no agreed period of notice 1) 3 967 6 822 2 877

1) Recorded under "Due from credit institutions" in the balance sheet.

Note 1 Basis for preparation

The quarterly financial statements for the DNB Bank Group have been prepared in accordance with IAS 34 Interim Financial Reporting as issued by the International Accounting Standards Board and as adopted by the European Union. DNB Bank ASA has prepared the financial statements according to the Norwegian Ministry of Finance's regulations on annual accounts, Section 1-6, on the use of IFRS. When preparing the consolidated financial statements, the management makes estimates, judgments and assumptions that affect the application of the accounting principles and the carrying amount of assets, liabilities, income and expenses. Estimates and assumptions are subject to continual evaluation and are based on historical experience and other factors, including expectations of future events that are believed to be probable on the balance sheet date. A description of the accounting policies, significant estimates and areas where judgment is applied by the DNB Bank Group, can be found in note 1 Accounting principles in the annual report for 2019.

With effect from the first quarter of 2020, the DNB Bank Group changed the composition of reportable segments. For further information, see note 2 Segments.

Note 2 Segments

According to DNB Bank's management model, the operating segments are independent profit centres that are fully responsible for their profit after tax and for achieving the targeted returns on allocated capital. DNB Bank has the following operating segments: Personal customers, Corporate customers and Risk management. Risk management segment is included in Other operations. DNB's share of profit in associated companies (most importantly Luminor and Vipps) is included in Other operations. With effect from the first quarter of 2020, the DNB Bank Group changed the composition of reportable segments, as the Small and medium-sized enterprises and Large corporates and international customers have been combined into the reportable segment Corporate customers. Figures for 2019 have been adjusted accordingly.

Income statement, second quarter DNB Bank Group

Personal Corporate Other DNB Bank
customers customers operations Eliminations Group
2nd quarter 2nd quarter 2nd quarter 2nd quarter 2nd quarter
Amounts in NOK million 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019
Net interest income 3 389 3 372 5 944 5 807 305 567 9 638 9 746
Net other operating income 884 1 020 1 523 1 688 1 528 1 352 (79) (390) 3 856 3 670
Total income 4 273 4 392 7 467 7 496 1 833 1 919 (79) (390) 13 494 13 417
Operating expenses (2 151) (2 044) (2 939) (2 712) (549) (1 145) 79 390 (5 560) (5 510)
Pre-tax operating profit before impairment 2 122 2 348 4 528 4 784 1 284 774 7 934 7 906
Net gains on fixed and intangible assets 0 (0) (0) (2) 0 (3)
Impairment of financial instruments (82) (76) (2 030) (371) (8) (3) (2 120) (450)
Profit from repossessed operations (29) (47) 29 47
Pre-tax operating profit 2 041 2 272 2 469 4 365 1 304 816 5 814 7 454
Tax expense (510) (568) (617) (1 064) (35) 142 (1 163) (1 491)
Profit from operations held for sale, after taxes 0 (17) (30) (17) (30)
Profit for the period 1 530 1 704 1 852 3 301 1 252 927 4 634 5 933
Income statement, January-June DNB Bank Group
Personal Corporate Other DNB Bank
customers customers operations Eliminations Group
Jan.-June Jan.-June Jan.-June Jan.-June Jan.-June
Amounts in NOK million 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019
Net interest income 7 091 6 751 12 051 11 366 1 111 1 101 20 253 19 217
Net other operating income 1 804 1 882 2 905 3 246 4 639 2 238 (393) (778) 8 955 6 588
Total income 8 895 8 633 14 956 14 611 5 750 3 339 (393) (778) 29 208 25 805
Operating expenses (4 345) (4 062) (5 804) (5 384) (1 002) (2 164) 393 778 (10 757) (10 832)
Pre-tax operating profit before impairment 4 550 4 571 9 152 9 227 4 748 1 174 18 450 14 973
Net gains on fixed and intangible assets (0) (1) (0) (2) (0) (3)
Impairment of financial instruments (815) (177) (7 068) (586) (9) (4) (7 892) (766)
Profit from repossessed operations (109) (129) 109 129
Pre-tax operating profit 3 735 4 394 1 975 8 512 4 848 1 298 10 559 14 204
Taxes (934) (1 099) (494) (2 077) (684) 334 (2 112) (2 841)
Profit from operations held for sale, after taxes 2 (73) (84) (73) (81)
Profit for the period 2 801 3 296 1 481 6 437 4 091 1 549 8 374 11 281

For further details about the reportable segments, quarterly results and explanatory comments, see the directors' report.

Note 3 Capital adequacy

Capital adequacy is calculated and reported in accordance with the EU capital requirements regulations for banks and investment firms (CRR/CRD IV). The regulatory consolidation deviates from consolidation in the accounts and comprises the parent company, subsidiaries and associated companies within the financial sector. Associated companies are consolidated pro rata. The figures as at 30 June are partially based on estimates.

DNB Bank ASA Primary capital DNB Bank Group
31 Dec. 30 June 30 June 31 Dec.
2019 2020 Amounts in NOK million 2020 2019
187 993 177 468 Total equity 221 867 229 619
Effect from regulatory consolidation (199) (198)
(26 048) (17 995) Additional Tier 1 capital instruments included in total equity (17 995) (26 048)
(510) (286) Net accrued interest on additional Tier 1 capital instruments (286) (510)
161 434 159 187 Common equity Tier 1 capital instruments 203 387 202 862
Deductions
(2 376) (2 424) Goodwill (2 998) (2 946)
(457) (457) Deferred tax assets that are not due to temporary differences (935) (868)
(1 016) (870) Other intangible assets (1 451) (1 626)
Group contribution, payable (25 000) (25 000)
(1 633) (112) Expected losses exceeding actual losses, IRB portfolios (655) (2 502)
Value adjustment due to the requirements for prudent valuation
(532) (766) (AVA) (1 012) (810)
Adjustments for unrealised losses/(gains) on debt measured
57 31 at fair value (160) 2
Adjustments for unrealised losses/(gains) arising from the
(460) (723) institution's own credit risk related to derivative liabilities (DVA) (119) (96)
155 017 153 865 Common equity Tier 1 capital 171 057 169 016
155 017 156 745 - including 50 per cent of profit for the period 174 948 169 016
26 048 17 995 Additional Tier 1 capital instruments 17 995 26 048
181 065 171 860 Tier 1 capital 189 052 195 064
181 065 174 739 - including 50 per cent of profit for the period 192 943 195 064
5 774 6 385 Perpetual subordinated loan capital 6 385 5 774
24 943 27 169 Term subordinated loan capital 27 169 24 943
30 717 33 555 Additonal Tier 2 capital instruments 33 555 30 717
211 783 205 415 Total eligible capital 222 607 225 781
211 783 208 294 - including 50 per cent of profit for the period 226 498 225 781
804 721 826 410 Risk-weighted assets 971 976 924 869
64 378 66 113 Minimum capital requirement 77 758 73 990
Capital ratios incl. 50 per cent of profit for the period (%):
19.3 19.0 Common equity Tier 1 capital ratio 18.0 18.3
22.5 21.1 Tier 1 capital ratio 19.9 21.1
26.3 25.2 Capital ratio 23.3 24.4
Capital ratios excl. 50 per cent of profit for the period (%):
18.6 Common equity Tier 1 capital ratio 17.6
20.8 Tier 1 capital ratio 19.5
24.9 Capital ratio 22.9

Note 3 Capital adequacy (continued)

The majority of the credit portfolios are reported according to the IRB approach. Exposures to central governments, institutions, equity positions and other assets are, however, reported according to the standardised approach.

Specification of risk-weighted assets and capital requirements
DNB Bank ASA
Nominal Average
risk weights
Risk-
weighted
Capital
require-
Capital
require
exposure EAD 1) in per cent assets ments ments
Amounts in NOK million 30 June
2020
30 June
2020
30 June
2020
30 June
2020
30 June
2020
31 Dec.
2019
IRB approach
Corporate 808 761 669 644 47.8 319 987 25 599 23 886
Specialised lending (SL) 12 722 12 011 57.3 6 879 550 442
Retail - mortgages 118 088 118 080 24.0 28 380 2 270 2 476
Retail - other exposures 94 148 78 389 24.6 19 309 1 545 1 653
Securitisation
Total credit risk, IRB approach 1 033 719 878 125 42.7 374 554 29 964 28 457
Standardised approach
Central government 392 075 390 813 0.0 78 6 3
Institutions 702 152 622 563 17.1 106 725 8 538 8 510
Corporate 124 000 107 114 65.9 70 556 5 644 6 025
Retail - mortgages 14 188 13 513 42.8 5 790 463 362
Retail - other exposures 155 619 53 221 74.7 39 774 3 182 2 560
Equity positions 114 796 114 796 100.2 114 996 9 200 9 540
Other assets 20 733 20 206 126.0 25 462 2 037 1 853
Total credit risk, standardised approach 1 523 563 1 322 226 27.5 363 381 29 070 28 852
Total credit risk 2 557 282 2 200 351 33.5 737 935 59 035 57 309
Market risk
Position risk, debt instruments 9 181 735 827
Position risk, equity instruments 617 49 30
Currency risk 12 1 1
Commodity risk 0 0 0
Credit value adjustment risk (CVA) 4 973 398 316
Total market risk 14 784 1 183 1 173
Operational risk 73 691 5 895 5 895
Total risk-weighted assets and capital requirements 826 410 66 113 64 378

1) EAD, exposure at default.

Note 3 Capital adequacy (continued)

Specification of risk-weighted assets and capital requirements DNB Bank Group Average Risk- Capital Capital Nominal risk weights weighted require- requireexposure EAD 1) in per cent assets ments ments 30 June 30 June 30 June 30 June 30 June 31 Dec. Amounts in NOK million 2020 2020 2020 2020 2020 2019 IRB approach Corporate 1 020 906 844 958 49.3 416 524 33 322 30 537 Specialised Lending (SL) 14 005 13 294 57.1 7 587 607 503 Retail - mortgages 808 166 808 158 21.7 175 737 14 059 13 893 Retail - other exposures 94 148 78 389 24.6 19 309 1 545 1 653 Securitisation Total credit risk, IRB approach 1 937 225 1 744 799 35.5 619 157 49 533 46 586 Standardised approach Central government 409 407 408 807 0.1 362 29 6 Institutions 236 760 205 825 14.3 29 333 2 347 2 667 Corporate 195 694 167 394 69.1 115 740 9 259 9 320 Retail - mortgages 68 434 64 634 48.8 31 519 2 522 2 245 Retail - other exposures 162 782 58 139 74.1 43 102 3 448 2 812 Equity positions 11 978 11 945 84.6 10 102 808 764 Other assets 21 963 20 896 85.0 17 769 1 422 1 241 Total credit risk, standardised approach 1 107 018 937 640 26.4 247 926 19 834 19 054 Total credit risk 3 044 242 2 682 439 32.3 867 084 69 367 65 641 Market risk Position risk, debt instruments 9 731 778 842 Position risk, equity instruments 617 49 30 Currency risk 12 1 1 Commodity risk 0 0 0 Credit value adjustment risk (CVA) 5 507 441 354 Total market risk 15 867 1 269 1 227 Operational risk 89 025 7 122 7 122 Total risk-weighted assets and capital requirements 971 976 77 758 73 990

1) EAD, exposure at default.

Note 4 Measurement of expected credit loss (ECL)

In light of the spread of COVID-19, a variety of measures have been taken by the banking group to assist individuals and businesses in handling the financial consequences of the virus outbreak, primarily by offering payment waivers to customers. Furthermore, the businessrelated and financial impacts on the various business segments as well as Government relief programmes have been considered when measuring expected credit losses (ECL) on loans to customers, loan commitments, financial guarantees and other financial instruments subject to the IFRS 9 impairment rules.

Forbearance

Following the business-related and financial impacts of the COVID-19 outbreak, DNB has offered several customers payment waivers in order to provide temporary relief from the current situation, primarily by granting reduced or deferred instalment payments.

The Group has a policy that payment waivers directly related to COVID-19 combined with an otherwise healthy financial situation for the customer are not to result in forbearance classification. However, when payment waivers are combined with high credit risk and an expectation that the forbearance measures are not temporary, reclassification to the forbearance category should still be performed. The gross carrying amount of loans and financial commitments classified in the forbearance category was NOK 36 056 million as at 30 June 2020, compared with NOK 34 469 million as at 31 December 2019.

Segmentation, macro scenarios and credit cycle index

The assessment of significant increases in credit risk and the calculation of ECL incorporate past, present and forward-looking information. Following the COVID-19 outbreak, the massive lockdown and gradual reopening of the economy, the level of uncertainty in assessing forward-looking information has increased substantially. During the first half of 2020, the oil price declined sharply and has subsequently stabilised at relatively low levels. In addition, the ongoing challenges in the OPEC coordination adds further complexity to the process of establishing forward-looking information. The uncertainty encompasses the magnitude and duration of the business-related and financial impacts as well as the impact of the various financial support and relief measures being implemented by the Government.

In order to reflect the effect of macro drivers in a reasonable and supportable manner, DNB's portfolio is divided into 22 segments with shared credit risk characteristics. The forecast periods incorporated in the segments vary between three and four years, and forecasts are prepared for each year in the forecast period. The macroeconomic forecasts for each segment have been carefully considered in the expert credit judgement forum to ensure that they reflect the expected impact of the economic consequences of the COVID-19 outbreak. Macro forecasts are usually obtained from DNB Markets and supplementary internal sources. Following the rapid change in the economic situation during the first half of 2020, forecasts from various external sources have also been considered. When selecting the macroeconomic forecasts, consideration has been given to both the reliability of the source and the timeliness of the update. Norges Bank is the main source for unemployment rates for Norway and GDP rates for Sweden this quarter.

Due consideration has been given to all aspects of the situation when assessing the duration of the financial and business-related consequences of the COVID-19 outbreak. In general, the estimated adverse economic impact is incorporated into the first year of the period. The remaining forecast periods are expected to be substantially less affected by the adverse economic consequences.

When the expected business-related and financial impacts in the updated macro forecasts are not reflected in projections of the credit cycle in a way that represents the management's view, professional judgement has been applied to ensure the management's view is better reflected in the credit cycle index used.

Sensitivity

To calculate expected credit losses in stages 1 and 2, DNB uses a range of macroeconomic variables. Each variable is given several alternative scenarios of probability.

Macroeconomic variables are interrelated, in that changes in a forecast in one variable will most likely affect forecasts in the other variables. Furthermore, a weakening of the macro forecasts would normally imply more customers migrating from stages 1 and 2 to stages 2 and 3. Comparative sensitivity analyses for each macroeconomic variable will therefore, in isolation, not provide relevant sensitivity information.

DNB has simulated an alternative adverse scenario for relevant macro forecasts. The scenario represents a possible downside compared with the scenario used for calculating the ECL recognised in the financial statements. Each macroeconomic variable is given alternative weaker expectations for each period in the forecast period. In the simulated alternative scenario, the ECL in stages 1 and 2 would increase by approximately 92 per cent compared with the ECL in stages 1 and 2 that is recognised in the financial statements at 30 June 2020.

The following table shows selected base case macroeconomic variables for the period 2020 to 2022 in the DNB's model used to calculate the ECL recognised in the financial statements compared to the base case in the alternative scenario. Each variable represents an annual estimate.

Note 4 Measurement of expected credit loss (ECL) (continued)

Selected base case macroeconomic variables used for calculating the ECL recognised in the financial statements and the alternative scenario

Base case financial statements Base case alternative scenario
2020 2021 2022 2020 2021 2022
Global GDP, year-to-year growth (4.1) 6.3 3.7 (5.9) 0.3 3.7
Emerging countries' GDP, year-to-year growth (2.1) 7.1 4.5 (4.0) 2.2 4.5
Swedish GDP, year-to-year growth (4.7) 4.1 3.1 (8.0) (0.5) 3.1
Oil price, USD per barrel 42 50 65 32 30 42
Norwegian house price index, year-to-year growth 2.8 3.3 2.6 (3.7) (16.6) 2.6
Norwegian registered unemployment rate 5.0 3.2 2.8 7.4 7.0 2.8
NIBOR 3-month interest rate 0.8 0.3 0.3 0.9 0.5 0.3

The following table provides an overview of the macro forecasts that are included in the loan loss model. The table includes the average downside that is imposed on each macro variable in the alternative scenario.

Change from the average base case level used for calculating the ECL recognised in the financial statements, to the average base case level used in the alternative scenario

Change
Global GDP (percentage points) (2.0)
Emerging countries' GDP (percentage points) (1.7)
Oil price (per cent) (33.0)
Norwegian mainland GDP (percentage points) (1.9)
Norwegian consumer price index (percentage points) (0.1)
Norwegian house price index (percentage points) (6.6)
Norwegian registered unemployment rate (percentage points) 1.6
NIBOR 3-month interest rate (percentage points) 0.1
Swedish GDP (percentage points) (2.0)
Norwegian commercial real estate rental price (per cent) (1.8)
Salmon price (per cent) (36.1)
Floater spot rate (per cent) (10.6)
Rig utilisation rate (per cent) 0.0
Very large crude carriers spot rate (per cent) (39.6)
Capesize spot rate (per cent) (43.8)
Very large gas carrier spot rate (per cent) (3.4)

One of the most significant exposures in stages 1 and 2 is lending to personal customers. This lending includes mortgage lending, credit card lending and consumer financing. In addition to specific customer attributes, the portfolio's ECL is forecasteds based on the Norwegian house price index, the Norwegian interest rate, the household debt level and the unemployment rate. In the simulated alternative scenario, where all of these input parameters are given more adverse projections, the ECL in stages 1 and 2 would increase by approximately 125 per cent for the personal customer portfolio compared with the ECL measured at 30 June 2020 for the same portfolio and stages.

DNB has furthermore investigated the effect of non-linearity in the ECL for stages 1 and 2. If the base case scenario alone is used to calculate expected credit losses, thereby excluding the fan that represents the range of alternative scenarios, the ECL at 30 June 2020 would decrease by 13 per cent.

Significant increase in credit risk (staging)

To assess significant increase in credit risk, the banking group considers changes in the probability of a default occurring during the expected life of a financial instrument. Debt levels are expected to rise, and this will typically affect credit risk assessments.

The assessment of a significant increase in credit risk is based on a combination of quantitative and qualitative indicators and backstops. The extension or deferral of payments from borrowers does not automatically result in instruments being considered to have a significantly increased credit risk. Careful consideration is given to whether the credit risk has significantly increased and borrowers are unlikely to restore their creditworthiness, or whether the borrowers are only experiencing a temporary liquidity constraint, for instance due to COVID-19 lockdown measures. On a general level, a change in the macroeconomic outlook will influence the assessment of a significant increase in customers' credit risk, as this will affect the overall view of the economic situation for the relevant segment.

Measurement of expected credit loss for credit-impaired financial instruments

The business-related and financial impacts of the COVID-19 outbreak and the oil price fall, as well as of the assessed relief expected to be provided through established Government programmes, are incorporated into the net present value of the discounted estimated future cash flows.

Sensitivity

If the value of collaterals on all stage 3 exposures were reduced by 10 per cent, the stage 3 ECL at 30 June 2020 would increase by approximately NOK 1.8 billion.

Note 5 Development in gross carrying amount and maximum exposure

The following tables reconcile the opening and closing balances for gross carrying amount and the maximum exposure for loans to customers at amortised cost and financial commitments. Maximum exposure is the gross carrying amount of loans to customers plus offbalance exposure, which mainly includes guarantees, unutilised credit lines and loan offers. Reconciling items include the following:

  • Transfers between stages due to significant changes in credit risk.
  • Changes due to the derecognition of loans and financial commitments during the period.
  • Changes due to the origination of new financial instruments during the period.
  • Exchange rate effect from consolidation and other changes affecting the gross carrying amount and maximum exposure.

Loans to customers at amortised cost (quarterly figures) 1) DNB Bank ASA

2nd quarter 2020 2nd quarter 2019
Amounts in NOK million Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
Gross carrying amount as at 31 March 652 852 109 473 28 650 790 975 645 085 44 619 22 932 712 636
Transfer to stage 1 22 114 (21 811) (302) 7 366 (7 334) (32)
Transfer to stage 2 (40 217) 40 635 (418) (10 511) 10 876 (365)
Transfer to stage 3 (358) (3 518) 3 877 (943) (728) 1 672
Originated and purchased 41 902 2 729 0 44 631 71 448 463 0 71 911
Derecognition (47 819) (11 853) (2 646) (62 318) (56 430) (3 131) (1 951) (61 512)
Exchange rate movements (955) (151) (59) (1 166) (490) (35) (30) (554)
Gross carrying amount as at 30 June 627 518 115 503 29 101 772 123 655 524 44 730 22 227 722 481

Loans to customers at amortised cost (year-to-date figures) 1) DNB Bank ASA

Jan.-June 2020 Jan.-June 2019
Amounts in NOK million Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
Gross carrying amount as at 31 Dec. 678 866 53 733 21 251 753 849 607 258 49 259 23 195 679 712
Transfer to stage 1 25 768 (25 280) (488) 16 218 (15 981) (237)
Transfer to stage 2 (98 932) 99 740 (807) (17 477) 18 711 (1 233)
Transfer to stage 3 (2 786) (8 743) 11 529 (1 241) (1 526) 2 767
Originated and purchased 113 628 12 223 (0) 125 851 136 214 1 561 0 137 775
Derecognition (93 649) (16 585) (2 644) (112 878) (98 510) (7 203) (2 212) (107 925)
Exchange rate movements 4 624 416 263 5 302 (2 145) (167) (53) (2 365)
Other 2) 15 208 76 15 284
Gross carrying amount as at 30 June 627 518 115 503 29 101 772 123 655 524 44 730 22 227 722 481

1) Figures from 1 January 2020 are recognised excluding loans at fair value through other comprehensive income. Historical figures have been adjusted accordingly.

2) With effect from 1 January 2019, DNB Næringskreditt AS was merged with DNB Bank ASA. The merger means that DNB Bank has taken over all assets, rights and obligations belonging to DNB Næringkreditt without remuneration.

Note 5 Development in gross carrying amount and maximum exposure (continued)

Loans to customers at amortised cost (quarterly figures) DNB Bank Group

2nd quarter 2020
Amounts in NOK million Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
Gross carrying amount as at 31 March 1 521 667 158 246 33 558 1 713 470 1 479 003 80 272 27 115 1 586 389
Transfer to stage 1 36 838 (36 451) (388) 18 701 (18 590) (110)
Transfer to stage 2 (55 058) 56 319 (1 261) (21 286) 22 556 (1 270)
Transfer to stage 3 (597) (5 310) 5 907 (1 116) (1 035) 2 151
Originated and purchased 89 120 639 (0) 89 759 125 376 (0) (0) 125 376
Derecognition (97 613) (14 671) (1 489) (113 773) (96 162) (5 974) (2 762) (104 898)
Exchange rate movements (10 620) (1 823) (463) (12 906) (2 127) (186) (66) (2 379)
Other (1) (1)
Gross carrying amount as at 30 June 1 483 737 156 949 35 864 1 676 550 1 502 387 77 042 25 058 1 604 487

Loans to customers at amortised cost (year-to-date figures) DNB Bank Group

Jan.-June 2020 Jan.-June 2019
Amounts in NOK million Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
Gross carrying amount as at 31 Dec. 1 519 017 88 291 24 297 1 631 605 1 449 032 82 255 27 832 1 559 120
Transfer to stage 1 48 272 (47 301) (972) 35 988 (35 562) (426)
Transfer to stage 2 (135 320) 137 106 (1 786) (40 742) 42 992 (2 250)
Transfer to stage 3 (3 515) (12 432) 15 947 (1 554) (2 001) 3 556
Originated and purchased 216 161 10 575 0 226 737 241 500 380 0 241 879
Derecognition (177 328) (20 454) (1 848) (199 630) (175 904) (10 663) (3 554) (190 121)
Exchange rate movements 16 450 1 163 227 17 839 (6 182) (359) (100) (6 642)
Other 250 250
Gross carrying amount as at 30 June 1 483 737 156 949 35 864 1 676 550 1 502 387 77 042 25 058 1 604 487

Note 5 Development in gross carrying amount and maximum exposure (continued)

Financial commitments (quarterly figures) DNB Bank ASA
2nd quarter 2020 2nd quarter 2019
Amounts in NOK million Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
Maximum exposure as at 31 March 439 359 38 313 5 006 482 677 470 095 17 478 3 091 490 664
Transfer to stage 1 7 734 (7 717) (17) 6 608 (6 595) (13)
Transfer to stage 2 (13 644) 13 980 (335) (3 533) 3 565 (32)
Transfer to stage 3 (414) (447) 861 (783) (475) 1 258
Originated and purchased 98 849 (0) 0 98 849 103 077 (0) 0 103 077
Derecognition (80 043) (3 019) (295) (83 356) (94 529) (1 176) (94) (95 799)
Exchange rate movements (2 971) (125) (16) (3 111) (789) (13) (22) (824)
Maximum exposure as at 30 June 448 869 40 985 5 205 495 059 480 148 12 784 4 187 497 119

Financial commitments (year-to-date figures) DNB Bank ASA

Jan.-June 2020 Jan.-June 2019
Amounts in NOK million Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
Maximum exposure as at 31 Dec. 442 766 13 537 3 245 459 547 457 594 18 722 3 922 480 237
Transfer to stage 1 9 293 (9 152) (142) 10 505 (10 389) (116)
Transfer to stage 2 (44 731) 45 114 (383) (7 141) 7 279 (138)
Transfer to stage 3 (1 139) (1 832) 2 970 (835) (567) 1 402
Originated and purchased 186 687 0 0 186 688 199 712 0 (0) 199 712
Derecognition (148 245) (6 756) (509) (155 510) (178 012) (2 236) (839) (181 086)
Exchange rate movements 4 238 72 23 4 333 (1 675) (25) (44) (1 744)
Maximum exposure as at 30 June 448 869 40 985 5 205 495 059 480 148 12 784 4 187 497 119

Financial commitments (quarterly figures) DNB Bank Group

2nd quarter 2020 2nd quarter 2019
Amounts in NOK million Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
Maximum exposure as at 31 March 611 409 51 914 5 516 668 839 644 896 27 604 3 247 675 747
Transfer to stage 1 9 745 (9 724) (21) 7 850 (7 836) (14)
Transfer to stage 2 (16 023) 16 359 (336) (5 041) 5 201 (160)
Transfer to stage 3 (724) (4 400) 5 124 (784) (477) 1 260
Originated and purchased 113 031 1 184 0 114 215 109 452 320 (0) 109 772
Derecognition (80 855) (3 265) (2 279) (86 399) (102 929) (2 014) (95) (105 039)
Exchange rate movements (7 751) (938) (74) (8 764) (2 105) (93) (23) (2 220)
Maximum exposure as at 30 June 628 830 51 130 7 931 687 891 651 338 22 707 4 216 678 261

Financial commitments (year-to-date figures) DNB Bank Group

Jan.-June 2020 Jan.-June 2019
Amounts in NOK million Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
Maximum exposure as at 31 Dec. 617 345 23 794 3 343 644 482 620 917 29 462 4 152 654 531
Transfer to stage 1 13 278 (13 132) (146) 12 676 (12 559) (117)
Transfer to stage 2 (54 416) 54 801 (385) (9 924) 10 190 (265)
Transfer to stage 3 (1 509) (6 120) 7 629 (836) (569) 1 405
Originated and purchased 201 974 1 184 0 203 158 218 328 105 0 218 434
Derecognition (160 913) (10 170) (2 524) (173 608) (185 164) (3 752) (917) (189 834)
Exchange rate movements 13 073 772 14 13 860 (4 658) (169) (43) (4 870)
Maximum exposure as at 30 June 628 830 51 130 7 931 687 891 651 338 22 707 4 216 678 261

Note 6 Development in accumulated impairment of financial instruments

The following tables reconcile the opening and closing balances for accumulated impairment of loans to customers at amortised cost and financial commitments. Reconciling items includes the following:

  • Transfers between stages due to significant changes in credit risk. The transfers are presumed to occur before the subsequent remeasurement of the allowance.
  • Changes due to transfers between 12-month expected credit loss in stage 1 and lifetime expected credit loss in stages 2 and 3.
  • Increases and decreases in expected credit loss resulting from changes in input parameters and assumptions, including macro forecasts, as well as the effect of partial repayments on existing facilities and the unwinding of the time value of discounts due to the passage of time.
  • Changes in allowance due to the origination of new financial instruments during the period.
  • Changes in allowance due to the derecognition of financial instruments during the period.
  • Write-offs, exchange rate effect from consolidation and other changes affecting the expected credit loss.

Loans to customers at amortised cost (quarterly figures) DNB Bank ASA

2nd quarter 2020 2nd quarter 2019
Amounts in NOK million Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
Accumulated impairment as at 31 March (619) (1 482) (10 051) (12 152) (180) (702) (7 420) (8 302)
Transfer to stage 1 (146) 137 9 (44) 43 0
Transfer to stage 2 46 (74) 28 7 (27) 21
Transfer to stage 3 0 159 (159) 3 2 (5)
Originated and purchased (74) (32) (105) (40) (8) (49)
Increased expected credit loss 1) (166) (486) (2 699) (3 351) (51) (230) (852) (1 133)
Decreased (reversed) expected credit loss 1) 270 218 1 011 1 499 127 173 566 867
Write-offs 109 109 0 0 503 503
Derecognition (including repayments) 32 139 36 207 1 40 40
Exchange rate movements 2 1 31 34 0 0 4 5
Accumulated impairment as at 30 June (655) (1 419) (11 685) (13 758) (177) (709) (7 182) (8 068)

Loans to customers at amortised cost (year-to-date figures) DNB Bank ASA

Jan.-June 2020
Amounts in NOK million Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
Accumulated impairment as at 31 Dec. (168) (777) (8 252) (9 197) (154) (850) (7 416) (8 420)
Transfer to stage 1 (213) 192 21 (88) 85 2
Transfer to stage 2 67 (108) 41 11 (40) 29
Transfer to stage 3 1 211 (212) 3 26 (29)
Originated and purchased (138) (153) (291) (59) (14) (73)
Increased expected credit loss 1) (581) (1 352) (5 951) (7 884) (100) (380) (2 236) (2 717)
Decreased (reversed) expected credit loss 1) 338 362 1 794 2 493 208 321 1 740 2 269
Write-offs 879 879 0 0 715 716
Derecognition (including repayments) 43 209 47 299 1 141 142
Exchange rate movements (4) (3) (51) (58) 1 2 12 15
Accumulated impairment as at 30 June (655) (1 419) (11 685) (13 758) (177) (709) (7 182) (8 068)

1) DNB has performed a recalibration of the IFRS 9 models used for stage 1 and stage 2 loans in the second quarter of 2019. The net effect of the recalibration is an increase in expected credit loss of approximately NOK 70 million. As the recalibration resulted in both increases and decreases on a financial instrument level, the effect is included in the flows 'increased expected credit loss' and 'decreased (reversed) expected credit loss'.

Note 6 Development in accumulated impairment of financial instruments (continued)

Loans to customers at amortised cost (quarterly figures) DNB Bank Group
2nd quarter 2020 2nd quarter 2019
Amounts in NOK million Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
Accumulated impairment as at 31 March (922) (2 306) (10 777) (14 005) (392) (1 040) (8 265) (9 698)
Transfer to stage 1 (204) 188 16 (72) 70 2
Transfer to stage 2 69 (117) 48 16 (43) 27
Transfer to stage 3 1 159 (160) 3 3 (6)
Originated and purchased (101) (33) (134) (65) (13) 0 (77)
Increased expected credit loss 1) (266) (508) (3 396) (4 170) (63) (297) (983) (1 343)
Decreased (reversed) expected credit loss 1) 387 271 1 341 1 998 248 247 622 1 117
Write-offs 135 135 0 0 776 776
Derecognition (including repayments) 38 299 36 374 5 54 33 93
Exchange rate movements 22 75 96 193 1 4 9 15
Other 0 (9) (9)
Accumulated impairment as at 30 June (978) (1 971) (12 660) (15 609) (319) (1 015) (7 792) (9 126)

Loans to customers at amortised cost (year-to-date figures) DNB Bank Group

Jan.-June 2020 Jan.-June 2019
Amounts in NOK million Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
Accumulated impairment as at 31 Dec. (305) (1 041) (8 904) (10 251) (351) (1 224) (8 321) (9 897)
Transfer to stage 1 (281) 250 30 (137) 128 8
Transfer to stage 2 107 (176) 70 24 (70) 46
Transfer to stage 3 1 217 (218) 3 28 (31)
Originated and purchased (198) (157) (355) (110) (19) 0 (129)
Increased expected credit loss 1) (821) (1 870) (6 968) (9 660) (143) (491) (2 688) (3 322)
Decreased (reversed) expected credit loss 1) 477 435 2 208 3 120 383 466 2 142 2 991
Write-offs 1 167 1 167 0 0 990 990
Derecognition (including repayments) 55 386 47 488 7 161 33 202
Exchange rate movements (12) (14) (91) (118) 5 7 25 37
Other (1) 3 3
Accumulated impairment as at 30 June (978) (1 971) (12 660) (15 609) (319) (1 015) (7 792) (9 126)

1) DNB has performed a recalibration of the IFRS 9 models used for stage 1 and stage 2 loans in the second quarter of 2019. The net effect of the recalibration is a decrease in expected credit loss of NOK 5 million. As the recalibration resulted in both increases and decreases on a financial instrument level, the effect is included in the flows 'increased expected credit loss' and 'decreased (reversed) expected credit loss'.

Note 6 Development in accumulated impairment of financial instruments (continued)

Financial commitments (quarterly figures) DNB Bank ASA

2nd quarter 2020
Amounts in NOK million Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
Accumulated impairment as at 31 March (315) (767) (1 112) (2 194) (152) (466) (540) (1 159)
Transfer to stage 1 (51) 51 (50) 50 0
Transfer to stage 2 21 (23) 2 4 (5) 1
Transfer to stage 3 44 (44) 0 4 (5)
Originated and purchased (138) (23) (161) (67) (3) (70)
Increased expected credit loss 1) (95) (204) (199) (499) (9) (128) (265) (401)
Decreased (reversed) expected credit loss 1) 115 102 284 501 125 103 88 316
Derecognition 2 47 49 0 20 20
Exchange rate movements 2 2 0 4 0 0 5 5
Other 0 (1) 13 13
Accumulated impairment as at 30 June (459) (770) (1 070) (2 299) (148) (425) (703) (1 276)

Financial commitments (year-to-date figures) DNB Bank ASA

Jan.-June 2020 Jan.-June 2019
Amounts in NOK million Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
Accumulated impairment as at 31 Dec. (111) (358) (546) (1 016) (117) (436) (569) (1 122)
Transfer to stage 1 (74) 72 3 (79) 79 0
Transfer to stage 2 47 (50) 3 8 (9) 1
Transfer to stage 3 1 107 (107) 0 5 (5)
Originated and purchased (187) (30) (217) (104) (6) (109)
Increased expected credit loss 1) (279) (712) (985) (1 975) (29) (251) (376) (656)
Decreased (reversed) expected credit loss 1) 145 130 563 838 171 145 226 542
Derecognition 2 72 74 0 48 49
Exchange rate movements (2) (1) (0) (3) 1 1 5 7
Other 0 0 0 0 0 0 14 13
Accumulated impairment as at 30 June (459) (770) (1 070) (2 299) (148) (425) (703) (1 276)

1) DNB has performed a recalibration of the IFRS 9 models used for stage 1 and stage 2 financial commitments in the second quarter of 2019. The net effect of the recalibration is an increase in expected credit loss of approximately NOK 70 million. As the recalibration resulted in both increases and decreases on a financial instrument level, the effect is included in the flows 'increased expected credit loss' and 'decreased (reversed) expected credit loss'.

Note 6 Development in accumulated impairment of financial instruments (continued)

Financial commitments (quarterly figures) DNB Bank Group
2nd quarter 2020 2nd quarter 2019
Amounts in NOK million Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
Accumulated impairment as at 31 March (386) (1 583) (1 110) (3 079) (187) (1 016) (541) (1 743)
Transfer to stage 1 (55) 55 (53) 53 0
Transfer to stage 2 24 (26) 2 4 (5) 1
Transfer to stage 3 186 (186) 0 4 (5)
Originated and purchased (164) (24) (188) (75) (3) (78)
Increased expected credit loss 1) (116) (479) (608) (1 204) (9) (181) (261) (451)
Decreased (reversed) expected credit loss 1) 144 705 835 1 684 142 222 88 452
Derecognition 2 169 170 1 21 0 22
Exchange rate movements 7 74 0 81 1 5 5 10
Other (1) (1) 13 12
Accumulated impairment as at 30 June (545) (922) (1 067) (2 535) (176) (900) (700) (1 776)

Financial commitments (year-to-date figures) DNB Bank Group

Jan.-June 2020 Jan.-June 2019 Amounts in NOK million Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Accumulated impairment as at 31 Dec. (146) (667) (543) (1 357) (149) (1 001) (569) (1 719) Transfer to stage 1 (88) 85 3 (82) 82 0 Transfer to stage 2 52 (56) 3 9 (10) 1 Transfer to stage 3 1 250 (250) 0 5 (5) Originated and purchased (218) (30) (249) (120) (6) (126) Increased expected credit loss 1) (334) (1 405) (1 393) (3 132) (31) (340) (372) (742) Decreased (reversed) expected credit loss 1) 191 739 1 114 2 044 194 311 226 731 Derecognition 2 196 198 1 50 0 51 Exchange rate movements (4) (33) (1) (38) 1 9 5 16 Other 0 0 0 0 0 0 14 14 Accumulated impairment as at 30 June (545) (922) (1 067) (2 535) (176) (900) (700) (1 776)

1) DNB has performed a recalibration of the IFRS 9 models used for stage 1 and stage 2 financial commitments in the second quarter of 2019. The net effect of the recalibration is a decrease in expected credit loss of NOK 5 million. As the recalibration resulted in both increases and decreases on a financial instrument level, the effect is included in the flows 'increased expected credit loss' and 'decreased (reversed) expected credit loss'.

Note 7 Loans and financial commitments to customers by industry segment

Loans to customers as at 30 June 2020 Accumulated impairment DNB Bank Group
Amounts in NOK million Gross
carrying
amount
Stage 1 Stage 2 Stage 3 Loans at
fair value
Total
Bank, insurance and portfolio management 109 127 (60) (20) (311) 108 737
Commercial real estate 177 125 (84) (91) (369) 140 176 722
Shipping 48 920 (61) (199) (338) 48 322
Oil, gas and offshore 70 242 (93) (513) (8 419) 61 218
Power and renewables 34 257 (46) (20) (27) 34 165
Healthcare 23 432 (22) (2) 23 409
Public sector 15 866 (9) (0) (0) 15 856
Fishing, fish farming and farming 47 201 (56) (60) (138) 121 47 069
Retail industries 38 516 (40) (65) (396) 27 38 043
Manufacturing 44 861 (54) (83) (229) 5 44 501
Technology, media and telecom 27 771 (46) (16) (30) 6 27 684
Services 82 408 (100) (130) (659) 67 81 586
Residential property 95 254 (30) (23) (138) 363 95 425
Personal customers 797 363 (210) (415) (680) 48 003 844 061
Other corporate customers 64 205 (68) (333) (928) 63 62 939
Total 1) 1 676 550 (978) (1 971) (12 660) 48 795 1 709 736

1) Of which NOK 51 657 million in repo trading volumes.

Loans to customers as at 30 June 2019 Accumulated impairment DNB Bank Group

Gross
carrying
Loans at
Amounts in NOK million amount Stage 1 Stage 2 Stage 3 fair value Total
Bank, insurance and portfolio management 111 216 (6) (9) (20) 111 180
Commercial real estate 166 273 (12) (47) (320) 167 166 063
Shipping 52 110 (54) (95) (372) 51 589
Oil, gas and offshore 56 993 (58) (399) (3 812) 52 724
Power and renewables 29 888 (5) (3) (62) 29 818
Healthcare 24 625 (6) (9) 24 609
Public sector 12 038 (1) (0) (0) 12 037
Fishing, fish farming and farming 37 207 (6) (20) (88) 162 37 255
Retail industries 43 482 (13) (21) (671) 62 42 839
Manufacturing 45 579 (23) (15) (359) 19 45 201
Technology, media and telecom 27 245 (20) (8) (31) 24 27 210
Services 66 795 (24) (34) (633) 203 66 308
Residential property 93 973 (7) (18) (240) 388 94 095
Personal customers 773 603 (71) (291) (654) 47 331 819 918
Other corporate customers 63 461 (13) (45) (531) 64 62 936
Total 1) 1 604 487 (319) (1 015) (7 792) 48 420 1 643 781

1) Of which NOK 45 349 million in repo trading volumes.

Note 7 Loans and financial commitments to customers by industry segment (continued)

Financial commitments as at 30 June 2020 Accumulated impairment DNB Bank Group
Amounts in NOK million Maximum
exposure
Stage 1 Stage 2 Stage 3 Total
Bank, insurance and portfolio management 32 657 (51) (4) (0) 32 602
Commercial real estate 26 047 (32) (2) (4) 26 010
Shipping 9 124 (13) (75) (5) 9 031
Oil, gas and offshore 57 703 (76) (484) (685) 56 459
Power and renewables 31 821 (29) (34) 31 759
Healthcare 23 073 (11) (0) 23 062
Public sector 10 030 (0) (0) 10 030
Fishing, fish farming and farming 17 645 (24) (5) (4) 17 612
Retail industries 34 936 (24) (32) (21) 34 859
Manufacturing 55 712 (51) (59) (6) 55 596
Technology, media and telecom 18 559 (21) (4) 18 534
Services 26 645 (35) (34) (35) 26 542
Residential property 33 750 (14) (5) (5) 33 726
Personal customers 274 943 (135) (99) (0) 274 710
Other corporate customers 35 244 (30) (85) (304) 34 825
Total 687 891 (545) (922) (1 067) 685 357
Financial commitments as at 30 June 2019 Accumulated impairment DNB Bank Group
Amounts in NOK million Maximum
exposure
Stage 1 Stage 2 Stage 3 Total
Bank, insurance and portfolio management 28 768 (5) (0) (0) 28 763
Commercial real estate 27 575 (2) (1) (3) 27 568
Shipping 13 595 (15) (38) 13 542
Oil, gas and offshore 69 690 (81) (670) (318) 68 621
Power and renewables 29 863 (5) (22) 29 837
Healthcare 19 351 (4) (0) 19 347
Public sector 10 316 (0) (0) 10 315
Fishing, fish farming and farming 16 165 (3) (0) (4) 16 158
Retail industries 26 621 (7) (20) (29) 26 563
Manufacturing 51 997 (11) (20) (4) 51 962
Technology, media and telecom 19 209 (7) (7) (3) 19 192
Services 24 451 (8) (15) (25) 24 403
Residential property 37 664 (4) (2) (3) 37 656
Personal customers 265 698 (19) (78) (0) 265 601
Other corporate customers 37 299 (5) (27) (310) 36 956
Total 678 261 (176) (900) (700) 676 485

Note 8 Financial instruments at fair value

DNB Bank ASA
Valuation Valuation
based on Valuation based on
quoted prices based on other than
in an active observable observable
market market data market data
Amounts in NOK million Level 1 Level 2 Level 3 Total
Assets as at 30 June 2020
Loans to customers 117 343 7 640 124 983
Commercial paper and bonds 42 185 321 093 406 363 684
Shareholdings 2 546 655 589 3 790
Financial derivatives 878 210 881 2 054 213 813
Liabilities as at 30 June 2020
Deposits from customers 20 591 20 591
Debt securities issued 1) 7 690 7 690
Subordinated loan capital 1) 176 176
Financial derivatives 631 231 722 1 499 233 851
Other financial liabilities 2) 3 413 3 413

DNB Bank ASA Valuation Valuation based on Valuation based on quoted prices based on other than in an active observable observable market market data market data Amounts in NOK million Level 1 Level 2 Level 3 Total Assets as at 30 June 2019 Loans to customers 121 784 7 725 129 509 Commercial paper and bonds 28 796 168 871 180 197 847 Shareholdings 5 264 256 594 6 115 Financial derivatives 131 127 806 2 157 130 094 Liabilities as at 30 June 2019 Deposits from customers 16 020 16 020 Debt securities issued 9 641 9 641 Subordinated loan capital 2 502 2 502 Financial derivatives 145 152 160 1 827 154 132 Other financial liabilities 2) 8 305 8 305

1) The measurement category for debt securities issued in Norwegian kroner with floating rates was changed from FVTPL to amortised cost as of 31 December 2019. Comparative information has not been restated.

2) Short positions, trading activities.

Loans with floating interest rate measured at fair value through other comprehensive income are categorised within level 2, since the valuation is mainly based on observable inputs.

Note 8 Financial instruments at fair value (continued)

DNB Bank Group
Valuation Valuation
based on Valuation based on
quoted prices based on other than
in an active observable observable
market market data market data
Amounts in NOK million Level 1 Level 2 Level 3 Total
Assets as at 30 June 2020
Loans to customers 48 795 48 795
Commercial paper and bonds 42 185 259 620 406 302 211
Shareholdings 4 793 668 735 6 196
Financial derivatives 878 197 959 2 054 200 891
Liabilities as at 30 June 2020
Deposits from customers 20 591 20 591
Debt securities issued 1) 22 457 22 457
Subordinated loan capital 1) 176 176
Financial derivatives 631 172 408 1 499 174 537
Other financial liabilities 2) 3 413 3 413
DNB Bank Group
Valuation Valuation
based on Valuation based on
quoted prices based on other than
in an active observable observable
market market data market data
Amounts in NOK million Level 1 Level 2 Level 3 Total
Assets as at 30 June 2019
Loans to customers 48 420 48 420
Commercial paper and bonds 28 796 155 001 180 183 977
Shareholdings 6 464 267 742 7 474
Financial derivatives 131 115 232 2 157 117 520
Liabilities as at 30 June 2019
Deposits from customers 16 020 16 020
Debt securities issued 88 273 88 273
Subordinated loan capital 2 502 2 502
Financial derivatives 145 101 728 1 827 103 700
Other financial liabilities 2) 8 305 8 305

1) The measurement category for debt securities issued in Norwegian kroner with floating rates was changed from FVTPL to amortised cost as of 31 December 2019. Comparative information has not been restated.

2) Short positions, trading activities.

For a further description of the instruments and valuation techniques, see the annual report for 2019.

Note 8 Financial instruments at fair value (continued)

Financial instruments at fair value, level 3 DNB Bank ASA

Financial

Financial assets liabilities
Commercial
Loans to paper and Share- Financial Financial
Amounts in NOK million customers bonds holdings derivatives derivatives
Carrying amount as at 31 December 2018 7 509 319 583 2 036 1 654
Net gains recognised in the income statement 55 (150) 23 (530) (193)
Additions/purchases 796 158 39 1 057 749
Sales (20) (132) (51)
Settled (616) (395) (384)
Transferred from level 1 or level 2 42
Transferred to level 1 or level 2 (44)
Other (13) (11) 1
Carrying amount as at 30 June 2019 7 725 180 594 2 157 1 827
Carrying amount as at 31 December 2019 8 495 356 633 1 868 1 536
Net gains recognised in the income statement 260 (8) (54) 642 418
Additions/purchases 2 483 277 15 224 219
Sales (1 342) (90) (5)
Settled (2 256) (707) (695)
Transferred from level 1 or level 2 85
Transferred to level 1 or level 2 (204) (0)
Other (9) 27 22
Carrying amount as at 30 June 2020 7 640 406 589 2 054 1 499

Financial instruments at fair value, level 3 DNB Bank Group

Financial
Financial assets liabilities
Commercial
Loans to paper and Share- Financial Financial
Amounts in NOK million customers bonds holdings derivatives derivatives
Carrying amount as at 31 December 2018 48 794 319 741 2 036 1 654
Net gains recognised in the income statement 148 (150) 10 (530) (193)
Additions/purchases 3 493 158 41 1 057 749
Sales (132) (51)
Settled (4 015) (395) (384)
Transferred from level 1 or level 2 42
Transferred to level 1 or level 2 (44)
Other (13) (0) (11) 1
Carrying amount as at 30 June 2019 48 420 180 742 2 157 1 827
Carrying amount as at 31 December 2019 49 995 356 795 1 868 1 536
Net gains recognised in the income statement 1 548 (8) (68) 642 418
Additions/purchases 6 242 277 18 224 219
Sales (90) (9)
Settled (8 991) (707) (695)
Transferred from level 1 or level 2 85
Transferred to level 1 or level 2 (204) (0)
Other (9) 0 27 22
Carrying amount as at 30 June 2020 48 795 406 735 2 054 1 499

Sensitivity analysis, level 3

An increase in the discount rate on fixed-rate loans by 10 basis points will decrease the fair value by NOK 31 million in DNB Bank ASA and 157 million in DNB Bank Group. The effects on other Level 3 financial instruments are insignificant.

Note 9 Debt securities issued and subordinated loan capital

As an element in liquidity management, the DNB Bank Group issues and redeems own securities.

Debt securities issued 2020 DNB Bank ASA
Balance Exchange Balance
sheet Matured/ rate Other sheet
30 June Issued redeemed movements changes 31 Dec.
Amounts in NOK million 2020 2020 2020 2020 2020 2019
Commercial paper issued, nominal amount 135 092 734 970 (798 236) 10 238 188 120
Bond debt, nominal amount 214 415 2 612 (30 345) 19 598 222 550
Value adjustments 5 993 98 5 895
Total debt securities issued 355 500 737 582 (828 581) 29 836 98 416 565

Debt securities issued 2019 DNB Bank ASA

Balance Exchange Balance
sheet Matured/ rate Other sheet
30 June Issued redeemed movements changes 31 Dec.
Amounts in NOK million 2019 2019 2019 2019 2019 2018
Commercial paper issued, nominal amount 266 872 530 378 (440 346) 2 108 174 732
Bond debt, nominal amount 166 271 35 417 (20 430) (2 773) 154 057
Value adjustments 5 987 (542) 6 528
Total debt securities issued 439 129 565 794 (460 776) (665) (542) 335 317

Debt securities issued 2020 DNB Bank Group

Balance Exchange Balance
sheet Matured/ rate Other sheet
30 June Issued redeemed movements changes 31 Dec.
Amounts in NOK million 2020 2020 2020 2020 2020 2019
Commercial paper issued, nominal amount 135 092 734 970 (798 236) 10 238 188 120
Bond debt, nominal amount 1) 661 206 881 (50 180) 55 050 655 455
Value adjustments 33 850 5 793 28 057
Total debt securities issued 830 149 735 851 (848 416) 65 288 5 793 871 632

Debt securities issued 2019 DNB Bank Group

Balance
sheet
Matured/ Exchange
rate
Other Balance
sheet
30 June Issued redeemed movements changes 31 Dec.
Amounts in NOK million 2019 2019 2019 2019 2019 2018
Commercial paper issued, nominal amount 266 872 530 378 (440 346) 2 108 174 732
Bond debt, nominal amount 1) 616 530 68 466 (47 111) (10 777) 605 952
Value adjustments 30 277 7 165 23 112
Total debt securities issued 913 679 598 844 (487 457) (8 669) 7 165 803 796

1) Minus own bonds. The total nominal amount of outstanding covered bonds in DNB Boligkreditt was NOK 381.8 billion as at 30 June 2020. The market value of the cover pool represented NOK 655.6 billion.

Note 9 Debt securities issued and subordinated loan capital (continued)

Subordinated loan capital and perpetual subordinated loan capital securities 2020
DNB Bank ASA
Balance Exchange Balance
sheet Matured/ rate Other sheet
30 June Issued redeemed movements changes 31 Dec.
Amounts in NOK million 2020 2020 2020 2020 2020 2019
Term subordinated loan capital, nominal amount 27 168 4 056 (4 207) 2 376 24 943
Perpetual subordinated loan capital, nominal amount 6 385 611 5 774
Value adjustments 325 (53) 378
Total subordinated loan capital and perpetual
subordinated loan capital securities
33 879 4 056 (4 207) 2 988 (53) 31 095
Subordinated loan capital and perpetual subordinated loan capital securities 2019 DNB Bank ASA
Balance Exchange Balance
sheet Matured/ rate Other sheet
30 June Issued redeemed movements changes 31 Dec.
Amounts in NOK million 2019 2019 2019 2019 2019 2018
Term subordinated loan capital, nominal amount 24 499 (9) (603) 25 110
Perpetual subordinated loan capital, nominal amount 5 616 (77) 5 693
Value adjustments 390 112 278
Total subordinated loan capital and perpetual
subordinated loan capital securities
30 504 (9) (680) 112 31 082
Subordinated loan capital and perpetual subordinated loan capital securities 2020 DNB Bank Group
Balance Exchange Balance
sheet Matured/ rate Other sheet
30 June Issued redeemed movements changes 31 Dec.
Amounts in NOK million 2020 2020 2020 2020 2020 2019
Term subordinated loan capital, nominal amount 27 168 4 056 (4 207) 2 376 24 943
Perpetual subordinated loan capital, nominal amount 6 385 611 5 774
Value adjustments 324 (54) 378
Total subordinated loan capital and perpetual
subordinated loan capital securities 33 878 4 056 (4 207) 2 988 (54) 31 095
Subordinated loan capital and perpetual subordinated loan capital securities 2019 DNB Bank Group
----------------------------------------------------------------------------------- ----------------
Balance Exchange Balance
sheet Matured/ rate Other sheet
30 June Issued redeemed movements changes 31 Dec.
Amounts in NOK million 2019 2019 2019 2019 2019 2018
Term subordinated loan capital, nominal amount 24 499 (9) (603) 25 110
Perpetual subordinated loan capital, nominal amount 5 616 (77) 5 693
Value adjustments 390 112 278
Total subordinated loan capital and perpetual
subordinated loan capital securities 30 504 (9) (680) 112 31 082

Note 10 Information on related parties

DNB Boligkreditt AS

In the first half of 2020, loan portfolios representing NOK 29.4 billion (NOK 1.0 billion in 2019) were transferred from the bank to DNB Boligkreditt in accordance with the "Agreement relating to transfer of loan portfolio between DNB Bank ASA and DNB Boligkreditt AS".

At end-June 2020, the bank had invested NOK 61.5 billion in covered bonds issued by DNB Boligkreditt.

The management fee paid to the bank for purchased services amounted to NOK 63 million in the first half of 2020 (NOK 390 million in the first half of 2019).

In the first half of 2020, DNB Boligkreditt entered into reverse repurchasing agreements (reverse repos) with the bank as counterparty. The value of the repos amounted to NOK 6.3 billion at end-June 2020.

DNB Boligkreditt AS has a long-term overdraft facility in DNB Bank ASA with a limit of NOK 150 billion.

DNB Livsforsikring AS

At end-June 2020 DNB Livsforsikring's holding of DNB Boligkreditt bonds was valued at NOK 1.4 billion.

Note 11 Contingencies

Due to its extensive operations in Norway and abroad, the banking group will regularly be party to a number of legal actions and tax related disputes. None of the current disputes are expected to have any material impact on the banking group's financial position.

Statement pursuant to Section 5-6 of the Securities Trading Act

We hereby confirm that the half-yearly financial statements for the banking group and the company for the period 1 January through 30 June 2020 to the best of our knowledge have been prepared in accordance with IAS 34 Interim Financial Reporting, as adopted by the European Union, and give a true and fair view of the assets, liabilities, financial position and profit or loss of the banking group and the company taken as a whole.

To the best of our knowledge, the half-yearly report gives a true and fair:

  • overview of important events that occurred during the accounting period and their impact on the half-yearly financial statements
  • description of the principal risks and uncertainties facing the banking group over the next accounting period
  • description of major transactions with related parties.

Oslo, 12 July 2020 The Board of Directors of DNB Bank ASA

Olaug Svarva Kim Wahl

(Chair of the Board) (Vice Chair of the Board)

Julie Galbo Eli Solhaug

Kjerstin R. Braathen Ottar Ertzeid (Group Chief Executive Officer, CEO) (Group Chief Financial Officer, CFO)

Information about the DNB Bank Group

Head office DNB ASA

Mailing address P.O.Box 1600 Sentrum, NO-0021 Oslo
Visiting address Dronning Eufemias gate 30, Oslo
Telephone +47 91 50 48 00
Internet dnb.no
Organisation number Register of Business Enterprises NO 981 276 957 MVA

DNB Bank ASA

Organisation number Register of Business Enterprises NO 984 851 006 MVA

Board of Directors in DNB Bank ASA

Olaug Svarva, Chair of the Board Kim Wahl, Vice Chair of the Board Julie Galbo Eli Solhaug

Investor Relations

Rune Helland, head of Investor Relations tel. +47 23 26 84 00 [email protected]
Anne Engebretsen, Investor Relations tel. +47 23 26 84 08 [email protected]
Ida Eilertsen Nygård, Investor Relations tel. +47 98 61 19 52 ida.eilertsen.nygå[email protected]
Thor Tellefsen, Long Term Funding tel. +47 23 26 84 04 [email protected]

Financial calendar 2020

22 October Q3 2020

Financial calendar 2021

10 February Q4 2020
11 March Annual report 2020
29 April Q1 2021
13 July Q2 2021
21 October Q3 2021

Other sources of information

Annual and quarterly reports

Separate annual and quarterly reports are prepared for the DNB Group, DNB Boligkreditt and DNB Livsforsikring. The reports are available on ir.dnb.no. Annual and quarterly reports can be ordered by sending an e-mail to Investor Relations.

The quarterly report has been produced by Group Financial Reporting in DNB. Cover design: HyperRedink

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DNB Bank

Mailing address: P.O.Box 1600 Sentrum N-0021 Oslo

Visiting address: Dronning Eufemias gate 30 Bjørvika, Oslo

dnb.no

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