Vestjysk Bank A/S : Q1-Q3 2020 Quarterly Report

Nasdaq Copenhagen A/S

18 November 2020

Q1-Q3 2020 Highlights

Vestjysk Bank reported a profit after tax of DKK 250 million for Q1-Q3 2020. The performance was adversely affected by economic uncertainty caused by the Coronavirus crisis, African swine fever in Germany and the Brexit situation. These factors impacted the Bank’s impairment provisions based on a management estimate. In Q3 2020, the Bank made an additional DKK 50 million loss provision for the risks related to Britain’s exit from the European Union (Brexit) and the current uncertainty regarding African swine fever. With this, the Bank has made total impairment provisions of DKK 250 million in response to the economic uncertainty, corresponding to 2.6% of the Bank’s net loans and advances.

The figures below were for 2019 affected by a transaction in Sparinvest, where the Bank realized an earning at DKK 142 million.

• Profit after tax was DKK 250 million, Q1-Q3 2019: DKK 397 million, for an annualised return on equity after tax of 10.9%.
• Core income of DKK 653 million, Q1-Q3 2019: DKK 827 million (Excl. Sparinvest DKK 685 million).
• Market value adjustments amounted to DKK 42 million, Q1-Q3 2019: DKK 173 million (Excl. Sparinvest DKK 46 million).
• Cost ratio of 58.1, Q1-Q3 2019: 44.5 Excl. Sparinvest DKK 127 million).
• Core earnings before impairment allowances amounted to DKK 274 million, (Q1-Q3 2019: DKK 460 million (Excl. Sparinvest DKK 318 million).
• Impairment of loans and receivables, etc. of DKK 4 million (Q1-Q3 2019: DKK 44 million). Impairment allowances on agriculture amounted to a net reversal.
• The Bank’s capital requirements totalled 13.0%, consisting of an individual solvency need of 10.5% and a general capital conservation buffer of 2.5%. The MREL was phased in at 1.875%, which was added to the capital requirement. The individual solvency need included a management estimate concerning the economic situation of DKK 50 million, or 0.38 of a percentage point.
• The Bank’s capital ratio was 23.8. The excess cover was 10.8 percentage points, or DKK 1,420 million.
• The Bank’s MREL ratio was 23.8. The excess cover was 8.9 percentage points, or DKK 1,172 million.

Special circumstances in the period – including effects of the Coronavirus crisis on Vestjysk Bank until the reporting date
Like the rest of Denmark, the Bank was impacted by the official lockdown of the country from 12 March until 1 May 2020. The Bank follows the government’s current recommendation that employees who can work from home do so from 18 September until at least 2 January 2021. So far, the Bank has been able to maintain a reasonable level of operations during both periods, and the level of customer activity has been high.

The Bank’s advisers have contacted all business customers several times to arrange how the Bank can help them through the Coronavirus crisis and to advise them on how to apply the rescue packages provided by the Danish government and parliament. So far, the crisis has not directly impacted the Bank’s lending or individual impairment losses.

For retail customers, Vestjysk Bank has provided a range of borrowing facilities in the form of permission to skip instalments, temporary overdraft facilities and increased credit facilities to support customers hit by the lockdown. These measures have also had a limited impact on the Bank, so far.

The sector distribution of the Bank’s lending plays a positive part in this. Most of the Bank’s lending is within sectors that have not been particularly badly affected by the Coronavirus crisis. The hotel, restaurant, transport and retail sectors are the hardest hit, and these sectors only account for some 10% of the Bank’s total lending.

Vestjysk Bank’s two main sectors, agriculture and real estate, have so far been relatively unaffected by the Coronavirus crisis. However, the Coronavirus pandemic has devastated the mink industry, bringing an end to mink farming in Denmark. The Bank’s exposure to the mink industry is 0.8% of total gross lending, or DKK 121 million. The exposure has been written down to DKK 53 million, which is considered fully secured.

Until now, the crisis has not affected dairy farmers.
Pork prices dropped during the period, but remain at a satisfactory level. Because of the relatively high pork prices in the first half, pig farmers, some of which are credit-impaired, were able to repay debt to the Bank. This resulted in reversals of impairment allowances within this sector in Q3 2020. The current outbreak of African swine fever in Germany has made it difficult for the Bank’s piglet producing customers to sell their output in Germany. This caused prices of piglets to fall sharply, and a downward trend was also seen in prices of pigs for slaughter. Vestjysk Bank monitors these developments closely and made the necessary provisions for their preliminary impact on customers in the Q1-Q3 financial statements. The Bank also made an additional impairment provision for economic uncertainty to cover the increased risk.

The Bank assesses that a Brexit without a trade agreement between the UK and Denmark may also affect the fisheries sector.

In the real estate sector, we are so far seeing an effect on commercial leases, where agreements have been made to defer rent payments. Depending on the duration and depth of the crisis, this effect could widen. Private residential rentals have not been affected at this point, and this is not expected to change significantly.

Our retail customers are generally doing well and are in a strong position to withstand the consequences of the Coronavirus crisis. In the long term, we expect to see an increase in impairment allowances, but on a manageable level overall.

We assess that the Bank’s DKK 250 million impairment provisions due to economic uncertainty concerning the Coronavirus crisis, African swine fever in Germany and Brexit uncertainties and the DKK 50 million capital reservation in the individual solvency need will be sufficient to cover the Bank’s current risk exposure. Projections about the future consequences of the Coronavirus crisis, African swine fever and Brexit are subject to considerable uncertainty.

Outlook for 2020
On the basis of the preliminary impact of the Coronavirus situation, Vestjysk Bank released revised full-year 2020 profit guidance on 13 May 2020. At that date, the guidance was a profit after tax in the range of DKK 160-240 million.

In an announcement released on 14 July 2020, Vestjysk Bank raised and specified its profit guidance after tax for full year 2020 to a range of DKK 200-260 million.

On 8 October 2020, the Bank released another announcement raising its profit guidance for 2020.

Vestjysk Bank saw a continued high level of activity among both retail and business customers.

Moreover, the trend in individual impairment losses was better than expected in all customer segments. Consequently, the Bank raised its profit guidance for 2020 to DKK 260-320 million after tax, and this guidance is maintained.

Enquiries
Please address any enquiries regarding the present announcement to Jan Ulsø Madsen, CEO, at tel. [phone].

Vestjysk Bank A/S

Kim Duus                                        Jan Ulsø Madsen
Chairman                                       CEO



Vestjysk Bank A/S
Torvet 4-5
7620 Lemvig
Tel. [phone]

CVR no. 34 63 13 28

www.vestjyskbank.dk

Attachment

• Vestjysk Banks Q1- Q3 2020 Quarterly Report

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