DNB Group

Annual report

2017

“We must earn our customer relationships every single day”

Our purpose is: “We are here. So you can stay ahead.” This will help clarify our role in society as Norway’s largest bank.

KEY FIGURES

2017

We are here

As Norway’s largest bank and one of the largest financial services groups in the Nordic region, DNB offers a complete range of financial services through mobile solutions, 24/7 customer service centres, online banking, branch offices, in-store postal outlets, real estate brokers and international offices.

Female Re-presentation
37%
Female representation at management levels 1-4
Return on 
equity
11%
(10.8%)
CET1
16%
Common equity Tier 1 
capital ratio (16.4%)
Reputation
score
66.3
According to RepTrak’s reputation survey in Norway in the fourth quarter
Customer satisfaction score
69.5
Engagement index score
85
Engagement index score in the employee survey
25%

Loans from financial institutions¹⁾

28%

Home mortgages¹⁾

30%

Deposits¹⁾

43%

Policyholders’ funds¹⁾³⁾

33%

Mutual fund investments¹⁾

22%

Loans from financial institutions²⁾

37%

Deposits²⁾

20%

Policyholders’ funds²⁾³⁾⁴⁾

28%

Mutual fund investments²⁾

1) Personal customer market
2) Corporate customer market

3) Figures as at 30 September 2017.
4) Includes the public sector.
Source: Statistics Norway and Finance Norway

Market shares in Norway

DNB in brief

One year of operation in Norway’s largest bank affects millions of people, tens of thousands of small and large companies and a number of local communities both in and outside Norway.

This chapter gives you a quick overview of our main results and of the values we created together in 2017.

Group chief executive’s statement

2017 was a good year for DNB. The Norwegian economy rebounded from the oil slump, there was a gradual increase in GDP, the unemployment rate was further reduced, and optimism returned to the market. This was reflected in higher activity, lower impairment losses on loans and higher profitability for DNB. 2017 was also another year with digitalisation and technology high on the agenda. A wave of regulatory and technological changes swept across the Norwegian financial services industry. 2017 was the year when Norwegian banks joined forces to support the Vipps payment app, and Vipps was spun off as a separate company. 2017 was a year characterised by major changes. I don’t think 2018 will be less eventful.

Staying ahead

Digitalisation and major technological advances hit all parts of our value chains at a pace we have never seen before. When I assumed the position as group chief executive of DNB in 2007, the competitive situation was fairly concentrated and static. We were competing against five Nordic commercial banks and around a hundred savings banks. In the course of 2017, we saw furniture shops, telephone operators, airline companies and social networks open banks, and we got an average of three new competitors every day. Throughout the year, we saw that traditional industry boundaries were dissolved, new value chains and business models were emerging, and the rules of the game were changing.

To meet the changes in the competitive situation and regulatory framework, we saw Nordic banks investing record amounts in digitalisation and technology, and in the development of new products and services. Never before has DNB invested as much in IT development as in 2017. We also expect having to invest significant amounts in IT development and digitalisation in the time ahead. For us, it is all about developing the simplest, safest and best solutions, and thus earning the customer relationships – with corporate customers as well as private individuals. One of the solutions that definitely meets these criteria, is our fully digital home mortgage process. In 2017, we managed for the first time to grant digital pre-qualification letters for the purchase of housing. The entire process took two minutes. The next step is to automate the disbursement of home mortgages. Digitised tax returns, maps and business registers helped make it possible. We are fortunate to be a Norwegian bank. Norway was recently voted the world’s most digital country by the European Commission and Etlatieto. Both the political authorities and the business community deserve much of the credit for this. Not to mention the users – they are the ones who actually put the technology to use.

Competence development and skills enhancement were key concepts in 2017. To successfully develop new digital services, DNB is dependent on promoting new skills among its employees, and at the same time bringing in new competencies through recruitment. The share of new DNB employees with a background in IT rose from 29 per cent in 2016 to more than 50 per cent in 2017.

During the first half of the year, the Norwegian authorities gave the thumbs up to establishing Vipps AS as a separate company. Just like that, Vipps was no longer part of DNB. 105 Norwegian banks teamed up with DNB on the ownership side, and another four banks signed distribution agreements. During the second half of the year, a letter of intent was signed to merge Vipps, BankAxept and BankID. Just like that, 62 per cent of Norway’s population above the age of 15 were Vipps users. Just like that, Norwegian banks secured a good starting point to meet international competition. Just like that, the payment app had become the Nordic region’s leader within payment and identification solutions. And what is most exciting about this, is that we have only just begun.

During the first half of the year, we launched the savings app ‘Spare’ (Save). In the course of six months, we passed NOK 320 million in mutual fund investments, and 50 000 savings targets were established, totalling almost NOK 3.5 billion. All of a sudden, the mobile phone became our most important sales channel for mutual funds. The second half of the year saw the biggest novelty in years within savings, through the launch of IPS (individual pension savings) and share savings account. By the end of the year, 59 300 customers had established share savings accounts in DNB, with total savings of NOK 20.2 billion. Making it easier for customers to get started with saving is an important part of our contribution to society. Saving money gives our customers the opportunity to realise their dreams and be prepared for unforeseen events. Financial security and freedom are important to our customers, and therefore important to us.

“We must earn our customer relationships every single day.”

For large parts of the Norwegian business community, 2017 was an encouraging year. Activity picked up, and the rate of unemployment fell steadily across the country. At the end of the year, all Norwegian counties had a lower unemployment rate than a year earlier. GDP growth reached an all-time low in 2016 at 1.0 per cent, and is expected to end at 1.8 per cent for 2017. The experts predict a further rise to 2.4 per cent towards 2020. In the course of the year, both companies and consumers became more optimistic with regard to their own finances and the country’s economy.

Norway still has an excellent starting point to meet macroeconomic challenges and has considerable scope of action in both fiscal and monetary policy. In 2017, the Norwegian petroleum fund passed NOK 8 000 billion for the first time, and once again, the annual return on the fund exceeded the net cash flow from the petroleum industry. In the period ahead, the fund’s growth will be less dependent on the activity on the Norwegian continental shelf and more dependent on developments in the global economy. DNB was positively affected by the healthy trend in the Norwegian economy in 2017. Norwegian-based customers account for more than 80 per cent of DNB’s loan portfolio. Our impairment losses on loans in 2017 were significantly lower than in 2016, which can largely be ascribed to active counselling and follow-up of high-risk customer groups.

DNB’s share price went up from NOK 128.40 to NOK 152.10 during the year. In addition, a dividend of NOK 5.70 per share was paid. The rise in the share price was driven by a general improvement in DNB’s performance, including lower impairment losses, solid capital levels and the prospect of increased dividends.

DNB has built up in excess of NOK 100 billion in common equity Tier 1 capital since 2007. Our strong capital level means that we are well positioned for future Basel regulations. Now we have a chance to change our focus and spend more time exploring new and exciting business opportunities. The Group’s overriding financial target is a return on equity above 12 per cent. Despite a stronger capital base, DNB achieved a higher return on equity in 2017. Efficient use of capital and rebalancing of the portfolio are high-priority measures to reach our target of above 12 per cent. DNB also has an ambition to increase the nominal dividend per share each year, and to return all surplus capital to its shareholders. Therefore, we started repurchasing own shares in 2017. It is important for DNB to have trust and credibility in the capital markets.

In 2017, we experienced a healthy increase in customer activity, higher customer satisfaction scores in the personal customer segment and an improvement of the bank’s reputation. Our reputation score picked up somewhat during 2017, but we still have a way to go. Therefore, we will continue to work actively to enhance our reputation in the time ahead. Our ability to maintain and build trust is essential to meet the competition from players that we do not yet know, and that we can expect to compete with in the battle for customers.

In 2017, we continued the efforts to rebalance our large corporate portfolio. Over the past two years, we have reduced our cyclical exposure by NOK 100 billion. The released funds will be channelled to new projects or other segments where the profitability is higher. Both loan volumes and our market share of home mortgages increased in 2017. We recorded strong growth in lending to small and medium-sized businesses, and strengthened our market position within investment banking. We have helped more than 11 000 innovative dreamers start their own business through our NXT programme and entrepreneurial initiatives. We had more pension funds under management in defined-contribution schemes at the end of 2017 than ever before.

In 2017, we launched a new strategy, new values and a new purpose. Technological, regulatory and behavioural changes require us to think anew. We must earn our customer relationships every single day by creating the best customer experiences. We believe that there are four areas which will be crucial if we are to succeed in creating the best customer experiences: we must increase our innovative power, we must become better at using customer insight, we must focus on skills enhancement, and we must integrate corporate responsibility in our processes.

Our new purpose is: “We are here. So you can stay ahead.” This will help clarify our role in society as Norway’s largest bank. We will help solve the challenges, big or small, faced by both the business community and private individuals.

Even though we are a bank with most of our operations in Norway, we must also take into account the constant changes in the world around us, and the global challenges facing the world community. Therefore, we endorse the United Nations’ Sustainable Development Goals. We have identified goal number five on gender equality, and eight on decent work and economic growth, as the areas in which we have the best chance of making a difference, and where we will face the greatest challenges in the future. We will naturally continue to support the UN Global Compact initiative, the world’s largest network of companies that commit to integrating sustainability in their strategies and daily operations.

We will continue on our journey to become a bank for the future.
We are here. So you can stay ahead.

Rune Bjerke
Group chief executive

Financial highlights

Income statement

wdt_ID Amounts in NOK million 2017 2016 2015 2014 2013
1 Net interest income 35 422 34 110 35 358 32 487 30 192
2 – Net commissions and fees 8 448 8 280 8 862 8 969 8 537
3 – Net gains on financial instruments at fair value 4 548 6 513 8 683 5 317 5 032
4 – Net financial and risk result, DNB Livsforsikring 1 295 664 (389) 609 1 021
5 – Net insurance result, DNB Forsikring 683 648 534 491 418
6 – Other operating income 744 1 948 959 1 490 1 420
7 Net other operating income, total 15 718 18 053 18 648 16 877 16 427
8 Total income 51 140 52 163 54 006 49 363 46 619
9 Operating expenses (21 429) (20 693) (21 068) (20 452) (20 186)
10 Restructuring costs and non-recurring effects (1 165) (639) 1 157 (223) (1 690)

Balance sheet

wdt_ID Amounts in NOK million 31 Dec. 2017 31 Dec. 2016 31 Dec. 2015 31 Dec. 2014 31 Dec. 2013
1 Total assets 2 698 268 2 653 201 2 598 530 2 649 341 2 405 507
2 Loans to customers 1 545 415 1 509 078 1 542 744 1 438 839 1 340 831
3 Deposits from customers 971 137 934 897 944 428 941 534 867 904
4 Total equity 216 897 206 423 190 425 159 059 141 944
5 Average total assets 2 856 988 2 841 117 2 946 119 2 711 624 2 542 535

Key figures and alternative performance measures

wdt_ID - 2017 2016 2015 2014 2013
1 Return on equity, annualised (per cent)¹⁾ 10.8 10.1 14.5 13.8 13.1
2 Earnings per share (NOK) 12.84 11.46 14.99 12.67 10.75
3 Combined weighted total average spread for lending and deposits (per cent)¹⁾ 1.30 1.32 1.33 1.31 1.31
4 Average spread for ordinary lending to customers (per cent)¹⁾ 2.07 2.04 2.17 2.33 2.34
5 Average spread for deposits from customers (per cent)¹⁾ 0.17 0.21 0.01 (0.25) (0.31)
6 Cost/income ratio (per cent)¹⁾ 44.2 40.9 36.9 41.9 45.7
7 Ratio of customer deposits to net loans to customers at end of period¹⁾ 62.8 62.0 61.2 65.4 64.7
8 Net non-performing and net doubtful loans and guarantees, per cent of net loans¹⁾ 0.98 1.49 0.76 0.96 1.38
9 Impairment relative to average net loans to customers (per cent)¹⁾ (0.15) (0.48) (0.15) (0.12) (0.17)
10 Individual impairment relative to average net loans to customers (per cent)¹⁾ (0.24) (0.34) (0.13) (0.14) (0.18)

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

For additional key figures and definitions, please see the Fact Book on ir.dnb.no.

Global systemically important bank and indicator values
DNB Bank ASA has been defined by the EBA (European Banking Authority) as a potential global systemically important bank, as its total on and off-balance sheet exposures exceed EUR 200 billion. As a result, DNB Bank ASA delivers data to the EBA for the calculation of defined indicator values. See bis.org/bcbs/gsib/ for more information. DNB’s indicator values as at 31 December 2017 will be available on ir.dnb.no in April 2018.

Purpose and values

For almost 200 years, we in DNB have been here for customers, employees and society in general.

We are Norwegian and we are international. We are tradition and innovation. We are a partner in your single life, family life, daily life, business life and community life. We are here to help with the small details and the big questions. Every day we bring together people and ideas with knowledge and capital.

Our purpose is to make your everyday life easier. As Norway’s largest bank and one of the largest financial services groups in the Nordic region, we offer a complete range of financial services through mobile solutions, 24/7 customer service centres, online banking, branch offices, in-store postal outlets , real estate brokers and international offices.

PURPOSE:

We are here. So you can stay ahead

This is our purpose and the answer to why DNB is here for customers, society and employees. The purpose sets the direction for our choices and priorities. It inspires innovation and drives change. Everything we do must be in line with our purpose.

We are curious, bold and responsible. Everything we do should be in line with these values.

Our values describe how we will deliver our purpose, both as an organisation and as colleagues. Our values describe what we expect from each other and what customers, our owners and society in general can expect from us.

VALUES:

Curious

Being curious means that we seek new knowledge and learn from our experiences, so that we continuously gain new insight. We are genuinely interested in and curious about how we can make everyday life better for our customers and colleagues. We find good solutions together.

Bold

Being bold means that we challenge established truths and make decisions even though the picture is unclear. We take responsibility for our actions, admit when we make mistakes and then learn from them. We face challenges and new competition with an unshakeable conviction that we will become even better at developing the best ideas and solutions.

Responsible

We create values in a sustainable way. We are transparent and contribute positively to society. We listen to those who have opinions and insight about what society expects of us. We use simple language and are predictable in our actions.

Strategy and organisation

DNB’s overarching goals are to create the best customer experiences and to reach its financial targets. Four strategic priorities have been identified to ensure that the Group succeeds with this.

OVERARCHING GOALS

CREATE THE BEST CUSTOMER EXPERIENCES

Today’s society is characterised by persistent low interest rates, high capital requirements, ever-increasing price transparency and a fragmentation of value chains in traditional banks. New regulations open the way for new competitors. It is likely that global players like Facebook, Google and Amazon will offer banking services in DNB’s markets in the future. There is a risk that these, and other smaller players, may come between DNB and its customers, reducing DNB to an infrastructure provider which will become increasingly less visible. Strong customer relationships are therefore essential in order to retain customers and ensure continued profitability. With a gradually more open infrastructure and declining switching costs and customer loyalty, it will be increasingly difficult to “own” the customer relationship. DNB will have to earn it again and again through each experience the Group offers its customers.

REACHING FINANCIAL TARGETS

Long-term profitability is the underlying premise for all of the Group’s activities. The overriding financial target for DNB is a return on equity, ROE, above 12 per cent. At the same time, DNB aspires to maintain a cost/income ratio below 40 per cent, meet the authorities’ capital requirements and deliver a dividend of more than 50 per cent of profits. To reach these goals, DNB must continue to improve, develop and streamline its current operations, while actively phasing out that which is no longer profitable. Change is essential in order to position the bank for the future, but the traditional business will continue to be the main contributor to the financial results for the foreseeable future.

To succeed, the Group needs to accelerate its pace of innovation while balancing scarce resources such as capital, development funds and people.

Financial ambitions

FOUR STRATEGIC PRIORITIES

DNB defined a new purpose, new values and a new strategy in 2017. Over the last few years, several factors and development trends have contributed to the need for a new strategy and corresponding measures:

  • Changes in the regulatory framework have made it easier to switch banks.
  • New consumption patterns and digital innovation have re-shaped customer expectations to the Group.
  • New regulations open the way for completely new competitors. DNB no longer “owns” its customers, and must earn the customer relationships every day by offering the best customer experiences.

The Board of Directors has identified four areas as critical to the Group’s success in creating the best customer experiences:

  1. Increase innovative power
  2. Increase the use of customer insight
  3. Drive skills enhancement
  4. Incorporate corporate responsibility in all processes

Long-term profitability is the underlying premise for all of the Group’s activities. DNB’s unique position as Norway’s leading financial institution will be cultivated. However, in the long term, this will not be enough to maintain and strengthen the Group’s market position. Therefore, the Group must seek to acquire some of the strengths of its new competitors, which involves implementing significant changes and making tough decisions.

This means that DNB must think and act like a technology company in areas such as customer experience, innovation, automation, working methodology, new business models, third party collaboration, use of data and obtaining the right skills mix. The four priorities shall help DNB develop in this direction. A suitable technology platform is a fundamental premise for realising the Group’s strategic priorities.

Today, DNB is a traditional bank with digital products, services and channels. DNB will continue to be a bank in the future. However, being a bank will entail something else in the future than it does today.

An initiative has been launched to define appropriate KPIs to follow up on the work in the four areas. Implementation is scheduled for the beginning of 2018.

Did you know…

Did you know that DNB Markets gained close to 20 000 new online equity trading customers in 2017?

STRATEGY, MATERIALITY ANALYSIS AND INTEGRATED REPORTING

The four priority areas are described in greater detail in the subsequent chapters of the annual report. The descriptions are linked with the materiality analysis from last year, with corresponding measures under each priority area.

The integrated reporting1) has been continued and further enhanced, with descriptions of ambitions and goals, as well as measures, within the individual business areas and staff units where this is relevant. Combined, this gives a prioritisation of the long-term challenges facing the Group as the material topics and strategic measures provide a comprehensive overview of the topics that have the greatest impact on DNB’s future value creation, and how the Group is and will be working with this in the times ahead.

The reporting is based on the prioritised topics and strategic areas in the materiality analysis in the annual report for 2017, as presented below. The materiality analysis will be updated in 2018, based on the new strategy.

THE MATERIALITY ANALYSIS

The analysis was first presented to a number of external and internal stakeholders in a structured dialogue where they were given the opportunity to speak freely about the challenges that have the greatest impact on DNB’s future value creation. The challenges were thereafter ranked in order of priority based on their relative importance to long-term value creation for DNB and for society. Contributions from the stakeholders were weighted differently. Customers and shareholders were given the highest weight, then the authorities, employees and society at large. The complete analysis and the most important challenges have been considered and approved by the group management team and the Board of Directors, and provide the basis for the work on integrated reporting.

Read more about stakeholder dialogue and the materiality analysis in the sustainability library.

Increase innovative power
  • Keep up the pace of innovation and secure the ability to meet new customer needs
  • Ensure privacy protection2)
  • Ensure information security2)

(Read more in the chapter Innovative power)

Increase the use of customer insight
  • Ensure good customer experiences
  • Provide ethical products and services

(Read more in the chapter Customer insight)

Drive skills enhancement
  • Ensure engaged employees
  • Promote adaptability and change capacity
  • Attract and develop talents
  • Ensure equality and diversity2)
  • Ensure safe working conditions and a positive working environment2)

(Read more in the chapter Human resources)

Incorporate corporate responsibility in all processes
  • Promote innovation and restructuring in the Norwegian economy
  • Promote financial literacy
  • Integrate and promote sustainability considerations in operations
  • View risks and opportunities in a long-term perspective
  • Ensure openness and transparency

(Read more in the chapter Role in society)

1) Based on the framework for integrated reporting established by the International Integrated Reporting Council (IIRC).
2) Not defined as one of the most important challenges in the materiality analysis from 2016.

Materiality analysis

Support to global initiatives

DNB has chosen, in addition to following Norwegian standards, to support and participate in a number of global initiatives and international guidelines to ensure responsible operations. Such initiatives are important for learning, knowledge sharing and influencing.

Read more about all the initiatives DNB supports and participates in at dnb.no/en/about-us.

The UN Sustainable Development Goals were reviewed in connection with the work on the new strategy in 2017. DNB will generally support all 17 goals. Based on discussions in the Board of Directors and the group management team, DNB has identified two goals that are particularly relevant in view of the Group’s risks and opportunities:

GOAL 5

Achieve gender equality and empower all women and girls. DNB will promote gender equality within the Group, in the financial services industry in general and in society at large. Read more about DNB’s gender equality efforts.

GOAL 8

Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all. DNB will contribute to increasing economic productivity by arranging capital for innovation and restructuring in Norway, among other things by supporting entrepreneurs. Read more about how DNB connects ideas with capital. 

In addition to specifying concrete measures related to the different goals, DNB has an ambition to report results within all the most relevant topics for 2018.

See also the GRI index for a mapping of all the Sustainable Development Goals relative to the main challenges faced by DNB in the sustainability library.

The United Nations’ 17 Sustainable Development Goals

DNB ASA supports the United Nations’ Sustainable Development Goals.

THE BUSINESS AREAS AND THEIR STRATEGIC PRIORITIES

PERSONAL BANKING

Personal customers are served by the Personal Banking business area. DNB is a market leader in the Norwegian personal customer market and has more than 2 million personal customers in Norway. Customers are offered a wide range of services through a modern distribution network, which comprises mobile solutions, 24/7 customer service centres and online banking, branch offices, post offices, in-store postal outlets and real estate brokers.

“Each customer should think ‘DNB is my bank’. From a bank for everyone to a bank just for you. This is what the personal customer strategy is all about.”

Group executive vice president Ingjerd Blekeli Spiten
CORPORATE BANKING

Small and medium-sized enterprises are served by the business area Corporate Banking. DNB promotes the development of active and well-functioning businesses in Norway. Small and medium-sized enterprises are the bedrock of the Norwegian business community and contribute to significant value creation for society.

“We will be more than a bank and gather all the services companies need on a digital platform so that they can fully focus on their business. The combination of good digital platforms and our unique expertise and networks makes us the best adviser for the companies of tomorrow.”

Group executive vice president Benedicte Schilbred Fasmer
LARGE CORPORATES AND INTERNATIONAL

Large corporates and international customers are served by the Large Corporates and International business area. The segment includes the Group’s largest Norwegian corporate customers, the public sector, all international customers, as well as financial institutions. DNB’s ambition in the large corporate segment is to maintain its number one position in Norway, and to strengthen its leading position within selected industries internationally. The large corporate segment is characterised by strong customer relations and sound banking and industry expertise. High-quality customer service is assured through DNB’s financial strength, a broad international network, competitive services and the ability to adapt quickly to new customer needs.

“New digital solutions enable us to act faster and free up time to provide better advice and guidance for the benefit of our customers. This, combined with our unique insight into various industries, enables us to ensure not only increased profitability, but also better customer experiences.”

Group executive vice president Harald Serck-Hanssen
WEALTH MANAGEMENT & INSURANCE

Wealth Management & Insurance serves high net worth individuals through its Private Banking unit. In addition, the business area is responsible for the further development of the Group’s savings and insurance products and delivers defined-contribution pension schemes to all DNB customers in cooperation with the customer areas.

“We safeguard our customers’ values and invest them so that they contribute positively to society. Customers will get personal advice, either digitally or from one of us, so that they reach their goals – today, tomorrow, or in 40 years’ time.”

Group executive vice president Trond Bentestuen
MARKETS

DNB Markets is Norway’s leading investment firm and offers investment banking services, including risk management, investment and financing products in the capital markets, to the Group’s customers. By working in customer teams and applying good digital solutions, the employees provide advice and develop tailor-made solutions for the various customer segments. Markets’ market making and other trading support customer activities with products and prices.

“DNB Markets will strengthen its position as Norway’s leading investment firm. In cooperation with the rest of the bank, we will deliver the best customer experiences based on our expertise and ability to adapt to changing conditions and customer behaviour. Our products will be responsible, capital-light and profitable.”

Group executive vice president Ottar Ertzeid
NEW BUSINESS

New Business will create increased competitive power and growth for DNB by designing new solutions and business models for the Group and strengthening the delivery capacity of existing segments. This will be achieved through a more unified strategy and consistent management of data and customer insight, payments and payment infrastructure, open banking, the use of technology, and partnerships.

“New Business will ensure value-adding use of payment data streams and the bank’s data. The unit will also generate new income based on the existing infrastructure and through its open banking initiatives, as well as through completely new products and business models that can be developed in partnership with external players or through the bank’s own development process.”

Group executive vice president Rasmus Figenschou
Did you know…

Did you know that DNB in the period from 2014 to 2017 reduced its paper consumption by 277 tonnes by sending digital letters to its customers? This corresponds to 6 658 trees.

THE ORGANISATION HAS BEEN ADJUSTED TO REACH THE GROUP’S TARGETS AND STRATEGY

As a consequence of the Group’s new strategy, organisational changes were implemented at the end of 2017. DNB’s organisation and operational structure will ensure that the Group quickly and effectively adapts to changes in customer behaviour and develops products and services that meet customer needs.

OPERATIONAL STRUCTURE

Customer areas are responsible for customer relationships and customer service, while product areas are responsible for product development. Operational tasks and group services are carried out by the Group’s support and staff units, which provide infrastructure and cost-efficient services for the business units.

REPORTING STRUCTURE

Financial management in DNB is adapted to the different segments. The income statements and balance sheets for the segments are presented in accordance with internal financial reporting principles, according to which revenues, costs and capital requirements are allocated to the segments based on a number of assumptions. Reported figures for the different segments thus reflect the Group’s total sales of products and services to the relevant segments. The follow-up of total customer relationships and segment profitability are two important dimensions when making strategic priorities and deciding on where to allocate the Group’s resources.

Margin income on loans and deposits is calculated using internal transfer rates based on observable market rates, which in most cases roughly correspond to 3-month NIBOR. Additional costs relating to the Group’s long-term funding are also charged to the segments.

Services provided by staff and support units will as far as possible be scaled and priced according to use. The pricing of such intra-group transactions is regulated by internal agreements based on market terms. Joint expenses incurred by group staff units and other group expenditures that cannot be debited according to use, are charged on the basis of relevant distribution formulas. Costs relating to the Group’s equity transactions, including strategic investments, and direct shareholder-related expenses and costs related to the Group’s governing bodies are not charged to the segments.

The Group’s total common equity Tier 1 capital is allocated to the segments. Allocated capital reflects the Group’s long-term capitalisation ambition, and the distribution formula is based on an adaption to the Basel III regulations. Return on allocated capital represents profits after tax relative to average allocated capital.

The segment reporting is presented in note 2 to the annual accounts.

An overview of the Group’s legal structure can be found on dnb.no.

Operational structure as at 7 March 2018

Reporting structure

Important events

Q1

DNB decided to sell its share of a loan to the Dakota Access Pipeline. DNB had reviewed various options for its involvement in the project financing since November 2016.

For the third consecutive year, DNB Wealth Management was named “Best Fixed-Income Fund House” at the Morningstar Fund Awards.

According to Prospera’s 2016 annual customer satisfaction survey, DNB Markets was ranked best among Norwegian bond investors within both government and corporate bonds. For the first time, Swedish bond investors considered DNB Markets to be number one within high-yield bonds in Sweden.

One of the entrepreneurs participating in the DNB Accelerator programme, Arash Saidi, developed a chatbot that was tested at DNB’s customer service centre.

DNB finalised a new, fully automated solution for extending existing home mortgages.

Standard & Poor’s improved its long-term debt rating outlook for DNB Bank, partly due to stronger capitalisation.

On 1 January 2017, financial activities tax was introduced in Norway, and new mortgage regulations entered into force.

DNB entered into an alliance with 105 Norwegian savings banks to win the battle for the mobile wallet, by establishing Vipps as a separate company. From the left: Rune Garborg (DNB), Rune Bjerke (DNB), Hege Toft Karlsen (Eika), Finn Haugan (SpareBank 1/mCASH), Elisabeth Haug (SpareBank 1) and Geir Bergskaug (Sparebanken Sør). The companies they represent in parentheses.

Q2

VippsGO was introduced, a new service in the Vipps app that makes both purchases and sales easier by setting up your own shop in the app.

DNB launched the app “Spare”, a new tool for saving in accounts, equities or mutual funds.

The crowdfunding service “startskudd.no” was launched as part of DNB’s initiatives to focus on start-up companies. As an extension to the NXT Conference held in the autumn of 2016, DNB also launched NXT Community, a new digital meeting place where entrepreneurs and investors can meet and get access to expertise and advice offered by DNB. The aim is that the meeting place will help ensure that more good business ideas are realised and that this will also result in sound projects for investors.

The banking agreement with NorgesGruppen expired, but DNB will continue to offer banking services in post offices and shops across Norway. DNB thus still has the best availability in the market for manual banking services.

In a survey carried out by Universum, DNB was ranked as the most attractive employer in Norway among business students for the fourth year in a row and climbed from eighth to third place among IT students.

DNB’s Travel Insurance “Best” was voted Norway’s best travel insurance for the fourth year in a row.

Q3

DNB gathered all employees in the Nordic region to an all-day event at Telenor Arena outside Oslo to mark the launch of the Group’s new purpose, new value platform and new strategy. During the autumn, similar events were held at a number of the Group’s international offices.

DNB repeated the previous year’s success and arranged the NXT Conference, a meeting place for investors and entrepreneurs. Eight regional conferences were held in addition to the main event in Oslo during Oslo Innovation Week.

DNB Global Lavkarbon was launched, a diversified global factor fund that is “fossil free” and has a low carbon footprint, which is in line with DNB’s sustainability profile.

The demerger of Vipps from DNB was finalised, leaving DNB with an ownership interest in the new legal entity (Vipps AS) of close to 52 per cent.

New rules were introduced by the Norwegian authorities and Finanstilsynet for the marketing of credit cards and consumer loans. The new rules aim to protect consumers against irresponsible borrowing.

Q4

Vipps entered into cooperation agreements on distribution with players across the Norwegian market, and Vipps, Bank Axept and BankID Norway signed a letter of intent to merge the three companies. The transaction is subject to approval by the Norwegian authorities, and the new company is expected to start operations during the second half of 2018.

DNB and Nordea combined their operations in Estonia, Latvia and Lithuania into the new company Luminor Group AB. DNB’s ownership interest in Luminor Group AB is approximately 44 per cent.

DNB climbed the rankings of the Norwegian ethical bank guide (“Etisk bankguide”), and increased its total score from 40 to 60 per cent for 2017. “Etisk bankguide” is an assessment of banks’ and asset managers’ published guidelines concerning corporate responsibility, ethics and environmental issues. DNB’s improved score reflected a systematic review of the bank’s framework for responsible investment and responsible credit in the course of 2017.

As the only Nordic financial institution, DNB achieved an A score from CDP (Carbon Disclosure Project) for its reporting in 2016. The UK-based CDP is the largest independent collection of environmental data from large companies, and one fifth of the world’s carbon emissions are reported through CDP. In order to obtain a high score, the company must document past reductions in its own greenhouse gas emissions and plans for future reductions. In addition, a clear climate strategy and climate reporting ensure a better score.

DNB launched an option to apply digitally for new home mortgages, with a processing time of less than two minutes.

DNB’s group management team was reorganised to meet changes in the market and reinforce the Group’s strategic priorities.

Oslo District Court found in favour of DNB in the group action the Norwegian Consumer Council brought against DNB Asset Management for the management of the DNB Norge funds. The Consumer Council has announced that the judgement will be appealed to the Court of Appeal.

In accordance with the authorisation given at the Annual General Meeting in April 2017, DNB repurchased shares corresponding to 0.66 per cent of the share capital up to end-December.

According to Prospera’s annual customer satisfaction survey, DNB Markets was ranked best among Norwegian equity investors within domestic equity, execution and corporate access.

The Ministry of Finance increased the countercyclical capital buffer requirement for banks from 1.5 to 2 per cent with effect from 31 December 2017.

The final Basel regulations on capital adequacy were adopted. The regulations aim to limit differences in capital requirements between countries, and thus enable comparisons of banks’ capital adequacy. The regulations will be introduced in 2022 and phased in until 2027.

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