|Company Announcement No. 13 2022||Danske Bank A/S
Holmens Channel 2 – 12
DK – 1092 Copenhagen K
Such. +45 45 14 00 00
August 31, 2022
Since Danske Bank’s management team became aware in 2019 of the systemic nature of errors in the bank’s debt collection systems, we have worked hard to find a solution to the problems and compensate customers. affected in the event of potential over-recovery related to their outstanding debt. This work was carried out in consultation with the competent authorities. Progress has been made on an ongoing basis to correct past errors and to compensate affected customers. However, as the remediation progressed, new issues emerged that significantly increased the scope and complexity of the challenges, resulting in a delay in resolving issues that could extend beyond 2024, which is not satisfactory for our customers and Danske Bank. We have therefore – as communicated in April 2022 – explored alternative approaches to provide faster clarity to clients concerned with debt collection.
Based on in-depth analyses, Danske Bank has now developed an accelerated solution that brings clarity to the vast majority of our debt collection clients. The solution hinges on a number of key decisions, which Danske Bank is announcing today:
- About 90,000 debt collection customers in Denmark will see their debt to the bank reduced to zero, and Danske Bank will not collect this debt. Due to the continued identification of additional issues in our debt collection systems, we do not believe it is viable for customers or the bank to resume collection of this debt since the time and cost associated with determining of the amount of debt in each individual case would outweigh any repayment of part of the bank’s debt. In addition, approximately 155,000 customer files have already been closed, meaning that a total of approximately 245,000 debt collection customers will be notified that their debt is being reset and their debt collection accounts will be closed.
- Danske Bank has decided to compensate customers for any possible over-recovery related to problems in historical debt collection systems based on a statistical model. Deploying this statistical model will allow for much faster case resolution than manually processing all identified issues on a case-by-case basis.
- Using structured numerical data as old as available, the statistical model developed by Danske Bank estimates the extent of the potential overpayment. The basis of the model is the client’s initial principal when their debt was recorded in our historical debt collection systems or a subsequent debt agreed with the client. If the Client’s subsequent repayments exceed this level of indebtedness, the Client will receive a sufficient amount of repayments made to ensure that the potential over-recovery is offset to a level that covers both the relevant time and tax offset.
- Extensive sample checks in which manual reviews of individual cases were compared to model results were used to validate the model. As it is a statistical model, we cannot exclude that in particular cases there may be aspects that the model does not fully capture. This may affect pay. To mitigate the fact that using a model is less accurate than manual reviews, the model has been designed to increase the level of client compensation for the benefit of the client. Spot checks confirm the overcompensation principle of the model to a level usually sufficient to also cover time and tax compensation. Further sample verifications are required in other customer cases and this work will continue over the coming months. Danske Bank allocated DKK 650 million to cover compensation in the event of any over-recovery.
- We have been able to help the vast majority of our clients with late payments without their case turning into late debt collection. Those of our customers entering late collection, we are addressing with today’s announcement. Customers whose accounts were transferred for debt collection after the bank initially suspended its debt collection effective October 1, 2020 will not be part of the solution. Indeed, their debt collection is much less affected by errors in the historical system. The bank will examine the files of this group of approximately 7,000 customers before resuming debt collection.
- We will proactively reach out to affected customers whose debt needs to be reset and those likely to be compensated for possible over-recovery.
- Within the next two months, we plan to begin notifying customers that debt is zero and debt collection accounts need to be closed. The vast majority should be informed within six months.
- Over the next three months, we plan to communicate directly with customers whose collection we will resume and we expect to resume our debt collection in 2023.
- We plan to begin communicating to customers regarding compensation for a potential overcharge early next year and expect compensation payments to the vast majority of customers to be completed by the end of 2023.
“The historical errors we have discovered in our debt collection systems in no way reflect the bank we want to be, and we deeply apologize for these errors and the consequences for the customers affected. Over the past few years, we have worked hard to resolve the errors in our systems and bring clarity to our customers and the bank, but we have continuously seen the number of issues increase, so we have decided to implement an expedited solution based on handover. zero debt and to compensate for the affected customers for potential over-recovery by using a statistical model that brings clarity to our customers much faster than a solution based on the manual approach solve each customer case number by number. We believe thatis more efficient the solution is right for our customers aas good as our other stakeholders. This brings closure to our customers much sooner than would otherwise be possible, and for the bthank youit means that we can now communicate a plan to solve the problem in 2023” says Carsten Egeriis, Managing Director.
A smaller number of other types of cases, for example business bankruptcies, will not be covered by the accelerated solution. These cases will be subject to manual review to determine if overcollection has occurred. We are continuing our dialogue with the authorities on inheritance cases and are currently looking for a suitable solution.
The degree of complexity of the debt collection issue is highest in Denmark, and analyzes have been ongoing for longer than in our other markets. We will update regulators and customers on the approach for other markets at a later stage. Based on our current knowledge, we expect a slight financial impact in 2023 from fixing the issue outside of Denmark.
Our operating expenses for 2022 are expected to increase by approximately DKK 0.6 billion due to an increase in customer compensation provisions, while debt impairment will lead to an increase in loan impairment charges of 0. 65 billion DKK, which includes part of the customer compensation. . These items will be reserved in the third quarter of 2022.
Despite this, we confirm our net profit outlook between DKK 10 and 12 billion in 2022.
Contact: Stefan Singh Kailay, Media Relations Manager, tel. +45 45 14 14 00
Company Announcement No. 13 2022