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Table 1
Financial ambitions of DNB (2020-2022) 4
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Ambitions
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Achieved 2021
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Return on equity (ROE)
(The main objective)
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> 12.0%
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10.7 %
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Cost/income ratio
(Key performance indicator)
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< 40.0%
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43.0%
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Common equity Tier 1 capital ratio
(Capitalisation level)
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> 17.6%
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19.4%
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Payout ratio
(Dividend Policy)
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> 50%
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61.9%
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DNB was very well capitalised at the end of 2021. The Common equity Tier 1 (CET1) capital ratio increased from 18.7 per cent to 19.4 per cent during the year. At the same time, there was a positive development in the risk landscape. Analyses and stress tests performed throughout the year, both on specific portfolios and the Group as a whole, have shown that DNB has good capital adequacy and the ability to withstand far greater losses than our loss forecasts suggest.
Running profitable operations and delivering on financial targets will continue to be important for positioning DNB for the future. Targets that, among other things, enable it to drive innovation for the benefit of the customer, be a driving force for sustainable transition and continue to be an attractive employer. The company do this by focusing on earnings, a prudent cost level, efficient capital use, safe and stable operations and having an adaptable, efficient organisation. A return on equity of more than 12 per cent remains the company’s overriding target. The company need to deliver more, with fewer resources, and develop products and services that are more relevant. This will allow them to deliver the return their owners expect, and stay competitive when they encounter new competitors.
DNB's business model is based on creating long-term and sustainable financial value for its owners. Therefore, the group must take into account the changes around the company, as well as long-term challenges and opportunities. This is also stated in the Regulations and Property report. Risk management is part of the company's activities and is integrated into the Group's management processes and management system. The DNB management system provides a balanced monitoring of the company's goal achievement. One way to do this is to define financial, operational, and strategic goals and performance (KPIs) in conjunction with health and risk indicators.
The incentive structure also helps to protect the risks and opportunities of the Group, as well as the individual target institution and the goals are closely related (more on the risk management and motivation structure in the document. The trust of those around the company is necessary to fulfill its goal and maintain sustainable operations over time, and this is something is what the company constantly strives to earn. To live up to DNB's values and achieve its strategic goals, everyone at DNB must act in a way that protects the interests of the bank's customers, owners, employees and other stakeholders, now and in the future. This will allow DNB to continue to build trust.
The financial services market is constantly changing – and the pace of change has accelerated during the global pandemic. DNB expects to see strong growth in the banking and financial services sector going forward, and the coronavirus pandemic has further accelerated the digital shift. The new non-financial players have their sights set on important parts of the bank chain's value and are challenging the company in a whole new way.
Self-service will become more common and the digital journey will require more banks than ever before. Customers want and expect seamless and immediate transactions, which are free. DNB sees fierce competition from both new and existing players and as new technologies and business models emerge and expand.
When comparing an enterprise with a living organism, we can say that finance is a blood system of an enterprise and provides the formation and „transportation” of assets to the relevant systems of vital activity of the enterprise. In general, agreeing with the crisis theory of enterprise development, as a living organism or system, we consider it appropriate to highlight the specifics of financial decisions that are made at each stage of the enterprise’s life cycle, namely the stages of birth, stability and decline.
An investment decision is made at the stage of birth, which is one of the most important business initiatives of owners and managers, because investments determine the allocation of financial resources for a relatively long period of time. At this stage, the enterprise is determined by its fixed capital financing strategy, which ranges from conservative (when fixed capital is financed with its own funds and long-term loans) to aggressive (when short-term loans are involved in financing fixed capital). The latter is uncommon, as the main sources of financing are private funds from the owners. At the start-up stage, the enterprise's income and profits are low or non-existent. The financial plan, which has a special place in this stage, is frequently the main management tool.
Each of the stages of the life cycle is characterized by its inherent problems and priorities that impose an imprint on financial activity. We interpret the financial activity as5:
• activities aimed at capital formation of the enterprise;
• activity on management of financial resources of business entities;
• activities to create the necessary conditions for business development;
• the system of using various forms and methods of financial support for the
functioning of enterprises.
When comparing an enterprise to a living organism, we can say that finance is the enterprise's blood system, providing the formation and "transportation" of assets to the relevant systems of vital activity. In general, we believe that, in accordance with the crisis theory of enterprise development, it is appropriate to highlight the specifics of financial decisions made at each stage of the enterprise's life cycle, namely the stages of birth, stability, and decline.
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