EUR 850.00 For Business Accounts Only

Morningstar | New Jyske Company Report

Jyske is the third-largest bank in Denmark, with market share reaching above 10%. With its 2014 acquisition of BRFkredit, the bank’s business model evolved toward the mortgage market. As it stands, 72% of the lending book is mortgage-related and the rest comprises banking loans. In terms of revenue mix, the banking segment drives 63% of the top line, 30% is from mortgages, and 7% is from leasing activities. Its market share of mortgage lending has been on the rise and increased to 10.4% from 7.9% in 2013. While the acquisition of BRFkredit was a contributor, volume growth was the main driver of market share gains. Although Jyske aims to reach 15% market share in mortgages (close to its closest peer Nordea’s share), we think further market share gains will be hard to achieve without hurting margins. On operational costs, the group has a high cost/income ratio of 61%. Although we project some easing on the cost side, the banks still lag peers when it comes to efficiency. We believe its scale (small compared with peers) is the main reason Jyske lags its peers. Also, while many banks in the EU have focused on digitalization and upgrading their systems, Jyske was behind the curve and has not reduced its branch network, which in our view led to high costs. The bank recently hired a chief technology officer who previously worked for Danske, which we think will speed up the digital transformation process (onboarding of clients, credit approval processes, and R&D). However, in the medium term, we don't expect a rapid decline in the cost base, as those investments will come at a cost.On profitability, Jyske’s return on equity during the past five years came in at around 10% on average, only marginally above its cost of equity of 9%. Management targets a ROE of 6%-10% in 2019. We think 8% is possible, falling to 7% toward the end of our explicit forecast period given the competitive mortgage lending environment and lower-for-longer interest rates making it hard for banks to generate upside on the top line. Also, we anticipate low loan-loss impairment provisions as experienced in the recent past to converge to less beneficial midcycle levels.