Vestjysk Bank’s Q1 2020 Quarterly Report - Seite 2

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 for retail customers have also had a limited effect on the Bank.

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 adversely affected by the Corona crisis so far. At this point, the hotel, restaurant, transport and retail sectors are the hardest hit, and these sectors 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 Corona crisis. Until now, pig and dairy farmers have not been hit by the crisis, and although pork settlement prices dropped towards the end of the period, they are still at a high level. The high pork prices have enabled customers, some of which are credit-impaired, to repay debt to the Bank. This resulted in reversals of impairment allowances within this sector in Q1 2020. We expect this development to continue, but if the price level starts to fall, it could have an adverse effect on the Bank. Agriculture still faces risk factors such as an outbreak of African swine fever in Germany and/or in Denmark and a potential adverse impact of Britain’s exit from the EU (Brexit).

In the real estate sector, we are so far seeing an effect on commercial leases in the affected sectors, where agreements have been made to defer rent payments. Depending on the duration and depth of the crisis, this effect could widen. So far, private residential rentals have not been affected, 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 Corona crisis. In the long term, we expect to see an increase in impairment allowances, but on a manageable level overall.

The situation is expected to change over the coming weeks and months. The Bank forecasts that the negative impact will spread to a wider range of sectors and that some of the Bank’s retail customers may be affected by unemployment, for example.

The Bank’s DKK 100 million impairment provisions due to economic uncertainty and DKK 50 million capital reservation in the individual solvency need are expected to be sufficient to cover the Bank's current risk exposure. Projections about the future consequences of the Corona crisis are subject to considerable uncertainty. In particular, the above-mentioned potential risks to pig farmers could lead to an increase in impairment allowances.