Contents Highlights page 2 Principal Figures page 3 The DnB Group page 4 Statement From the Group Managing Director page 5 Directors’ Report page 6 Profit and Loss Accounts page 18 Balance Sheets page 19 Notes to the Accounts page 20 Financial Analyses page 52 Shareholder Information page 59 Operations in 1997 page 64 Highlights 1997 The DnB Group posted pre-tax operating profits before losses of NOK 2 715 million, compared with NOK 2 337 million in 1996. Profits for the year were NOK 2 590 million, as against NOK 2 702 million a year earlier. Earnings per share came to NOK 4.04, compared with NOK 4.22 in 1996. The Board of Directors has proposed an ordinary dividend of NOK 1.35 per share plus a supplementary dividend of NOK 0.40 per share, totalling NOK 1.75 per share. At the end of 1997, the DnB Group had nearly NOK 300 billion in funds under management. Growth in lending in most areas of activity offset the decline in interest margins. Non-interest income increased from 34 per cent of total income in 1994 to 42 per cent in 1997. The subsidiary Vital Forsikring Holding contributed NOK 192 million to group profits, NOK 136 million more than in 1996. During 1997, DnB reduced non-performing and doubtful commitments by a further 24 per cent. In 1997, DnB introduced its new branch design featuring a high level of automation. At year-end, DnB Group staff comprised 6 134 full-time positions. 2 Principal figures 1997 Amounts in NOK million DnB Group Profit and loss accounts 1997 1996 1995 --------------------------------------------------------------------------------------------------------------------------------------------------- Net interest income 4 428 4 242 4 347 Net other operating income 3 162 2 674 2 770 Operating expenses 4 875 4 580 4 939 Pre-tax operating profit before losses 2 715 2 337 2 178 Net reversals on losses on loans, guarantees, etc. 55 380 479 Net gain/(loss) on long-term securities (149) 7 6 Pre-tax operating profit 2 622 2 724 2 663 Taxes 32 22 6 Profit for the year 2 590 2 702 2 657 31 Dec. 31 Dec. 31 Dec. Balance sheets 1997 1996 1995 ---------------------------------------------------------------------------------------------------------------------------------------------------- Total assets 227 011 189 015 164 586 Net lending to customers 169 337 141 179 127 878 Deposits from customers 97 295 100 282 91 197 Average total assets for the year 213 784 183 593 172 402 Key figures 1997 1996 1995 ---------------------------------------------------------------------------------------------------------------------------------------------------- Return on equity (%) 17.4 20.2 23.4 Earnings per share (NOK) 4.04 4.22 4.15 Dividends per share (NOK) 1.75 1.75 1.50 Core capital ratio (%) 7.5 7.7 8.6 Capital adequacy ratio (%) 10.3 10.9 13.2 3 The DnB Group • Is Norway's largest financial services group. • Has around one million retail customers • Is Norway's largest investment • Has 90 000 retail customers firm with sizeable market taking part in customer benefit shares within trading in foreign programmes. exchange, interest rate and • Has 30 000 corporate equity instruments. customers and a market share • Handles payment transactions of 25 per cent of the for around 50 per cent of Norwegian corporate market. Norway's foreign trade Our vision • Is the principal bank for more • Is Norway's largest issuer of than half of Norway's 300 debit and credit cards. • DnB will be a leading financial largest companies • Has made significant progress services group in the Nordic • Is one of the world's leading in developing sophisticated area, and Norway’s major shipping banks. systems for measuring credit provider of financial services. • Is a major financial participant risk, even in an international • We will stand out as a provider within the international context. of unique solutions for our offshore industry. • Offers loans, deposits, asset customers, offering services management, payment and spanning the entire financial financial advisory services and market. foreign exchange and capital • We will ensure long-term market products as well as life competitive returns for our and pension insurance. shareholders. • DnB will be the most attractive workplace in the Norwegian financial sector. Financial calendar 1998 • First quarter 28 April Annual General Meeting • Second quarter 5 August Den norske Bank’s Annual General • Third quarter 27 October Meeting will be held Tuesday, • Annual General Meeting 21 April 21 April 1998 at 6 p.m. at the • Ex-dividend date 22 April Radisson SAS Royal Hotel, • Distribution of dividends May Bryggen, Bergen. 4 Choosing a course for the future Financial markets are undergoing rapid continuously to develop good products change, fuelled by a business world in and expand the scope of our services. which companies are enhancing their The sale of life insurance through the strength through mergers and cross- bank's distribution network has already border expansion. To keep up with the made a solid contribution to group demand for adequate financing and performance, and the sale of non-life efficient solutions from an increasingly insurance is being considered. internationalised business sector, Nordic Becoming a DnB “total account financial institutions are seeking ways to customer” should make financial sense. pool ownership and operational interests. The promotion of our customer benefit The boundaries between banking and programmes gathered momentum in insurance are being erased, and laws and 1997. These programmes have attracted regulations are paving the way for the 90 000 customers, a figure still climbing necessary consolidation in the industry. thanks to our favourable customer terms As Norway's foremost financial and rational service concepts. services group, DnB will not remain Customer preferences regarding unaffected by these developments. banking services have changed faster Although we have no crystal ball to help than many would have imagined just a gaze into the future, in 1997, DnB few years back. New technological mapped out a future course based on solutions have reduced the number of analyses and assessments of the manual payments in favour of auto- competitive climate. Our stated goal is mation, while at the same time easing the to become a leading financial services restrictions of opening hours and the need group in the Nordic region. to appear in person. Our new branch In some areas we are unquestionably design and express banks indicate a trend already at the leading edge, within ship which could put DnB in an increasing financing, for example, we have achieved number of locations, though with a new a position that earns us a place among the and more cost-efficient profile. world's best. Within risk management we Restructuring places heavy demands compare favourably with European on DnB staff. Our goal is to make DnB banks, while our position in other fields the most attractive workplace in the is more modest, even in a Nordic context. Norwegian financial sector, offering Outside Norway we will focus efforts professional challenges, continuous on areas where we have or can develop training and performance-based pay. special expertise and obtain a leading Cooperation and teamwork among staff market position. At home, our aim is to members throughout the Group will expand and secure our position as the enhance DnB's competitive clout. leading provider of financial services to We wish to ensure a long-term private individuals, companies and other competitive return for our shareholders, operations. based on prudent risk assessment and a DnB is more than just a bank. Our moderate risk profile. trademark will be unique solutions These elements all form part of our spanning the entire financial market. vision for the future. Our efforts to We wish to utilise this product range to achieve our targets will continue into the achieve competitive advantage, and work new millenium. 5 Directors’ report LOOKING BACK ON 1997 Norwegian banks, which in part reflects DnB’s interest in maintaining a low risk Den norske Bank recorded solid profits profile. DnB’s market share of total for 1997. Profits for the financial year savings from local government, enter- totalled NOK 2 590 million, compared prises and households was 15.5 per cent with NOK 2 702 million in 1996, in 1997, compared with just over 16 per reflecting an increase in net interest cent in 1996. Within foreign exchange income resulting from growth in lending trading and securities services, DnB coupled with higher income on sales of Markets strengthened its position as other products and services offered by the Norway’s leading investment firm. Group. A high level of activity and the After presenting BNbank’s share- development of new systems and service holders with a share purchase offer, concepts gave rise to a 6.4 per cent DnB had obtained control of more than increase in operating expenses in 1997. 98 per cent of the shares in May 1997 and As in preceding years, net reversals on applied to the Ministry of Finance for a previous loan losses made a positive concession to incorporate BNbank in the contribution to annual profits in 1997. DnB Group. On 29 January 1998, the Due to new loan-loss provisions, however, Ministry rejected the application, citing “Annual profits net reversals were below the 1996 level. the importance of maintaining a strong Estimated losses of NOK 148 million on financial centre outside the capital city correspond BNbank shares and options have been of Oslo. This came as a surprise in light charged to the accounts. Annual profits of the positive comments issued by the to a 17.4 correspond to a 17.4 per cent return Norwegian Competition Authority, the on equity. Earnings per share were Norwegian Banking, Insurance and per cent return NOK 4.04, compared with NOK 4.22 Securities Commission and Norges the previous year.