DSF is a highly specialised lender to the shipping industry, providing services to a select number of large clients by financing vessels against first-lien mortgages. DSF has approximately 70 clients, for which it finances about 600 vessels in 12 shipping segments, with tankers and bulk carriers the largest segments. Of DSF's loan book, 90% is to shipping companies domiciled in Europe with, on average, about one quarter of total loans to Danish companies.
DSF published strong FY2024 results with a net profit of DKK414mn coming after the exceptional years in 2022 and 2023 (with record net profits of DKK517mn and DKK626mn, respectively). Earnings in 2024 were still among the highest 30% since 2000, despite a softening from recent highs coming from unusually high impairment reversals on previously written-off loans. Average second-hand prices track around index 180, which is among the top 20% highest recorded. The CET1 capital ratio was 23.6% at YE2024, up from 19.5% at YE2023.
DSF expects net profit of approximately DKK 325mn – DKK 375mn in 2025-2026. S&P estimates are closely aligned (DKK 330mn – 380mn), and incorporate the agency’s expectation of rebounding loan growth as shipping markets normalise and that credit losses will remain minimal in 2024 but successively increase by approximately 10bp – 20bp per year in the period between 2025 and 2026.
DSF's stable funding ratio is materially above those of domestic peers, at 151% as of 1H24, and the liquidity coverage ratio (LCR) as of 2024YE was 224%, well above the regulatory requirement of 100%. According to S&P, DSF could withstand a scenario in which it loses close to a third of its loan portfolio and still make timely payments on the remaining maturity of its outstanding debt without accessing the wholesale markets.
The 2022-2024 period was characterised by a backdrop of still-buoyant shipping markets, as shipowners continued to ride the long wave of successive demand shocks and trade disruptions that have boosted freight rates and vessel values for several years. The Clarkson market index in 2024 was roaming in the top 30% the highest rate since 2000.
The credit quality of DSF’s loan book is extremely robust, supported by elevated freight rates across most shipping segments. There were no loan defaults in 2024. Non-performing loans (NPL) decreased by DKK712mn to DKK190mn at YE2024, equivalent to an NPL ratio of 0.7%, down from 2.8% at YE2023. DSF has a best-in-class credit track record of a 3bp annualised loss rate on conventionalshipping since 2000, which includes the 2009 downturn in global shipping and the COVID-19-induced downturn.
DSF runs two covered bond programmes from two separate capital centres: the DKK programme from the General Capital Centre and the EUR programme, established in 2019, from Capital Centre A. The Danish covered bonds legal framework is considered as top quality on a jurisdictional basis, in line with the one used for the German Pfandbrief.
Early in January 2025, S&P upgraded the rating of covered bonds issued by DSF by two notches to ‘AA- (Stable)’ from A, as the agency revised its assessment of the systemic importance and jurisdictional support of Danish shipping covered bonds to strong from moderate. It is important to highlight that S&P’s ratings do not reflect any collateral-based uplift; thus the covered bond ratings do not reflect the value of the vessels pledged as collateral for all loans in the cover pools.
As a result of the upgrade, DSF covered bonds will qualify for the Credit Quality Step 1 category, which aligns the regulatory treatment of DSF ship covered bonds to be on par with the Danish AAA-rated covered bond market in terms of risk weights and LCR under CRR. This implies a reduction in risk weighting from 20% to 10% for the EUR ship covered bonds (SDO), and from 50% to 20% for the DKK ship covered bonds (SO). All DSF ship covered bonds now also qualify for Level 1B liquid assets if their outstanding volume exceeds EUR500mn.
In our view, the broader investor base now participating in the covered bonds market compared to 2023, particularly among credit investors, combined with DSF’s AA- rating which drives a RW of 10% and a LCR of 1B, eliminates any regulatory disadvantage for its covered bonds. Furthermore, the robust performance exhibited by the broader covered bond market over the past twelve months—particularly among issuers with heavy exposure to CRE loans—combined with DSF's established prudent underwriting and its commitment to collaborating with reputable, top-tier shipowners, leads us to conclude that DSF’s covered bonds should trade at a narrower spread gap compared to those of CRE-exposed covered bonds or Italian covered bonds than what was observed in 2023.