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Danmarks Nationalbank extends credit to banks and mortgage banks, etc. (account holders) against collateral. Account holders may provide collateral for all types of credit (monetary-policy loans, intraday credit and credit for cash depots) by traditional pledging of securities and credit claims as collateral. The rules for asset eligibility are set out in Danmarks Nationalbank's terms and conditions for accounts.
Securities
Collateral basis
As a general rule, Danmarks Nationalbank gives account holders access to credit in Danish kroner against collateral in the following securities in Danish kroner and euro:
- Securities issued by the Kingdom of Denmark.
- Bonds guaranteed by the Kingdom of Denmark.
- Bonds issued by KommuneKredit and Danish Ship Finance.
- Mortgage bonds, covered bonds (SDOs), and covered mortgage bonds (SDROs) issued by institutions subject to the Financial Business Act.
- Junior covered bonds issued pursuant to Section 33e of the Danish Mortgage-Credit Loans and Mortgage-Credit Bonds etc. Act or Section 152b of the Danish Financial Business Act.
- Bonds issued by Føroya Landsstýri (the Faroese government)
The securities must be registered with VP Securities and traded at OMX NASDAQ, Copenhagen (KF).
Junior covered bonds must fulfil the following rating requirement:
1. If the bond has a rating, it must be at least A- at FitchRatings or Standard and Poor's, at least A3 at Moody's or at least AL at DBRS.
2. If the bond does not have a rating, the rating of the issuer's, or possibly the issuer's parent company's, long-term debt must be at least BBB at FitchRatings, Standard and Poor's or DBRS or at least Baa2 at Moody's.
The same securities, except bonds issued by Føroya Landstýri, are eligible as collateral for intraday credit in euro at Danmarks Nationalbank. However, for intraday credit in euro the securities must also fulfil the following rating requirement:
1. If the bond has a rating, it must be at least A- at FitchRatings or Standard and Poor's, at least A3 at Moody's or at least AL at DBRS.
2. If the bond does not have a rating, the rating of the issuer's, or possibly the issuer's parent company's, long-term debt must be at least BBB at FitchRatings, Standard and Poor's or DBRS or at least Baa2 at Moody's.
For mortgage bonds, covered bonds (SDOs), covered mortgage bonds (SDROs) and Danish Ship Finance bonds, the rating requirement for intraday credit in euro applies only to bond series opened after 1 January 2008.
Securities that are currently accepted by Danmarks Nationalbank as collateral for credit facilities denominated in Danish kroner and euro are included in the two lists in the right-hand menu.
At the request of the account holders and subject to specific assessment, Danmarks Nationalbank may also include other assets in the collateral basis for credit facilities denominated in Danish kroner.
Collateral value
The collateral value of the securities is calculated according to rules laid down by the European Central Bank, ECB. These rules are described in Chapter 6 of "General Documentation on Eurosystem Monetary Policy Instruments and Procedures".
The collateral value of the securities is calculated on the basis of their official price (all trades) on OMX NASDAQ, Copenhagen on the preceding day, including accrued interest, less a securities-specific valuation haircut. If a security has not been traded for five banking days, a theoretical price is used for the calculation of its collateral value. When a theoretical price is used, an additional haircut of 5 per cent is deducted for all types of eligible securities, except for securities issued by the Kingdom of Denmark.
When determining the haircut, eligible securities are divided into four categories:
- Category 1: Securities issued by the Kingdom of Denmark.
- Category 2: Mortgage bonds, covered bonds (SDOs), covered mortgage bonds (SDROs) and Danish Ship Finance bonds with a circulating volume of more than 1 billion euro or the equivalent value in Danish kroner. The bonds must also be comprised by one of Danmarks Nationalbank's for this purpose recognised price-quoting system and have at least three price quoters.
- Category 3: Other mortgage bonds, covered bonds (SDOs), covered mortgage bonds (SDROs) and Danish Ship Finance bonds, as well as bonds guaranteed by the Kingdom of Denmark.
- Category 4: KommuneKredit bonds, junior covered bonds and bonds issued by Føroya Landstýri.
The valuation haircuts of the securities also depend on remaining maturity and coupon type. Securities with a fixed coupon rate are assigned haircuts according to following table:
Haircuts for VP-registered assets with a fixed coupon rate.
| Remaining maturity | Category 1 | Category 2 | Category 3 | Category 4 |
| 0-1 year | 0.5 | 1.0 | 1.5 | 6.5 |
| 1-3 years | 1.5 | 2.5 | 3.0 | 8.5 |
| 3-5 years | 2.5 | 3.5 | 5.0 | 11.0 |
| 5-7 years | 3.0 | 4.5 | 6.5 | 12.5 |
| 7-10 years | 4.0 | 5.5 | 8.5 | 14.0 |
| > 10 years | 5.5 | 7.5 | 11.0 | 17.0 |
For eligible securities with a zero coupon rate, variable coupon rate or inverse variable rate, haircuts are stated in "General Documentation on Eurosystem Monetary Policy Instruments and Procedures".
The valuation haircuts are the same, regardless of whether the securities are pledged as collateral for credit facilities in Danish kroner or euro. However, an exchange-rate haircut of 3 per cent is deducted when securities in euro are pledged as collateral for credit facilities in Danish kroner – and vice versa.
The two lists of eligible securities in the right-hand menu also include the valuation haircuts of the securities.
Credit claims
Collateral basis
Banks domiciled in Denmark, not including Greenland, may pledge as collateral credit claims that comply with the following requirements:
The pledged credit claims must:
- be unsecured claims in the form of loans or overdrafts. Hence, leasing agreements, loans with a status of subordinate debt, mortgage deeds or other negotiable claims and claims under financial contracts etc. are not eligible as part of the collateral basis
- be of a quality corresponding to the Danish Financial Supervisory Authority's quality categories 3 and 2a as defined in the guidelines "Definition af kunder med karakteren 3 og 2a" (Definition of customers with the grades 3 and 2a – in Danish only), which can be found at the Danish Financial Supervisory Authority's website, www.finanstilsynet.dk. The assessment of the quality must disregard any collateral pledged by the debtor. Consequently, loans to customers who are purely investment customers as defined in section 4 of "Definition af kunder med karakteren 3 og 2a" are not eligible
- have been granted to non-financial corporations, meaning corporations not comprised by the Danish Financial Business Act s. 5(1)(i-iii), government institutions or retail customers
- have been granted to debtors resident or domiciled in Denmark
- not have been granted to a company where close links exist between the bank and the debtor as defined in clause 3, last paragraph, of these terms and conditions, or where the debtor is connected with the bank, cf. Section 2(ii)-(iv) of the Danish Insolvency Act
- for credit claims on a single debtor and credit claims where that debtor is a co-debtor but after setoff, cf. clause 15, constitute less than 10 per cent of the collateral basis for the credit claims pledged as collateral
- not have been granted to a debtor who is a member of the board of directors, board of representatives or executive board of the bank or of a firm connected with the bank, cf. Section 2(ii)-(iv) of the Danish Insolvency Act
- not fall due for payment until at least one month after the credit claim has been pledged as collateral.
The value of credit claims is stated as the current remaining debt; however, for overdrafts it is stated as the current balance less 10 per cent. As regards the remaining debt for credit claims or the current balance of overdrafts in euro, a deduction of 3 per cent is made when calculating the collateral basis. For credit claims and overdrafts in Swedish kronor or Norwegian kroner, the deduction rate is 5 per cent, for other currencies it is 10 per cent. The debtor's full entitlement to offset claims must be deducted, even if only part of the loans/overdrafts granted to the debtor are pledged as collateral to Danmarks Nationalbank. Special deposits are not included in the debtor's right to offset claims.
Collateral value
A haircut of 25 per cent and a margin of 10 per cent are deducted from the collateral basis of the credit claims pledged. The bank must update the list of eligible credit claims on a monthly basis or whenever the value of the portfolio of credit claims falls by more than 5 per cent.
The administrative procedure for pledging credit claims as collateral is described here
Other types of collateral
For intraday credit in Danish kroner, account holders also have alternative options to traditional pledging of securities. Thus, account holders may pledge certificates of deposit issued by Danmarks Nationalbank or draw on automatic collateralisation or Scandinavian Cash Pool. The applicable rules are described in Danmarks Nationalbank's terms and conditions for accounts.
In addition, collateral for intraday credit in euro from Danmarks Nationalbank may be pledged via the Eurosystem's correspondent central banking model (CCBM). |
