Risk Report 2011Q2 Reports/Risk... · 2012. 2. 23. · Source: Danske Bank, September 2011 . Key Market Indicators Realkredit Danmark Specific Information . Risk Report Q2 2011 Slide

Risk Report 2011Q2

Published 29 September 2011

Risk Report Q2 2011 Slide 2

0 Contents

The Risk Report has been prepared by Realkredit Danmark`s analysts for information purposes only. Realkredit

Danmark will publish an updated Risk Report quarterly.

The Risk Report offers an update on the performance of mortgage collateral supporting mortgage bonds and

mortgage covered bonds (covered bonds) issued by Realkredit Danmark.

Contents of the report falls into two parts. The first part contains general market information relevant to the

performance of mortgage collateral. The second part contains Realkredit Danmark specific information. Contents of

the report are:

1. Key Market Indicators

House Prices

Homeowners Equity

Unemployment and Real Wage Growth

Homeowner Affordability

Foreclosures

Danish economic outlook

Geographical Dispersion

2. Key Collateral Indicators

Dispersions Loan to Value Ratios

Loan to Value Ratios and Borrower Classifications

Mortgage Collateral Breakdowns – Total and Capital Centre S

Borrower Exposure to interest rates

Arrears and Repossessions

Over Collateralisation and Capitalisation

Supplementary Collateral

Guarantees

Market Risk Exposures and Liquidity

Key Market Indicators

General Market Information

Risk Report Q2 2011

25000

30000

35000

40000

45000

50000

55000

60000

4000

6000

8000

10000

12000

14000

16000 9

5

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

Slide 4

1 House Prices and Homeowners Equity

House Price Trends

0

1000

2000

3000

4000

1998Q1 2000Q1 2002Q1 2004Q1 2006Q1 2008Q1 2010Q1

Equity Weekend Cottages

Equity Apartments

Equity Detached Houses

Other Debt

Mortgage Debt

DKKbn

Signs of weakness in the

housing market, currently a

very sensitive market

House prices are down 14.7

percent for detached

housing from the peak mid

2007 and 21.4 per cent for

apartments from the peak

mid 2006

Expectations are a minor

deflation from the current

level – but uncertainty is

high

Homeowners Equity

Homeowners’ equity peaked

2006Q3 at 1,888bn. Since

then equity has dropped by

683bn (notice that due to

new collection methods

concerning house prices, the

levels has changed compared

to previously versions of our

risk report)

Only 19 per cent of the drop

can be explained by house

price deflation – 81 per cent

is due to additional lending

DKK per sqm. Number per annum

Sold houses >>

Risk Report Q2 2011

Highest recorded price drop since peak

Present price drop since peak (Actual)*

LTV detached housing

Total household mortgage debt * If actual price drop is lower than the highest recorded price drop it means that prices are recovering

-12% -12% 63.2% 305bn

Northern Jutland 5% -5% 59.8% 138bn

-9% -9% 60.9% 366bn

København

Frederiksberg

Slide 5

1 Geographical Dispersion

Copenhagen Area

-29% -21% 60.3% 577bn

-26% -26% 71.9% 281bn

Zealand

Southern Denmark

Central Jutland

Private lending in Denmark in total

From the beginning of 2009

we have seen house prices

stabilizing throughout

Denmark, but the last two

quarters have shown

consecutive decline in

prices

The Copenhagen area was

the first to suffer from

house price deflation,

following a decade of

soaring house prices. Prices

are now 21.1 percent down

from the peak in mid 2006

Despite deflation in house

prices for the last two

quarters, prices are still up

by 11.8 percent since the

bottom in the start of 2009


1 Unemployment and Real Wage Growth

Real Wage Growth

Real wage growth is

negative in Q2 due to quite

high inflation outpacing the

growth in nominal wages

Disposable income for

households will have a

minor decline in 2011.

There are smaller tax

increases but on the other

hand very low interest rates

will mitigate some of the

negative effect. Wage

development will be close

to the inflation rate in 2011

Unemployment

Unemployment stood at

108,500 end Q2 2011 up

from a historical low of

45,400 in mid 2008

This is equivalent to an

unemployment (net) rate of

4.1 per cent which is

expected to stay at the

current level in 2011

Present unemployment

equals structural

unemployment levels in

Denmark (NAIRU)

-2

-1

0

1

2

3

4

5

6

2002 2004 2006 2008 2010

Wages

Inflation

Real Wage Growth

Y/Y

changes in p

er

cent

0

30

60

90

120

150

180

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Unem

plo

ym

ent

in 1

000

Risk Report Q2 2011

60,0

70,0

80,0

90,0

100,0

110,0

120,0

130,0

140,0

1995 1997 1999 2001 2003 2005 2007 2009 2011

Slide 7

1 Homeowner Affordability and Foreclosures

Homeowner Affordability

House price deflation and

lower interest rates has

made housing more

affordable even in the

Copenhagen area

Housing costs are now close

to the lowest level since

2004

We expect housing

affordability to increase due

to very low interest rates

and a small decline in

house prices

Foreclosures

The number of foreclosed

properties in Denmark in

August 2011 was 407

There is an stabilizing trend

in the numbers of foreclosed

properties recorded and we

expect the numbers to stay

at this level throughout the

year

The duration of a foreclosure

is approx. 6 months from

missed payments to

completion

0

200

400

600

800

1000

1200

1400

1600

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

Num

ber

of fo

reclo

sure

s in D

enm

ark

Housin

g r

ela

tively

expensiv

e

Housin

g r

ela

tively

in

expensiv

e

Note: Seasonally adjusted, all product categories included

Affordability – index 2000 = 100

Capital Region (“Less” affordable Region)

Total in Denmark


1 Political measures and outlook

Denmark Euro Zone 2010 2011 2012

GDP 1,7 1,8 1,4 1,6 2,0 1,1

Private Consumption 2,3 0,8 0,0 0,4 2,8 0,5

Fixed investments -3,2 -1,0 -0,5 2,4 4,0 1,9

Export 3,8 10,6 7,0 6,3 2,6 4,2

Unemployment % 6,0 10,1 5,8 9,9 5,6 10,1

Danish Economy Outlook

The growth in the Danish

economy is expected to be

around 1.5 per cent in 2012

We have seen a

stabilisation of the labour

market in 2011H1.

Exports are also in better

shape helped by a rebound

in international trade and

the economic upswing in

especially Germany and

Sweden

However the latest

development on the

financial markets and signs

of slower global growth is a

concern to the Danish

economy which is highly

dependent on exports.

Forecasts will probably see

a downward revision in the

coming months

Interest rates are a key

element in the household

economy. We expect still

very low interest rates –

but the level will slowly

increase during the next 12

months

Source: Danske Bank, September 2011

Key Market Indicators

Realkredit Danmark Specific Information


2 Dispersion and Loan to Value Ratios

aaa Dispersion of RD’s portfolio

Loan To Value Ratios

Covered bonds are secured by a first claim on the mortgage collateral and the reserves of the issuer

Loan to value ratios of the mortgage collateral are maximised by legislation at 80 per cent in

residential segments and 60 per cent in commercial segments (70 per cent if the outmost 10 per cent

are secured by additional collateral). Lending beyond these limits is prohibited

Loan to value ratios are monitored on an ongoing basis based on current market values of the property

and current prepayment value of the mortgages

36 per cent of mortgage collateral securing covered bonds issued by Realkredit Danmark has a current

loan to value ratio of 20 per cent or less. More than 65 per cent has a current loan to value ratio lower

than 40 per cent

Foreclosure costs are typically less than 15 per cent of the outstanding loan balance

RD’s loan portfolio is concentrated in the

Copenhagen area and on Zealand where prices

have been reduced the most

Homeowner equity remains highest in the

Copenhagen area although LTV ratios have

been exposed to the largest increase

All though the affordability ratio in the capital

region is expected to rise it is still below index

100

The highest growth in household mortgage

debt is recorded in the Copenhagen area

Geographical Dispersion in Realkredit Danmark

Copenhagen Area

6% 59.9% 25bn

17% 61.7% 70bn

17% 61.9% 68bn

39% 65.3% 160bn

21% 70.4% 88bn

RD’s portfolio detached housing

LTV detached housing

RD lending to households

København Frederiksberg

Zealand

Southern Denmark

Northern Jutland

Central Jutland


2 Loan To Value and Borrower Classifications

Loan to Value

Average loan to value ratios

across market segments are

65 per cent in Q2 2011

compared to 69 per cent in

Q12010

With house price stability and

even inflation observed in

some parts of Denmark LTV

ratios are now decreasing.

LTV for private household

has stabilised over the last

year and we expect this

trend to continue in 2011

Borrower Classifications

Borrowers’ financial

strength is classified on a

scale from 1 to 11, 1 being

the highest score

Approx. 7bn of total lending

is secured by mortgages

above the 80% LTV limit for

which the borrowers’

financial strength is

classified 8-11 – equivalent

to 1 per cent of the

portfolio

40

50

60

70

80

ju

n-

05

de

c-

05

ju

n-

06

de

c-

06

ju

n-

07

de

c-

07

ju

n-

08

de

c-

08

ju

n-

09

de

c-

09

ju

n-

10

de

c-

10

ju

n-

11

40

50

60

70

80Urban TradeRental ResidentialHouseholdAgricultureAverage

DKKbn Rating Category (Scaled 1-11)

LTV 1-3 4-7 8-11 Total

0-20 % 56 165 30 251

20-40 % 38 138 27 203

40-60 % 22 99 22 144

60-80 % 10 52 13 75

> 80 % 7 15 7 28

Total 133 469 99 701

Note: RD total


2 Collateral Breakdowns – Total portfolio

Outstanding Loan Balance

Outstanding Debt in DKKbn by LTV ratio Portfolio Seasoning

Borrower Segmentation

50m-

100m

5%

0-2m

44%

100m-

8%

20m-

50m

10%

2m-4m

18%

4m-20m

17%

Homeowner 60%

Agriculture 7%

Rental Residential 18%

Urban Trade 15%

0

20

40

60

80

100

120

140

160

180

0 1 2 3 4 6 8 10 15 20 25 30

DKKbn

Years

Note: Total lending distributed on segments Note: Total lending distributed on outstanding loan balances

Segment 0-

20%

20-

40%

40-

60%

60-

80%

>

80%

Total

DKKbn

Household 144 122 88 47 11 413

Urban trade 42 34 22 7 2 107

Agriculture 17 14 10 5 3 50

Rental

Residential 47 33 24 15 12 131

Weighted

dist. 36% 29% 21% 11% 4% 100 %

Total, DKKbn 251 203 144 75 28 701


2 Collateral Breakdowns – Capital Centre S

Outstanding Loan Balance

Outstanding Debt in DKKbn by LTV ratio Portfolio Seasoning

Borrower Segmentation

0-2m

40%

50m-

100m

5%

100m-

8%

20m-50m

10%

2m-4m

20%

4m-20m

17%

Homeowner 59%

Agriculture 9%

Rental Residential 14%

Urban Trade 17%

0

20

40

60

80

100

120

0 1 2 3 4 6 8 10 15

DKKbn

Years

Note: Total lending distributed on segments Note: Total lending distributed on outstanding loan balances

Segment 0-

20%

20-

40%

40-

60%

60-

80%

>

80%

Total

DKKbn

Household 91 83 66 38 9 287

Urban trade 32 26 17 6 1 82

Agriculture 14 13 9 5 3 44

Rental

Residential 22 19 14 9 6 70

Weighted

dist. 33% 29% 22% 12% 4% 100 %

Total, DKKbn 159 140 107 58 19 483


Interest

Only

53%Annuity

47%

2 Borrower Exposure to Interest Rates

Homeowner Segment

Homeowners must be able to

service a 30-year fixed rate

annuity loan for Realkredit

Danmark to underwrite

The impact of remortgaging

from fixed to floating is

mirrored in the chart by

interest reset by 59 per cent

Annuity and interest only

loans are almost equally

divided in the homeowner

segment

Corporate Segments

27 per cent of all lending in

corporate segments is fixed

rate to maturity

More than 70 per cent are

either interest reset

(typically, rates are reset

every year or every third

year) or floating rate (base

rates are either 6M CIBOR

or 3M EURIBOR)

Bullets and Interest only

loans make up 53 per cent

of corporate lending

Capped

floaters

8%

Interest

reset

59%

Fixed to

maturity

33%Interest

Only

54%Annuity

46%

Interest

reset

54%

Floaters

18%

Fixed to

maturity

27%

Capped

floaters

1%

Note: Outstanding loan balances

Note: Outstanding loan balances Note: Bullet loans are added in “Interest Only “as of 2009Q4


2 Arrears and Repossessions

Arrears (3 months)

Arrears are down

considerably from Q4 2009

to Q2 2011 in Urban Trade

and Rental due to individual

programmes introduced to

minimize arrears.

The arrears in the Private

segments are falling, while

Agriculture has experienced

a small increase the last

quarter

Repossessions

The stock of repossessed

properties stood at 164 end

2011Q2 – down 15 from

2011Q1

This compares to a total

stock of mortgages

collateral at 406,000

0

0,2

0,4

0,6

0,8

1

1,2

1,4

1,6

1,8

2

2,2

2,4

0

0,2

0,4

0,6

0,8

1

1,2

1,4

1,6

1,8

2

2,2

2,4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Private

Urban Trade

Rental

Agriculture

% o

f Paym

ents

Due

0

20

40

60

80

100

120

140

160

180

200

dec-

02

aug-

03

apr-

04

dec-

04

aug-

05

apr-

06

dec-

06

aug-

07

apr-

08

dec-

08

aug-

09

apr-

10

dec-

10

Corporate Segments

Homeowner Segment

Num

ber

of pro

pert

ies

2005 2006 2007 2008 2009 2010 2011


2 Over Collateralisation and Capitalisation

Over Collateralisation

Covered bonds issued by

Realkredit Danmark are

secured by mortgage

collateral and reserves

Reserves are invested in

government exposures,

covered bonds and bank

exposures

In case of bankruptcy Over

Collateralisation will also be

comprised by bondholders

preferential claim

Capitalisation

The solvency ratio stood at

34.9 per cent end 2011Q2

(CRD definition)

Realkredit Danmark has

obtained hybrid core capital

in volume of DKK 2 bn

under the Act of State-

Funded Capital Injections

If not obtained the solvency

ratio stood at 32.9 per cent

9,5

24,8

0,40,6

45,4

0

10

20

30

40

50

Credit Risk Operational

risk

Market Risk Transition Capital Base

DKKbn

Pillar I Pillar II

699711

442171

8

4 2 8

0

200

400

600

800

1000

1200

Mort

gage

Collate

ral

Ow

n C

overe

d

Bonds

Bank E

xposure

s

Oth

er

Bonds

Oth

ers

assets

Covere

d B

onds

issued

Oth

er

liabilitie

s

Bank d

ept

Over

Collate

ralisation

DKKm

Note: Nominal values

Risk Report Q2 2011

0

10

20

30

40

50

60

2008Q2 2009Q1 2009Q4 2010Q3 2011Q2

DK

K b

n.

Single Family Owner flats Offices & Agriculture

Private Rental Others Bonds

Guarantees

If LTV limits breached during the term of the loan the mortgage loan will only be eligible with the part that

observes the LTV limits. If eligible collateral is insufficient Supplementary Collateral must be provided

Increased need for Supplementary Collateral due to:

House price deflation

Properties selected for supervision

Refinancing and remortgaging of loans

Increased market value on bonds

Loss Guaranties and eligible bonds can be used as Supplementary Collateral (bonds which also are

used to comply with the solvency requirement) but no other asset types are eligible

Slide 17

Supplementary Collateral

Buffer in Capital Centre S

Total OC of DKK 47.2 bn in Capital

Centre S

Supplementary Collateral of DKK 32.5

bn are required end Q2 2011 in Capital

Centre S

Loss Guarantees of DKK 6.2 bn are

utilised

Buffer for further growth in need for

supplementary Collateral in Capital

Centre S is DKK 21.0 bn

If the OC in Capital Centre S is insuf-

ficient to comply with Supplementary

Collateral requirements RD can transfer

OC from the General Capital Centre or

write Loss Guaranties within the 15 per

cent limitation of issued bonds

Supplementary Collateral requirements

Risk Report Q2 2011

0

10

20

30

40

50

Single Family Owner occ. flats

Holiday Housing

Over All

DKK b

n.

Utilised Unutilised

Guarantees

Slide 18

Loss Guarantees issued by Danske Bank (DKK 50 bn)

Utilisation of Loss Guarantee

RD loan disbursed through Danske Bank and former BG Bank has a Loss Guarantee

Loss Guarantees covers the outmost LTV limited to 20 per cent of the maximum lending corresponding to LTV from 60-80 per cent for Single Family Housing and 40-60 per cent for Corporate and Holiday Housing

Maturity of 8 years with an amortisation equivalent to the covered loan

Loss Guarantee covers losses obtained from forced sales including cost

88% 89%

84% 89%


2 Market Risk Exposure and Liquidity

Market Risk Exposures

Realkredit Danmark operates subject to the

specific balance principle

In adherence with the principle Realkredit

Danmark

Issues covered bonds on a daily basis to

match loan origination

Employs a pass through structure i.e.

bond terms mirror loan terms

Market risk exposures are, therefore, limited.

End 2011Q2 interest rate risk on lending vs.

funding stood at DKK25.6m

Derivatives are not employed for hedging

imbalances on lending and funding

Liquidity

The pass through structure

ensures a net inflow of

liquidity from lending vs.

funding i.e. Realkredit

Danmark will not encounter

a net funding need

The liquidity inflow depicted

in the chart does not

include margin payments

-2.000

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

01-01-11 01-06-16 01-10-21 01-10-27 01-01-34 01-04-40

DKKm

Liq

uid

ity

Surp

lus

Net

Fundin

g

need

-100

0

100

200

300

400

500

600

700

Interest rate

risk, lending

vs. Funding


Disclaimer

This publication has been prepared by Realkredit Danmark for information purposes only and should be viewed solely in conjunction with the oral presentation provided by Realkredit Danmark. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. The Equity and Corporate Bonds analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for retail customers in the UK or any person in the US. Realkredit Danmark A/S is a subsidiary company of Danske Bank A/S. Danske Bank A/S is authorised by the Danish Financial Supervisory Authority and subject to limited regulation by the Financial Services Authority (UK). Details on the extent of our regulation by the Financial Services Authority are avail-able from us on request. Copyright (C) Realkredit Danmark A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.

Documents

Risk Report 2011Q2 Reports/Risk... · 2012. 2. 23. · Source: Danske Bank, September 2011 . Key Market Indicators Realkredit Danmark Specific Information . Risk Report Q2 2011 Slide