Capital structure

Nykredit's objective is to be able to maintain its lending activities at an unchanged level regardless of economic trends while keeping a high rating. To this end, Nykredit's equity must be sufficiently large to cover any increase in the statutory capital adequacy requirement and the required capital base in periods of severe recession, even without access to subordinate loan capital.

Nykredit's capital resources are as far as possible concentrated in the Parent Company, Nykredit Realkredit A/S, to ensure strategic flexibility and leeway.

Since 1 January 2008 Nykredit has applied the advanced IRB approach to determine the capital charge for credit risk. With the IRB approaches, the capital requirement will vary concurrently with the observation of losses and arrears, as such changes will affect the estimated risk parameters.

Nykredit divides its equity into four elements:

• Required capital base of DKK 33.4bn. (2011) Nykredit's assessment of the required capital base is partly based on the consequences of deterioration of the current economic climate.
• Countercyclical buffer of DKK 12.5bn (2011) covering the expected rise in the required capital base and potential operating losses should the economic climate change from an economic downturn to a severe recession with unemployment rates rising to the high levels of the early 1990s. The countercyclical buffer is determined by means of stress tests.
• Statutory capital deductions (goodwill, etc) relating to intangible assets of DKK 4.4bn. (2011)
• Strategic capital of DKK 4.8bn (2011), the long-term capital maintained for strategic initiatives.

In addition to equity, the Group has raised DKK 11.2bn of hybrid capital.