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's capital policy objective is to have equity capital covering:
- Statutory capital deductions of DKK 5.8bn, just over half relating to goodwill.
- Required capital base (Pillar I and Pillar II) of DKK 31.3bn, which includes an assessment of the impact of a slightly weaker economic climate. The determination of the required capital base takes into account any special risks related to Nykredit's business activities and the calculations include buffers where relevant.
- Countercyclical buffer of DKK 14.3bn calculated as the rise in the capital requirement if a severe recession should set in with an un-employment rate of 6.5-10% and interest rates of 5.5-7%. The countercyclical buffer is determined by means of stress tests.
All in all, a capital policy requirement of equity in the region of DKK 51.4bn.