Minimum requirement for own funds and eligible liabilities (MREL) and debt buffer requirement

As part of the implementation of the Bank Recovery and Resolution Directive (BRRD), Denmark has introduced a minimum requirement for own funds and eligible liabilities (MREL).

The purpose of the MREL requirement is to ensure that should the Nykredit Group fail, it can be recapitalised and restructured through a principal write-down or conversion of capital and debt instruments.

The requirement must generally be fulfilled using the Group's own funds and bail-inable senior debt. However, in May 2020 the Danish FSA introduced a maximum limit to the subordination requirement, which means that Nykredit may use ordinary senior debt to fulfil a small part of the requirement.

Bonds issued by Nykredit Realkredit may be included to meet the requirement, but they cannot at the same time count towards the debt buffer requirement.

Nykredit Realkredit and Totalkredit are exempt from the MREL requirement but, being Danish mortgage banks, they must fulfil the regulatory debt buffer requirements, to be phased in by 2020. The debt buffer serves to bolster the loss-absorbing capacity of a mortgage bank in distress without impairing its lending capacity.

The fully phased-in debt buffer must equal at least 2% of total mortgage lending and may consist of excess capital or senior debt. The requirement is an aggregate requirement for Nykredit Realkredit and Totalkredit.

From 2022 the level of the debt buffer must be such that the Group's own funds, MREL eligible liabilities and debt buffer together amount to at least 8% of the consolidated balance sheet.

For further information on Nykredit’s issuance schedule, please see the latest investor presentation on Nykredit's debt issuance.