Risk Report 2011Q2 Reports/Risk... · 2012. 2. 23. · Source: Danske Bank, September 2011 . Key...
Transcript of Risk Report 2011Q2 Reports/Risk... · 2012. 2. 23. · Source: Danske Bank, September 2011 . Key...
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Risk Report 2011Q2
Published 29 September 2011
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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
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Key Market Indicators
General Market Information
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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 >>
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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
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Risk Report Q2 2011 Slide 6
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
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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
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Risk Report Q2 2011 Slide 8
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
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Key Market Indicators
Realkredit Danmark Specific Information
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Risk Report Q2 2011 Slide 10
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
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Risk Report Q2 2011 Slide 11
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
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Risk Report Q2 2011 Slide 12
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
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Risk Report Q2 2011 Slide 13
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
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Risk Report Q2 2011 Slide 14
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
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Risk Report Q2 2011 Slide 15
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
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Risk Report Q2 2011 Slide 16
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
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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
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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%
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Risk Report Q2 2011 Slide 19
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
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Risk Report Q2 2011 Slide 20
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.