Accounts for
the year 2008

Key figures and financial ratios 2004-08

REPORT ON DANMARKS NATIONALBANK'S ACCOUNTS

About the Accounts
The Accounts for 2008 have been prepared in accordance with the accounting policies applied in the previous year.

The Accounts reflect that Danmarks Nationalbank issues banknotes and coins, holds substantial assets comprising the foreign-exchange reserve, and functions as banker to the credit institutions and to the central government.

The Accounts differ substantially from last year's. The changes are to a large extent attributable to financial market developments as a result of the international financial crisis. The balance sheet thus increased by kr. 210.6 billion, and the profit and loss account shows considerable changes in the gross and net items of the profit for the year. The profit from financial items was kr. 7,161 million, an improvement by kr. 1,422 million on 2007, and the total profit for the year was kr. 6,737 million, which is kr. 1,556 million higher than in 2007.

Change in profit for the year	Chart 4

About government guarantees
As a main rule, Danmarks Nationalbank's lending to domestic banks and mortgage-credit institutes is collateralised by securities deposited in safekeeping accounts. In addition, it is comprised by the central government's general guarantee covering depositors and unsecured claims under the Financial Stability Act.

No securities have been deposited as collateral for the special commitment in relation to Roskilde Bank, but the central government has issued a separate guarantee to Danmarks Nationalbank as regards this commitment.

The special commitment regarding EBH Bank is to some extent covered by loss guarantees from a number of banks and is otherwise comprised by the central government's general guarantee covering depositors and unsecured claims.

About losses and provisions
No credit losses were registered on Danmarks Nationalbank's commitments in 2008, and nor is it deemed to be necessary to make provisions for such losses.

Profit from financial items
At kr. 4,915 million, net income from interest has increased by kr. 810 million (19.7 per cent) on 2007. Major changes include:

On the positive side

• net interest income from monetary-policy deposits and lending has increased by kr. 2,738 million to kr. 1,051 million as the average net account with banks and mortgage-credit institutes has changed by kr. 63 billion to net lending of kr. 22 billion on average.
• an increase in interest income totalling kr. 350 million from new special lending to Roskilde Bank.

On the negative side

• increase in interest costs on the central government's deposit of kr. 2,003 million as a result of the central government' average deposit having risen by kr. 48 billion,
• a decrease in the yield on the portfolio of domestic bonds by kr. 279 million, mainly due to a fall in the average size of the portfolio.

Value adjustments entailed a gain of kr. 2,246 million, representing an increase by kr. 612 million on 2007.

The price of gold (in Danish kroner) rose by 8 per cent, resulting in a value-adjustment gain of kr. 697 million. (2007: a gain of kr. 1,383 million). Market-value and exchange-rate gains on foreign-exchange positions totalled kr. 1,024 million (2007: a gain of kr. 591 million) and the market-value gain on domestic securities amounted to kr. 524 million (2007: a loss of kr. 340 million).

The net profit from financial items is not affected by interest and exchange-rate adjustments in connection with the provision of liquidity in euro and US dollars to the Danish financial system by way of swap facilities with the European Central Bank and the Federal Reserve. The reason is that the interest payable to the central banks is offset by corresponding interest income from the institutions that borrowed the foreign exchange from Danmarks Nationalbank and that exchange-rate adjustments on such foreign-exchange lending is offset by opposite exchange-rate adjustments in connection with the settlement of the swap facilities with the central banks.

Factors contributing to the profit from financial items (financial income)
The profit from financial items reflects various factors. As a supplement to the presentation of the accounts, Table 7 shows the key factors contributing to the financial income. It should be emphasised that the breakdown in Table 7 is theoretical and not immediately comparable with the accounts.

Most of Danmarks Nationalbank's financial income reflects its role as monetary authority, from which its core income is generated. Among other things, this role involves issuing banknotes and coins and conducting exchange-rate policy. In addition, Danmarks Nationalbank must hold a stock of gold, cf. the Danmarks Nationalbank Act.

Core income reflects the financial income accruing to Danmarks Nationalbank from business transactions purely related to its role as monetary authority. Core income can be broken down into investments at short-term interest rates and the contribution from the foreign-exchange reserve.

Besides its role as monetary authority, Danmarks Nationalbank also has a role as a financial institution, i.e. it seeks to achieve a reasonable risk/return ratio on its portfolios within the framework of its role as monetary authority. The contribution from this role is reflected in the income from additional risk.

Banknotes and coins in circulation and the net capital provide Danmarks Nationalbank with interest-free financing. This financing can be invested at the market rate, providing the most important source of income for Danmarks Nationalbank. The gain from interest-free credit on banknotes and coins in circulation is known as seignorage.

The calculation assumes that Danmarks Nationalbank invests the funds at the short-term monetary-policy interest rate in Denmark. Since monetary-policy interest rates in 2008 were higher on average than in 2007, income from this item increased. The contribution from banknotes and coins and net capital to Danmarks Nationalbank's profit increased by a total of kr. 0.7 billion on the previous year, to kr. 5.2 billion in 2008.

The foreign-exchange reserve is a precondition for Denmark's fixed-exchange-rate policy. The foreign-exchange reserve is predominantly invested in euro. A small share is invested in dollars. The foreign-exchange reserve also includes gold, which does not generate any carry income.

Since the short-term interest rate for the investment currencies was lower than the equivalent Danish interest rate, Danmarks Nationalbank, viewed in isolation, had calculated interest expenses on the foreign-exchange reserve corresponding to this spread. At times the spread between Danmarks Nationalbank's monetary-policy interest rate and the actual rate on investment exceeded 2 percentage points as a result of the turmoil in the financial markets and the demand for liquidity. The cost of holding the foreign-exchange reserve has been calculated at kr. 0.8 billion.

In addition to current expenses in connection with the foreign-exchange reserve, significant adjustments may be seen as a result of fluctuations in exchange rates and the price of gold. For example, when the krone strengthens vis-à-vis another currency, Danmarks Nationalbank incurs a loss because the krone value of the foreign-exchange reserve decreases. Conversely, weakening of the krone entails a gain.

In 2008 the dollar rate and the price of gold rose by 4 and 3 per cent, respectively, resulting in a value adjustment gain of around kr. 0.5 billion, which is kr. 1.2 billion lower than in 2007. Although the euro weakened against the krone in 2008, Danmarks Nationalbank's inter vention in the foreign-exchange market entailed a gain of kr. 0.1 billion.

The increase in total core income thus primarily reflects higher short-term interest rates, a rise in the price of gold and exchange-rate adjustments.

Income from additional risk reflects the fact that Danmarks Nationalbank does not place all its funds at the safe short-term interest rate, but also invests in Danish and foreign bonds and makes deposits with foreign banks. This is not directly related to its role as monetary authority, but reflects that such investments are known to yield a higher return (role as financial institution). Consequently, earnings are also affected by the development in the yield curves – in Denmark and abroad.

This income includes carry income, stemming from the fact that long-term interest rates are often higher than short-term interest rates. It also reflects various other effects, including large fluctuations in the spread between the monetary-policy interest rate and the rate of interest on uncollateralised bank deposits as a result of the crisis. The calculated profit contribution from the excess carry income, etc. was negative by kr. 0.2 billion in 2008.

In addition to carry income, changes in interest rates may entail interest-rate-driven value adjustments. Taking into account the distribution of investments on markets and maturities, the contribution to the profit from this factor has been calculated at kr. 2.3 billion. The large contribution is attributable to a general fall in bond yields in 2008. In 2007 the contribution from this item was zero.

Overall, Danmarks Nationalbank's profit from financial income was kr. 7.2 billion, i.e. kr. 1.5 billion higher than in 2007.

Other items
Income from shares, etc. increased by kr. 6 million to kr. 140 million.

Other income decreased by kr. 33 million to kr. 26 million. The fall is attributable to lower income from sale of coins and medals of kr. 11 million and disbursement from the estate of VB Finans in insolvent liquidation of kr. 2 million in 2008 compared with kr. 23 million in 2007.

Expenses, including depreciation decreased by kr. 161 million to kr. 589 million. Kr. 150 million of the decrease relates to a special con tri bution in 2007 to Danmarks Nationalbank's Pension Fund subject to winding-up to cover Danmarks Nationalbank's pension commitment, and kr. 23 million (8.7 per cent) to a fall in other expenses and depreciation. On the other hand, staff expenses increased by kr. 12 million (3.8 per cent).

Distribution of the profit for the year
In connection with the closing of the accounts for 2002 it was decided that a reasonable guideline for the level of consolidation of Danmarks Nationalbank would be that the General Reserves are maintained at a constant real level. In other words, the increase in the General Reserves should generally adhere to the development in prices. Since 2002 the profit has been distributed as follows: 80 per cent of the profit for the year excluding value adjustments has been paid to the central government, while the remaining 20 per cent has been allocated to Danmarks Nationalbank. On average the General Reserves have thus increased by approximately 1.5 per cent p.a., which is below the rate of price inflation. In effect, the General Reserves have therefore been eroded. With the profit for the year excluding value adjustments at the current level and inflation at around 2 per cent over a period of time, the real value of the General Reserves can be maintained by transferring 30 per cent of the profit to the General Reserves and 70 per cent to the central government. On this basis it has been decided, cf. section 19 of the Danmarks Nationalbank Act, to distribute the profit for the year, kr. 6,737 million, as follows:

• An amount corresponding to the value adjustments during the year, kr. 2,246 million, is allocated to the Value Adjustment Reserve, which subsequently amounts to kr. 7,048 million.
• 30 per cent of the profit excluding value adjustments, equivalent to kr. 1,347 million, is allocated to the General Reserves, which subsequently amount to kr. 50,716 million.
• The remaining amount, i.e. 70 per cent of the profit excluding value adjustments, equivalent to kr. 3,144 million, is payable to the central government.

The balance sheet
The balance-sheet total increased from kr. 424.5 billion to kr. 635.1 billion. The increase of kr. 210.6 billion can be broken down by the following main items:

• On the assets side, new lending to banks in foreign exchange constituted kr. 108.1 billion, and new special lending, etc. to Roskilde Bank and EBH Bank totalled kr. 22.2 billion. In addition, the foreign-exchange reserve rose by kr. 43.7 billion, monetary-policy lending by kr. 24.1 billion and the market value of forward exchange contracts by kr. 11.1 billion.
• On the liabilities side, an increase of kr. 172.9 billion is attributable to the balance of the central government's account, kr. 116.0 billion to deposits from the European Central Bank and the Federal Reserve¹ and kr. 3.6 billion to the increase in net capital in 2008. On the other hand, a fall of kr. 81.7 billion in monetary-policy deposits has reduced the liabilities.

The increase in the foreign-exchange reserve from kr. 167.7 billion to kr. 211.7 billion is composed of an increase in the foreign-exchange reserve assets gold, foreign assets and claims on the IMF of kr. 43.7 billion, while, on the liabilities side, foreign liabilities decreased by kr. 0.3 billion. The foreign-exchange reserve includes lending in connection with currency swap facilities with the central banks of Iceland and Latvia, Seðlabanki Íslands and Latvijas Banka. These facilities are aimed at providing liquidity in euro to Iceland and Latvia against Icelandic kronur and Latvian lats, respectively, as collateral. At end-2008, Iceland had drawn 150 million euro, equivalent to kr. 1.1 billion, on its 500-million-euro facility. The upper limit for Latvia is 125 million euro, and at end-2008 it had drawn 72.5 million euro, equivalent to kr. 0.5 billion, on the swap facility. This lending entails a credit risk in the event that Seðlabanki Íslands or Latvijas Banka is unable to meet its obligations and the currency provided as collateral is not convertible. At present there are no indications that they will be unable to meet their obligations.

The banks' and mortgage-credit institutes' net position vis-à-vis Danmarks Nationalbank changed considerably during the year. Monetary-policy deposits from these institutions fell from kr. 209.9 billion in 2007 to kr. 128.2 billion, while monetary-policy lending to the institutions rose from kr. 216.8 billion to kr. 240.9 billion. Overall, Danmarks Nationalbank's net lending has thus increased by kr. 105.8 billion, from kr. 6.9 billion to a historically high level of kr. 112.7 billion.

In 2008, special facilities were established for a few banks. Danmarks Nationalbank thus provided special loans to Roskilde Bank totalling kr. 17.5 billion net at end-2008 and subscribed to share capital of kr. 1.7 billion and injected subordinated loan capital of kr. 2.0 billion into the bank, cf. below. In addition, a special loan of kr. 1.0 billion was provided to EBH Bank.

The balance of the central government's account at Danmarks Nationalbank increased by kr. 172.9 billion to kr. 262.8 billion in 2008, an increase that is by and large offset by the increase in the foreign-exchange reserve, net lending to banks and mortgage-credit institutes and lending, etc. to Roskilde Bank and EBH Bank.

Banknotes in circulation fell by kr. 0.2 billion (0.3 per cent) to kr. 55.6 million, and coins in circulation fell by kr. 0.1 billion (1.7 per cent) to kr. 5.7 billion.

The net capital rose from kr. 54.5 billion to kr. 58.1 billion as a result of profit allocations totalling kr. 3.6 billion.

Roskilde Bank
In August 2008, Danmarks Nationalbank and the Danish Contingency Association, via a newly-established Roskilde Bank, acquired the assets of the former Roskilde Bank with a view to ensuring that the activities of the latter were wound up in the most profitable manner. Danmarks Nationalbank's total commitment to Roskilde Bank can be broken down as follows as at 31 December 2008:

In 2008, Roskilde Bank posted a loss of kr. 3,501 million so that the equity capital of the company as at 31 December 2008 was negative by kr. 1,028 million. Consequently, on 30 January 2009, the company in general meeting decided to raise the equity capital by kr. 5.0 billion, effected through Danmarks Nationalbank's conversion of loans to equity for kr. 4 billion and of subordinated loan capital to equity for kr. 1 billion. Subsequently, the equity of Roskilde Bank is kr. 3,972 million.

SIGNATURES

The Board of Governors have today considered and approved the Annual Accounts of Danmarks Nationalbank for 2008.

The Annual Accounts have been prepared in accordance with the Danmarks Nationalbank Act.

It is our opinion that the Annual Accounts give a true and fair view of Danmarks Nationalbank's assets, liabilities and financial position at 31 December 2008 and of the result of Danmarks Nationalbank's operations for the financial year 1 January-31 December 2008.

Copenhagen, 24 February 2009

Board of Governor

AUDIT REPORTS

To the Board of Directors

Internal Auditor's Report
I have audited the Accounts of Danmarks Nationalbank for the financial year 1 January-31 December 2008, comprising the Report on Danmarks Nationalbank's Accounts, Signatures, Accounting Policies, Profit and Loss Account, Balance Sheet and Notes. The Accounts have been prepared in accordance with the Danmarks Nationalbank Act.

Danmarks Nationalbank's Committee of Directors and Board of Directors'
responsibility for the Accounts
The Committee of Directors and Board of Directors are responsible for the preparation and fair presentation of Accounts that are free from material misstatement, in accordance with the Danmarks Nationalbank Act.

Auditor's responsibility
My responsibility is to express an opinion on the Accounts based on my audit.

Basis of opinion
I have conducted my audit in accordance with Danish Standards on Auditing. Those standards require that I plan and perform the audit to obtain reasonable assurance that the Accounts are free from material misstatement.

The audit included an assessment of the Board of Directors and Committee of Directors' procedures and internal controls that are relevant to Danmarks Nationalbank's preparation and fair presentation of the Accounts, including an assessment of the risk of material misstatement. The audit also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Committee of Directors and the Board of Directors, as well as evaluating the overall presentation of the Accounts.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

My audit has not resulted in any qualification.

Opinion
In my opinion, the Accounts give a true and fair view of Danmarks Nationalbank's assets, liabilities and financial position at 31 December 2008 and of the result of Danmarks Nationalbank's operations for the financial year 1 January-31 December 2008 in accordance with the Danmarks Nationalbank Act.

Copenhagen, 24 February 2009

Jan Birkedal,
Chief Audit Executive

AUDIT REPORTS

To the Board of Directors

Independent Auditors' Report
As auditors appointed by the Minister for Economic and Business Affairs we have audited the Accounts of Danmarks Nationalbank for the financial year 1 January-31 December 2008 comprising the Report on Danmarks Nationalbank's Accounts, Signatures, Accounting Policies, Profit and Loss Account, Balance Sheet and Notes. The Accounts have been prepared in accordance with the Danmarks Nationalbank Act.

Danmarks Nationalbank's Committee of Directors
and Board of Directors' responsibility for the Accounts
The Committee of Directors and Board of Directors are responsible for the preparation and fair presentation of these Accounts in accordance with the Danmarks Nationalbank Act. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of Accounts that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors' responsibility and basis of opinion
It is our responsibility to express an opinion on the Accounts based on our audit. We have conducted our audit in accordance with Danish Standards on Auditing. Those standards require that we comply with ethical codes and that we plan and perform the audit to obtain reasonable assurance that the Accounts are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Accounts. The procedures selected depend on the auditor's judgement, including the assessment of the risk of material misstatement in the Accounts, irrespective of whether such material misstatement is due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to Danmarks Nationalbank's preparation and fair presentation of the Accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Danmarks Nationalbank's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Committee of Directors and Board of Directors, as well as evaluating the overall presentation of the Accounts.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Our audit has not resulted in any qualification.

Opinion
In our opinion, the Accounts give a true and fair view of Danmarks Nationalbank's assets, liabilities and financial position at 31 December 2008, and of the result of Danmarks Nationalbank's operations for the financial year 1 January-31 December 2008, in accordance with the Danmarks Nationalbank Act.

Copenhagen, 24 February 2009

SIGNATURES

These Accounts, audited in the manner prescribed by the by-laws of Danmarks Nationalbank, are hereby adopted by the Board of Directors at the meeting on 17 March 2009.

As at 1 March 2009 the Board of Directors comprises

Søren Bjerre-Nielsen, Chairman     Helle Bechgaard, Deputy Chairman

Peter Bjerregaard     Niels Boserup     Pia Christmas-Møller     Kristian Thulesen Dahl

Michael Dithmer     Niels Fog     Peter Gæmelke     Hans Jensen     Niels Due Jensen

Jette W. Knudsen     Henrik Sass Larsen     Kjeld Larsen     Michael Lunn

Michael Møller     Kirsten Nielsen     Kirsten Nissen     Jens Rostrup-Nielsen

Hans Chr. Schmidt     Bente Sorgenfrey     Inger B. Støjberg

Villy Søvndal     Helle Thorning-Schmidt     Margrethe Vestager

ACCOUNTING POLICIES

General
Danmarks Nationalbank's Accounts for the year 2008 are presented in ac cord ance with the Danmarks Nationalbank Act. In all significant re spects these accounting policies are in accordance with the sound pol icies for European central banks in the euro area. The main differences relate to unrealised gains on foreign exchange and securities, which are recognised in the profit and loss account in Danmarks Nationalbank's Accounts.

The basic accounting assumptions are economic reality. The effects of transactions and events are recognised when they occur and stated and presented in the accounts for the year which they concern. The Accounts include all material and relevant circumstances, revaluations are shown irrespective of their impact on profits and net capital, and calculation and valuation methods are applied consistently within each category of conditions. When initially recognised, assets and liabilities are stated at cost price. Subsequently, assets and liabilities are valued as described under each accounting item.

Apart from this, the principles for presentation and classification of the individual items in the Accounts remain unchanged from year to year.

The accounting policies applied are unchanged from the previous year.

Conversion of transactions in foreign currency
Transactions in foreign currency are converted to Danish kroner at the exchange rate applying on the transaction date. On the balance-sheet date, all financial assets and liabilities in foreign currency are converted at the exchange rate applying on that date. Both realised and unrealised gains and losses are recognised in the profit and loss account.

Profit and loss account
Interest
Besides income on interest-bearing assets and liabilities, interest income and expenses comprises premiums and discounts on T-bills and certifi cates of deposit, as well as premiums on forward securities and forward exchange contracts.

Value adjustments, etc.
Value adjustments comprise market-value adjustments and exchange-rate adjustments on financial assets and liabilities, shares, other equity investments and gold. Both realised and unrealised gains and losses are recognised in the profit and loss account.

Income from shares, etc.
Income from shares, etc. comprises income from equity investments in listed and unlisted companies, including associated companies. Income from shares is recognised in the year when the dividend is announced.

Other income
Other income comprises income from Danmarks Nationalbank's sale of coin sets and medals, as well as other income not relating to Danmarks Nationalbank's primary activities or that is not annually recurring.

Expenses
Staff expenses comprise salaries and remuneration for staff, governors and the Committee of Directors, including pension contributions and support, etc., training costs and other staff expenses. Other expenses comprise materials for production of banknotes and coins, etc., current expenses for Danmarks Nationalbank's properties, IT expenses and other expenses.

Balance sheet

Gold
Gold is stated at the market value on the balance-sheet date.

Financial assets and liabilities
Financial assets and liabilities are stated at the market value on the balance-sheet date.

Repurchase agreements and securities lending, etc.
Securities sold in connection with simultaneous repurchase agreements, and gold and securities made available for lending, are included in Danmarks Nationalbank's respective holdings.

Shares, etc.
Capital investments and equivalent investments and equity investments in associated companies (in which the ownership interest or voting rights are 20 per cent or more) are stated at an estimated market value on the balance-sheet date, not exceeding the acquisition value, however.

Tangible fixed assets
Tangible fixed assets comprise Danmarks Nationalbank's properties, technical building facilities (lifts, electrical installations, etc.), technical production facilities (for banknote and coin production), as well as IT equipment, office equipment and cars.

Tangible fixed assets are stated on the balance sheet at acquisition prices less accumulated depreciation and write-down.

Assets with an acquisition value of less than kr. 100,000 per unit are recognised as expenditure in the year of acquisition.

Depreciation on a linear per-annum basis takes place over the expected useful lives of the assets.

The useful lives are assessed as follows:

Equity investment and subordinated loan capital in Roskilde Bank A/S
Equity investment and subordinated loan capital are stated at acquisition price, taking into account that the central government has issued a guarantee to Danmarks Nationalbank covering losses in relation to the winding-up of Roskilde Bank A/S.

Other assets
Other assets include, inter alia, interest receivable, positive net market value of financial derivatives by instrument type, and prepaid expenses.

Financial derivatives such as forward securities and forward exchange contracts, interest-rate and currency swaps and futures are stated at market value on the balance-sheet date.

Banknotes and coins in circulation
Banknotes and coins in circulation are stated at their nominal value.

Other liabilities
Other liabilities comprise, inter alia, payables, negative net market value of financial derivatives by instrument type, and uncovered pension commitments and other provisions for guarantees provided.

Financial derivatives such as forward securities and forward exchange contracts, interest-rate and currency swaps and futures are stated at market value on the balance-sheet date.

Contingent liabilities
Other liabilities concerning guarantees provided are stated at the estimated value of the payment obligation.

Pension commitments
For defined contribution pension plans, the current premium payments to the pension companies are carried as expenditure in the profit and loss account, and the pension commitment hereafter passes to the pension companies.

For defined benefit pension plans and declarations of support, provisions are made in the accounts of Danmarks Nationalbank for uncovered pension undertakings compiled according to actuarial principles.

PROFIT AND LOSS ACCOUNT FOR THE YEAR 2008

BALANCE SHEET AT 31 DECEMBER 2008

NOTES TO THE ACCOUNTs FOR 2008