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Credit claims as collateral |  | |
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In order to use credit claims as collateral, a bank must submit the following standard documents to Danmarks Nationalbank:
- Request to Pledge Credit Claims as Collateral at Danmarks Nationalbank, containing e.g. a statement by the management and the board of directors to the effect that the bank is capable of handling the pledging of credit claims at Danmarks Nationalbank
- Deed of Pledge for Credit Facilities in Danish Kroner at Danmarks Nationalbank against Credit Claims as Collateral
- Statement by the Auditors Concerning Credit Claims to be Pledged as Collateral at Danmarks Nationalbank, which is a statement to provide reasonable assurance from the external auditors on routines, procedures, systems, independent controls, etc., and on the existence and quality of the credit claims, compliance with other selection criteria and valuation
- Power of Attorney to Make Dispositions concerning Pledging of Credit Claims as Collateral
Only templates prepared by Danmarks Nationalbank (in italics) may be used for material to be submitted to Danmarks Nationalbank. These templates are available under More information.
General information
In order to pledge credit claims as collateral at Danmarks Nationalbank, a bank is required to submit a list of credit claims. This list must be submitted on a CD-ROM, which is to be sent to Danmark Nationalbank accompanied by the document Cover Letter for Submission of List of Credit Claims to be Pledged. The formal requirements for the list are described in the document Technical Guidelines for Submission of Credit Claim Data. The submission of the list constitutes the required act of perfection. This list contains the required information on the individual credit claims pledged in order for the act of perfection to be observed. This will constitute justified disclosure of customer information. This assessment has been coordinated with the Danish Financial Supervisory Authority.
If the bank has submitted the required documents and statements and the list meets the formal requirements of Danmarks Nationalbank, the bank's drawing right for credit in Danish kroner will be revalued by the collateral value of the loan portfolio.
The bank must pledge top-up collateral if the value of the collateral basis declines by 5 per cent or more during the month, by way of an updated list of eligible credit claims, see below.
The pledged credit claims will be included as part of the banks' total collateral and will increase each bank's drawing right on Danmarks Nationalbank by the collateral value of the credit claims.
If there are weighty reasons for doing so, the account holder may contact Danmarks Nationalbank with a view to agreeing premature release or substitution of pledged credit claims.
Deadlines
When the bank has submitted the required standard documents, Danmarks Nationalbank will examine the documents. A processing period of five banking days must be expected. If the documentation submitted is in order, Danmarks Nationalbank will send the bank a receipt by letter.
On the initial pledging of credit claims, the drawing right of a bank will be revalued by the collateral value of the credit claims after the five banking day processing period.
Otherwise, the following deadlines apply:
Monthly:
- The banks must submit an updated list of credit claims and a cover letter to renew their drawing right. This list must be received by Danmarks Nationalbank within five banking days of the last Friday of the month.
Quarterly (end of quarter):
- Within five banking days of the last Friday of each quarter, Danmarks Nationalbank must receive an updated statement by the auditors, Statement by the Auditors Concerning Credit Claims to be Pledged as Collateral at Danmarks Nationalbank.
Annually:
- Each year on 30 December, an Annual Statement by the Management – Pledging of Credit Claims as Collateral must be submitted.
Criteria for credit claims to be eligible as collateral
In order for credit claims to be eligible as collateral at Danmarks Nationalbank, they must meet the following criteria:
Loan types
Unsecured claims in the form of loans and agreed overdrafts are included in the collateral basis. Thus other loan types such as leasing agreements, loans with the status of subordinate debt, direct mortgage deeds, etc., are not eligible as collateral.
Debtor
The debtor must be a non-financial corporation, a domestic public authority or a household. The debtor must be resident in Denmark. The amendments to the Danish Securities Trading Act enabling pledging based on a list of pledged credit claims have not come into force in Greenland. Consequently, loans to Greenland debtors are not eligible as collateral under this loan facility for the time being.
Currency
Credit claims in all currencies are included in the collateral basis.
Quality
Danmarks Nationalbank accepts loans that meet the Danish Financial Supervisory Authority's definitions of loans in quality category 3 or 2a, except for loans to investment customers, cf. the definition (in Danish) at the website of the Danish Financial Supervisory Authority.
Danmarks Nationalbank will apply the individual bank's own credit assessments of loans, as these assessments are subject to audit and to assessment by the Danish Financial Supervisory Authority in connection with inspections. The credit assessment of loans must be supplemented by statements by the auditors establishing the existence and quality of the loans, as well as confirming that the bank has the necessary routines and procedures in place.
Related parties
A bank may not pledge credit claims as collateral, if close links exist between the bank and the debtor. For example, group companies, including affiliated companies, companies with reciprocal investments in the form of disposal of more than 20 per cent of the votes or capital, persons with similar investments or cases in which de facto control may be exercised.
Concentration limit
After set-off, loans to a single debtor may not exceed 10 per cent of the loan portfolio pledged as collateral by the bank.
Valuation and collateral basis
The value of credit claims is stated as the current remaining debt; however, for overdrafts it is stated as the current balance, less 10 per cent. As regards credit claims and overdrafts in euro, a deduction of 3 per cent is made. For credit claims and overdrafts in Swedish kronor or Norwegian kroner, the deduction rate is 5 per cent, for other currencies it is 10 per cent. For each debtor, the collateral basis will be calculated as this amount less any entitlement to offset claims that the debtor may have.
If a debtor has borrowed e.g. kr. 5 million (unsecured claim) denominated in Danish kroner, has a kr. 5 million drawing on an overdraft facility denominated in Danish kroner and has a kr. 1 million deposit at the bank, the collateral basis of this facility will be calculated as follows:
Collateral basis =
kr. 5 million (unsecured claim)
+ kr. 5 million * 90 per cent (drawing on overdraft facility less 10 per cent)
- kr. 1 million (entitlement to offset claims)
= kr. 8.5 million
If the loan or overdraft facility is denominated in other currencies than Danish kroner, the relevant currency deduction is subtracted from the nominal value of the remaining debt or the balance of the overdraft facility in the calculation of the collateral basis. Had the loan and the overdraft facility of the example above e.g. been denominated in euro, the collateral basis would be:
Collateral basis =
kr. 5 million * 97 per cent (unsecured claim less a currency deduction of 3 per cent)
+ kr. 5 million * 90 per cent * 97 per cent (drawing on overdraft facility less 10 per cent and a currency deduction of 3 per cent)
- kr. 1 million (entitlement to offset claims)
= kr. 8.215 million
Haircut, margin and collateral value
The collateral value is the collateral basis less a haircut of 25 per cent and a margin of 10 per cent. In the example above, the collateral value is kr. 5.525 million, i.e. the collateral basis of kr. 8.5 million less 35 per cent (haircut plus margin).
Top-up collateral
The bank must pledge top-up collateral before the entire margin has been utilised. If the value of the collateral basis declines by 5 per cent or more during the month, e.g. as a result of redemptions or changes in quality, the bank must immediately submit an updated list of eligible credit claims.
Set-off
The bank bears the responsibility for ensuring that the debtor's full entitlement to offset claims (e.g. in the form of ordinary deposits) is identified correctly as described in Technical Guidelines for Submission of Credit Claim Data.
The bank's liquidity
The Danish Financial Supervisory Authority has stated that, within certain limits, the banks may include the credit facility at Danmarks Nationalbank in their liquidity, cf. section 152(2) of the Danish Financial Business Act, without having pledged the loans to Danmarks Nationalbank. This requires inter alia that all provisions of Danmarks Nationalbank's "Terms and Conditions for Pledging of Collateral for Credit Facilities in Danish Kroner at Danmarks Nationalbank", clauses 11-21, applying to pledging of loans, are met from the time the bank wishes the credit facility to be included in its liquidity. This entails e.g. a requirement for regular updates of the list of credit claims and regular statements by the auditors and by the management. These statements must also be submitted to Danmarks Nationalbank. Reference is made to the Danish Financial Supervisory Authority's website for further details.
Supervision
The Danish Financial Supervisory Authority will perform supervision of all banks that include the credit facility from Danmarks Nationalbank under section 152, cf. above, at least once a year. Supervision will also take place when the loans are pledged to Danmarks Nationalbank. Such supervision will focus inter alia on whether the credit claims included in the bank's list of eligible credit claims are in the Danish Financial Supervisory Authority's quality category 3 or 2a as required to be eligible under the credit facility. A review of the exposures included in banks' lists of eligible credit claims will be prepared, applying a risk-based approach (determined by the Danish Financial Supervisory Authority), to examine the quality of major exposures and perform random samples of small exposures.
Fees for access to pledge credit claims as collateral
Fees are charged from the time a bank is granted access to pledge credit claims as collateral at Danmarks Nationalbank, irrespective of whether the credit claims are actually pledged.
Establishment and administration fee
A fee is charged to cover Danmarks Nationalbank's costs of establishing and managing Danmarks Nationalbank's expansion of the collateral basis to include credit claims. The fee has been set at 0.002 per cent p.a. of the collateral basis of a bank, based on credit claims. The fee is collected at the end of each quarter. It is calculated on the basis of the number of days in the quarter during which the bank has had access to pledge credit claims as collateral and the collateral basis as specified in the statement by the auditors applicable for the quarter, i.e.
Fee = (number of days / 360)* collateral basis cf. statement by the auditors * 0.002 per cent
Fee for review of exposures
Danmarks Nationalbank initially defrays the costs of the Danish Financial Supervisory Authority's supervision, cf. above, and subsequently charges the actual payment as a fee to the bank which has been subject to the review.
Information on the credit facility
For information about pledging of credit claims as collateral, please contact:
e-mail: sikkerhedsstillelse@nationalbanken.dk
Telephone: +45 3363 7100 |
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