Liquidity

In its “Bank Financial Strength Ratings: Global Methodology”, Moody’s has set various classification requirements for banks’ liquidity management. One requirement is that the 12-month liquidity curve must generally be positive.

Liquidity calculations must assume, among other factors, that the Group is cut off from the capital markets. On this basis, the Group’s calculations show an improvement over the liquidity position at the end of 2007.

The main reason for the Group’s favourable liquidity position is that DKr640bn of the Group’s lending is match-funded through the well-functioning AAA-rated Danish mortgage finance system. Match funding, a requirement under Danish law, means that the Group has no refinancing or interest rate risk on mortgage loans. The Danish mortgage system showed its strength through the first quarter of 2008: The spreads on Danish mortgage bonds, for example, generally widened less than European covered bond spreads.

In addition to the advantages of the Danish mortgage system as a funding source, legislation passed in the fourth quarter of 2007 authorises banks to issue covered bonds to fund home loans. Since December 2007, the Bank has issued covered bonds in the amount of DKr19bn, and there is still a considerable unexploited potential for issuing covered bonds.