Covered bonds in Denmark: Main contents in current legislation August 2007 The Association of Danish Mortgage Banks

Issuers of bonds secured by real property IssuerPrior to 1 July 2007After 1 July 2007 Mortgage banksMortgage bonds – Realkreditobligationer (RO) Mortgage bonds (RO) Covered mortgage bonds (SDRO) Covered bonds (SDO) Commercial banksNo accessCovered bonds (SDO)

Differences between SDO, SDRO and RO (1) DifferencesSDOSDRORO CRD 1) compliantYes No 2) Risk weight under the standardised approach 10 per cent. 20 per cent 3). Assets eligible as the basis for bond issuance 4)  Loans secured by real estate  Exposures to public authorities  Exposures to credit institutions  Loans secured by real estate  Exposures to public authorities  Loans secured by real estate  Exposures to public authorities Continuous compliance with LTV requirement Yes No 1) CRD – Directive 2006/48/EC definition of covered bonds 2) Does not comply with CRD demand for continuously compliance with LTV requirements 3) Mortgage bonds issued before 1 January 2008 will maintain the low risk weight of 0.1 percent in the entire duration of the bonds. 4) Commercial banks are also allowed to apply ship’s mortgages.

Differences between SDO, SDRO and RO (2) DifferencesSDOSDRORO Access to issuance of “junior covered bonds 1) Yes No Unlimited instalment freedom and lending period Yes – for residential real estate up to 70 per cent (75 2) ) of LTV No Market valueOnly this principle Also other principles Balance principle (general or specific) Optional for every capital centre 1) Technically not covered bonds. Risk weight in the standardised method in Directive 2006/48/EC is 20 per cent. 2) As of 1 July 2009

Maximum lending limits Property categoryROSDRO/SDO (market value) Owner-occupied homes for all-year habitation 80 per cent. (market value)80 per cent. Weekend cottages60 per cent. (market value)60 per cent. Private rental properties80 per cent. (market value)80 per cent. Private co-operative homes (unsubsidised) 80 per cent. (market value)80 per cent. Private co-operative homes (subsidised) 80 per cent. (acquisition price)80 per cent. Non profit housing projects80 per cent. (acquisition price)80 per cent. Properties for social, cultural, and educational purposes 80 per cent. (reacquisition price)80 per cent. Agricultural properties etc.70 per cent. (market value)70 per cent. * Office and shop premises60 per cent. (market value)70 per cent. * Manufacturing and manual industries60 per cent. (reacquisition price)70 per cent. * * Without additional collateral the LTV-limit is 60 per cent.

Balance principle (1) Types of riskBalance principle prior to 1 July 2007 Specific balance principle after 1 July ) (largely identical to balance- principle in force until 1 July 2007) General balance principle after 1 July ) Interest rate risk Stress test on level and structure + Loss limit of 1 per cent of capital base + Risks in different currencies cannot be set off Stress test on level and structure + Loss limit of 1 per cent of capital base + Risks in different currencies cannot be set off Stress test on level and structure Loss limit for mortgage banks: 2) dependent of stress test: 1 per cent/ 5 per cent of capital adequacy requirement + 2 per cent/10 per cent of the additional excess cover Currency risk Exchange rate indicator 2 (few currencies) + Loss limit of 0.1 per cent of capital base Exchange rate indicator 2 (few currencies) + Loss limit of 0.1 per cent of capital base Simple stress test Loss limit for mortgage banks: 2) 10 pct. of capital adequacy requirement + 10 per cent of the additional excess cover for EUR and 1 per cent of capital adequacy requirement + 1 per cent of additional excess cover of other currencies Option risk Maximum term of 4 year + Structural limits on call options and index-linking Maximum term of 4 year + Structural limits on call options and index-linking Stress test on volatility Loss limit for mortgage banks: 2) 0,5 per cent of capital adequacy requirement + 1 per cent of the additional excess cover No maturity or structural limits 1) Issuer may after 1 July 2007 choose between compliance of specific or general balance principle 2) There have been laid down different loss limits for mortgage banks, commercial bank and a ship financing institution

Balance principle (2) Types of riskBalance principle prior to 1 July 2007 Specific balance principle after 1 July 2007 General balance principle after 1 July 2007 Liquidity risk Limitations on temporarily liquidity deficits 25 per cent (years 1-3) 50 per cent (years 4-10) 100 per cent (from year 11) Limitations on temporarily liquidity deficits 25 per cent (years 1-3) 50 per cent (years 4-10) 100 per cent (from year 11) Limitations on interest payments: Interest (in) > Interest (out) (over a current period of 12 months) + Present value PV (in) > PV (out) (always) Repayment of loans by bonds other than the underlying bonds Maximum 2 per cent Both own issued bonds and bonds from other credit institutions + Approximately same cash flow Max. 15 pct. Both own issued bonds and bonds from other credit institutions + Approximately same cash flow Max. 15% from other credit institutions - Own issued bonds unlimited

Liability conditions in case of insolvency of a mortgage bank SDO/SDRO/RO-investor demand: 1. Assets in capital centre including legally determined excess cover 2. Voluntarily additional excess cover 3. Preferential claim against the ordinary assets available for distribution Derivative – counterparties demands: Rank pari passu with bondholders in capital centres “Junior Covered Bonds” – investor demand: Secondary secured claims against the funds of a capital centre and an unsecured claim against the ordinary assets available for distribution