1. Nykredit Capital Markets Day Ulrik Nødgaard October 31, 2013

2. Agenda 1. Sector performance 2. SIFI 3. Guidelines for the fulfillment of the pillar II add-on 4. Agricultural sector 5. Asset Quality Review/Comprehensive Assessment 6. RWA 7. Supervisory Diamond 2

3. Danish banking sector Danish banking sector, 2013. Q2:  Number of banks90  Total assets 3,905 DKK bn.  Total assets/GDP2.1 3 5 largest banks (solo), 2013. Q2 :  Danske Bank2,201 DKK bn.  Nordea Bank Danmark 584  Nykredit Bank 251  Jyske Bank 247  Sydbank 142 Total 3,424 DKK bn. Share 88 Percent

4. Development in Loan Loss Impairments, 2008 – 2013. Q2 Quarterly impairments as a percentage of loans and guarantees 4

5. Do Large Banks have better credit-management? Quarterly impairments as a percentage of loans and guarantees 5

6. Development in Coverage Ratio, 2008 - 2013. Q2 Accumulated impairments (individual) as a percentage of impaired loans and guarantees 6

7. SIFI – capital requirements 7 Minimum capital requirements for all Danish banks and mortgage credit institutions 10.5 per cent. of risk-weighted assets (RWA)  Including larger proportion of loss-absorbing equity Currently 7 SIFIs identified:  Danske Bank, Nykredit, Nordea Bank Denmark, Jyske Bank, BRFkredit, Sydbank and DLR The size of the capital add-on is related to the systemicness of the institution. For example:  Danske Bank greatest SIFI-add-on with 3 per cent of RWA  Sydbank, BRFkredit and DLR smallest with add-on of 1 per cent of RWA

8. Phasing-in of new capital requirements, 2014-19 … plus pillar 2 and tougher requirements on capital quality (phasing-in) 8

9. CET1 – Coming requirement vs. the current level, 2013.Q2 9 Excl. pillar II requirement. Cocos to be allowed in the pillar II add-on.

10. Capital ratios, 2008 – 2013. Q2 10

11. Common Equity Tier 1, status 2013.Q2 11 banks below 9.5 pct. 4 banks below 7 pct. 3 banks below4.5 pct. 11

12. Guidelines for the fulfillment of the pillar II add-on For subordinated capital instruments to be allowed in the pillar II add-on instead of CET1 instruments, the instruments must qualify as regulatory capital, either as:  Capital instruments that automatically converts into CET1 or is written down if the individual solvency need (pillar II) is breached or the Danish FSA assesses that there is a high risk that an institution in the near future will not fulfill the individual solvency need.  Capital instruments that automatically converts into CET1 or is written down (permanent or temporary) if an adequately high level (trigger) of CET1 is breached, so-called Contingent Convertibles or CoCos. Adequately high level of CET1 is translated into a trigger of at least 7 per cent of CET1 12

13. Stylized example: MDA-trigger and Pillar II requirement (pillar II met with CET1) No automatic MDA restriction in upper tier of buffer (corresponding to the Pillar II requirement of 1.5 %). Institutions are instead required to prepare a capital conservation plan 4th quartile, CET1 [7.9;9[: MDA max 60 % 3rd quartile, CET1 [6.8;7.9[: MDA max 40 % 2nd quartile, CET1 [5.6;6.8[: MDA max 20 % 1st quartile, CET1 [4.5;5.6[: MDA 0 % MDA restrictions starts when breaching 9% CET1 Pillar I Combined buffer MDA 100% 80%60%40%20%0% Other restrictions available as well The combined buffer consists in this example of a capital conservation buffer (2,5 %) and a SIFI-buffer (2 %). 13

14. Market share of challenged banks Now30.6 2012 Loans3.5 per cent3.2 per cent Total assets2.5 per cent2.3 per cent Robust sector – but potential solvency problems in a small group of banks In general, the Danish banking sector is robust However, a small group of banks are on intensified supervision due to potential solvency problems during the next 12-18 months 14

15. Phasing in of LCR for SIFIs and non-SIFI institutions 15

16. SIFI – Liquidity and supervision 16 Liquidity requirements (LCR and § 152)  Danish SIFIs must comply with the LCR requirement from 2015  Current § 152 requirement will be kept as a floor through end 2016. Institutions who voluntarily comply with 100 per cent LCR requirement from 2015 are excempt from this floor. Review on the position on the LCR requirement for the Danish SIFIs and the presence of the § 152 floor awaits the final decision from the European Commission in 2014 on the definition of the LCR Final decision includes clarification on which assets can be used in complying with the LCR requirement The supervision of the SIFIs will be strengthened  Increased inspection activity  Benchmarking of Danish SIFIs in relation to international SIFIs  Increased focus on corporate governance and risk management  Increased focus on model specification risk and capital allocation

17. Exposure to agriculture Agriculture (incl. forestry and fishing) amounts to 4.2 per cent of the Danish banking sector’s total loan book. In 19 banks agriculture make up at least 15 per cent of the loan book. These 19 banks cover 4 per cent of total loans and guarantees of the sector. Developments in agriculture pose a greater credit risk for some (especially smaller) banks that have a relatively large exposure on agriculture. 17

18. Agriculture – accounting figures The improved mean operating result conceals a large difference between farms*! Spread in operating results (in 1.000 DKK) *Only full-time farms; (year) = estimate Source: Knowledge Center for Agriculture, estimate June 2013 The least profitable third have and are estimated to have negativ operating results going forward 18

19. AQR vs. CA AQR: Assets Quality Review in context of EBA supporting the stress test exercise in 2014. CA: Comprehensive Assessment in context of establishment of the SSM. Consists of three components:  Assessment of risk profile of banks  Review of the assets on the balance sheets (AQR)  Stress test of the corrected balance sheets AQR based on EBA recapitalization exercise scope:  Aims to achieve uniform AQR approach  Risk based portfolio selection  Review the quality of selected assets (incl. provisioning)  EBA standard reporting definitions of forbearance and NPL  Performed by the consolidated supervisor involving colleges 19

20. EBA AQR Process vs. Danish Supervisory approach AQR – process (tentative) DFSA Supervisory apporach  AQR’s an integrated part of our existing supervisory approach.  The aim is to replicate as far as possible the ECBs methodology  Samples of exposures: Large corporate and corporate/retail with elevated risk Identification Scope Process Current knowledge Select portfolios for data collection Off-site review EBA definitions Collect and review data Review current knowledge Select portfolios for in-depth review On-site review Collect and review samples Current knowledge Conclude assessment Reporting Group EBA Public 20

21. AQR - Next steps Further preparation of the exercise with involved authorities including SSM Interaction with included banking groups on data collection based on the common EBA definitions of forbearance and NPL Expected launch Q4 2013 Off- and on-site review during Q1-Q2 2014 EBA AQR and stress-test to be completed by October 31. 2014 21

22. IRB-models and Risk Weights: Is there a problem? EBA: Half of the variation can be explained by roll-out, exposure types etc. Basel: ”Three quarters of RWA variation reflects variation across banks in actual risk exposure” 22

23. Average Risk weight for Commercial exposures, IRB institutions  The risk weight for unsecured commercial exposures under the standard approach is 100 per cent Use of mapping of risk weights allowed for exposures with external rating 23

24. Average Risk weights for mortgage backed Retail exposures  The risk weight for exposures secured by mortgages on residential properties is 35 per cent under the standardized approach 24

25. Low RW on mortgages reflect low historical losses Annual impairment losses as a percentage of loans and guarantees 25

26. Approaches for dealing with IRB ”uncertainties” Adressing ”outliers” Greater transparency ”Floors” (Basel I ”floors”) Leverage ratio 26

27. Adressing outliers - Danske Bank Several analyses indicated that Danske Bank’s corporate RWs were low  A Danish analysis of RWs and IRB parameters across Danish IRB banks  A Nordic analysis of RWs and IRB parameters across Nordic IRB banks  The Low Default Portfolio (LDP) analysis performed by the EBA concerning large corporate customers  External analyses based on Pillar III reports 27

28. Adressing outliers - Danske Bank The orders required the bank to increase both its risk weighted assets and its solvency need  While the impact was significant the bank has a substantial capital buffer both before and after the orders  The pillar II requirement was reduced from 10.2 to 9.0 percentage points Before the ordersAfter the orders RWA797 bn DKKApprox. 900 bn DKK Solvency ratio21.6 %19.1 % Pillar I requirement64 bn DKK72 bn DKK 28

29. Expert committee on the causes of the financial crisis in Denmark The expert committee was set up by the Minister for Business and Growth on January 24. 2012. The committee published a report on September 18. 2013 which  supports the initiatives taken since the outbreak of the financial crisis by the Danish FSA and other Danish authorities  provides 18 recommendations to the government The committee consisted of  Professor Jesper Rangvid (Chairman), Professor Anders Grosen, Professor Finn Østrup, Professor Peter Møgelvang-Hansen, Former bank CEO Peter Schütze and Former central bank governor Jens Thomsen.  Representatives from the Danish central bank, the Ministry of Finance, the Ministry of Economic Affairs and the Interior and the Ministry for Business and Growth. 29 A summary of the report can be found at http://www.evm.dk/publikationer/2013/18- 09-13-the-financial-crisis-in-denmarkhttp://www.evm.dk/publikationer/2013/18- 09-13-the-financial-crisis-in-denmark

30. The Supervisory Diamond for banks Lending growth < 20 per cent Commercial property exposure < 25 per cent Funding-ratio < 1 Sum of large exposures < 125 per cent Excess liquidity coverage > 50 per cent Enhanced surveillance, executive orders, increased capital needs if one breaches the boundaries 30

31. The Supervisory Diamond - sum of large exposures, revision Table – Effect on sum of large exposures for banks since introduction of the supervisory diamond in 2010. Q2 The Committee on the causes of the financial crisis recommends:  “The Committee has found that an important reason why many financial institutions have become distressed is that they are exposed to large loan commitments, particularly in the commercial property sector. The Committee notes that the same factors applied during the previous banking crisis in the early 1990's. Against this background, the Committee recommends that the FSA tightens up the Supervisory Diamond limits for large exposures.” FSA will also consider whether there is a need to adjust the calculation method, in order to reflect the underlying risk better A revised Supervisory Diamond will be implemented during 2014 31

32. Towards a new normal in mortgage financing ? 32

33. Supervisory diamond – mortgage-credit institutions The Committee on the causes of the financial crisis recommends the introduction of a Supervisory Diamond for mortgage-credit institutions: “The Committee is concerned whether the mortgage credit institutions' own initiatives in terms of reducing the increased risks following the extensive use of loans with a refinancing risk and interest-only loans are sufficient to ensure a robust sector in the future. The Committee therefore recommends that the FSA prepares a "Supervisory Diamond" that is particularly aimed at mortgage credit insti- tutions. The Committee finds that such a Supervisory Diamond should include landmarks that reflect the risks of an institution, including, e.g. limits on the share of mortgage credit loans with frequent refinancing (more than every two years) issued by an institution and limits on the share of interest-only loans to selected customer groups that constitute a significant share of the property value.” The FSA will present a model during the first half of 2014. 33