The risk factors impacting Finansiel Stabilitet and the management thereof are influenced by special circumstances resulting from having taken over failing banks. Risk is managed separately for each segment: Bank Package activi­ties; the Deposit Guarantee Fund and the Resolution Fund.

Finansiel Stabilitet is exposed to a number of financial risks, including credit, property and market risk. The overall risk management policy is determined centrally for the Group’s companies and is aimed at minimising the losses that may arise as a consequence of unpredictable developments in the financial markets and other factors.

As, at the end of 2022, Finansiel Stabilitet had resolved the majority of the loans and guarantees taken over, future risks will mainly be linked to the remaining lawsuits and disputes. For further information on risks related to lawsuits and disputes, see page 9 of the management’s review.

In addition to this, Finansiel Stabilitet is to a minor extent exposed to property and market risk. Property risk arises directly from ownership as well as indirectly through credit exposures to the property market.

Finansiel Stabilitet has no liquidity risk, as the Company has access to state-funded re-lending. As Finansiel Stabilitet’s Bank Package activities are in the course of being wound up, the absolute amount of risk is expected to be gradually reduced, all other things being equal.

Credit risk management is based on the legislative framework governing Finansiel Stabilitet’s business activities. Pursuant to this, Finansiel Stabilitet is not allowed to assume new exposures or, in general, extend existing ones. Credit risk is thus in all material respects limited to existing loans and guarantees and the development of these. The remaining credit risk is managed with due consideration for and in the context of Finansiel Stabilitet’s resolution of activities, including the principles of ensuring that the resolution is conducted in a financially responsible, proper and fair manner. The remaining loans are of poor credit quality.

As a result of the resolution of a considerable portion of exposures, the remaining risk has been significantly reduced relative to previous years. Moreover, a large part of the value of loans and guarantees net of impairment is covered by way of mortgages, dividends from estates in bankruptcy, etc. Against this background, the remaining risk relating to loans and guarantees is assessed to be relatively limited.

Finansiel Stabilitet pursues a general policy of minimising its exposure to market risks. To the extent that there is exposure to market risks, the intention is for the group companies to resolve activities that expose the Group to market risks or, alternatively, to hedge such exposures.

The Board of Directors has defined limits for Bank Package activities’ total exposure to market risk (interest rate risk, equity risk and currency risk). Market risk is monitored on an ongoing basis, and the Board of Directors is kept informed of the Group’s overall exposure.

For Bank Package activities, the majority of the group companies’ loans and advances carry floating rates of interest and are not exposed to changes in interest rates. The interest rate risk as at 31 December 2022 amounted to DKK 0 million (2021: DKK 0 million).

At 31 December 2022, no cash funds were invested in treasury bills (31 December 2021: DKK 561 million).

Finansiel Stabilitet also has a few shareholdings. While the listed equities have been sold, the Group still has a few sector equities and minor unlisted shareholdings on its balance sheet.

Efforts are made on an ongoing basis to sell these shareholdings but, as a result of limited liquidity, this is typically a longer-horizon task. The greatest equity risk attaches to Finansiel Stabilitet’s portfolio of cooperative share certificates, which the Company has received as part of the payment under Bank Package I, and to a few sector equities.

The overall portfolio of shares etc. amounted to DKK 10 million as at 31 December 2022 (DKK 12 million as at 31 December 2021). Excluding the subsidiaries under Bank Packages III-IV, the portfolio of equities etc. amounted to DKK 1 million (2021: DKK 5 million). A 10% drop in share prices would result in a DKK 0 million deterioration of Finansiel Stabilitet’s result (2021: DKK 0 million).

See note 17, Shares, etc. for a specification of share positions. Associates, see note 18, are not included in the calculation of share positions and are not included in the calculation of the sensitivity to share price drops. Associates amounted to DKK 8 million (2021: DKK 35 million).

In connection with Finansiel Stabilitet’s activities related to the resolution of failing banks, the Company is exposed to currency risk.

The currency risk is to the necessary extent hedged by the individual subsidiaries, and the overall currency exposure is thus limited. To the extent that foreign commercial interests are involved, including that customers have raised loans with a view to financing foreign activities, assets are hedged by way of similar financing in foreign currency. Finansiel Stabilitet does not hedge EUR.

As at 31 December 2022, exchange rate indicator 1, calculated excluding EUR, was 0.0% (31 December 2021: 0.0%) of Finansiel Stabilitet’s equity.

The overall currency position calculated in terms of exchange rate indicator 1 amounted to DKK 11 million as at 31 December 2022 (DKK 17 million as at 31 December 2021). Excluding the subsidiaries under Bank Packages III-IV, the currency position amounted to DKK 11 million (DKK 10 million as at 31 December 2021). See also the calculation of currency risk at the end of note 23.

A 2.25% change in the DKK/EUR exchange rate and a 10% change in all other exchange rates would affect Finansiel Stabilitet’s result by DKK 0 million (2021: DKK 0 million).

Finansiel Stabilitet has access to funding itself via the state-funded re-lending scheme and, among other things, contri­butes liquidity to its subsidiaries. To obtain an overview of its cash flow position, Finansiel Stabilitet regularly prepares esti­mates of future cash requirements. This ensures that the Company has sufficient cash resources to meet future liabilities.

The access to the state-funded re-lending scheme means that, when necessary, Finansiel Stabilitet can contact Danish Government Debt Management at Danmarks Nationalbank in order to obtain loans. The terms are set out on the basis of the prevailing market conditions for government bond loans. Having access to the re-lending scheme enables Finansiel Stabilitet to handle unforeseen large payments without necessarily having to maintain a very large demand deposit.

The principal risks under the Deposit Guarantee Fund relate to the resolution of activities that Finansiel Stabilitet has taken over under Bank Packages III-IV and the risk of future losses as a result of the restructuring and resolution of failing banks resulting in losses on covered deposits. If the resolution of activities under Bank Packages III and IV produces a loss which had not been anticipated at the time of fixing of the initial dividend at the takeover date, such loss will have to be covered by the Depositor and Investor Guarantee Scheme. Based on the preliminary resolution, the only additional losses recorded under Bank Package III relate to the resolution of FS Finans IV A/S.

Moreover, the future investment of the Deposit Guarantee Fund will be subject to risk, depending on the chosen investment profile. The Act on a Depositor and Investor Guarantee Scheme stipulates that the assets of the Deposit Guarantee Fund must be invested in low-risk assets. Each year, Finansiel Stabilitet’s Board of Directors defines the investment strategy for the Resolution Fund.

The investment strategy must be determined so as to ensure that the available financial means of the Deposit Guarantee Fund are from time to time proportionate with the Deposit Guarantee Fund’s potential liabilities.

Investment of cash funds must involve hedging of all currency risk (Euro positions are not included in this calculation), and interest rate exposure must be within the limits set out in the investment strategy approved by the Board of Directors. The strategy currently applies a target duration of 2-3 years for the invested part of the funds.

During 2018-2021, the Deposit Guarantee Fund invested its cash funds under bond mandates in 0-5-year mortgage bonds. As at 31 December 2022, the Fund had invested DKK 7,467 million. The average duration of bonds at the end of 2022 was 2.53 years, and interest rate risk in the event of a 1% change in the level of interest rates was calculated at DKK 190 million (2021: DKK 241 million).

In January 2022, the Deposit Guarantee Fund invited tenders for a new portfolio mandate to replace the previous mandates. Jyske Bank once again won the tender and continued to undertake the portfolio management.

The Deposit Guarantee Fund is mainly funded by the Deposit Guarantee Fund’s own assets. Additional funding is available by means of Finansiel Stabilitet’s access to state-funded re-lending.

The principal risks relate to losses in connection with the restructuring or resolution of institutions in which the Resolution Fund has injected capital. Moreover, the investment of the Resolution Fund will be subject to risk, depending on the chosen investment profile. The Act on Restructuring and Resolution of Certain Financial Enterprises stipulates that the assets of the Resolution Fund must be invested in low-risk assets.

Each year, Finansiel Stabilitet’s Board of Directors defines the investment strategy for the Resolution Fund. The investment strategy must be determined so as to ensure that the available financial means of the Resolution Fund are from time to time proportionate with the Resolution Fund’s potential liabilities.

Investment of cash funds must involve hedging of all currency risk (Euro positions are not included in this calculation), and interest rate exposure must be within the limits set out in the investment strategy approved by the Board of Directors. The strategy currently applies a target duration of 2-3 years for the invested part of the funds.

During 2018-2021, the Resolution Fund invested its cash funds under a bond mandate in 0-5-year mortgage bonds. As at 31 December 2022, the Fund had invested DKK 2,778 million. The average duration of bonds at the end of 2022 was 2.54 years, and interest rate risk in the event of a 1% change in the level of interest rates was calculated at DKK 71 million (2021: DKK 87 million).

In January 2022, the Resolution Fund invited tenders for a new portfolio mandate to replace the previous mandates. Jyske Bank once again won the tender and continued to undertake the portfolio management.

As at 31 December 2022, the Resolution Fund had no investments in treasury bills.

The Resolution Fund has limited exposure to equity, interest rate and currency risk from institutions taken over. As at 31 December 2022, equity risk in the event of a 10% price fall was DKK 0 million (2021: DKK 0 million), interest rate risk in the event of a 1% interest rate change was DKK 0 million (2021: DKK 0 million) and currency risk on a change of 2.25% in EUR and 10% in other currencies was DKK 0 million (2021: DKK 0 million).Moreover, the Fund is exposed to credit risk on exposures not yet resolved from institutions taken over. For a description hereof, see the section under Bank Package activities.

The Resolution Fund is mainly funded by the Resolution Fund’s own assets. Additional funding is available by means of Finansiel Stabilitet’s access to state-funded re-lending.