The risk factors impacting Finansiel Stabilitet and the management thereof are influenced by special circumstances resulting from having taken over failing banks. Activities handled on behalf of the government may be subdivided into two segments, Bank Package activities and Other areas. The Other areas segment is handled for the account and risk of the government and is not included in the following. 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 risk and, to a lesser extent, 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 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.

Generally, Finansiel Stabilitet has no liquidity risk, as it has access to state-funded re-lending. As part of the risk management, Finansiel Stabilitet’s activities are arranged so as to ensure that sufficient liquidity is available within the company.

Credit risk on the acquired exposures is managed 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, to extend existing exposures. 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.

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.

The Bank Package activities are not exposed to changes in interest rates.

Finansiel Stabilitet 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 very limited liquidity, this is a longer-horizon task. The greatest equity risk attaches to Finansiel Stabilitet’s portfolio of cooperative share certificates which it has received as part of the payment under Bank Package I.

See note 14, Shares, etc. for a specification of share positions and the calculation of interest rate risk at the bottom of note 20.

Associates, see note 15, amounted to DKK 0 million at 31 December 2023 (2022: DKK 8 million).

Currency risk
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 2023, exchange rate indicator 1, calculated excluding EUR, was 0.0% (31 December 2022: 0.0%) of Finansiel Stabilitet’s equity.

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 1 million (2022: DKK 0 million).

See also the calculation of currency risk at the end of note 20.

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 Finansiel Stabilitet 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. 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. 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.

At 31 December 2023, the Restructuring Department of the Deposit Guarantee Fund had commitments made by the banks in the amount of DKK 3.2 billion (2022: DKK 3.2 billion). These are not considered to be subject to credit risk.

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.

Since 2018, the Deposit Guarantee Fund has invested cash funds under bond mandates in 0-5-year mortgage bonds. As at 31 December 2023, the Deposit Guarantee Fund had invested DKK 7,792 million. The average duration of bonds at the end of 2023 was 2.38 years, and interest rate risk in the event of a 1% change in the level of interest rates was calculated at DKK 186 million (2022: DKK 190 million).

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.

Since 2018, the Resolution Fund has invested part of its cash funds under bond mandates in 0-5-year mortgage bonds. As at 31 December 2023, the Resolution Fund had invested DKK 2,920 million. The average duration of bonds at the end of 2023 was 2.38 years, and interest rate risk in the event of a 1% change in the level of interest rates was calculated at DKK 70 million (2022: DKK 71 million).