Pledging of credit claims as collateral |  |
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Account holders may pledge credit claims as collateral for all types of credit facilities in Danish kroner. The rules for credit claims as collateral are set out in "Terms and conditions for pledging of collateral for credit facilities in Danish kroner" in the right-hand menu. These terms and conditions are part of Danmarks Nationalbank's terms and conditions for accounts.
Application
In order to use credit claims as collateral, the account holder must submit an application. The account holder must submit the following standard documents to Danmarks Nationalbank:
Only templates prepared by Danmarks Nationalbank may be used. Danmarks Nationalbank's processing time is five banking days. If the documentation submitted is satisfactory, Danmarks Nationalbank will send the account holder a receipt.
Pledging
In order to pledge credit claims as collateral, account holders are also required to submit the following documentation to Danmarks Nationalbank:
Pledging may take place when the application is submitted, but could also take place at a later time if the account holder initially wishes only to include the credit facility at Danmarks Nationalbank in the account holder's liquidity, cf. section 152(2) of the Danish Financial Business Act (see below). Credit claims pledged as collateral must be identical to or constitute a subset of the credit claims to which the statement by the auditors relates, cf. "Statement by the auditors concerning credit claims to be pledged as collateral". Requirements for the List of credit claims are described in the document "Technical guidelines for submission of credit claim data" in the right-hand menu.
If the documentation submitted is in order, the account holder's drawing right will be increased by the collateral value of the credit claims after a processing period of five banking days. If the List of credit claims is submitted simultaneously with the application, the total processing period will be five days.
Regular submission of material
All account holders whose application to use credit claims as collateral is approved, are required to submit updated documentation to Danmarks Nationalbank at regular intervals. The material to be submitted depends on whether or not the account holder has pledged credit claims.
Monthly:
- Account holders who have pledged credit claims as collateral are required to submit an updated list of credit claims and a cover letter to renew their drawing rights. Danmarks Nationalbank must receive the list by the 5th banking day before the last Friday of the month.
Quarterly:
- All account holders with access to pledge credit claims as collateral are required to submit an updated Statement by the Auditors. Danmarks Nationalbank must receive the Statement by the auditors by the 5th banking day before the last Friday of each quarter. The Statement by the auditors must be received by Danmarks Nationalbank within five banking days of the last Friday of each quarter.
Annually:
- All account holders with access to pledge credit claims as collateral are required to submit an Annual statement by the management. The annual statement by the management must be submitted on 30 December each year.
Credit claims eligible as collateral
Credit claims must meet the following requirements in order to be eligible as collateral:
- The credit claims must be unsecured claims in the form of loans and agreed overdrafts
- In terms of risk, the quality must meet the Danish Financial Supervisory Authority's quality categories 3 or 2a, cf. the definitions (in Danish) at the website of the Danish Financial Supervisory Authority. See also "Requirements for the quality of credit claims" (in Danish only) in the right-hand menu
- The debtor must be a non-financial corporation, a public authority or a household.
- The debtor must be resident in the Kingdom of Denmark.
- An account holder may not pledge credit claims as collateral, if close links exist between the account holder and the debtor.
- The credit claims may not fall due for payment until at least one month after the credit claim has been pledged as collateral.
Collateral value
The collateral basis is initially calculated for each debtor. The total collateral basis of an account holder is subsequently calculated as the sum of positive collateral bases across all debtors.
The value of credit claims is stated as the current remaining debt; however, for overdrafts it is stated as the current balance less 10 per cent. For credit claims or overdrafts in currencies other than Danish kroner, further deductions are made. For euro, the deduction is 3 per cent, for Swedish kronor or Norwegian kroner it is 5 per cent, and for other currencies the deduction is 10 per cent. Also deducted are any set-offs (e.g. in the form of ordinary deposits).
A debtor may have a loan of kr. 5 million, a kr. 5 million drawing on an overdraft facility and a kr. 1 million deposit at the bank. If all amounts are denominated in Danish kroner, the collateral basis of this facility will be calculated as follows:
Collateral basis =
kr. 5 million (unsecured claim)
+ kr. 5 million* 90 per cent (drawing on overdraft facility less 10 per cent)
- kr. 1 million (entitlement to offset claims)
= kr. 8.5 million.
If credit claims or overdrafts are denominated in currencies other than Danish kroner, the currency haircut in question is also deducted. Had the loan and the overdraft facility of the example above been denominated e.g. in euro, the collateral basis would be:
Collateral basis =
kr. 5 million* 97 per cent (unsecured claim less a currency haircut of 3 per cent)
+ kr. 5 million* 90 per cent * 97 per cent (drawing on overdraft facility less 10 per cent and a currency haircut of 3 per cent)
- kr. 1 million (entitlement to offset claims)
= kr. 8.215 million.
The collateral value is calculated as the total collateral basis less 35 per cent (a haircut of 25 per cent and a margin of 10 per cent). If the total collateral basis is kr. 100 million, the collateral value is thus kr. 65 million.
Top-up collateral
Account holders must pledge top-up collateral if the value of the collateral basis declines by 5 per cent or more during the month, e.g. as a result of redemptions or changes in quality. In that case, account holders must immediately submit an updated list of credit claims.
Account holders' liquidity
Within certain limits, account holders may include the credit facility at Danmarks Nationalbank in their liquidity, cf. section 152(2) of the Danish Financial Business Act, without having pledged the credit claims to Danmarks Nationalbank. This requires inter alia that all provisions of Danmarks Nationalbank's "Terms and conditions for pledging of collateral for credit facilities in Danish kroner", clauses 11-21, are met from the time the account holder wishes the credit facility to be included in its liquidity. Reference is made to the Danish Financial Supervisory Authority's website for further details.
The Danish Financial Supervisory Authority' supervision
The Danish Financial Supervisory Authority will supervise account holders whose applications to pledge credit claims as collateral have been approved, regardless of whether the credit claims are pledged. The Danish Financial Supervisory Authority will apply a risk-based approach in its selection of account holders whose credit claims will be reviewed during a year.
The Danish Financial Supervisory Authority determines the exposures of each account holder to be subject to review. Major exposures are always subject to review, while random samples are performed of minor exposures.
The supervision will focus e.g. on whether the credit claims on the account holder's list of credit claims are of a quality corresponding to the Danish Financial Supervisory Authority's quality categories 3 or 2a in terms of risk. In practice, such supervision will be performed through the Danish Financial Supervisory Authority's use of external assistance to review the credit claims.
Fees
Fees are charged from the time an account holder is granted access to pledge credit claims as collateral at Danmarks Nationalbank, irrespective of whether the credit claims are actually pledged. The fees are:
- A fee is charged to cover Danmarks Nationalbank's costs of managing the arrangement
- A fee is charged to cover the Danish Financial Supervisory Authority's costs of supervision
For more information on fees, see "Fees for access to pledge credit claims as collateral" in the right-hand menu.
Contact information
Please contact:
e-mail: targetgroup@nationalbanken.dk
Tel.: +45 33 63 71 00 |
