Danske Bank has chosen the following methods:
| Credit risk |
Advanced IRB |
| Market risk |
Internal model |
| Operational risk |
Standardised |
Credit risk
In September 2006, Danske Bank submitted a application to the Danish FSA for approval to apply the internal rating-based method (IRB) of the new capital requirement rules for calculating risk-weighted assets in relation to credit risk effective from January 1, 2008, including the use of parameters estimated in-house.
In November 2007, the Danish Financial Supervisory Authority (FSA) permitted the Danske Bank Group to apply the advanced internal ratings-based (IRB) approach to calculate credit risk under the new capital requirements directive (CRD). The approval will take effect on January 1, 2008.
The IRB approach will apply to 83% of the lending portfolio calculated on the basis of financial results for 2007. The remaining 17% of the lending portfolio will be calculated on the basis of the standardised approach on January 1, 2008, either because facilities are covered by roll-out plans for entities (i.e. such as Northern Bank, National Irish Bank and Sampo Bank) or because they are subject to permanent exemption (i.e. such as facilities with governments, including local authorities, etc.).
The capital target of the Group will be based on the minimum capital requirement under Pillar I and further capital requirements under Pillar II, including stress tests and rating ambitions. The Annual Report for 2007 further explains the effect of the new requirements on the Group’s capital management and financial targets.
Since Danske Bank has chosen the Advanced IRB Approach, the estimates of PD, LGD and EAD will be based on internal data.