Management of Guarantees and Re-lending in Denmark. World Bank, 27 October 2010 Lars Mayland Nielsen Danish DMO

Transcription

1 Management of Guarantees and Re-lending in Denmark World Bank, 27 October 2010 Lars Mayland Nielsen Danish DMO

2 Mainly infrastructure projects Political intention to support financing of certain projects Only government-owned companies have access to re-lending/guarantees Ministries conduct cost-benefit analysis of each project Use long-term average of government real yield + 1 per cent Amount of borrowing specified in law or acts LOAN GUARANTEES AND RE-LENDING BY THE DMO, END-2009 Table 1 DKK billion, nominal value Re-lending Loan Guarantees CPH City & Port Development Danish Broadcasting Corporation Danish North Sea Fund Danish Ship Finance Danish State Railways Export Credit Fund Energinet.dk Financial Stability Company Great Belt Bridge Lending to Iceland Metro Company... 0 Danish Serum Institute Sund & Belt Holding Øresund Bridge Øresund Landworks Total Total, per cent of GDP Note: Indicates no access DANMARKS NATIONALBANK 2

3 Managing the risks of companies Risks of the companies should be parallel to those of the DMO 1. Signed agreement between ministries, company and DMO Transactions may not be unethical or conflict with monetary policy Prudent risk management including credit risk on swaps and assets Companies are responsible for complying with the guidelines ( arms-length principle ) Transaction types governed in List of acceptable loan types 2. List of acceptable loan types (tailored to each company) Re-lending mirrors loans in existing bullet loans (2-10 year segment) Low debt => re-lending in synthetic bullet loans Export credit + ship finance => annuities, series loans Other maturities may be granted on request Price based on observable market prices or the yield curve Companies may transact swaps on its own in the private marked DANMARKS NATIONALBANK 3

4 Bias towards re-lending Financial exposure for guarantees and re-lending are identical Guarantees mainly when debt level was higher (off balance sheet) Re-lending typically cheaper due to liquidity premium (on balance sheet) Falling debt => new companies only access to re-lending DKK billion Re-lending Guarant ees managed by DM O DANMARKS NATIONALBANK 4

5 Treatment in the budget and debt Re-lending affects debt and borrowing directly Guaranties published in DMO report and public accounts The key is transparency Cent ral-government debt % GDP % GDP Debt Debt adjusted for re-lending and capital injections The budget includes: Revenue: commission fee of 15 basis points Expenditure: No estimates of expected losses In theory, expected losses equals savings on financing costs Savings are used to reduce debt rather than put aside as an asset DANMARKS NATIONALBANK 5

6 Impact on DMO risk management Credit risk due to re-lending/guarantees: stress tests of the budget Interest-rate risk management: re-lending is included as an asset DURATION TARGET, DMO DEBT PORTFOLIO Table 2 Debt (DKK billion) Duration (years) Liabilities (domestic and foreign) Assets (cash and bonds in funds) Central-government debt Re-lending Debt adjusted for re-lending DANMARKS NATIONALBANK 6

7 Financial rescue packages Act ion Scope Privat e sect or Expiry General guarantee Financial sector Cover losses up to 2 % of GDP 30 Sep Individual guarantee 12 % of GDP Pay fee basis points Before 31 Dec Capital injections 2.8 % of GDP Pay 10 % interest on average Step up clause after 3-5 years Financial Stability Company manages guarantees and capital injections into banking sector DMO provides financing to the Financial Stability Company via re-lending and will finance any losses Explicit bank guarantees and capital injections => Advantage: banks pay a fee to the government Larger risk => bias towards higher duration target on regular portfolio focus on frontloading, pre-funding and cash buffer DANMARKS NATIONALBANK 7