In November 2007, the Danske Bank Group received the approval of the Danish FSA to use the advanced internal ratings-based (IRB) approach under the new Capital Requirements Directive (CRD) in its calculation of risk-weighted assets from January 1, 2008. The IRB approach applies to 83% of the Group’s risk exposure, while risk-weighted assets for the remaining 17% are calculated in accordance with the standardised approach. In preparing for the transition in 2007, the Group also adapted certain of its credit processes to the CRD. For example, administrative changes regarding defaults have resulted in a rise in the number of impaired assets (read more). After the introduction of the new CRD rules, the Group must ensure that its risk disclosure matches the requirements under Pillar III of the rules from December 31, 2008. This publication, Risk Management 2007, reviews the Group’s organisation and processes relating to the identification and management of the risk types characteristic of a financial group with its type of business concept. It also describes the Group’s risk portfolio on the basis of the requirements under Pillar III. The Group’s acquisition of Sampo Bank of Finland and its Baltic subsidiaries was a milestone in 2007. The Group integrated the acquired banks in its risk management process from the acquisition date, February 1, 2007. The integration will be completed with the planned migration of the activities in Finland to the Group’s IT platform during Easter 2008. At the end of 2007, the Group’s credit exposure totalled DKr3,373bn, of which DKr693bn derived from the Group’s trading portfolio of bonds and other financial instruments, and DKr2,680bn derived from credit exposure related to lending activities both within and outside Denmark. The credit exposure rose 21% during 2007, mainly as a result of the added lending volume from Sampo Bank in Finland and the Baltics and a rise in lending to retail and corporate customers on the Group’s principal markets. Some 38% of the Group’s lending was supported by real property collateral. Previous years had seen a strong rise in property prices. This trend slowed down in 2007, however, and was replaced by moderate decline in many areas. The slowdown in the property market did not prompt a rise in delinquencies or actual losses on home mortgages, which can be explained in part by the fact that the employment rate remains very high. The portfolio of home mortgages continued to have moderate loan-to-value ratios. As a result of the volatility in the international liquidity markets, a number of the Group’s customers have been unable to fund their activities by ordinary commercial paper issues and have drawn on their backup liquidity facilities with the Group. Of a total exposure to the investment companies in question of DKr45.9bn, an amount of DKr20.8bn was drawn at the end of 2007. The Group expects the volume of backup liquidity facilities to decline considerably as early as in 2008. For a more detailed description of the exposure to these companies click here. The amount of the Group’s impaired facilities rose from DKr3.0bn to DKr9.5bn, or 0.35% of the total credit exposure. The consolidation of Sampo Bank accounted for around DKr2.2bn of the increase. About DKr2.5bn was attributable to CRD-related changes to the definition of customer default. The rest of the increase was attributable mainly to the restructuring of three international investment companies with a total exposure of about DKr1.8bn. The quality of the assets is such that the Group does not expect to incur losses.