DnB NOR Bank Liquidity Portfolio Update Q2, 2011 July 12, 2011
Liquidity Portfolio Rationale DnB NOR's portfolio is deposited with Central Banks or used as collateral elsewhere Represents Liquidity Reserve drawing rights from Central Banks Used to raise multi currency liquidity through Central Banks' Liquidity Operations Supports DnB NOR's NOK clearing function Fulfils rating agency requirements Portfolio size and reinvestments reflect evolving regulatory liquidity requirements Starting 2011 and going forward, reinvestments are made in Basel 3 LCR compliant bonds booked in a trading portfolio 2
Liquidity Portfolio: 100% is Used as Collateral 3
Liquidity Portfolio: Overview Size 14,350 million Rating distribution 1 : AAA 92.7 % AA 4.1 % A 2.7 % Lower 0.5% 29.5% Sovereign exposure. The remainder is predominantly European and Australian RMBS, and European covered bonds. 100% deposited with Cental Banks or otherwise used as collateral for liquidity purposes 1 Throughout this presentation, using Moody's, S&P and Fitch, rating is defined as best of two or median of three, depending on how many ratings a security has. 4
Liquidity Portfolio: Details on Exposures & Ratings VOLUME (EUR mn) % OF PORTFOLIO % OF ASSET CLASS AAA AA A BBB BB B <B TOTAL PORTFOLIO 14,350 100.0 % 100.0 % 92.7 % 4.1 % 2.7 % 0.3 % - 0.1 % - RMBS TOTAL 8,256 57.5 % 100.0 % 89.8 % 5.5 % 4.2 % 0.5 % - - - RMBS - UK 2,232 27.1 % 100.0 % - - - - - - RMBS - NETHERLANDS 1,969 24.0 % 100.0 % - - - - - - RMBS - AUSTRALIA 1,722 20.7 % 100.0 % - - - - - - RMBS - SPAIN 1,303 15.7 % 81.7 % 16.8 % 1.5 % - - - - RMBS - ITALY 406 5.0 % 100.0 % - - - - - - RMBS - IRELAND 308 3.7 % - 56.5 % 30.8 % 12.7 % - - - RMBS - PORTUGAL 299 3.6 % - 21.1 % 78.9 % - - - - RMBS - KOREA 17 0.2 % 100.0 % - - - - - - SOVEREIGN - TOTAL 1 4,231 29.5 % 100.0 % 100.0 % - - - - - - COVERED BONDS - TOTAL 2 1,478 10.3 % 100.0 % 100.0 % - - - - - - CORPORATE LOANS 3 - TOTAL 207 1.4 % 100.0 % 24.0 % 47.4 % 18.4 % - - 10.2 % - CORPORATE LOANS - GERMANY 124 60.1 % - 69.6 % 30.4 % - - - - CORPORTE LOANS - SPAIN 35 17.0 % 70.2 % 29.8 % - - - - - CORPORATE LOANS - UK 26 12.8 % 96.4 % - 3.6 % - - - - CORPORATE LOANS - DENMARK 21 10.2 % - - - - - 100% 4 - CONSUMER CREDIT - TOTAL 179 1.2 % 100.0 % 75.0 % 20.9 % - 4.1 % - - - CONSUMER CREDIT - USA 82 46.0 % 91.9 % - - 8.9% 5 - - - CONSUMER CREDIT - SPAIN 56 31.4 % 33.4 % 66.6 % - - - - - CONSUMER CREDIT - FRANCE 26 14.6 % 100.0 % - - - - - - CONSUMER CREDIT - AUSTRALIA 14 7.8 % 100.0 % - - - - - - CONSUMER CREDIT - GERMANY 0.3 0.2 % 100.0 % - - - - - - 1 USA, Nordics, Germany, Netherlands, France, Australia and Supranationals. 2 UK, Netherlands, France and Sweden. 3 The Corporate loan exposure includes EUR 1.0 mn insurance exposure (0.01% of total portfolio). 4 and 5 The underlying portfolios consist of Danish subordinated bank debt and US private student loans, respectively. 5
Liquidity Portfolio RMBS Exposures: Further Details Volume (EUR mn) Average delinquencies > 90 days Cumulative losses on underlying loans (covered by excess spread/reserve fund) Average Loan to Original Value (LTV) ratio Average seasoning (months) Jurisdiction UK 2,232 1.88 % 0.43 % 66.52 % 71.75 17.71 % 9.4 Aaa(neg)/AAA(neg)/AAA 14.0 % 7.8% 0.50 % Netherlands 4 1,969 0.69 % 0.12 % 83.61 % 64.63 9.35 % 13.5 Aaa/AA-/AAA(neg) 13.2 % 5.0% 1.25 % Australia 5 1,722 0.72 % 0.01 % 58.84 % 74.01 8.53 % 11.9 Aaa(neg)/AAA(neg)/AAA 44.3 % 4.9% 4.75 % Spain 1,303 2.53 % 0.98 % 54.97 % 84.46 9.56 % 3.8 Aa3(neg)/A/BBB 8.8 % 20.7% 1.25 % Italy 406 0.91 % 0.05 % 41.81 % 89.67 16.54 % 18.3 Aaa(neg)/AAA(neg)/AAA 18.8 % 8.1% 1.25 % Ireland 308 6.75 % 0.01 % 63.77 % 78.42 11.97 % 1.8 Baa2/BBB+/A(neg) -19.1 % 14.8% 1.25 % Portugal 299 2.93 % 0.16 % 57.94 % 86.79 8.70 % 3.0 A1(neg)/A-/A+(neg) -4.1 % 12.3% 1.25 % Korea 17 0.23 % 0.00 % 52.25 % 75.19 25.50 % 110.9 Aa1/AAA(neg)/AAA 32.4 % 3.3% 3.25 % Tot / Weighted Avg 6 8,256 1.62 % 0.31 % 65.54 % 74.20 11.95 % 10.2 Aaa/AAA/AAA 17.7 % 9.0 % 1.8 % Average current credit enhancement (CE) % CE / Delinquencies > 90 days Lowest rating (Moody's/S&P/Fitch) House price inflation last 6 1/4 years 1 Unemployment 2 Interest rate level 3 Sources: 1 Datastream (quarterly figures including 1Q11 for all countries (monthly including May 2011 for Korea) applied for 6 ¼ years to replicate the WA seasoning in the portfolio), 2 Bloomberg. 3 Central Bank rates as at June 21, 2011. 4 Average LTV ratios for Dutch mortgages are higher than the average of the other jurisdictions. This is due to a) the Dutch tax model and b) the fact that in Holland, this figure actually represents the Loan-To-Foreclosure-Value (LTFV) where a theoretical foreclosure price is used in the denominator (considerably lower than market value, which is the parameter used in other jurisdictions). In General, the market perception is that Dutch RMBS are of extremely high quality. 5 AverageCredit Enhancementfor AustralianRMBS arelowerthantheaverage of other jurisdictions. This is due to the fact that losses on the underlying mortgages are insured in Australian RMBS, making the bond rating less dependent on credit enhancement. The AAA ratings on Australian RMBS are thus partially dependent on the rating of the lenders mortgage insurance (LMI) companies. This dependence is only partial at origination (a downgrade buffer of several notches is usually provided for) and the dependence is reduced gradually over time following the amortization of the tranches, until the rating is completely independent of the rating of the LMIs. 6 Of the volume of RMBS in the portfolio, 91.0% holds at least one AAA rating. 6
RMBS Buffers What it Takes to Lose the First Cent on a AAA RMBS 1. Borrower default Linked to rising unemployment and rising interest rates. Current 90+ days portfolio delinquencies is 1.6%. Very limited losses. 2. Realisation of collateral below loan balance Requires both reversal of house price increase since mortgage was granted (portfolio average 74 months seasoning = 17.7% house price inflation) and house price decline exceeding borrowers equity (portfolio average 34.5 %). 3. Loss exceeding acc. excess spread in portfolio The first losses in a portfolio will be covered by the accumulated net excess spread (0.25 % - 0.75 %) the portfolio generates annually. 4. AAA subordination Any further losses will be covered by lower rated tranches and reserve fund. This Credit Enhancement equals 11.9 % on average in the portfolio. Borrower's payment ability House price inflation 17.7% Borrowers' equity 34.5% Portfolio excess spread ¼ - ¾ % Only AAA RMBS AAA credit enhancement 11.9 % 7
Liquidity Portfolio Exposures to Peripherals 2Q2007 2Q2011 % of liquidity Types of EUR mn EUR mn portfolio exposures AAA AA A BBB Portugal 604 299 2.1 % RMBS only - 21.1 % 78.9 % - Ireland 386 308 2.1 % RMBS only - 56.5 % 30.8 % 12.7 % Italy 404 406 2.8 % RMBS only 100.0 % - - - Greece 0 0 0.0 % None - - - - Spain 2574 1394 9.7 % RMBS, corporate loan & consumer loan ABS 79.4 % 19.2 % 1.4 % There have been no Liquidity Portfolio reinvestments in Portuguese, Irish nor Spanish assets since the outset of the financial crisis. 8