Nykredit puts customers first. Nykredit was founded by our custo- mers – for our customers. That is how it has been for more than 160 years, and that is how it should be. Nykredit focuses not on short-term gains but on long-term customer relations and value creation – what we call Financial Sustainability

About Nykredit 2013 CSR Report Contents

Foreword...... 3 Meet the customer...... 4 Meet Nykredit...... 5 Customer's universe 2013...... 6

Customers first...... 7 Nykredit, a financial mutual...... 7 The business...... 8 Advisory services...... 8 Customer's universe 2013 - Advice – interest-only option and financial stability...... 10 Digital Nykredit...... 11 Customer's universe 2013 Digitisation and e-intimacy...... 13 Customer's universe 2013 Interest rate hedging...... 14 Customer satisfaction...... 15 Customer's universe 2013 Low prices of Danish mortgage loans...... 16 Sustainable investment...... 17

Social responsibility...... 18 Customer's universe 2013 Structural differences in the property market ...... 19 Social initiatives...... 20 Sponsorships...... 21 The Nykredit Foundation...... 22 Environment and climate...... 23

Staff...... 25 Performance culture...... 25 Diversity...... 25 Flexitime jobs...... 26 Women in management...... 26 Certification and training of Nykredit advisers...... 26 Training of advisers and customer support officers...... 27 Relationship with NYKREDS...... 27 Responsible remuneration...... 27 Nykredit Health ...... 27 Nykredit Graduate and Nykredit Thesis...... 27 Nykredit and elite-level sports...... 28

Lending growth and earnings...... 30

Nykredit in numbers...... 32 Financial highlights...... 32 Non-financial highlights...... 33

Reporting policies...... 34

Page 2 About Nykredit · CSR Foreword

Nykredit puts customers first. Nykredit was founded by its first of all to improve their lives and make their finances customers and is governed by its customers. more sustainable going forward, but our staff also benefit in the form of learning and motivation. Therefore, customer focus must permeate all activities of the Nykredit Group, and our customers and their needs The homes and home finances of our customers lie at the must remain the pivotal point for Nykredit in the period up heart of Nykredit's activities. Customers must perceive to 2015. This includes the way we deliver our social respon- Nykredit as an attentive financial partner that caters for sibility. their needs in a fast and efficient way, whether face-to-face or digitally. As a financial mutual governed by its customers, Nykredit is unique in the Danish financial sector, and our special Nykredit works with legislators to ensure a stable Danish ownership structure is essential to the way we operate. The mortgage system going forward. Efforts are made to secure object of Foreningen Nykredit is to always be able to pro- the survival of mortgage lending in the EU as well as to vide loans to Danish borrowers – also in times of crisis. We future-proof the Danish mortgage system. call it Financial Sustainability. And it is a key element of our social responsibility. Another way in which Nykredit delivers its social respon- sibility is by contributing to home energy renovation. We Active lending to Danish borrowers requires equity in an include energy economics in our advisory services and form amount that meets the requirements of legislation and strategic partnerships with energy providers to make home bond markets. Requirements that will tighten over the next energy renovation an easy choice for our customers. few years, one reason being Nykredit's designation as a sys- temically important financial institution (SIFI). During the "About Nykredit 2013" is Nykredit's CSR report on Financial financial crisis, we managed to grow our lending, and we Sustainability. It supplements our Annual Report and differ- want this development to continue. entiates the picture of a company that is much more than just numbers. Securing loans for our customers in all parts of Denmark is a central part of Nykredit's social responsibility. Thus, our so- Enjoy the read! cial responsibility goes hand in hand with our business ac- tivities, creating a foundation for future growth in Denmark. Michael Rasmussen Group Chief Executive Nykredit wants to contribute to society as best we can. Therefore, our CSR projects must reflect our core skills and be directly associated with our business concept.

We must prioritise the CSR initiatives that provide the best value for money. Value to society, customers and Nykredit's staff. We give – and we get something in return. When for instance we advise battered women on their finances, it is

About Nykredit · CSR Page 3 Meet the customer

What do we talk to our customers about?

Personal customers 1.1 million customers 100%

80%

60%

40%

20%

0%

Housing Day-to day Investment Pension Insurance banking

Commercial customers 400,000 personal customers 100% 75,000 commercial customers 80%

60% 627,000 personal customers

40% under the Totalkredit brand

20%

0%

Asset finance Day-to-day banking Investment

Customers are online ...

... mainly via online banking ... using their PC in the morning and their iPad in the evening

70% 23% 20-22 8-22

Online banking Mobile and tablet banking

6-12 4% 3%

Telephone Letters, e-mails etc

Page 4 About Nykredit · CSR Meet Nykredit

4,052 staff

55 customer Nykredit is Denmark's leading lender with banking and mortgage lending as its core centres business areas. Nykredit is a financial mu- tual governed by its customers. Income from business operations Nykredit was founded by our customers – for our customers. That is how it has been Mortgage lending 67% for more than 160 years, and that is how it Banking 33% should be.

Nykredit's history and ownership structure as a financial mutual set us apart in a num- ber of ways. Rather than looking for short- term gains, Nykredit aims at long-term New policies customer relationships and value creation – Advisory policy what we call Financial Sustainability. Stakeholder policy CSR policy Communications policy Tax policy Remuneration policy Women in management Whistleblower scheme

About Nykredit · CSR Page 5 Customer's universe 2013

The digital world offers new opportu- Many ways to fix interest nities. rates. Loans with a fixed Read more on page interest rate for 30, 20, 10, 13. 5 or 3 years. Loans with a floating interest Advisory services providing rate and interest rate cap. For long-term stability and financial commercial customers also stability. interest rate swaps. Read more on page 10. Read more on page 14.

Structural and regional differences affect customers' High customer sat- need for advice. isfation is evidenced by customer surveys. Read more on page 19. Read more on page 15. Danish mortgage loan rates are still low compared with eg Sweden. Read more on page 16.

Page 6 About Nykredit · CSR Customers first

Nykredit, a financial mutual Committee of Representatives elects the Board of Directors of As a mortgage and banking mutual, Nykredit differs from the the Association and approves the annual reports and any amend- vast majority of other large market participants in the Danish ments to the articles of association. All members of the Board of financial sector. Foreningen Nykredit (the Nykredit Association) Directors of Foreningen Nykredit elected by the Committee of owns 90% of Nykredit. The last 10% is held by Industriens Fond, Representatives are also members of the boards of directors of Foreningen Østifterne and PRAS A/S. Nykredit Holding and Nykredit Realkredit. This is because Fore- ningen Nykredit, Nykredit Holding A/S and Nykredit Realkredit Customer democracy at Nykredit A/S have the same objectives and common interests. Members of The ultimate authority of Foreningen Nykredit is the Committee Foreningen Nykredit are entitled to vote at and run as candidates of Representatives, which is composed of 100 representatives for elections of representatives in the area where they live or in who are elected by and among its members and bondholders. The one of the areas in which they own a property.

Committee of Representatives and Board of Directors of Foreningen Nykredit

64 representatives are elected by and among the members (borrowers); among these, 6 are elected to the Board of Directors.

24 representatives are elected by and among bondholders (lenders); among these, 2 are elected to the Board of Directors.

12 representatives are elected by Board of Directors committee members.

4 representatives are elected to the Board of Directors by and among the Committee of Representatives staff of Nykredit Realkredit A/S.

Foreningen Nykredit Nykredit's corporate structure Object: The object of Foreningen Nykredit is to be an owner of the Nykredit Group and to ensure Nykredit's ability to carry on financially sustainable mort- Foreningen Industriens Foreningen PRAS A/S gage and other financial business at present and in future for the benefit of Nykredit Fond Østifterne Nykredit's customers. Ownership Ownership Ownership Ownership 89.8% 4.7% 3.25% 2.25% Members: All customers who have a mortgage loan with Nykredit Realkredit A/S are members of Foreningen Nykredit. Customers of Nykredit Bank with deposits and/or loans totalling DKK 50,000 or more are also automatically members of Foreningen Nykredit, while customers with Totalkredit mortgage loans have the option of becoming members. Nykredit Holding A/S Influence: Members who have a mortgage loan with Nykredit Realkredit A/S may influence the election of members for Nykredit's Committee of Repre- The Nykredit Realkredit Group sentatives and consequently the election of members for the boards of direc- Nykredit Realkredit A/S tors of the Nykredit Group. 64 of the 100 representatives are elected by and among the borrowers of Nykredit Realkredit. Nykredit is working to ensure the Totalkredit A/S same level of influence for all members. Nykredit Bank A/S Nykredit Portefølje Adm. A/S Election procedure: In order to run for election, candidates must be en- dorsed by at least 25 other members of Foreningen Nykredit in their electoral Nykredit Mægler A/S Nykredit Leasing A/S districts or by the Board of Directors. The term of election is four years, and the election is announced in the daily newspapers and at nykredit.dk. Nykredit Ejendomme A/S

Bondholders: Bondholders with a bond portfolio in excess of DKK 50,000 are Ejendomsselskabet entitled to vote at elections for the Committee of Representatives. Candidates Kalvebod A/S are not registered by electoral district. The term of election is also four years.

About Nykredit · CSR Page 7 The business customers and for construction equip- tured development programme providing Nykredit provides a wide range of fi- ment, cars and other means of transport. them with training that goes beyond the nancial solutions. Personal customers requirements of Danish law. Nykredit are offered solutions that meet all their Nykredit is Denmark's largest lender with Certification aims to ensure that all cus- financial requirements, as home loans, a total loan portfolio of DKK 1,144bn. In tomers are offered advisory services that day-to-day finances, savings and invest- the past five years, we have grown our match their needs and the complexity ments are closely connected. lending by DKK 181bn, whereas the rest of the products. This gives our custom- of the Danish financial sector has reduced ers certainty and the best conditions for We serve commercial customers of all lending by DKK 242bn. Lending was up making the right decisions about eg new types, from small sole traders to large 1% in 2013. Danish economic growth re- home loans, pension plans or more com- conglomerates. We offer our customers mained low in 2013, and as in 2012 cus- plex finance or investment products. loans, credit facilities, online day-to-day tomers tended to increase their savings. banking transactions, cash management This was reflected in their demand for It has now been more than 18 months (advice on short-term liquidity manage- Nykredit's savings concepts and invest- since the launch of Nykredit Direkte, ment and day-to-day book-keeping) ment products. Nykredit's nationwide advisory centre. as well as cash handling. We also offer The centre offers customers more com- more complex solutions, such as currency Both bank and mortgage lending varied prehensive and flexible advisory services, trading and trade finance (international substantially across geographical regions, enabling them to fit their banking busi- trade). and activity in and around the largest ness into their busy schedules and ensur- towns and cities was affected by grow- ing that they receive service of the high- We provide tailored solutions to wealth ing demand for housing, while activity in est quality every time. clients based on strategy, risk and wealth other areas remained characterised by low management as well as many special demand. Also, Nykredit has extended its opening benefits. hours at weekends so customers have ac- Advisory services cess to advisory services whenever they Nykredit offers specialised asset manage- Nykredit wants to offer its customers the need them. This way, customers have ac- ment (portfolio management) products best and most competent advice in the cess to advisory services 70 hours a week. and administration of investment funds. market. Under Nykredit Certification, all . We also provide leasing to agricultural customer-facing staff undergo a struc-

Customer's choice Nykredit's market position in Denmark

DKKbn Market share

Total bank and mortgage lending 1,145 31% - of which bank lending 81 7% - of which mortgage lending 1,064 43%

Assets under administration 598 40%

Assets under management 117 n/a

Bond trading n/a 28%

Video conference Call +45 70 10 90 00 Chat Bank and mortgage lending is determined in nominal terms on the basis of the statistics on the balance sheets and flows of the MFI sector (Danish monetary financial institutions) prepared by Danmarks Nationalbank.

Lending growth in Nykredit and the market Visit one of E-mail 55 customer centres Nykredit Market

Banking 8% 6% Mortgage lending 4% 2%

Investment 0%

-2% Pension -4%

Insurance 2009 2010 2011 2012 2013

Page 8 About Nykredit · CSR hours a week access to advisory 70 services.

About Nykredit · CSR Page 9 CUSTOMER'S UNIVERSE 2013 Advice – interest-only option and financial stability

Interest-only (IO) mortgages were intro- in advance, and we will take a holistic duced in 2003 as an option for home- view of the customer's financial situation owners who wanted to start out with when offering advice. Our advice aims more financial leeway for the purpose of to ensure financial stability by creating a for instance repaying other, expensive balance between saving and deleveraging debt. IO mortgages soon became popular that matches the customer's personal and and today make up more than half of all financial circumstances. Danish mortgage loans. IO loans have given Danish homeowners higher flexibil- The IO option will have long-term effects ity and more options. on the customer's saving and debt. Good and competent advice is therefore abso- Most borrowers have no problems lutely essential in the process that may case, the IO option is not available, as affording principal payments lead to an IO loan. Danish legislation does not permit exten- Danish legislation restricts the IO period sion of an IO period if the LTV is above to 10 years, which usually means that Principal payments should be 80%. after the IO period, customers have 20 a top priority years to repay their entire housing debt An IO period offers financial relief here Nykredit therefore recommends custom- instead of the original 30 years. This will and now, but may reduce financial flexi- ers with LTVs exceeding the LTV limit increase their monthly mortgage pay- bility in the long term. Should a customer and customers in areas with low housing ments, but according to customer finan- want to change homes, because of for turnover to prioritise making principal cial data, most customers have no prob- instance unemployment, divorce or a wish payments. lems affording the full payments. to move, they might not be able to buy a new home if the debt in their current Nykredit has completed detailed research Depending on the size of a loan relative home is too high. This problem is most of the future financial circumstances to the property value, customers have pronounced in the parts of Denmark of homeowners after expiry of their IO various options when their IO periods where housing prices are stagnating. periods. We estimate that about 1% of expire. borrowers may experience financial dif- The value of some properties has de- ficulties once their IO periods expire. In Advice clined since the loans were raised, and that situation, they will need individual Nykredit will contact the customers consequently the loan-to-value ratios advice, tailored to their overall situation whose IO periods are about to expire well (LTVs) may now exceed 80%. In that and options.

Expiry of interest-only period Share of interest-only loans, owner-occupied, 2013 Loans

60,000 IO ARMs, 50,000 1-year funding 18% Other IO loans 41% 40,000

30,000 Repayment ARMs, 1-year funding 7%

20,000 Other repayment 10,000 loans 34%

0

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Page 10 About Nykredit · CSR In 2013 Nykredit introduced Swipp, which allows customers to trans- fer money directly from their smartphones to other Swipp users.

Digital Nykredit From 2013, bank statements for personal of all agreements with personal custom- Nykredit has achieved 61% of its target customers (eg statements of account) ers by the end of 2014. of 90% digital communication by 2015. were automatically sent to the custom- Digital communication benefits custom- ers' mailboxes at e-Boks unless otherwise We are mindful of our non-digital ers, Nykredit and the environment in the agreed. This means that about 300,000 customers form of reduced transport to meetings, letters will no longer require paper and It is important to us that the digital op- less paper consumption, fewer physical postal service. tions are perceived as positive, not only letters and easier access to advisory ser- by Nykredit but also by our customers, vices. In other words, the result is faster In 2013, customers were given access to and are employed in consideration for the and more efficient advisory services for their own documents in Nykredit's digi- customers. We therefore do not digitise customers and lower costs for Nykredit. tal archive. This way they can find any without informing our customers, also of agreements made online with Nykredit by the possibility of continuing to receive In 2013 Nykredit focused on sending mail entering mitNykredit using their NemIDs. physical letters. digitally and improving the possibilities of Recently, customers have also been au- sharing documents with customers digi- thorised to sign agreements using their We also consider the suitability of any in- tally. The digital signature, NemID, is the NemIDs at mitNykredit. formation for digitisation, and we except cornerstone that provides easy and secure the age groups that might be challenged access to documents and self-service. The use of NemID to sign agreements by the digital media. Of course, these Since most personal customers now use is being introduced gradually. Technical groups may individually opt for the digital NemID, digitisation is currently mainly processes and customer experience have solutions. aimed at this type of customer. been tested on simple agreements, and Nykredit strives to enable digital signing

The road towards a 90% digital Nykredit

0% 38% 47% 61% 90% 100%

2011 2012 2013 2015

About Nykredit · CSR Page 11 Overview in a digital world Online activity service solutions, for instance for iPad Digitisation paves the way for new solu- banking, we always obtain a second tions. For instance, the use of text mes- Number 2012 2013 opinion from an external consultant be- sages allows us to inform our customers Hits at nykredit.dk 12,456,171 11,044,411 fore launching them. sooner. Video conferences and screen Online calculations 1,486,527 1,284,424 sharing enable dialogue between advisers Video conferences with As an extra precaution, we conduct an- 27,742 36,138 and customers whenever it suits the cus- advisers nual penetration tests, ie an external ex- tomer, almost like a physical meeting. Downloads of mobile apps 73,550 85,484 pert attempts to hack into our systems. Facebook likes 7,573 10,052 Also in other areas, Nykredit is able to Mobile banking is growing fast, but offer our customers a better overview and is used in different ways help to manage their day-to-day finances prevent hacking or other unauthorised 178,000 personal customers use as well as plan their savings and invest- access to customers' accounts. Nykredit's online bank on PC ments. In 2013 we supplemented our A growing proportion also use banking Spending Overview, which offers custom- Security has top priority in the financial solutions on their smartphone or tablet ers a graphic overview of their spending, sector in general. The sector as a whole In 2013 the number of users rose by with the first version of Housing Over- acknowledges the fact that in this area over 70% to 74,000. view. More supplementary solutions with we are not competitors but have a shared other themes and target groups will be interest in maintaining maximum security launched in 2014. at national level.

With the Savings Target feature in our Threats are monitored closely, and co- online banking service, we have brought operation across the financial sector in- the traditional piggy bank into the digital volves internal as well as external experts. world and made it easier to save for holi- days, major purchases, etc. Nykredit participates actively in this sec- tor cooperation and complies with the Security is essential security rules laid down by the Danish The digital self-service solutions make Bankers Association for self-service solu- special demands on security so as to tions. When Nykredit develops new self-

Customer's choice

55 customer centres Personal advice by specialists.

+45 70 10 90 00 Telephone contact with advisers and Customer Service – seven days a week.

Virtual contact Have video conferences or chats with advisers or Customer Service from your PC or iPad.

Nykredit.dk Products, advisory services, guides, calculators, blog and much more.

Online bank – mitNykredit Accounts summary, advisory services and transactions.

Mobile apps Simplicity in everyday life. Mobile banking and four other mobile apps. iPad Design your own online bank with spending and investment overviews.

Page 12 About Nykredit · CSR Customer's universe 2013 Digitisation and e-intimacy

"It is not enough that customers serve themselves; then we lose the personal relation that is essential to customer satisfaction. We add personal contact by way of for instance conference or video calls to build the confidence that is so hard to achieve on

the digital platform." Bjørn Bøje Jensen, Head of Nykredit Direkte.

Security of digital signatures But this also challenges the part of the Security is paramount to our customers. customer experience which is so impor- We therefore always discuss the digital tant: building a personal relationship of options with our customers on a case-by- trust between customers and their bank. case basis, and we generally only send or sign digitally if all documents can be The key word is e-intimacy; that also the processed together. digital platforms offer access to personal advisers along with self-service solutions. Complex agreements are often difficult to understand and conclude without help Nykredit's e-intimacy efforts have at- from an adviser. When introducing digital tracted international attention. The signatures, we look at how the digital EFMA, a European association of finan- platform may offer customers the same cial sector professionals, has awarded a security and overview. prize to Nykredit Direkte at its Innova- tions Awards 2013, in the Multichannel Security and personal contact and Customer Experience Management Bjørn Bøje Jensen, Head of Nykredit Direkte. in a digital world category. The many digital options and access to skilled advisers seven days a week on- line, by mobile app or by telephone have increased customers' access to Nykredit.

New digital tools

Spending Overview Housing Overview Savings Target Graphic overview of your spending A digital overview of your housing expenses, such A digital piggy bank that makes it easier to as power, water and heating, and the option of save. For instance, track your holiday savings calculating the effect of housing investments on graphically. Groceries your budget.

Clothing and shoes

Housing

About Nykredit · CSR Page 13 Customer's universe 2013 Interest rate hedging

Historically low interest rates A more flexible solution is a capped For the past few years, Danish interest floating-rate loan. The interest rate is rates have been affected by external fac- lower than on fixed-rate loans, but cus- tors, most recently the crisis in Southern tomers accept the risk that their interest Europe. Interest rates have been declining rate may change, however, only to a pre- since the autumn of 2008 and are now determined level. Floating-rate loans do historically low. not offer capital gains in case of rising interest rates and consequently not the Customers can hedge against home equity protection offered by fixed- interest rate rises rate loans. Customers have various home financing options, depending on the risk they are In addition, commercial customers have willing to accept, should interest rates access to a more flexible solution, offer- rise. In general, the lower the interest ing an attractive interest rate but also rate they opt for, the more sensitive their involving a higher risk than other loans. balance sheet, rising interest rates will mortgage payments will be in case of in- This solution is based on an interest rate reduce the debt while declining interest terest rate rises. swap that hedges the interest rate risk of rates will increase the debt. a loan. The most secure product in terms of in- Interest rate swaps and other interest terest rate risk is a fixed-rate loan, which Swap into a fixed interest rate rate hedging instruments have been used is for customers who are willing to pay Interest rate swaps are a flexible product mainly by commercial and agricultural for knowing their mortgage payments that offers customers the option of fixing customers and housing cooperatives. throughout the loan term. In addition, their interest rate for as long as they want Swaps remain a relevant option for com- customers with fixed-rate loans benefit without converting their floating-rate mercial customers who need a low fixed from a capital gain if interest rates rise. loans. This is an advantage in case inter- interest rate – for instance owners of pri- This capital gain protects customers' est rates go up. vate rental properties. home equity in case of declining property prices as a result of rising interest rates. Fixed-rate loans are always prepayable at Targeted advisory services Therefore, fixed-rate loans are also a so- par. That means that the debt outstand- As swaps are a complex financial product, lution for customers who want to exercise ing cannot increase as a result of rising Nykredit has focused advisory services on their right of prepayment and remortgage bond prices. Customers with fixed-rate a narrower target group of professional their loans to a higher loan rate but a swaps do not have this right of prepay- customers. lower debt outstanding. ment. Where the value of a swap is included as an asset in the customer's

Ways for customers to lock in their interest rates Bond yields

Capped floating-rate Floating-rate loan Fixed-rate bond loan Short-term yield Long-term yield loan with fixed-rate swap

Fixed interest rate Floating short-term Fixed interest rate 9% throughout loan term interest rate but during swap term 8% capped 7% Prepayable at par Value of contract 6% Partially pre-payable fluctuates with 5% Standard product interest rates and may exceed par 4% 3% Not prepayable 2% 1% High flexibility 0%

Personal and Commercial Commercial 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Page 14 About Nykredit · CSR In other words, Nykredit admitted that a mistake had been made and corrected it, or realised that case handling, advisory services or other services could have been better. Also, about 10% of the complaints made to the customer ambassador led to specific initiatives or general changes at Nykredit.

In 2013 51% of our personal customers were satisfied with Nykredit's dissatis- faction handling, but we would like this percentage to rise. We therefore focused on the handling of dissatisfied customers Pernille Hirshals, Customer ambassador at selected centres in 2013. In 2014 we will continue these efforts, based on the experience gained. Customer satisfaction Nykredit aims to have the most satisfied customers among key national financial market players, and we track customers' Customer satisfaction, banking satisfaction with Nykredit on a regular Nykredit, personal Nykredit, commercial basis. Banking sector, personal Banking sector, commercial Index 78 Satisfaction with adviser meetings 76 74 In 2013 Nykredit introduced surveys of 72 customers' satisfaction with their meet- 70 68 ings with advisers, as the meeting is an 66 64 important point of contact for both the 62 customer and Nykredit. 60 2006 2007 2008 2009 2010 2011 2012 2013

Satisfaction with meetings is rated 85 Source: EPSI Danmark on a scale of 0-100 by personal custom- ers and 81 by commercial customers. Development in complaints One in two customers would recommend Nykredit on the basis of these meetings. Complaints Nykredit has launched measures to im- 800 prove customers' experience of the entire 700 process. That will help us to prioritise our 600 efforts to improve customer satisfaction 500 where necessary. 400 300 Customer ambassador 200 Since 2007, Nykredit has had a customer 100 ambassador. The customer ambassador's 0 objective is to ensure that the complaints of any dissatisfied customers are handled 2009 2010 2011 2012 2013 fairly.

Nykredit wants satisfied customers. We Outcomes of complaints received therefore encourage dissatisfied customers to contact us. We appreciate complaints; they offer us the opportunity to help the In favour of customer 25% customers as well as to improve our ser- Partly in favour of customer 29% vices for the benefit of all customers. Rejected 46% Complaints are useful In 2013 451 customers complained. 54% of these complaints were decided en- tirely or partly in the customer's favour.

About Nykredit · CSR Page 15 Customer's universe 2013 Low prices of Danish mortgage loans

Compared with the rest of the EU, Equity required for high credit rating Danish mortgage loans are among and low bond yields the lowest priced. A high equity level is a precondition for maintaining high credit ratings and For example, Nykredit's highest admin- low yields on the issued covered bonds. The administration margin mainly covers istration margin on a fully mortgaged Moreover, Nykredit must set aside large Administration costs property is 0.94%, while the correspond- amounts of capital to serve as supple- Capacity costs ing percentage is about 1.2% in Sweden. mentary collateral behind the bonds. Part Loan losses A core element of the Danish system is of this capital must be raised in the mar- low lending rates based on listed bonds, ket, so also in this context, a high credit transparent prices and prepayment terms rating is essential. that make for long-term financial stabil- ity. Another is the personal debt liability As a result of the new regulation, of borrowers. Nykredit will have to increase equity in order to be able to maintain our business Nykredit is thus able to offer loans with volumes and lending activities. The cost relatively low administration margins, as of increasing equity must be covered long as a number of criteria are met. by a lower cost:income ratio and higher income. High rating a necessity The highest possible rating is AAA, which After the financial crisis is the rating of Nykredit's covered bonds. Nykredit still has a very small number A high rating is essential to Nykredit, as of customers who are unable to service large investors often can or will invest in their mortgage loans. Because of the low low-rated bonds only to a limited extent. interest rates, the financial crisis has not The high rating ensures that Nykredit is resulted in higher arrears for Nykredit, able to sell its bonds at low yields. but nevertheless in larger losses. The reason is that losses on the few proper- ties that have to be sold are considerably Effective interest rate (incl administration margin) of home larger than usual. Add to this Nykredit's loans subject to frequent interest rate reset expenses of providing supplementary col- lateral behind the issued bonds. Denmark Sweden The Danish mortgage system enables 4.5% Nykredit to offer loans at a very low 4.0% interest rate. Interest margins have in-

3.5% creased in Denmark, but considerably less than in Sweden. 3.0%

2.5%

2.0%

1.5%

1.0%

0.5%

0% 2011 2012 2013

Page 16 About Nykredit · CSR Did you know that there is no statistical support for the claim that responsible invest- ment generates lower returns? according to MSCI, Nykredit's ad- viser, the largest Danish companies are 32% more sustainable than the largest US companies? Nykredit's Global Equities SRI sub- fund generated a return of 32% in 2013 – outperforming the market – despite the fact that it excludes almost 15% of its investment op- portunities, such as manufacturers of alcohol, tobacco, arms, pornog- raphy and gambling?

incorporate social conditions, environ- attempt is unsuccessful, the company is ment and corporate governance in their excluded. That happened in 2013 to a way of conducting business. mining company which, despite promises to the contrary, did not improve its envi- Nykredit's surveys show that companies ronmental performance. which are operated in a sound and re- sponsible way are generally also sound Read more about our work to ensure sus- investments. Investing in such sound tainable investment in the annual reports companies involves less risk without re- of the investment funds and in Nykredit's ducing returns. Nykredit therefore uses UN PRI reports at nykreditinvest.dk. Sustainable investment systematic sustainability assessments Investments benefiting customers, to pick and evaluate the companies in Nykredit and society Nykredit's four focus subfunds. A focus Nykredit adheres to the principles of Nykredit invested DKK 241bn on behalf subfund is an investment portfolio of the UN Global Compact and UN PRI: of our customers and as part of the man- usually 25 to 50 shares that applies sus- UN Global Compact is the world's larg- est volunteer network for companies that agement of Nykredit's equity. The funds tainability as an essential criterion for the take measures to fulfil their social respon- were placed in shares and bonds issued choice between investment alternatives. sibility. Global Compact is based on ten principles within four areas: Human rights, by about 2,000 individual companies with Experience from the past few years shows labour standards, environment and anti- activities virtually all around the world. that this approach benefits our customers corruption. The individual company selects the areas and the measures relevant to its and society alike. core business. Nykredit is aware of the responsibility UN PRI are the UN's six principles for following from such investment. The bal- Since the summer of 2012, Nykredit has responsible investment. The principles ance between returns and responsible had a corresponding set of guidelines for constitute a set of common global guide- lines for responsible investment behaviour, investment rests on Nykredit's business responsible sovereign debt investment. incorporating environmental, social and concept of Financial Sustainability. corporate governance issues into the entire investment process. Although Nykredit's customers are very Investment subfunds with a special diverse, they all expect the companies GRI (Global Reporting Initiative) is an international network working to focus in which we invest to act in compliance promote sustainability reporting around Financial Sustainability is not only an with international law. Consequently we the world. obligation. It also reflects the awareness screen the companies in our portfolio for Excluded companies at end-2013 that common sense makes good business breaches of generally accepted conven- A current list of excluded companies is available at nykredit.dk/omnykredit. sense. The vast majority of the world's tions, the Global Compact principles, etc. companies that comply with international In case of breach, we first try to convince law differ greatly. Some of them skilfully the company to solve the problem. If the

"It was evident from our initial research that sustainability assess- ments can help us handle risk and perhaps even seize opportunities. Over the past year we have used the assessments to select and eva- luate companies. The result has been portfolios generating better results for the customer, Nykredit and in the long term society."

Morten Gregersen, Head of Global Equities, about his experience of using sustainability assessments to manage focus subfunds.

About Nykredit · CSR Page 17 Social responsibility

As the largest Danish credit provider ous non-profit activities in the areas of We want to share knowledge of financial with more than 1.1 million custom- social projects, climate and environment, issues and the financial services sector ers, Nykredit's financial strength art, culture, public health, sports, etc. through dialogue with our stakeholders. is of great importance to Danish Focus on our stakeholders is vital to our society. That in itself involves social Nykredit has adopted the UN Global objective of carrying on financial business responsibility. Compact initiative and its 10 principles on for the benefit of our customers. human rights, labour standards, environ- In line with our CSR policy, Nykredit ment and anti-corruption. Nykredit also Our policies are available at nykredit.dk. strives to contribute to a stable and ef- has a socially responsible investment pol- ficient financial market. As a large work- icy and has adopted the UN principles for Contribution to society place and business, we play an important responsible investment, UN PRI. We re- Nykredit contributes to society by con- role in society. As a financial mutual port annually on our corporate social re- ducting business in a responsible manner, governed by our customers, we have a sponsibility in accordance with the Global enabling us to provide loans to individu- special obligation to show commitment Reporting Initiative (GRI) guidelines. als and businesses in good times as well and assume responsibility – also through as in more challenging times. We also support and involvement in other areas in Dialogue with the world make a direct contribution to society in Danish society, locally as well as nationally. The dialogue with Nykredit's stakehold- the form of company tax and other taxes. ers is based on our business concept and Nykredit has a climate and environment stakeholder policy. Nykredit's corporation and payroll taxes strategy according to which we have for 2013 totalled DKK 767m. pledged to contribute to a greener Den- We want an open and active dialogue mark. We contribute to the development with all relevant stakeholders in order to of Danish society by engaging in numer- develop Nykredit's business activities.

Society

Customers

VAT Staff and products Culture 4,000 staff 31% of 270,000 members Diversified Denmark's General taxes lending market investor profiles Social fourth largest bank Management Nykredit of DKK 117bn activities Administration of 43% share DKK 598bn Payroll tax of mortgage market 600,000 Donations mortgaged homes Advisory Totalkredit 1.1m customers services Through 700 Available 70 hours bank branches Jobs a week Climate and environment

Financial Sustainability

Page 18 About Nykredit · CSR Customer's universe 2013 Structural differences in the property market

Regional differences

Rest of Copenhagen Aarhus Odense Aalborg Denmark

Net inflow 2012 (no of persons) 3,868 1,536 682 1,156 -7,242

In recent years Denmark has seen differ- At the same time, we are obliged to view ences in population growth which seem the business from a long-term perspec- to become of a more permanent nature. tive. We provide objective advisory ser- There is a trend towards increased migra- vices including both credit assessment tion to growth areas around the large and property valuation. This means that towns and cities, and especially Copenha- if a customer wants to buy a property gen. When local jobs disappear, it reduces for DKK 1 million which requires renova- the economic activity that keeps the tion for another DKK 1 million, it is not peripheral areas alive. The gap between automatically possible to make ends meet the cities and the rest of the country is if the price level in the area concerned becoming more pronounced. dictates that the property can only be sold for DKK 1.5 million. If that is the Nykredit's raison d'être is to carry on case, the customer needs to be financially financial business for the benefit of our very robust. customers, including to extend loans. Hence, there are no "dark spots" on the The Nykredit Foundation has donated map where Nykredit does not offer loans DKK 1 million for research on develop- – we offer mortgage lending and bank- ment trends in the property market out- ing services in all parts of Denmark. Also, side the cities. Nykredit supports research there is no minimum loan amount. that may add knowledge about ongoing structural issues.

About Nykredit · CSR Page 19 HRH Crown Princess Mary

has been set up at several crisis centres a mentorship scheme – Nyt Netværk for battered women in Denmark in col- (New Network) – aimed at non-ethnic laboration with LOKK, a national organi- Danes learning Danish at the language sation of women's shelters. By the end of school. The mentorship period is typically 2013, counselling had been established four months, and the goal is to bring the at 14 crisis centres. mentees closer to the Danish labour mar- ket so that they can get a job. Social initiatives The counselling team consists of social Nykredit has a number of partnerships workers from Mødrehjælpen/the crisis The project aims to help the mentees ex- where Nykredit's staff, on a voluntary centre, volunteer lawyers and volunteer pand their personal networks and provide basis, offer their professional skills in con- financial mentors from Nykredit. Nykredit guidance about Danish society, including texts that stretch beyond their daily work. adapts its counselling efforts to the needs the labour market and workplace culture. They are social activities such as Råd of the individual. The approach is help to Nykredit is facilitating the project, and til Livet, Nyt Netværk and Økonomisk self-help, and the objective is to provide Nykredit staff members work as voluntary Overblik. Nykredit supports and facilitates the women with a better overview of mentors. the projects, and Nykredit staff members their finances through financial mentor- make available their professional and per- ing and enable them to manage their own The mentees get an opportunity to ex- sonal knowledge and experience. finances in liaison with their own bank. pand their personal networks and become So far, over 1,800 women have received better equipped socially, professionally Råd til Livet counselling from Mødrehjælpen and at and culturally and to meet the challenges This project offers free and independ- the crisis centres. in the Danish labour market. ent advice on social, financial and legal matters to battered and other vulnerable The project is funded by Nykredit and Økonomisk Overblik women. The project was initiated in 2009 Østifterne. In cooperation with Soldaterlegatet (The as a partnership between the Mary Foun- Soldiers' Grant), KFUM Soldiers Mis- dation, Mødrehjælpen (Mothers Help) Nyt Netværk sion and Veterans Home, Copenhagen, and Nykredit. Since then the project has In a partnership with Hellerup Language Nykredit launched a pilot project in 2013, been expanded, and similar counselling School, Nykredit has since 2011 arranged Økonomisk Overblik (Financial Overview)

Page 20 About Nykredit · CSR 10,000 participated in Nykredit Copenhagen Marathon

offering independent financial advice to Marathon and half marathon previously deployed soldiers who have For the fourth year in a row, Nykredit was lost their financial bearings due to per- the main sponsor of the Nykredit Copen- sonal problems. The counsellors are vol- hagen Marathon with more than 10,000 unteer Nykredit staff members who make runners at the starting line at Islands available their professional skills. The Brygge in Copenhagen. counselling takes place at the soldiers homes in Holstebro and Hvorup and at Nykredit was also the main sponsor of the Veterans Home in Copenhagen. the Nykredit Aarhus City Halvmarathon with more than 9,500 participants, in- Sponsorships cluding 300 customers and staff mem- Sponsoring agreements with institutions bers. of arts, culture and sports as well as edu- cational establishments are a natural part Vorespuls.dk of Nykredit's societal involvement. The In 2010 Nykredit entered into a partner- sponsorships Nykredit enters into thus ship with DGI on creating a joint, online also aim to attract the general public and physical activity universe with sports support the development for the benefit events taking place throughout Denmark. of society, for instance in the form of The sponsorship is part of Nykredit's culture or sports. The sponsorships also efforts to make a difference in the field strengthen and expand relations with im- of physical activity, and the objective of portant target groups. vorespuls.dk is to improve public health by inspiring and motivating Danes to en- In 2013 Nykredit spent about DKK 13m gage in physical activity as a natural part on sponsorships, of which the main ones of their everyday life. were: With over 50,000 monthly hits, vorespuls. ARoS, Aarhus Art Museum dk is a popular site where visitors can Copenhagen Business School, Premium find information, current events, and Career Partner subscribe to newsletters about running, The Royal Danish Theatre, main cycling, mountain biking, swimming, kay- sponsor aking and a healthy lifestyle in general. Nykredit Aarhus City Halvmarathon, main sponsor Nykredit Copenhagen Marathon, main sponsor Vorespuls.dk, partnership agreement with the Danish Gymnastics and Sports Associations (DGI) Aarhus Symposium

About Nykredit · CSR Page 21 The winner of Nykredit's Research Prize 2013: "It is an im- portant gesture of recognition from a large player in the sector. It is also a pat on the back for the Center for Finan- cial Frictions, which I am heading. I know that the panel attaches importance to the research being relevant and having something to say about the financial crisis. This ges- ture of recognition means a great deal to us." David Lando, Professor, CBS

The Nykredit Foundation The Motivation Prize of DKK 100,000 countability. Lastly, Associate Professor The Nykredit Foundation awarded about was awarded to the architectural firm Tanja Jørgensen was awarded the Talent DKK 7.4m in 2013, of which DKK 1.3m EFFEKT, represented by Sinus Lynge and Prize 2013 of DKK 100,000 for her re- for Nykredit's prizes and DKK 5.7m for Tue Hesselberg Foged, partners. The search in consumer credit with focus on donations to 62 different projects. The firm's projects are original and carefully the financial motives and incentives of Foundation was established back in 1985 designed and are based on the users' the rules of law. after a merger of Forenede Kreditfore- need for security, well-being, homeliness, ningers Fond and Jyllands Kreditforen- recognisability and an informal atmos- Donations ings Fond, and after the formation of phere. The Nykredit Foundation donates a total Nykredit. The Foundation is managed by of DKK 4m-8m every year. The Founda- Nykredit Realkredit A/S and has a capital Nykredit's Research Prize 2013 tion mainly supports initiatives with spe- of DKK 100m. The Research Prize was first awarded in cific and definable contents 2010. The prize is awarded for original in the Danish business sector – espe- The Nykredit Foundation awards two ar- and innovative, high-quality research in cially related to the construction sector chitecture prizes – the Architecture Prize the financial, HR or CSR area. The Prize research (construction, finance, CSR, and the Motivation Prize – and a research consists of three merit awards – a re- HR) or cultural purposes prize. search prize for a senior researcher and conservation of landscape, buildings two research talent prizes for young, tal- and architecture Nykredit's Architecture Prize and ented researchers. innovative, voluntary, social or humani- Motivation Prize 2013 tarian work The Architecture Prize of DKK 500,000 The Research Prize 2013 of DKK 500,000 non-profit projects, mainly related to was in 2013 awarded to Jan Gehl Ar- was awarded to Professor David Lando, the construction sector chitects, represented by Helle Søholt, CBS, for his comprehensive and ground- publishing of books on art or architec- David Sim and Jan Gehl, partners. Gehl breaking research in financing and credit ture. Architects's expertise builds on years of risk. research on the interrelation between the Generally, the projects must have an as- physical environment and human well- Assistant Professor of Leadership & sociation with Nykredit's activities. being. The prize was awarded to the firm Sustainability Robert Strand, CBS, was of architects for its many years of work to awarded the Research Talent Prize 2013 One example of the Foundation's dona- promote urban development focusing on of DKK 100,000 for his research into tions in 2013 is a donation of DKK 1m human well-being. businesses' CSR organisation and ac- for research-based analysis of property market trends outside large towns and cities. The purpose of this project is to fa- cilitate the mapping of differences across the Danish housing market.

The full list of projects that have received donations is available at nykredit.dk. Photo from the award ceremony at Nykredit: From the left, Nina Smith, Professor and Deputy Chairman of the Board of Directors, Robert Strand, Assistant Professor, David Lando, Professor, Morten Østergaard, Minister for Science, Innovation and Higher Education, Tanja Jørgensen, Associate Professor, Ph.D, and Steen E. Christensen, Chairman of the Nykredit Foundation.

Page 22 About Nykredit · CSR Nykredit's resource consumption

and reduction of CO2 emission 2012 2013 Resource consumption Total energy consumption, MWh 30,149 29,167 - of which electricity 16,054 16,320 - of which heating 14,094 12,847 Water, m3 49,388 41,291 Transport, 1,000 km 19,168 17,776 - of which company cars/cars 927 730 under gross salary contracts - of which by aircraft 9,120 8,820 - of which by train 2,170 2,138 - of which by own car 6,427 5,790 - of which by taxi 525 298

Total CO2 emission, t 10,821 9,511

Direct CO2 emission 308 280 - of which company cars/cars 143 119 under gross salary contracts - of which heating – oil and gas 165 160

Indirect CO2 emission 8,131 7,029 - of which electricity 6,609 5,565 - of which heating from CHP plants 1,522 1,464

Other indirect CO2 emission 2,382 2,202 - of which by aircraft 1,191 1,135 - of which by train 52 68 - of which by own car 1,060 955 - of which by taxi 78 44

Key figures Heating per sqm, KWh 94 86

CO2 emission per full-time staff, t 2.54 2.40 Heated area, sqm 146,784 149,821 Full-time staff at 30 September 4,100 3,960

Environment and climate we have therefore made an effort in 2013 estimates of prices for any energy im- In 2013 Nykredit launched its climate to strengthen customer advisory services provements and repayment periods for strategy up to 2020 with climate and and provide training to our customer the main measures. This report combined environment improvements both in rela- advisers on the key issues of energy eco- with Nykredit's advice constitutes a good tion to our customers and internally in nomics. basis for deciding what energy improve- the organisation. The customer-centric ments to invest in. focus has been a key element and as a As part of this work, Nykredit formed a result of this, Nykredit's advisory services partnership with DONG Energy in the Nykredit's work of incorporating energy now incorporate climate and environment autumn of 2013 on offering energy reno- aspects into its advisory services supports considerations and offer customers an vation advice, with Nykredit providing the processes in society aimed at promot- energy check. financial advice and DONG Energy being ing energy savings among private home- in charge of technical energy advice. owners. The initiative is attuned to the Energy advice home energy efficiency scheme of the As a consequence of the general focus Energy check provides clarity Danish Energy Agency ("Bedre Bolig – on climate and environment issues in so- The energy check is carried out by an Besparelsen betaler"), to which Nykredit ciety, including the Danish government's energy consultant from the energy com- has also contributed financial expertise Growth Plan DK presented in 2012, we pany. The energy consultant reviews in the field of mortgage banking. The expect increasing focus on the energy the dwelling and draws up a report that scheme was approved by the Danish par- performance standards of dwellings, describes the customer's current energy liament in December. which is already being observed in con- consumption and the savings that could nection with home sales. This may affect be achieved through energy renovation. For more information on the energy a number of Nykredit's customers, and The energy check report also provides check, see nykredit.dk.

About Nykredit · CSR Page 23 Bent Stubkjær, director and founder of Best Energy, which chose Nykredit as their financing partner for a wind turbine project in Nollund. Photograph by David Bering/Mont- gomery

Wind turbine financing formed. On that basis, we can identify Nykredit has for the past two years fo- the locations where the energy efficiency cused on wind turbine financing for cus- measures have the largest impact. tomers. Wind turbines are now regarded as real property, which enables mortgage Other projects include financing. Solar cells on own buildings – three new solar power systems have been Nykredit focuses on financing of rela- established in Aalborg, Kolding and tively large and new wind turbines on Randers. Danish soil, both onshore and offshore. Behaviour campaigns – by caring on a day-to-day basis we can make a differ- Customer advantages ence. We have launched the campaign Financing in the form of mortgage Healthy Green Habits. and bank loans up to 80% Eco-friendly purchasing – Nykredit has Opportunity for more customers to been awarded member of the year of a invest in wind turbines corporate network under Ecolabelling Increased earnings potential for Denmark. farmers and others Attractive investment object in great The projects are part of the effort to demand among pension funds and reach the target of reducing Nykredit's others own carbon footprint by 65% from 2012 Profitability to 2020.

Active participation in CO2 reduction.

For Nykredit, this option is aligned with our business concept, Financial Sustain- ability, of sustainable investments and financing. At the same time it conforms to our climate strategy. Path towards 65% reduction of CO2 emission 0% 12% 65% 100% Internal measures 10,821 t 9,511 t 3,785 t In 2013 a process was set up under which a quarterly ranking of locations 2012 2013 2020 by energy consumption per sqm is per-

Page 24 About Nykredit · CSR Staff

"In my view, a democratic and modern society is one which allows for heterogeneity and where diversity is considered a strength. This diversity should also be mirrored at the workplace. Everybody should be able to unfold their full work potential." Manu Sareen, Danish Minister for Gender Equality, at the conference "LGBT in the workplace".

Nykredit's 4,000 staff play a key role. Nykredit's management team will lead Diversity characterises the staff, job the way and be role models with respect profiles and focus areas, but all staff to the values and principles that should have a shared customer focus. characterise Nykredit. In 2013 managers in customer-facing units were trained in One of Nykredit's objectives is to be execution and business management as among the most attractive and challeng- well as optimisation of customer services, ing workplaces in Denmark. This objective work planning and team building. The requires dedicated work and is a precon- training programme enables Nykredit's dition for delivery of the group strategy. managers to manage robust and efficient units with focus on ensuring high quality Job satisfaction – including physical and standards, meeting customer expecta- psychological work conditions – is impor- tions and implementing new initiatives tant to staff efficiency and optimal use of efficiently. resources. Twice a year, a staff satisfac- tion survey is carried out, benchmarking Diversity Nykredit's results against those of the Nykredit widely supports staff diversity in financial sector and the general labour age, gender, sexual orientation, ethnicity market. and disability. We believe that a diverse staff, reflecting who our customers are, The 2013 survey showed growing job sat- strengthens the business and fosters a isfaction at Nykredit. good and innovative working environ- ment. Bente Overgaard, Group Managing Director, and Performance culture Manu Sareen, Danish Minister for Gender Equality. For many years Nykredit has been en- In 2013 Nykredit intensified these efforts gaged in creating a performance culture by identifying barriers and options in where the Group's strategic objectives relation to minority ethnic staff recruit- tion and are more productive. In 2013 are translated into individual staff goals. ment. This process will be continued in Nykredit hosted a conference under the Performance orientation is crucial to 2014 so that Nykredit will be able to at- heading "LGBT in the workplace", at Nykredit's strength and implementation tract the most talented people, regardless which business executives were invited of the Group's strategic priorities, as all of ethnicity. to share their experience and discuss the staff members know which way to go, possibilities from a political, international and they know the goals of their own For a number of years, Nykredit has and corporate perspective. The high at- units and of Nykredit. Performance ori- worked on building an environment tendance at the conference underscores entation sets a clear framework for struc- where staff members can be comfortable how important it is to address the issue tured staff development and provides talking about their sexual orientation, if and to keep raising awareness of the area each staff member with the security of they wish. According to research made, in order to create an open and tolerant knowing what is expected of them. staff who are open about their sexual corporate culture to the benefit of the in- orientation have higher job satisfac- dividual staff members and companies.

About Nykredit · CSR Page 25 Flexitime jobs In 2013 Nykredit participated in a pro- ject, Flexpilot, together with the Danish Ministry of Employment and the Business Forum for Social Responsibility (VFSA). The object was to test the possibilities of and barriers to offering flexitime jobs with 12 weekly working hours or less based on the new legislation in the area and to test the collaboration between the businesses and the job centres.

Women in management Since 1996 Nykredit has focused on more women in management and has made an active contribution under the "Charter for more women in management" and "Operation Chain Reaction". Nykredit has set targets for the percentage of women on the boards of directors of Nykredit's financial companies and has developed a policy to raise the percentage of women at other management levels.

In recent years Nykredit has recruited more female managers at the lower man- other information on Nykredit's efforts in Nykredit regularly completes internal agement levels. There is still room for this respect are available at nykredit.dk. certification of customer-facing staff, improvement at the higher management Nykredit Certification. Nykredit Certifica- levels and in some career paths. tion goes beyond the public certification Certification and training of programme. Public certification within Nykredit has a structured programme to Nykredit advisers investments exclusively concerns advis- recruit more women for the top manage- In 2011 new rules were introduced re- ing on the purchase or sale of investment ment level. The programme identifies quiring financial companies to ensure and products, whereas Nykredit Certification and develops management talents at prove that advisers have the necessary includes different fields such as day-to- Nykredit, creating a pipeline of staff skills to advise customers on investment day finances, pension and home financ- ready for their first managerial job as products and financial instruments. ing. well as experienced management staff at executive level. The programme includes Public certification comprises all staff Nykredit's compulsory training pro- objective assessments supporting the advising customers on investment prod- gramme ensures that advisers have a identification of management talents with ucts in various risk categories. All advisers high expertise and that such expertise is potential for the next rung on the career working with risk products must pass an translated into sound advice. Over time, ladder – regardless of gender. Nykredit's external certification test approved by the all customer-facing advisers will become policy for women in management and Danish Financial Supervisory Authority. certified by Nykredit.

Target for female board representation

Today Target 2016

Nykredit Holding 17% 20%

Nykredit Realkredit 20% 25%

Nykredit Bank 20% 20%

Totalkredit 14% 20%

Percentage of female managers

% 1996 2010 2011 2012 2013 Target 2015

Executive-level management 3 9 10 10 11 15

Middle-level management 25 24 21 22 30 14 Lower-level management 42 41 43 45 45

Page 26 About Nykredit · CSR Graduates participate in an acceler- 13 ated career programme.

day operations and the continuous group Nykredit staff, forms part of a large pack- development. Interaction takes place age of health offers, including sports at many levels: between the individual and exercise via Nykredit sponsorships. supervisor and union representative, in The Nykredit Health App was launched the local and central works councils and recently. The app is designed to help mo- health and safety committees, as well as tivate staff members to focus on healthy in a number of ad hoc working groups. living and food habits.

In order to support the objective of being Nykredit Graduate and Nykredit an attractive and challenging workplace, Thesis Nykredit has prepared a staff policy, Knowledge is the raw material that which is being implemented through ensures innovative product solutions, the local works councils in dialogue with professional advice and continuous devel- NYKREDS. In spring 2014 Nykredit will opment for the benefit of Nykredit and be negotiating a new collective agree- our customers. Nykredit Graduate was ment with NYKREDS. launched in 2013 in order to recruit the top talents among the most skilled and Responsible remuneration ambitious newly graduated candidates. Training of advisers and customer Remuneration must be structured and Nykredit Graduate offers the best eco- support officers controlled and based on uniform princi- nomics graduates an accelerated career All commercial and personal customer ples for variable remuneration across the programme at Nykredit with a sharp focus advisers must possess the skills required organisation and job structures. Further, on talent development and management. to genuinely understand their custom- Nykredit focuses on incentive schemes We have employed 13 graduates, and the ers' wishes and needs. Nykredit has which ensure a reasoned basis for all de- Nykredit Graduate programme will be of- introduced a Key Account Management cisions made and advice given. fered again in 2014. training programme for this purpose. The programme focuses on forming close Nykredit Health In 2013 Nykredit also introduced a new customer relationships and on the key ac- Nykredit is focusing on health in general, thesis concept, Nykredit Thesis. The count manager role for both personal and as healthy staff members have higher Nykredit Thesis bridges studies and busi- commercial customers. The programme is job satisfaction, lower sick absence rates ness aspects, providing Nykredit with designed to improve customers' experi- and create a good social environment. new knowledge and thesis writers with a ence with Nykredit, with a resulting posi- The annual staff health check offer, practical approach. tive impact on customer satisfaction. which in 2013 was accepted by 1,976

All Nykredit's customer support officers Staff figures have also participated in extensive train- 2009 2010 2011 2012 2013 ing to ensure a smooth and efficient ad- Permanent staff, year-end 4,061 3,826 4,057 3,865 3,855 ministrative experience for customers. - of which part-time staff 490 479 495 425 407

Staff paid by the hour 601 665 651 641 642

Relationship with NYKREDS New staff 214 197 348 160 209 Nykredit has a good relationship with Outflow 220 287 303 218 274 NYKREDS, its staff association, and New staff as % 6.1 4.9 8.6 4.1 5.4 Nykredit appreciates that NYKREDS seeks of permanent staff influence and works to ensure that staff Outflow as % 6.2 7.1 7.5 5.6 7.1 conditions are considered in the day-to- of permanent staff

About Nykredit · CSR Page 27 Nykredit and elite-level sports Anne Lolk Thomsen, Lars Vilandt, curling For a number of years, Nykredit has of- rowing, lightweight double sculls 39, Customer Consultant, Nykredit fered flexible employment contracts for 30, Customer Consultant, Nykredit Ser- Service Centre. elite athletes. The athletes are employed vice Centre, currently on maternity leave. as advisers with flexible working hours, Results, extract: which allows them to develop their per- Results, extract: Silver: 2010 European Curling Champion- sonal and professional skills alongside Gold: 2006, 2007, 2008 and 2009 Mara- ships (coaching) their sports careers. The job gives the thon K2 World Kayak Championships Bronze: 2007 and 2011 European Curling athletes a robust foundation and a career (Anne changed from kayaking in 2009) Championships to fall back on when their sports careers Fourth place: 2012 Olympic Games Fourth place: 2013 World Curling Cham- are over. pionships, 2012 and 2013 European Curl- "Nykredit has offered me the best pos- ing Championships Morten Jørgensen, sible setting for combining a career with 9 x Danish Champion rowing, lightweight men's four elite-level sports. Nykredit has provided 28, Personal Customer Adviser, Nykredit a breathing space as well as a different "To me, it is important to get backup Direkte. kind of stimulation, and I have had the from my family as well as from my time to focus 100% on my rowing when I employer. I feel that I get that from Results, extract: needed to. Nykredit. It has been good to be able Gold: 2008 Olympic Games, 2013 Euro- to turn in my season schedule and work pean and World Rowing Championships The team I work with at the Service Cen- part-time in order to practise for the Silver: 2009 World Rowing Championships tre is completely on board with my work- 2014 Winter Olympics without a guilty Bronze: 2012 Olympic Games ing part-time. I am still very much part of conscience. My supervisers as well as my the team – I also need to fulfil my targets colleagues have told me that they find "To me, working at Nykredit is quite lib- and assist the team in fulfilling our overall my project exciting and support me all erating. It channels my thoughts to other goal. In some periods I work less, and the way. things besides my rowing, which I believe customers may have to change consult- is very healthy. It means a lot to me that ants, but when I explain my absence, I Nykredit customers meet an adviser who Nykredit is willing to offer me the flex- always get positive feedback." is focused and sympathetic, and that ibility I need for my rowing, allowing me opens up for good dialogue. My col- to pursue the sports performance I am leagues have a colleague who is competi- so passionate about. When I am at work, tive but also a team player." I give it 100% and I use a lot of what I have learned rowing the "golden four" in my daily work.

This means that my Nykredit colleagues Anne Lolk Thomsen (right) in have a team member who is focused on the lightweight double sculls. Photograph by achieving the set targets. Some of my Brian Martin Rasmussen colleagues also admire the way I plan my days, as I have a very tight schedule. I don't think that my being a rower mat- ters to the customers, but my general approach probably does. My communica- tion, interpersonal, assertion and nego- tiation skills."

Morten Jørgensen (right) and the Danish "golden four" at the 2013 World Championships. Photograph by Brian Martin Rasmussen Lars Vilandt, Danish national curling team. Photograph from ol.dk: Lars Møller/www.larsmoeller.com

Page 28 About Nykredit · CSR elite athletes are employed by Nykredit 6 on special contracts

About Nykredit · CSR Page 29 Lending growth and earnings

We want an active lending business Low bond yields necessitate a high It is important that Nykredit has a strong credit rating, investor confidence and capital position so that we can pro- high capitalisation vide our customers with loans – also in A high equity level is crucial to obtain- times of crisis. In the past five years, we ing a good credit rating of Nykredit's have grown our lending by DKK 181bn, mortgage covered bonds, which is of whereas the rest of the Danish finan- great importance to the price of the cial sector has reduced lending by DKK bonds funding a mortgage loan. A high 242bn. This would not have been possi- equity level ensures that investors will ble without our high equity level. pay a higher price for the bonds, which ultimately means better terms for our Rising capital requirements customers. In these years, regulators in both the EU and Denmark are laying down a multitude Need for higher earnings of new rules which are in part intended Higher lending requires more capital, all to prevent a new financial crisis. In spring other things being equal. With its current 2013 an agreement was made to increase return on equity, Nykredit does not earn capital and liquidity requirements for all enough to be able to increase lending in credit institutions in the EU. All banks response to continued market growth. and mortgage lenders must have more A higher equity level may be secured SIFI capital – capital requirements will largely through higher earnings. Therefore, A SIFI is a financial insti- tution which is so large double and a greater part of total capital Nykredit must increase earnings in order and complex that its requirements must be met by means of to be able to provide customers with disorderly default would equity. loans on favourable terms also in future. inflict significant damage on the financial system Nykredit expects to be designated as a The political agreement on SIFIs allows and the economy at large. systemically important financial institu- mutual mortgage lenders to issue shares tion (SIFI) in Denmark, and one of the without any voting rights. However, this consequences will be an elevated equity possibility does not curb the pressure on requirement. earnings, as shares without voting rights require a higher return on equity.

Nykredit 2015 This need for higher earnings has prompted Nykredit to work on a new business strategy, "Nykredit 2015", the purpose of which is to grow income by DKK 1bn and trim costs by DKK 0.5bn.

Based on its capital policy supplemented with initiatives to raise earnings and reduce costs, Nykredit will be able to produce a stable and sustainable basis for future lending to Danish personal and commercial customers. As a SIFI and a re- sponsible company, Nykredit will continue to operate with a conservative capital structure, ensuring high credit ratings.

Page 30 About Nykredit · CSR Jesper Rangvid, Professor of Finance, Copenhagen Business School.

Equity buffers are necessary Rangvid report, FSA Supervisory Dia- Regulatory capital requirements do not mond and Danish mortgage lending contain fixed percentages; these change The Rangvid report from the Danish with the macroeconomic climate and con- Committee on the Causes of the Financial currently with the sector development. Crisis was published in September 2013. The report offers 18 specific recommen- We will introduce two buffers in dations for measures to shield the finan- Nykredit's capital policy to ensure that cial sector against crises. Especially one Nykredit has the capital it needs in the recommendation is worth noting: Mort- future: gage lenders will be subject to an FSA A growth buffer for active lending to Supervisory Diamond model, like banks. ensure that Nykredit is always able to match customer demand also when it The Supervisory Diamond model identi- grows. fies what the Danish FSA considers as A buffer for regulatory changes, as the elevated risk scenarios, such as a high new EU rules authorise regulators to number of very large exposures or high change the capital requirements when exposure to property finance. This ac- deemed necessary. knowledgement that mortgage lending is different from ordinary banking is important to Nykredit, and we therefore look forward to contributing to the final design of the Supervisory Diamond.

About Nykredit · CSR Page 31 Nykredit in numbers

Nykredit's covered bond investors Financial highlights The Nykredit Realkredit Group

Bank and mortgage Core earnings and results for the year lenders 53% DKK million 2012 2013 Insurance companies and pension funds 16% Core income 8,909 9,298 Public sector 2% Costs, depreciation and amortisation 5,595 6,047 Private sector 9% Core earnings before impairment losses 3,315 3,251 Foreign investors 20% Impairment losses on loans and advances 2,149 2,764 Core earnings after impairment losses 1,166 487 Investment portfolio income 2,444 1,887 Profit before cost of capital 3,610 2,374 Net interest on hybrid capital (465) (460) Bond debt outstanding by property type, Profit before tax 3,145 1,914 end-2013 Tax 575 240 Profit for the year 2,569 1,674 Owner-occupied dwellings 62% Value adjustment and reclassification of strategic (237) (343) equities against equity totalling1 Private residential rental 7%

Office and retail 10% 1 Nykredit's portfolio of strategic equities amounted to DKK 1.5bn at end-2013. Industry and trades 2% Agriculture 9% Non-profit housing 5% Loan impairment rates Cooperative housing 3% 2012 2013 Others 2% Mortgage lending 0.14 0.22 Bank lending 0.59 0.31 Nykredit's investors The Nykredit Realkredit Group 0.17 0.22 Nykredit is the largest mortgage lender in Denmark and one of the largest private bond issuers in Europe. Nykredit's bond issues consist mainly of covered bonds (ROs and SDOs). In addition to this, Nykredit has issued hybrid capital. Moreover, Financial ratios Nykredit Bank has issued bonds as part of its international funding programme. 2012 2013 Core earnings before impairment losses as % 5.9 5.6 of average business capital, pa The target is a broad and diversified investor base and an ef- Core earnings after impairment losses as % ficient covered bond market which secures favourable interest 2.1 0.8 of average business capital, pa rate terms for Nykredit's customers and Nykredit. Tier 1 capital ratio, % 19.1 18.9

Due to the size of the Danish market for bonds funding mort- Total capital ratio, % 19.1 18.9 gage loans, the mortgage banking sector is a central element of credit intermediation in Denmark.

Nykredit's bonds At end-2013, Nykredit had issued a nominal amount of DKK 1,248bn of covered bonds. The bulk of Nykredit's issued bonds is applied for financing owner-occupied properties. Most of the security underlying Nykredit's bonds falls within 40% of the value of the properties.

Page 32 About Nykredit · CSR Mortgage lending Bank deposits and loans

Deposits Loans DKKbn DKKbn 1,150 70 1,100 60 1,050 50 1,000 40

950 30 20 900 10 0 2009 2010 2011 2012 2013

2009 2010 2011 2012 2013

Mortgage loan impairment rates Bank loan impairment rates

0.80% 7% 0.70% 6% 0.60% 0.50% 5% 0.40% 4% 0.30% 3% 0.20% 2% 0.10% 1% 0.00% 0% -0.10% -0.20% -1%

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2013 1996 1998 2000 2002 2004 2006 2008 2010 2013

Non-financial highlights

2009 2010 2011 2012 2013 GRI indicator*

Customers

Number of Nykredit Realkredit Group 1,030 1,051 1,065 1,092 1,093 customers (1,000)

Customer satisfaction PR5

Personal customers, (EPSI 1-100) 77 72 74 73 72

Number of complaints1 588 698 472 478 451

Responsible investment HR1

Number of companies screened2 1,800 1,800 2,000 2,000 2,000 Number of companies subject 16 20 22 19 23 to active ownership Number of companies excluded 12 11 11 13 12

Energy consumption

3 Absolute CO2 emission (t) 14,013 13,795 12,296 10,821 9,511

Staff LA2

Average number of staff4 4,135 4,026 4,139 4,115 4,052

Staff turnover 5.8% 7.5% 6.3% 5.6% 7.1%

Women in management - 29.5% 29.6% 28.8% 30.1% Job satisfaction (Ennova 1-100) - 75 76 73 74

Social initiatives/donations EC1

Nykredit sponsorships, DKKm 15 15 15 16 13

Nykredit Foundation donations, DKKm 6.8 7.7 7.0 5.5 5.7

Staff volunteers in social projects 20 62 74 76

* Areas in which the disclosed data partially or completely comply with GRI requirements. 1Complaints received by Nykredit's complaints unit and enquiries re- ceived by Nykredit's customer ambassador. The data do not include complaints brought before appeals boards and from 2011 do not include complaints handled by Nykredit Forsikring, which was sold to Gjensidige Forsikring in 2010. 2All companies are screened. 3Nykredit has a target of reducing the Group's carbon footprint by 65% from 2012 to 2020. 4Number of full-time staff. Excluding Nykredit Forsikring A/S and JN Data A/S.

About Nykredit · CSR Page 33 Reporting policies

The contents of this report pertain to all The market share of assets under admin- gross margin is determined as a 90-day activities of the entire Nykredit Realkredit istration is determined on the basis of the average. Swedish effective interest rates Group, including subsidiaries. In this official statistics prepared by the Federa- (gross margin and funding costs of loans report, the Nykredit Realkredit Group is tion of Danish Investment Associations. with 3-month interest reset) are based on referred to as Nykredit or the Nykredit the Riksbank's statements and are also Group. The reporting policies apply to the Assets under management includes Asset 90-day averages. data which Nykredit finds significant. As Management and Private Portfolio. a main rule, the latest data available are Social responsibility applied in this report. The report is in- Bond trading is calculated on the basis Net inflows are based on 2012 data from cluded in the audit of the Management's of a 12-month average of the Nykredit Statistics Denmark published in January review in the Annual Report 2013. Due to Realkredit Group's share of total bond 2013. Copenhagen is inclusive of Fred- rounding-off, the sum totals of the tables trading (excl repo transactions) measured eriksberg. in the report may differ from the sums of at market value in the regulated market the listed figures. and OTC (Over-The-Counter). Corporation tax is calculated as current tax and adjustment of tax assessed for Meet the customer In the figure "Lending growth in previous years relating to the Forenin- The total number of customers has been Nykredit", lending data derive from the gen Nykredit Group. The environmental adjusted so that multi-service customers MFI statistics. The data exclude loans to and climate report includes companies appear only once. MFIs, but include reverse transactions. in Denmark wholly owned by Nykredit throughout the financial year. Partially Meet Nykredit In the figure "Share of interest-only owned subsidiaries and foreign activities The number of full-time staff is an aver- loans", mortgage lending is stated at are not included, with the exception of age for 2013 calculated on the basis of nominal value at end-2013. JN Data, which has been included on the the Group's total ATP (Danish Labour grounds of materiality at a proportion Market Supplementary Pension scheme) The share of digital mail sent by Nykredit equal to Nykredit's ownership interest. contributions for the year relative to the does not include Totalkredit. The 2013 reporting period is from 1 Oc- ATP contribution for one full-time staff tober 2012 to 30 September 2013. member. The numbers of Facebook likes are end-

period data. In calculating CO2 emission, degree-day

The figure "Income from business op- adjusted CO2 emission from heat con- erations" only includes income from Yield developments are based on times sumption is applied, which enables year- customer-facing activities. Core income series of short- and long-dated bonds on-year comparison. from business operations is distributed by published by the Association of Danish product. Mortgage Banks. For more details, please see the reporting policies of Nykredit's environmental and Customers first Total customer complaints exclude com- climate report for 2013 at nykredit.dk. PRAS A/S is owned by the regional and plaints by customers with the local and local banks of the Totalkredit partnership. regional banks of the Totalkredit partner- Staff The company was formed in connection ship and are determined as the number The number of managers in Nykredit is with Nykredit's acquisition of Totalkredit of complaints received in the year under computed as the number of managers in 2003. review. having staff management responsibility.

Nykredit's group chart reflects the or- Nykredit's highest administration margin Part-time staff are determined as the ganisation as at end-2013. is taken from Nykredit's price list for number of permanent staff working less variable-rate IO loans for fully mortgaged than the number of hours required of The market share of mortgage lending as owner-occupied properties (0-80%). The permanent staff under the group collec- well as bank deposits and bank lending is Swedish margin derives from the Riks- tive agreement. determined at nominal value on the basis bank's Financial Stability Report. of the statistics on the balance sheets New staff and staff attrition reflect perma- and flows of the MFI sector (Danish Determination of Danish effective inter- nent staff joining or leaving the Group's monetary financial institutions) prepared est rates (incl administration margins) is wholly-owned companies. The percentage by Danmarks Nationalbank. based on Danmarks Nationalbank's inter- is determined on the basis of permanent est rate statistics (DNRNRI). The Swedish staff at the beginning of the year.

Page 34 About Nykredit · CSR Nykredit in numbers Data on Nykredit's investor base are de- termined as at 1 December 2013. The bond debt outstanding by property type is computed at nominal value.

Mortgage lending for calculation of the loan impairment rates of Nykredit Realkredit and Totalkredit is based on loans and advances at nominal value as well as arrears and outlays at fair value. Impairment losses are the earnings impact for the year.

Bank lending for calculation of the loan impairment rate of Nykredit Bank is based on loans and advances at fair value, loans and advances at amortised cost, guarantees excluding the govern- ment guarantee scheme as well as indi- vidual and collective impairment provi- sions. Impairment losses are the earnings impact for the year excluding the govern- ment guarantee scheme. Nykredit's total mortgage lending is year-end data at nominal value.

Bank deposits and lending are stated at year-end. Bank lending is stated exclusive of guarantees and reverse transactions.

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