Circular 1/2016

Guidelines for pledging collateral for loans from Norges Bank

Pursuant to Section 9 of Regulation No. 240 of 25 February 2009 on the Access of Banks to Borrowing and Deposit Facilities in Norges Bank, etc.

These guidelines enter into force on 1 March 2016. Guidelines for pledging securities and fund units as collateral for loans in Norges Bank published as Circular 1/2012 are repealed as from the same date.

1. Introduction

These guidelines regulate requirements for securities and fund units pledged as collateral for loans from Norges Bank and for determining loan value.

To be eligible as collateral for loans from Norges Bank, securities and fund units must meet the requirements in Section 2, unless otherwise stated in these guidelines.

Norges Bank may request submission of the information and documentation the Bank deems necessary.

2. Requirements for securities and fund units pledged as collateral

2.1 General requirements

Securities and fund units approved by Norges Bank may be pledged as collateral for loans from Norges Bank. Norges Bank may at any time reject any security or fund unit.

2.2 Registration in a securities depository

Securities must be registered in the VPS (Norwegian Central Securities Depository), Euroclear Bank (Belgium) or Clearstream Banking (Luxembourg).
The holdings of fund units must be registered in the VPS.

2.3 Currency requirements

Securities shall be denominated in NOK, SEK, DKK, EUR, USD, GBP, JPY, AUD, NZD, CAD or CHF.

2.4 Country of issuance

Securities must be issued in a country approved by Norges Bank.

Issuance within the EEA is automatically approved. Securities issued in non-EEA countries, the collateral provider must present legal confirmation of the absence of conditions that could weaken Norges Bank's position as collateral taker. Costs associated with obtaining such confirmation shall be borne by the pledging bank.

A list of already approved non-EEA countries of issuance may be found on Norges Bank's website.

2.5 Credit rating

Securities issued by foreign issuers and bonds, notes and short-term paper issued by Norwegian private entities are required to have a credit rating by Standard & Poor's (S&P), Fitch or Moody's. Nevertheless, this requirement does not apply to covered bonds issued in NOK by Norwegian mortgage companies.

For securities issued by Norwegian entities, a credit rating of the issuer is sufficient in the absence of a credit rating of the securities instrument.

The lowest acceptable credit rating is determined as follows:

  • bonds issued by foreign entities: A from S&P or the equivalent rating from Fitch or Moody's,
  • bonds issued by Norwegian entities: BBB- from S&P or the equivalent rating from Fitch or Moody's.
  • notes and short-term paper issued by foreign entities: A-1 from S&P or the equivalent rating from Fitch or Moody's
  • notes and short-term paper issued by Norwegian entities: A-3 from S&P or the equivalent rating from Fitch or Moody's.

If a security or issuer has more than one credit rating, the second best credit rating shall apply.

2.6 Listing requirements

Except for notes and short-term paper, securities issued by private entities must be listed on a stock exchange or other trading venue approved by Norges Bank.

Fund units are not required to be listed on an exchange.

2.7 Volume outstanding

Securities in NOK issued by a private entity must have a minimum volume outstanding of NOK 300 million.

Securities in a foreign currency that are issued by a private entity must have a minimum volume outstanding equivalent to EUR 100 million.

For securities other than Norwegian government securities, a borrower may not pledge more than 20 percent of the issue's (ISIN) volume outstanding.

For fund units, a borrower may not pledge more than 20 percent of the fund's total assets. Nevertheless, this does not apply to fund units of funds that meet the requirements in Section 3.1. Category 1 below.

2.8 Special rules concerning government guaranteed securities

Securities with irrevocable and unconditional government guarantees may be exempted from the listing requirement in Section 2.6 and the minimum outstanding volume requirement in Section 2.7.

2.9 Securities issued by a bank or other financial institution

Securities issued by a bank or other financial institution, or by a company in which banks or other financial institutions in the same corporate group directly or indirectly own more than 1/3, may not be pledged as collateral. Nevertheless, this does not apply to covered bonds and asset-backed securities (ABSs).

Bonds issued by a holding company that primarily owns insurance companies may be accepted as collateral.

2.10 Fund units

Units in bond and money market funds are eligible as collateral provided that they are managed by a management company registered in Norway and that Norges Bank has access to price information from Oslo Børs Informasjon.

Pursuant to its statutes, the fund must be confined to securities that are eligible under the current rules. The fund may nevertheless invest in unlisted securities if there is a binding promise of listing on an exchange or alternative trading venue approved by Norges Bank. The listing shall take place 14 days at the latest after the fund has invested in the securities. In the case of funds, duration will be used to determine the haircut. A currency risk haircut will be made for funds that invest in securities in foreign currency. However, this does not apply if the fund's statutes require that it be fully currency hedged. Currency hedging must be with a counterparty with a credit rating of a minimum of A from S&P or Fitch or A2 from Moody's.

2.11 Asset-backed securities (ABSs)

Only the upper tranche of an ABS will be eligible as collateral.

ABSs must have a credit rating of AAA from S&P or an equivalent rating from Fitch or Moody's at the time of pledging. A presale report from an approved credit rating agency must be submitted.

ABSs must be, in Norges Bank's assessment, what are termed "true sale" ABSs. ABSs may not be secured on commercial property loans.

2.12 Other restrictions

Securities that are directly or indirectly linked to credit derivatives are not eligible as collateral. Nor are convertible bonds, inflation-linked bonds, inverse floating rate bonds, FRN Caps, subordinated loans or similar instruments eligible.

3. Calculation of the loan value

3.1 Haircut rates

Haircut rates Category 1 Category 2 Category 3 Category 4
Maturity (yrs) \ Rate Fixed Floating Fixed Floating Fixed Floating Fixed Floating
0-1 1 1 3 3 4 4 8 8
1-3 3 1 5 4 6 5 11 10
3-7 5 1 7 5 10 7 17 14
7+ 7 1 10 6 13 9 22 17

In calculating loan value, a haircut is applied to the market value of the pledged securities and fund units. The haircut rate is determined on the basis of the category of security, the security's maturity and its time to refixing. Certain securities are given an additional haircut.

Category 1

  • Government securities with a credit rating of AAA (or equivalent rating for notes and short-term paper)
  • Units in money market and bond funds that are confined to investments in government securities with a credit rating of AAA

Category 2

  • Government securities with a credit rating of AA+ down to and including A (or equivalent rating for notes and short-term paper)
  • Covered bonds with a credit rating of AAA down to and including AA-
  • Bonds, notes and short-term paper issued by Norwegian local government authorities
  • Bonds, notes and short-term paper issued by foreign local government authorities with minimum rating of A from S&P or the equivalent from Fitch or Moody's (or equivalent rating for notes and short-term paper)
  • Bonds, notes and short-term paper with risk weight 0 per cent under the capital adequacy rules
  • Bonds, notes and short-term paper guaranteed by government authorities
  • Bonds, notes and short-term paper issued by private entities with a credit rating of AAA (or equivalent rating for notes and short-term paper)

Category 3

  • Bonds, notes and short-term paper with issued by private foreign entities with a credit rating of AA+ down to and including A from S&P or the equivalent from Fitch or Moody's (or equivalent rating for notes and short-term paper)
  • Covered bonds with a credit rating of A+ down to and including A
  • Bonds, notes and short-term paper issued by private Norwegian entities with a credit rating of AA+ down to and including A
  • Units in money market and bond funds that are not included in Category 1

Category 4

  • Covered bonds from Norwegian issuers that are unrated or have a credit rating of A- or lower
  • Bonds, notes and short-term paper issued by private Norwegian entities with a credit rating of A- down to and including BBB-

ABSs will be subject to a 15 percent haircut, regardless of maturity.

3.2 Additional haircuts

The value of securities denominated in a currency other than NOK is subject to a further 6 percentage point haircut in addition to the rates in the table.

The value of covered bonds issued by a company belonging to the same corporate group as the pledging bank or related to the pledging bank is given a 5 percent haircut in addition to the rates in the table.

3.3 Use of nominal value

If Norges Bank does not have sufficient price information on securities [registered in a foreign securities depository], the value will be determined on the basis of the nominal value, less an additional haircut depending on the bond's rating. The additional haircut is determined as follows:

  • 15 percentage points for a rating of AAA from S&P or Fitch or Aaa from Moody's
  • 20 percentage points for a rating of AA+, AA or AA- from S&P or Fitch or Aa1, Aa2 or Aa3 from Moody's
  • 30 percentage points for a rating of A+ or A from S&P or Fitch or A1 or A2 from Moody's
Published 29 February 2016 12:00