NETHERLANDS - The counterparty risk for Dutch pension funds is still limited, despite the recent downgrade of many banks by rating agencies, regulator De Nederlandsche Bank (DNB) has said.

Its conclusion followed a survey among 32 large pension funds with combined assets under management of €714bn, with the counterparty's creditworthiness, spread of derivatives over counterparties as well as the counterparty's security evaluated.

According to DNB, the combined market value of outstanding derivatives, repos and deposits of the surveyed schemes is approximately €89.7bn, with interest swaps and deposits accounting for 66% and 21% respectively.

The watchdog found that all 57 counterparties involved are at least rated as investment investment grade - equating to a BBB rating at Standard & Poor's or Baa3 at Moody's - and that most pension funds spread risk across at least six counterparties.

"In addition, most schemes have sufficient options to deal with other counterparties, if the creditworthiness of existing ones drops below an acceptable level," DNB said.

The supervisor added that the received securities on derivatives was 102% of the derivatives' value, with 62.4% as cash and 37.6% as bonds of minimum investment grade or above.

"Moreover, most securities are being exchanged on a daily basis, limiting the risk of imbalances between valuation and securities to a minimum," it added.

However, DNB stressed that its conclusions only reflected the situation of the moment. "The past has shown that counterparty risks can increase quickly," it warned.

"A further downgrade of the creditworthiness of banks is a real option, given the current delicate financial and economic climate," the regulator added.