We define our total credit exposure as all transactions where losses might occur due to the fact that counterparties may not fulfill their contractual payment obligations. We calculate the gross amount of the exposure without taking into account any collateral, other credit enhancement or credit protection transactions. When we describe our credit exposure, we distinguish between the following categories: loans, contingent liabilities, over-the-counter derivatives
, and tradable assets. Listed below are some further details concerning our credit exposure categories:
- “Loans” exclude interest-earning deposits with banks, other claims (mostly unsettled balances from securities transactions) and accrued interest and include unearned (deferred) income net of origination costs.
- “Contingent Liabilities” include liabilities from guarantees, indemnity agreements and letters of credit. As of December 31, 2003, we excluded other quantifiable indemnities and commitments of € 108.1 billion, of which € 45.3 billion relate to securities lending on behalf of customers and € 62.8 billion relate to forward committed repurchase and reverse repurchase agreements. We also exclude other commitments such as irrevocable loan and placement and underwriting commitments. These exclusions were € 88.9 billion on December 31, 2003, and € 103.5 billion on December 31, 2002. At year-end 2003, 83% of our irrevocable loan commitments were to counterparties rated at the equivalent of investment-grade debt ratings from the major international rating agencies.
- “OTC Derivatives” are our credit exposures arising from over-the-counter, or OTC, derivative transactions. Credit exposure in OTC derivatives is measured by the cost to replace the contract if the counterparty defaults on its obligations, after netting. The costs of replacement amount to only a small portion of the notional amount of a derivative transaction. We calculate our credit exposure under OTC derivatives transactions at any time as the replacement costs of the transactions based on marking them to market at that time.
- “Tradable Assets” as defined for this purpose, include bonds, other fixed-income products and traded loans.
- Our consumer credit exposure consists of our smaller-balance standardized homogeneous loans, which include personal loans, residential and nonresidential mortgage loans, overdrafts and loans to self-employed and small business customers of our private and retail business.
- Our corporate credit exposure consists of all remaining exposures not defined as consumer credit exposure. Corporate credit exposure is the largest credit exposure and is discussed below in more detail.