Credit Exposure


Counterparty credit exposure arises from our traditional non-trading lending activities which include elements such as loans and contingent liabilities. Counterparty credit exposure also arises via our direct trading activity with clients in certain instruments which include OTC derivatives, FX forwards and Forward Rate Agreements. A default risk also arises from our positions in traded credit products such as bonds.

We define our credit exposure by taking into account all transactions where losses might occur due to the fact that counterparties may not fulfill their contractual payment obligations.

Maximum Exposure to Credit Risk

The following table presents our maximum exposure to credit risk without taking account of any collateral held or other credit enhancements that do not qualify for offset in our financial statements.

in € m.1

Dec 31, 2010

Dec 31, 2009

1

All amounts at carrying value unless otherwise indicated.

2

Excludes equities, other equity interests and commodities.

3

Gross loans less (deferred expense)/unearned income before deductions of allowance for loan losses.

4

Financial guarantees, other credit related contingent liabilities and irrevocable lending commitments (including commitments designated under the fair value option) are reflected at notional amounts.

Due from banks

17,157

9,346

Interest-earning deposits with banks

92,377

47,233

Central bank funds sold and securities purchased under resale agreements

20,365

6,820

Securities borrowed

28,916

43,509

Financial assets at fair value through profit or loss2

1,026,494

900,800

Financial assets available for sale2

48,587

14,852

Loans3

411,025

261,448

Other assets subject to credit risk

61,441

52,457

Financial guarantees and other credit related contingent liabilities4

68,055

52,183

Irrevocable lending commitments and other credit related commitments4

123,881

104,125

Maximum exposure to credit risk

1,898,297

1,492,773

Included in the category of financial assets at fair value through profit or loss as of December 31, 2010, were € 109 billion of securities purchased under resale agreements and € 28 billion of securities borrowed, both with limited net credit risk as a result of very high levels of collateral, as well as debt securities of € 171 billion that are over 83 % investment grade. The above mentioned financial assets available for sale category primarily reflected debt securities of which more than 83 % were investment grade.

The increase in maximum exposure to credit risk for December 31, 2010 was predominantly driven by acquisitions, which accounted for € 235 billion exposure as of December 31, 2010, thereof € 211 billion relating to Postbank. A significant proportion of Postbank’s contribution was reflected in the loans category.

Excluding acquisitions, the maximum exposure to credit risk increased by € 171 billion largely within the interest earning deposits with banks, and financial assets at fair value through profit and loss categories.

In the tables below, we show details about several of our main credit exposure categories, namely loans, irrevocable lending commitments, contingent liabilities and over-the-counter (“OTC”) derivatives:

  • “Loans” are net loans as reported on our balance sheet at amortized cost but before deduction of our allowance for loan losses.
  • “Irrevocable lending commitments” consist of the undrawn portion of irrevocable lending-related commitments.
  • “Contingent liabilities” consist of financial and performance guarantees, standby letters of credit and indemnity agreements.
  • “OTC derivatives” are our credit exposures from over-the-counter derivative transactions that we have entered into, after netting and cash collateral received. On our balance sheet, these are included in trading assets or, for derivatives qualifying for hedge accounting, in other assets, in either case, before netting and cash collateral received.

The following table breaks down several of our main credit exposure categories by geographical region. For this table, we have allocated exposures to regions based on the country of domicile of our counterparties, irrespective of any affiliations the counterparties may have with corporate groups domiciled elsewhere.

Credit risk profile by region

Loans1

Irrevocable lending  commitments2

Contingent liabilities

OTC derivatives3

Total

in € m.

Dec 31,
2010

Dec 31,
2009

Dec 31,
2010

Dec 31,
2009

Dec 31,
2010

Dec 31,
2009

Dec 31,
2010

Dec 31,
2009

Dec 31,
2010

Dec 31,
2009

1

Includes impaired loans amounting to € 6.3 billion as of December 31, 2010 and € 7.2 billion as of December 31, 2009.

2

Includes irrevocable lending commitments related to consumer credit exposure of € 4.5 billion as of December 31, 2010 and € 2.9 billion as of December 31, 2009.

3

Includes the effect of netting agreements and cash collateral received where applicable.

4

Includes supranational organizations and other exposures that we have not allocated to a single region.

Germany

207,129

105,297

24,273

14,112

15,758

12,126

3,018

3,455

250,178

134,990

Western Europe (excluding Germany)

110,930

81,954

30,239

27,006

18,019

13,128

22,213

21,081

181,401

143,169

Eastern Europe

8,103

6,986

1,844

1,306

1,319

1,428

836

690

12,102

10,410

North America

54,887

45,717

59,506

55,337

22,063

17,018

26,765

30,805

163,221

148,877

Central and South America

4,121

3,325

575

214

1,427

777

1,792

831

7,915

5,147

Asia/Pacific

23,562

16,921

6,651

5,793

8,532

7,086

7,247

7,060

45,992

36,860

Africa

961

947

419

233

911

620

421

458

2,712

2,258

Other4

1,332

301

373

124

27

13

160

1,745

585

Total

411,025

261,448

123,880

104,125

68,056

52,183

62,305

64,540

665,266

482,296

Our largest concentrations of credit risk within loans from a regional perspective were in Western Europe and North America, with a significant share in households. The concentration in Western Europe was principally in our home market Germany, which includes most of our mortgage lending business. Within the OTC derivatives business our largest concentrations were also in Western Europe and North America, with a significant share in highly rated banks and insurance companies for which we consider the credit risk to be limited.

The increase in loans at the end of 2010 was predominantly due to the first time inclusion of Postbank. Postbanks total contribution to our loan exposure at December 31, 2010, was € 129 billion, with the vast majority being concentrated in the German region (€ 103 billion).

As of December 31, 2010, credit risk concentrations at Postbank can be recognized with respect to highly rated banks as well as in the structured credit portfolio.

The following table provides an overview of our net sovereign credit risk exposure to certain European Countries.

Net sovereign exposure

 

in € m.

Dec 31, 2010 

Portugal

(12)

Ireland

237

Italy

8,011

Greece

1,601

Spain

2,283

Total

12,120

The above shown figures reflect a net “accounting view” of our sovereign exposure insofar as they are based on gross IFRS exposures with further adjustments, such as with respect to netting and underlying risk, to arrive at a net exposure view. Out of our total net sovereign credit risk exposure of € 12.1 billion to Portugal, Ireland, Italy, Greece and Spain, € 6.9 billion was due to the consolidation of Postbank. Both, we and Postbank closely monitor these exposures.

The following table breaks down several of our main credit exposure categories according to the industry sectors of our counterparties.

Credit risk profile by industry sector

Loans1

Irrevocable lending  commitments2

Contingent liabilities

OTC derivatives3

Total

in € m.

Dec 31, 2010

Dec 31, 2009

Dec 31, 2010

Dec 31, 2009

Dec 31, 2010

Dec 31, 2009

Dec 31, 2010

Dec 31, 2009

Dec 31, 2010

Dec 31, 2009

1

Includes impaired loans amounting to € 6.3 billion as of December 31, 2010 and € 7.2 billion as of December 31, 2009.

2

Includes irrevocable lending commitments related to consumer credit exposure of € 4.5 billion as of December 31, 2010 and € 2.9 billion as of December 31, 2009.

3

Includes the effect of netting agreements and cash collateral received where applicable.

4

Loan exposures for Other include lease financing.

Banks and insurance

38,798

22,002

22,241

25,289

17,801

11,315

32,315

27,948

111,155

86,554

Fund management activities

27,964

26,462

6,435

11,135

2,392

540

9,318

12,922

46,109

51,059

Manufacturing

20,748

17,314

31,560

24,814

18,793

16,809

3,270

2,169

74,371

61,106

Wholesale and retail trade

13,637

10,938

7,369

6,027

5,022

3,443

517

604

26,545

21,012

Households

167,352

85,675

9,573

4,278

2,537

1,820

842

801

180,304

92,574

Commercial real estate activities

44,119

28,959

3,210

1,876

2,196

2,194

1,577

1,286

51,102

34,315

Public sector

24,113

9,572

858

520

57

19

6,510

5,527

31,538

15,638

Other4

74,294

60,526

42,634

30,186

19,258

16,043

7,956

13,283

144,142

120,038

Total

411,025

261,448

123,880

104,125

68,056

52,183

62,305

64,540

665,266

482,296

During 2010 our credit risk profile composition by industry sector remained largely unchanged with the exception of effects from consolidation of Postbank. These effects included € 75 billion in household loans, € 21 billion in loans to banks and insurance companies, € 15 billion in commercial real estate loans as well as € 8 billion in loans to the public sector.

Our loans, irrevocable lending commitments, contingent liabilities and OTC derivatives-related credit exposure to our ten largest counterparties accounted for 5 % of our aggregated total credit exposure in these categories as of December 31, 2010 compared to 7 % as of December 31, 2009. Our top ten counterparty exposures were by majority with well-rated counterparties or relate to structured trades which show high levels of risk mitigation, with the exception of one leveraged finance exposure.

Credit Exposure from Lending

Certain types of loans have a higher risk of non-collection than others. In our amortized cost loan portfolio we therefore differentiate loans by certain categories on the basis of relevant criteria including their loss expectation through the cycle, stability of their risk return relationship as well as the market perception of an asset class.

The following table provides an overview of the categories of our loan book and the segregation into a lower, medium and higher risk bucket.

in € m.

Dec 31, 2010

Dec 31, 2009

Lower risk bucket

 

 

PBC Mortgages

140,727

67,311

Investment Grade/German Mid-Cap

69,436

32,615

GTB

38,353

19,823

PWM

24,468

17,977

PBC small corporate

17,550

15,127

Government collateralized/structured transactions

9,074

7,674

Corporate Investments

7,966

12,774

Sub-total lower risk bucket

307,574

173,301

Moderate risk bucket

 

 

PBC Consumer Finance

18,902

15,032

Asset Finance (DB sponsored conduits)

18,465

19,415

Collateralized hedged structured transactions

12,960

14,564

Financing of pipeline assets

8,050

7,886

Sub-total moderate risk bucket

58,377

56,897

Higher risk bucket

 

 

Commercial Real Estate

29,024

12,990

CF Leveraged Finance

7,018

11,768

Other

9,032

6,492

Sub-total higher risk bucket

45,074

31,250

Total loan book

411,025

261,448

The majority of our low risk exposures are associated with our Private & Business Client retail banking activities. 75 % of our loan book at December 31, 2010 was in the low risk category, considerably higher than the 66 % at December 31, 2009. The increase in low risk loans was driven by the first-time inclusion of Postbank’s exposures which contributed € 109 billion to the low risk loans category. The majority of Postbank’s low risk loans related to client mortgages.

Our Private & Business Clients (excluding Postbank integration) portfolio growth during 2010 was focused on secured lending within the lower risk bucket, especially mortgages, while the consumer finance portfolio declined. The rise in consumer finance exposures was again attributable to the inclusion of Postbank which had consumer finance exposure of € 4 billion as at December 31, 2010. Excluding Postbank our overall consumer finance exposure decreased in line with our defined strategy and predominantly relates to customers in Germany and Italy.

Our higher risk bucket was predominantly driven by our leveraged finance and commercial real estate exposures. Our credit risk management approach put strong emphasis specifically on the portfolios we deem to be of higher risk. Portfolio strategies and credit monitoring controls are in place for these portfolios. The increase in commercial real estate exposures was driven by the inclusion of Postbank’s commercial real estate exposures which totaled € 15 billion at December 31, 2010. A borrower group concentration contributed approximately 50 % of the exposure in the CF Leveraged Finance category.

The following table summarizes the level of impaired loans and the established allowance for loan losses for our higher-risk loan bucket.

 

Dec 31, 2010

31.12.2009

in € m.

Impaired loans

Allowance for loan losses

Impaired loans

Allowance for loan losses

Commercial Real Estate

421

297

460

274

CF Leveraged Finance

336

180

2,122

815

Other

798

466

934

377

Total

1,555

943

3,516

1,466

The above reduction of impaired loans and allowances for loan losses in relation to our higher risk loan bucket was primarily driven by the restructuring of a single counterparty relationship in the leveraged finance portfolio of our Corporate Finance business.

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