Problem Loans and IFRS Impaired Loans


Our problem loans consist mainly of impaired loans. We consider loans to be impaired when we recognize objective evidence that an impairment loss has been incurred. While we assess the impairment for our corporate credit exposure individually, we assess the impairment of our smaller-balance standardized homogeneous loans collectively. The second component of our problem loans are nonimpaired loans, where no impairment loss is recorded but where either known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms or where the loans are 90 days or more past due but for which the accrual of interest has not been discontinued. We continue to monitor and report our problem loans in line with SEC industry guidance and categorize them as nonaccrual loans, loans 90 days or more past due and still accruing and troubled debt restructurings.

As a result of consolidations we acquired certain loans for which a specific allowance had been established beforehand by the consolidated entity. Such loans were taken onto our balance sheet at their fair values as determined by their expected cash flows which reflected the credit quality of these loans at the time of acquisition. As long as our cash flow expectations regarding these loans have not deteriorated since acquisition, we do not consider them to be impaired or problem loans.

Loan loss allowances established for acquired loans prior to their consolidation have not been consolidated into our loan loss allowances. Instead, these loan loss allowances have been considered in determining the fair value representing the cost basis of the newly consolidated loans. Subsequent improvements in the credit quality of these loans are reflected as an appreciation in their carrying value with a corresponding gain recognized in other interest income. Loan loss allowances established for acquired loans after their consolidation, however, are included in our provision for credit losses and loan loss allowances.

The following two tables show the breakdown of our problem loans and IFRS impaired loans.

Mar 31, 2011

Impaired loans

Nonimpaired problem loans

Problem loans

in € m.

German

Non-German

Total

German

Non-German

Total

Total

Individually assessed

1,192

2,520

3,712

266

1,777

2,043

5,755

Nonaccrual loans

1,093

2,305

3,398

146

1,056

1,202

4,600

Loans 90 days or more past due and still accruing

64

10

74

74

Troubled debt restructurings

99

215

314

56

711

767

1,081

Collectively assessed

1,227

1,745

2,972

291

47

338

3,310

Nonaccrual loans

1,225

1,620

2,845

2,845

Loans 90 days or more past due and still accruing

271

26

297

297

Troubled debt restructurings

2

125

127

20

21

41

168

Total problem loans

2,419

4,265

6,684

557

1,824

2,381

9,065

thereof: IAS 39 reclassified problem loans

31

1,043

1,074

1,086

1,086

2,160

Dec 31, 2010

Impaired loans

Nonimpaired problem loans

Problem loans

in € m.

German

Non-German

Total

German

Non-German

Total

Total

Individually assessed

996

2,556

3,552

239

1,635

1,874

5,426

Nonaccrual loans

902

2,374

3,276

153

897

1,051

4,327

Loans 90 days or more past due and still accruing

36

8

44

44

Troubled debt restructurings

94

182

276

50

729

779

1,055

Collectively assessed

1,010

1,703

2,713

267

29

296

3,009

Nonaccrual loans

1,009

1,583

2,591

2,591

Loans 90 days or more past due and still accruing

252

5

258

258

Troubled debt restructurings

1

120

121

15

24

38

160

Total problem loans

2,006

4,258

6,265

506

1,664

2,170

8,435

thereof: IAS 39 reclassified problem loans

84

1,150

1,234

979

979

2,213

Our total problem loans increased by € 630 million or 7 % during the first three months of 2011 due to a € 1.1 billion gross increase of problem loans, partially offset by charge-offs of € 330 million and a € 140 million decrease as a result of exchange rate movements. The increase in our total problem loans was driven by loans acquired from Postbank (€ 575 million) due to the fact that all Postbank’s loans that were impaired at consolidation have been consolidated at their fair value as nonimpaired loans with the effect that a further deterioration of credit quality increases the level of problem loans, whereas improvements in credit quality or charge-offs of loans for which allowances were established prior to their consolidation do not offset the increases.

Individually assessed impaired loans increased by € 160 million due to gross increases of € 410 million, partially offset by charge-offs of € 148 million and € 102 million of exchange rate movements. Our collectively assessed impaired loans increased by € 259 million as gross increases of € 448 million were partially offset by € 182 million charge-offs and € 7 million of exchange rate movements. The increase of our individually and collectively assessed impaired loans was driven by new problem loans at Postbank from a Group perspective. These effects led to a total increase in impaired loans by € 419 million or 7 %. Nonimpaired problem loans increased by € 211 million due to a number of loans which we designated as defaulted, but for which we did not expect to incur a loss, mainly due to collateralization.

Our problem loans included € 2.2 billion of loans among the loans that had been reclassified to loans and receivables in accordance with IAS 39. For these loans we recorded gross increases in problem loans of € 80 million which were more than offset by a € 74 million decrease as a result of exchange rate movements and charge-offs of € 59 million.

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