Foundation Internal Ratings Based Approach


We apply the foundation IRBA for the majority of our foundation IRBA eligible credit portfolios at Postbank. The foundation IRBA is an approach available under the regulatory framework for credit risk allowing institutions to make use of their internal rating methodologies while using pre-defined regulatory values for all other risk parameters. Parameters subject to internal estimates include the probability of default (“PD”) while the loss given default (“LGD”) and the credit conversion factor (“CCF”) are defined in the regulatory framework.

For the exposure classes central governments, institutions and corporates respective foundation IRBA rating systems have been developed. A probability of default is assigned to each relevant counterparty credit exposure as a function of a transparent and consistent rating master scale. The borrower ratings assigned are derived on the grounds of internally developed rating models which specify consistent and distinct customer-relevant criteria and assign a rating grade based on a specific set of criteria as given for a certain customer. The set of criteria is generated from information sets relevant for the respective customer segments like general customer behavior, financial and external data. The methods in use are based on statistical analyses and for specific portfolio segments amended by expert-based assessments while taking into account the relevant available quantitative and qualitative information. The rating systems consider external long-term ratings from the major rating agencies (i.e., Standard & Poor’s, Moody’s and Fitch Ratings).

For the foundation IRBA a default definition is applied in accordance with the requirements of Section 125 SolvV as confirmed by the BaFin as part of its IRBA approval process.

We regularly validate our rating methodologies and credit risk parameters at Postbank. Whereas the rating methodology validation focuses on the discriminatory power of the models, the risk parameter validation for PD analyzes its predictive power when compared against historical default experiences.

For the seven foundation IRBA relevant rating systems of Postbank, four were validated as appropriate and three were validated as progressive. The PD level for two rating systems was already adjusted in 2012 and the amended PD level of the remaining rating system is scheduled for 2013.

For derivative counterparty exposure treated under the foundation IRBA the current exposure method is applied. The current exposure method calculates the exposure at default as the sum of the positive fair value of derivative transactions and the respective regulatory add-on.

Foundation IRBA Exposure

Within the Postbank portfolios we assign our exposures to the relevant regulatory exposure class by taking into account factors like customer-specific characteristics and the rating system used. The following tables also consider Postbank’s counterparty credit risk position resulting from derivatives and SFTs as far as they are assigned to the foundation IRBA.

The table presents the EAD in conjunction with exposures-weighted average risk weights (“RW”) including the counterparty credit risk position from derivatives and securities financing transactions (SFT). The information is shown after credit risk mitigation obtained in the form of financial, physical and other collateral as well as guarantees and credit derivatives. EAD gross information for exposures covered by guarantees or credit derivatives are assigned to the exposure class of the original counterparty whereas the EAD net information assigns the exposure to the protection seller.

Foundation IRBA exposures for each regulatory IRBA exposure class by rating scale

 

Dec 31, 2012

 

iAAA to iAA 0.000 – 0.045 %

iA 0.045 – 0.125 %

iBBB 0.125 – 0.475 %

iBB to iCCC > 0.475 %

Default

Total

 

 

 

 

 

 

 

Central Governments

 

 

 

 

 

 

EAD gross in € m.

78

23

101

EAD net in € m.

89

23

112

thereof: undrawn commitments

Average RW in %

22.06

64.85

30.80

 

 

 

 

 

 

 

Institutions

 

 

 

 

 

 

EAD gross in € m.

1,611

14,701

6,000

226

56

22,594

EAD net in € m.

1,611

14,777

6,000

214

56

22,658

thereof: undrawn commitments

5

5

Average RW in %

14.37

10.94

20.50

35.43

13.92

 

 

 

 

 

 

 

Corporates

 

 

 

 

 

 

EAD gross in € m.

50

1,589

6,817

3,234

552

12,242

EAD net in € m.

50

1,646

6,614

3,074

552

11,936

thereof: undrawn commitments

233

1,336

375

10

1,954

Average RW in %

16.10

30.58

53.43

107.43

61.56

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

EAD gross in € m.

1,661

16,368

12,840

3,460

608

34,937

EAD net in € m.

1,661

16,512

12,637

3,288

608

34,706

thereof: undrawn commitments

233

1,341

375

10

1,959

Average RW in %

14.42

12.96

37.81

102.75

30.36

 

Dec 31, 2011

 

iAAA to iAA 0.000 – 0.045 %

iA 0.045 – 0.125 %

iBBB 0.125 – 0.475 %

iBB to iCCC > 0.475 %

Default

Total

 

 

 

 

 

 

 

Central Governments

 

 

 

 

 

 

EAD gross in € m.

80

46

571

697

EAD net in € m.

80

46

571

697

thereof: undrawn commitments

1

1

Average RW in %

18.75

47.83

5.31

 

 

 

 

 

 

 

Institutions

 

 

 

 

 

 

EAD gross in € m.

1,052

18,226

9,860

144

110

29,392

EAD net in € m.

1,064

18,390

9,737

144

110

29,445

thereof: undrawn commitments

7

7

Average RW in %

11.18

11.67

16.94

88.89

13.73

 

 

 

 

 

 

 

Corporates

 

 

 

 

 

 

EAD gross in € m.

439

2,352

7,763

2,552

802

13,908

EAD net in € m.

439

2,239

7,529

2,089

802

13,098

thereof: undrawn commitments

40

386

1,524

203

28

2,181

Average RW in %

12.98

29.34

52.90

114.60

54.14

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

EAD gross in € m.

1,571

20,578

17,669

2,696

1,483

43,997

EAD net in € m.

1,583

20,629

17,312

2,233

1,483

43,240

thereof: undrawn commitments

41

386

1,531

203

28

2,189

Average RW in %

12.07

13.59

32.66

112.90

25.83

The tables below show our foundation IRBA exposures excluding counterparty credit risk exposures from derivatives and SFT for central governments, institutions and corporates, distributed on our internal rating scale, showing also the PD range for each grade. The internal ratings correspond to the respective external Standard & Poors rating equivalents. The EAD net is presented in conjunction with risk-weighted assets calculated and the average RW. The information is shown after credit risk mitigation obtained in the form of financial, physical and other collateral as well as guarantees and credit derivatives.

EAD net for Foundation IRBA Credit Exposures by PD Grade for Central Governments

in € m. (unless stated otherwise)

Dec 31, 2012

Internal rating

PD range
in %

EAD net

Average
PD in %

RWA

Average
RW in %

iAAA

> 0.00 ≤ 0.01

iAA+

> 0.01 ≤ 0.02

iAA

> 0.02 ≤ 0.03

iAA-

> 0.03 ≤ 0.04

iA+

> 0.04 ≤ 0.05

iA

> 0.05 ≤ 0.07

89

0.06

20

22.06

iA-

> 0.07 ≤ 0.11

iBBB+

> 0.11 ≤ 0.18

iBBB

> 0.18 ≤ 0.30

iBBB-

> 0.30 ≤ 0.50

23

0.38

15

64.85

iBB+

> 0.50 ≤ 0.83

iBB

> 0.83 ≤ 1.37

iBB-

> 1.37 ≤ 2.27

iB+

> 2.27 ≤ 3.75

iB

> 3.75 ≤ 6.19

iB-

> 6.19 ≤ 10.22

iCCC+

> 10.22 ≤ 16.87

iCCC

> 16.87 ≤ 27.84

iCCC-

> 27.84 ≤ 99.99

Default

100.00

Total

112

0.13

35

30.80

EAD net for Foundation IRBA Credit Exposures by PD Grade for Institutions (excluding derivative positions and SFTs)

in € m. (unless stated otherwise)

Dec 31, 2012

Internal rating

PD range
in %

EAD net

Average
PD in %

RWA

Average
RW in %

iAAA

> 0.00 ≤ 0.01

iAA+

> 0.01 ≤ 0.02

iAA

> 0.02 ≤ 0.03

917

0.03

140

15.31

iAA-

> 0.03 ≤ 0.04

447

0.04

81

18.21

iA+

> 0.04 ≤ 0.05

iA

> 0.05 ≤ 0.07

895

0.06

169

18.95

iA-

> 0.07 ≤ 0.11

6,489

0.09

1,044

16.09

iBBB+

> 0.11 ≤ 0.18

2,452

0.15

529

21.57

iBBB

> 0.18 ≤ 0.30

3,029

0.23

609

20.09

iBBB-

> 0.30 ≤ 0.50

186

0.38

52

27.98

iBB+

> 0.50 ≤ 0.83

200

0.69

60

30.10

iBB

> 0.83 ≤ 1.37

iBB-

> 1.37 ≤ 2.27

9

2.06

11

122.67

iB+

> 2.27 ≤ 3.75

iB

> 3.75 ≤ 6.19

iB-

> 6.19 ≤ 10.22

iCCC+

> 10.22 ≤ 16.87

iCCC

> 16.87 ≤ 27.84

6

18.00

5

82.11

iCCC-

> 27.84 ≤ 99.99

Default

100.00

56

100.00

Total

14,686

0.52

2,700

18.38

EAD net for Foundation IRBA Credit Exposures by PD Grade for Corporates (excluding derivative positions and SFTs)

in € m. (unless stated otherwise)

Dec 31, 2012

Internal rating

PD range
in %

EAD net

Average
PD in %

RWA

Average
RW in %

iAAA

> 0.00 ≤ 0.01

iAA+

> 0.01 ≤ 0.02

iAA

> 0.02 ≤ 0.03

37

0.03

6

15.31

iAA-

> 0.03 ≤ 0.04

13

0.04

2

18.44

iA+

> 0.04 ≤ 0.05

iA

> 0.05 ≤ 0.07

225

0.06

50

22.12

iA-

> 0.07 ≤ 0.11

1,341

0.10

427

31.86

iBBB+

> 0.11 ≤ 0.18

1,194

0.15

469

39.30

iBBB

> 0.18 ≤ 0.30

2,938

0.23

1,481

50.41

iBBB-

> 0.30 ≤ 0.50

2,226

0.38

1,447

64.99

iBB+

> 0.50 ≤ 0.83

1,796

0.69

1,536

85.53

iBB

> 0.83 ≤ 1.37

634

1.23

663

104.64

iBB-

> 1.37 ≤ 2.27

291

2.06

357

122.63

iB+

> 2.27 ≤ 3.75

iB

> 3.75 ≤ 6.19

77

3.78

115

149.52

iB-

> 6.19 ≤ 10.22

45

7.26

78

174.28

iCCC+

> 10.22 ≤ 16.87

10

12.76

19

198.09

iCCC

> 16.87 ≤ 27.84

160

18.00

452

282.66

iCCC-

> 27.84 ≤ 99.99

Default

100.00

551

100.00

Total

11,538

5.48

7,102

61.55

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