We measure and manage our credit risk using the following philosophy and principles:
- Our credit risk management function is independent from our business divisions and in each of our divisions credit decision standards, processes and principles are consistently applied.
- A key principle of credit risk management is client credit due diligence. Prudent client selection is achieved in collaboration with our business division counterparts who stand as a first line of defence.
- We actively aim to prevent undue concentration and long tail-risks (large unexpected losses) by ensuring a diversified credit portfolio. Client, industry, country and product-specific concentrations are actively assessed and managed against our risk appetite.
- We maintain conservative underwriting standards and aim to avoid large directional credit risk on a counterparty and portfolio level. In this regard we are cautious in assuming unsecured cash positions and actively use hedging for risk mitigation purposes. Additionally we strive to secure our derivative portfolio through collateral agreements and may additionally hedge concentration risks to further mitigate credit risks from underlying market movements.
- Every extension of credit or material change to a credit facility (such as its tenor, collateral structure or major covenants) to any counterparty requires credit approval at the appropriate authority level. We assign credit approval authorities to individuals according to their qualifications, experience and training, and we review these periodically.
- We measure and consolidate all our credit exposures to each obligor on a global basis that applies across our consolidated Group, in line with regulatory requirements of the German Banking Act (Kreditwesengesetz).
- We manage credit exposures on the basis of the “one obligor principle”, under which all facilities to a group of borrowers which are linked to each other (e.g., by one entity holding a majority of the voting rights or capital of another) are consolidated under one group.
- We have established within Credit Risk Management – where appropriate – specialized teams for deriving internal client ratings, analyzing and approving transactions, monitoring the portfolio and covering workout clients. The credit coverage for assets transferred to the NCOU utilizes the expertise of our credit organization.
- Our credit lending activities are governed by our Principles for Managing Credit Risk. These principles define our general risk philosophy for credit risk and our methods to actively manage this risk. The principles define key organizational requirements, roles and responsibilities as well as process principles for credit risk management and are applicable to all lending activities undertaken by us.