Impaired Loans

Credit Risk Management regularly assesses whether there is objective evidence that a loan or group of loans is impaired. A loan or group of loans is impaired and impairment losses are incurred if:

  • there is objective evidence of impairment as a result of a loss event that occurred after the initial recognition of the asset and up to the balance sheet date (a “loss event”),
  • the loss event had an impact on the estimated future cash flows of the financial asset or the group of financial assets, and
  • a reliable estimate of the loss amount can be made.

Credit Risk Management’s loss assessments are subject to regular review in collaboration with Group Finance. The results of this review are reported to and approved by an oversight committee comprised of Group Finance and Risk Senior Management.

For further details with regard to impaired loans please refer to Note 1 “Significant Accounting Policies and Critical Accounting Estimates”.

Impairment Loss and Allowance for Loan Losses

If there is evidence of impairment the impairment loss is generally calculated on the basis of discounted expected cash flows using the original effective interest rate of the loan. If the terms of a loan are renegotiated or otherwise modified because of financial difficulties of the borrower without qualifying for a derecognition of the loan, the impairment loss is measured using the original effective interest rate before modification of terms. We reduce the carrying amount of the impaired loan by the use of an allowance account and recognize the amount of the loss in the consolidated statement of income as a component of the provision for credit losses. We record increases to our allowance for loan losses as an increase of the provision for loan losses in our income statement. Charge-offs reduce our allowance while recoveries, if any, are credited to the allowance account. If we determine that we no longer require allowances which we have previously established, we decrease our allowance and record the amount as a reduction of the provision for loan losses in our income statement. When it is considered that there is no realistic prospect of recovery and all collateral has been realized or transferred to us, the loan and any associated allowance for loan losses is charged off (i.e., the loan and the related allowance for loan losses are removed from the balance sheet).

While we assess the impairment for our corporate credit exposures individually, we assess the impairment of our smaller-balance standardized homogeneous loans collectively.

Our collectively assessed allowance for non-impaired loans reflects allowances to cover for incurred losses that have neither been individually identified nor provided for as part of the impairment assessment of smaller-balance homogeneous loans.

For further details regarding our accounting policies regarding impairment loss and allowance for credit losses please refer to Note 1 “Significant Accounting Policies and Critical Accounting Estimates”.

Impaired loans, allowance for loan losses and coverage ratios by business division

 

Dec 31, 2013

Dec 31, 20121

2013 increase (decrease)
from 2012

in € m.

Impaired loans

Loan loss allowance

Impaired loan coverage ratio in %

Impaired loans

Loan loss allowance

Impaired loan coverage ratio in %

Impaired loans

Impaired loan coverage ratio in ppt

1

2012 number in Corporate Banking & Securities and Global Transaction Banking adjusted for structural changes in 2013.

Corporate Banking & Securities

818

344

42

495

277

56

323

(14)

Global Transaction Banking

1,662

1,078

65

1,524

904

59

138

6

Deutsche Asset & Wealth Management

69

39

56

138

33

24

(69)

32

Private & Business Clients

4,121

2,519

61

4,188

2,071

49

(67)

12

Non-Core Operations Unit

3,473

1,609

46

3,990

1,407

35

(517)

11

Thereof: assets reclassified to loans and receivables according to IAS 39

1,007

479

48

1,499

488

33

(492)

15

Total

10,143

5,589

55

10,335

4,692

45

(192)

10

Impaired loans, allowance for loan losses and coverage ratios by industry

 

Dec 31, 2013

 

Impaired Loans

Loan loss allowance

 

in € m.

Individually assessed

Collectively assessed

Total

Individually assessed allowance

Collectively assessed allowance for impaired loans

Collectively assessed allowance for non-impaired loans

Total

Impaired loan coverage ratio in %

Banks and insurance

45

0

45

3

2

15

20

45

Fund management activities

92

1

93

1

0

3

5

5

Manufacturing

589

222

811

519

111

54

683

84

Wholesale and retail trade

441

220

661

225

107

36

369

56

Households

477

3,194

3,671

298

1,889

113

2,301

63

Commercial real estate activities

2,388

295

2,683

931

26

38

995

37

Public sector

39

0

39

18

0

1

20

51

Other

1,849

289

2,139

861

188

147

1,196

56

Total

5,922

4,221

10,143

2,857

2,324

407

5,589

55

 

Dec 31, 2012

 

Impaired Loans

Loan loss allowance

 

in € m.

Individually assessed

Collectively assessed

Total

Individually assessed allowance

Collectively assessed allowance for impaired loans

Collectively assessed allowance for non-impaired loans

Total

Impaired loan coverage ratio in %

Banks and insurance

53

0

53

20

0

15

35

67

Fund management activities

127

1

128

1

0

44

45

35

Manufacturing

720

206

926

455

87

63

605

65

Wholesale and retail trade

355

199

554

207

95

34

336

61

Households

562

3,145

3,707

216

1,623

124

1,963

53

Commercial real estate activities

3,087

271

3,358

665

23

19

707

21

Public sector

0

0

0

0

0

2

2

0

Other

1,225

384

1,609

702

157

140

999

62

Total

6,129

4,206

10,335

2,266

1,985

441

4,692

45

Impaired loans, allowance for loan losses and coverage ratios by region

 

Dec 31, 2013

 

Impaired Loans

Loan loss allowance

 

in € m.

Individually assessed

Collectively assessed

Total

Individually assessed allowance

Collectively assessed allowance for impaired loans

Collectively assessed allowance for non-impaired loans

Total

Impaired loan coverage ratio in %

Germany

1,586

1,675

3,261

864

964

149

1,977

61

Western Europe (excluding Germany)

3,469

2,363

5,832

1,624

1,232

158

3,015

51

Eastern Europe

77

175

252

35

128

9

171

68

North America

588

1

590

253

0

41

294

50

Central and South America

32

0

32

27

0

4

32

99

Asia/Pacific

170

4

175

54

1

38

92

53

Africa

0

1

1

0

0

3

3

337

Other

0

0

0

0

0

4

4

0

Total

5,922

4,221

10,143

2,857

2,324

407

5,589

55

 

Dec 31, 2012

 

Impaired Loans

Loan loss allowance

 

in € m.

Individually assessed

Collectively assessed

Total

Individually assessed allowance

Collectively assessed allowance for impaired loans

Collectively assessed allowance for non-impaired loans

Total

Impaired loan coverage ratio in %

Germany

1,822

1,793

3,615

783

817

126

1,725

48

Western Europe (excluding Germany)

3,276

2,200

5,476

1,116

1,012

180

2,308

42

Eastern Europe

137

207

344

53

156

11

220

64

North America

624

2

626

232

0

84

316

50

Central and South America

41

0

41

31

0

5

36

89

Asia/Pacific

229

4

233

51

0

28

79

34

Africa

0

0

0

0

0

3

3

0

Other

0

0

0

0

0

5

5

0

Total

6,129

4,206

10,335

2,266

1,985

441

4,692

45

Development of Impaired Loans

 

Dec 31, 2013

Dec 31, 2012

in € m.

Individually assessed

Collectively assessed

Total

Individually assessed

Collectively assessed

Total

1

Include repayments.

2

Include consolidated items because the Group obtained control over the structured entity borrowers by total € 598 million.

Balance, beginning of year

6,129

4,206

10,335

6,262

3,808

10,070

Classified as impaired during the year1

4,553

2,939

7,492

2,860

1,912

4,772

Transferred to not impaired during the year1

(2,618)

(2,134)

(4,752)

(1,932)

(930)

(2,862)

Charge-offs

(730)

(485)

(1,215)

(798)

(483)

(1,281)

Disposals of impaired loans

(744)

(293)

(1,037)

(249)

(122)

(371)

Exchange rate and other movements

(669)

(12)

(680)2

(14)

21

7

Balance, end of year

5,922

4,221

10,143

6,129

4,206

10,335

In 2013 our impaired loans decreased by € 192 million or 1.9 % to € 10.1 billion as a result of charge-offs of € 1.2 billion as well as exchange rate movements of € 82 million largely offset by a net increase in impaired loans of € 1.1 billion. The overall decrease mainly resulted from a € 207 million reduction in individually assessed impaired loans being partially offset by € 15 million increase in collectively assessed impaired loans. The reduction in individually assessed impaired loans included several large transactions from loans to commercial real estate counterparties in Western Europe (excluding Germany) recorded in our NCOU which were partially written down and subsequently consolidated due to the Group obtaining control over the structured entity borrower during the second and third quarters of 2013. New impairments in wholesale and retail trade as well as one single client item attributable to the commercial real estate sector in Western Europe (excluding Germany) partially offset the aforementioned reduction. The increase of our collectively assessed impaired loans was driven by households in Western Europe (excluding Germany) mainly in Italy and Spain, which was partially offset by households in Germany reflecting the favorable credit environment.

The impaired loan coverage ratio (defined as total on-balance sheet allowances for all loans individually impaired or collectively assessed divided by IFRS impaired loans (excluding collateral)) increased from 45 % as of year-end 2012 to 55 % which is mainly attributable to Postbank as well as to the aforementioned commercial real estate cases with low coverage ratio recorded in our NCOU. At change of control in 2010, all loans classified as impaired by Postbank were classified as performing by Deutsche Bank and also initially recorded at fair value. Increases in provisions after change of control resulted in an impairment of the full loan from a Deutsche Bank consolidated perspective, but with an allowance being built for only the incremental provision, resulting in a lower coverage ratio. Due to subsequent improvements in credit quality of these assets this effect continued to reverse partially.

Our impaired loans included € 1.0 billion of loans reclassified to loans and receivables in accordance with IAS 39. This position decreased by € 492 million, which is mainly attributable to a number of commercial real estate loans to counterparties in Western Europe (excluding Germany) as well as one case in Asia/Pacific which was partially written down and sold.

Impaired loans, provision for loan losses and recoveries by Industry

 

Dec 31, 2013

12 months ending

Dec 31, 2013

Dec 31, 2012

12 months ending

Dec 31, 2012

in € m.

Total impaired loans

Provision for loan losses before recoveries

Recoveries

Total impaired loans

Provision for loan losses before recoveries

Recoveries

Banks and insurances

45

40

0

53

17

1

Fund management activities

93

(41)

0

128

(20)

1

Manufacturing

811

40

15

926

110

18

Wholesale and retail trade

661

105

4

554

81

7

Households

3,671

822

120

3,707

742

138

Commercial real estate activities

2,683

732

2

3,358

357

3

Public sector

39

19

0

0

1

0

Other

2,139

505

21

1,609

633

27

Total

10,143

2,222

162

10,335

1,922

195

Our existing commitments to lend additional funds to debtors with impaired loans amounted to € 168 million as of December 31, 2013 and € 145 million as of December 31, 2012.

Collateral held against impaired loans, with fair values capped at transactional outstandings

in € m.

Dec 31, 2013

Dec 31, 2012

Financial and other collateral

3,411

4,253

Guarantees received

763

401

Total collateral held for impaired loans

4,174

4,654

Our total collateral held for impaired loans as of December 31, 2013 decreased by € 480 million compared to prior year. The reduction is predominantly caused by collateral allocated to Postbank. The coverage ratio including collateral (defined as total on-balance sheet allowances for all loans individually impaired or collectively assessed plus collateral held against impaired loans, with fair values capped at transactional outstandings, divided by IFRS impaired loans) increased to 96 % as of December 31, 2013 compared to 90 % as of December 31, 2012 and was driven by the same factor as the impaired loan coverage ratio which is attributable to Postbank.