Foundation Internal Ratings Based Approach

We apply the foundation IRBA for the majority of our remaining foundation IRBA eligible credit portfolios at Postbank to the extent these have not been newly assigned to the advanced IRBA during 2013. 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 these exposures in 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 analyzes 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 was applied in accordance with the requirements of Section 125 SolvV as confirmed by the BaFin as part of its IRBA approval process.

Model Validation

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.

Validation results of risk parameters used in our foundation IRBA at Postbank

 

2013

 

PD

 

Count

EAD in %

Appropriate

2

99.6

Overly conservative

1

0.4

Progressive

0

0.0

Total

3

100.0

 

 

 

Thereof already recalibrated and introduced in 2013

 

 

 

Overly conservative

0

0.0

Progressive

0

0.0

Total

0

0.0

Above table summarizes the outcome of the model validations for the risk parameter PD used in our foundation IRBA for Postbank. Individual risk parameter settings are classified as appropriate if no recalibration was triggered by the validation and thus the application of the current parameter setting is continued since still sufficiently conservative. A parameter classifies as overly conservative or progressive if the validation triggers a recalibration analysis leading to a potential downward or upward change of the current setting, respectively. The breakdown is presented in counts as well as in the relative EAD attached to the respective parameter as of December 31, 2013.

The validations largely confirm our PD parameter settings for Postbank. For the three foundation IRBA relevant rating systems of Postbank, two were validated as appropriate and one was validated as overly conservative. The relative exposure of the overly conservative rating systems is negligible. In 2013, four former foundation IRBA rating systems received advanced IRBA approval from BaFin.

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”). 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, 2013

 

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.

0

8

0

0

0

8

EAD net in € m.

0

8

0

0

0

8

thereof: undrawn commitments

0

0

0

0

0

0

Average RW in %

0.00

27.57

0.00

0.00

0.00

27.57

 

 

 

 

 

 

 

Institutions

 

 

 

 

 

 

EAD gross in € m.

259

3,413

1,790

130

0

5,592

EAD net in € m.

259

3,413

1,790

130

0

5,592

thereof: undrawn commitments

0

0

6

0

0

6

Average RW in %

17.11

16.09

30.22

141.57

0.00

23.58

 

 

 

 

 

 

 

Corporates

 

 

 

 

 

 

EAD gross in € m.

35

557

4,449

2,399

81

7,521

EAD net in € m.

35

928

4,224

2,128

81

7,396

thereof: undrawn commitments

0

2

606

154

5

767

Average RW in %

15.31

26.16

53.72

110.99

0.00

65.97

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

EAD gross in € m.

294

3,978

6,239

2,529

81

13,121

EAD net in € m.

294

4,349

6,014

2,258

81

12,996

thereof: undrawn commitments

0

2

612

154

5

773

Average RW in %

16.90

18.25

46.72

112.75

0.00

47.70

 

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.

0

78

23

0

0

101

EAD net in € m.

0

89

23

0

0

112

thereof: undrawn commitments

0

0

0

0

0

0

Average RW in %

0.00

22.06

64.85

0.00

0.00

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

0

0

5

0

0

5

Average RW in %

14.37

10.94

20.50

35.43

0.00

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

0

233

1,336

375

10

1,954

Average RW in %

16.10

30.58

53.43

107.43

0.00

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

0

233

1,341

375

10

1,959

Average RW in %

14.42

12.96

37.81

102.75

0.00

30.36

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 rating grades take into account the respective external Standard & Poor’s rating grade 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.

The decrease in the foundation IRBA exposures for each regulatory IRBA exposure class by rating scale for corporates mainly results from the BaFin approvals for the respective rating systems where the exposure is now shown under the advanced IRBA. The movement for institutions primarily shows a decrease from exposure reductions driven by de-risking in SFT and bond exposure and to less extent from above mentioned additional BaFin approvals for Institutions related rating systems.

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

in € m. (unless stated otherwise)

Dec 31, 2013

Internal rating

PD range in %

EAD net

Average PD in %

RWA

Average RW in %

iAAA

> 0.00 ≤ 0.01

0

0.00

0

0.00

iAA+

> 0.01 ≤ 0.02

0

0.00

0

0.00

iAA

> 0.02 ≤ 0.03

0

0.00

0

0.00

iAA–

> 0.03 ≤ 0.04

0

0.00

0

0.00

iA+

> 0.04 ≤ 0.05

0

0.00

0

0.00

iA

> 0.05 ≤ 0.07

0

0.00

0

0.00

iA–

> 0.07 ≤ 0.11

8

0.08

2

27.57

iBBB+

> 0.11 ≤ 0.18

0

0.00

0

0.00

iBBB

> 0.18 ≤ 0.30

0

0.00

0

0.00

iBBB–

> 0.30 ≤ 0.50

0

0.00

0

0.00

iBB+

> 0.50 ≤ 0.83

0

0.00

0

0.00

iBB

> 0.83 ≤ 1.37

0

0.00

0

0.00

iBB–

> 1.37 ≤ 2.27

0

0.00

0

0.00

iB+

> 2.27 ≤ 3.75

0

0.00

0

0.00

iB

> 3.75 ≤ 6.19

0

0.00

0

0.00

iB–

> 6.19 ≤ 10.22

0

0.00

0

0.00

iCCC+

> 10.22 ≤ 16.87

0

0.00

0

0.00

iCCC

> 16.87 ≤ 27.84

0

0.00

0

0.00

iCCC–

> 27.84 ≤ 99.99

0

0.00

0

0.00

Default

100.00

0

0.00

0

0.00

Total

 

8

0.08

2

27.57

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

0

0.00

0

0.00

iAA+

> 0.01 ≤ 0.02

0

0.00

0

0.00

iAA

> 0.02 ≤ 0.03

0

0.00

0

0.00

iAA–

> 0.03 ≤ 0.04

0

0.00

0

0.00

iA+

> 0.04 ≤ 0.05

0

0.00

0

0.00

iA

> 0.05 ≤ 0.07

89

0.06

20

22.06

iA–

> 0.07 ≤ 0.11

0

0.00

0

0.00

iBBB+

> 0.11 ≤ 0.18

0

0.00

0

0.00

iBBB

> 0.18 ≤ 0.30

0

0.00

0

0.00

iBBB–

> 0.30 ≤ 0.50

23

0.38

15

64.85

iBB+

> 0.50 ≤ 0.83

0

0.00

0

0.00

iBB

> 0.83 ≤ 1.37

0

0.00

0

0.00

iBB–

> 1.37 ≤ 2.27

0

0.00

0

0.00

iB+

> 2.27 ≤ 3.75

0

0.00

0

0.00

iB

> 3.75 ≤ 6.19

0

0.00

0

0.00

iB–

> 6.19 ≤ 10.22

0

0.00

0

0.00

iCCC+

> 10.22 ≤ 16.87

0

0.00

0

0.00

iCCC

> 16.87 ≤ 27.84

0

0.00

0

0.00

iCCC–

> 27.84 ≤ 99.99

0

0.00

0

0.00

Default

100.00

0

0.00

0

0.00

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, 2013

Internal rating

PD range in %

EAD net

Average PD in %

RWA

Average RW in %

iAAA

>0.00 ≤ 0.01

0

0.00

0

0.00

iAA+

> 0.01 ≤ 0.02

0

0.00

0

0.00

iAA

> 0.02 ≤ 0.03

98

0.03

15

15.31

iAA–

> 0.03 ≤ 0.04

155

0.04

28

18.21

iA+

> 0.04 ≤ 0.05

0

0.00

0

0.00

iA

> 0.05 ≤ 0.07

405

0.06

27

6.77

iA–

> 0.07 ≤ 0.11

2,934

0.09

499

17.00

iBBB+

> 0.11 ≤ 0.18

411

0.15

141

34.24

iBBB

> 0.18 ≤ 0.30

994

0.23

260

26.18

iBBB–

> 0.30 ≤ 0.50

369

0.38

133

36.14

iBB+

> 0.50 ≤ 0.83

64

0.69

54

84.83

iBB

> 0.83 ≤ 1.37

15

1.23

16

105.09

iBB–

> 1.37 ≤ 2.27

9

2.06

11

122.67

iB+

> 2.27 ≤ 3.75

0

0.00

0

0.00

iB

> 3.75 ≤ 6.19

0

0.00

0

0.00

iB–

> 6.19 ≤ 10.22

0

0.00

0

0.00

iCCC+

> 10.22 ≤ 16.87

0

0.00

0

0.00

iCCC

> 16.87 ≤ 27.84

41

18.00

102

246.68

iCCC–

> 27.84 ≤ 99.99

0

0.00

0

0.00

Default

100.00

0

0.00

0

0.00

Total

 

5,495

0.29

1,286

23.43

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

0

0.00

0

0.00

iAA+

> 0.01 ≤ 0.02

0

0.00

0

0.00

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

0

0.00

0

0.00

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

0

0.00

0

0.00

iBB–

> 1.37 ≤ 2.27

9

2.06

11

122.67

iB+

> 2.27 ≤ 3.75

0

0.00

0

0.00

iB

> 3.75 ≤ 6.19

0

0.00

0

0.00

iB–

> 6.19 ≤ 10.22

0

0.00

0

0.00

iCCC+

> 10.22 ≤ 16.87

0

0.00

0

0.00

iCCC

> 16.87 ≤ 27.84

6

18.00

5

82.11

iCCC–

> 27.84 ≤ 99.99

0

0.00

0

0.00

Default

100.00

56

100.00

0

0.00

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, 2013

Internal rating

PD range in %

EAD net

Average PD in %

RWA

Average RW in %

iAAA

> 0.00 ≤ 0.01

0

0.00

0

0.00

iAA+

> 0.01 ≤ 0.02

0

0.00

0

0.00

iAA

> 0.02 ≤ 0.03

35

0.03

5

15.31

iAA–

> 0.03 ≤ 0.04

0

0.00

0

0.00

iA+

> 0.04 ≤ 0.05

0

0.00

0

0.00

iA

> 0.05 ≤ 0.07

518

0.06

115

22.13

iA–

> 0.07 ≤ 0.11

405

0.10

127

31.30

iBBB+

> 0.11 ≤ 0.18

912

0.15

362

39.65

iBBB

> 0.18 ≤ 0.30

1,510

0.23

754

49.93

iBBB–

> 0.30 ≤ 0.50

1,666

0.38

1,076

64.60

iBB+

> 0.50 ≤ 0.83

1,121

0.69

951

84.81

iBB

> 0.83 ≤ 1.37

272

1.23

284

104.62

iBB–

> 1.37 ≤ 2.27

287

2.06

347

120.99

iB+

> 2.27 ≤ 3.75

0

0.00

0

0.00

iB

> 3.75 ≤ 6.19

170

3.78

246

144.76

iB–

> 6.19 ≤ 10.22

37

7.26

66

177.02

iCCC+

> 10.22 ≤ 16.87

1

12.76

3

223.09

iCCC

> 16.87 ≤ 27.84

163

18.00

382

234.34

iCCC–

> 27.84 ≤ 99.99

0

0.00

0

0.00

Default

100.00

80

100.00

0

0.00

Total

 

7,177

2.05

4,718

65.73

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

0

0.00

0

0.00

iAA+

> 0.01 ≤ 0.02

0

0.00

0

0.00

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

0

0.00

0

0.00

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

0

0.00

0

0.00

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

0

0.00

0

0.00

Default

100.00

551

100.00

0

0.00

Total

 

11,538

5.48

7,102

61.55


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