Credit Risk Exposure to certain Eurozone Countries


Certain eurozone countries are presented within the tables below due to heightened concerns relating to sovereign risk caused by the wider European sovereign debt crisis as evidenced by widening and volatile credit default swap spreads. This heightened risk is driven by a number of factors impacting the associated sovereign including high public debt levels and/or large deficits, limited access to capital markets, proximity of debt repayment dates, poor economic fundamentals and outlook (including low gross domestic product growth, weak competitiveness, high unemployment and political uncertainty). Some of these countries have accepted “bail out” packages.

For the presentation of our exposure to these certain eurozone countries we apply two general concepts as follows:

  • In our “risk management” view, we consider the domicile of the group parent, thereby reflecting the one obligor principle. 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 obligor. This group of borrowers is usually allocated to the country of domicile of the respective parent company. As an example, a loan to a counterparty in Spain is Spanish risk as per a domicile view but considered a German risk from a risk management perspective if the respective counterparty is linked to a parent company domiciled in Germany following the above-mentioned one obligor principle. In this risk management view we also consider derivative netting and present exposures net of hedges and collateral. The collateral valuations follow the same stringent approach and principles as outlined in our Financial Report 2012. Also, in our risk management we classify exposure to special purpose entities based on the domicile of the underlying assets as opposed to the domicile of the special purpose entities. Additional considerations apply for structured products. If, for example, a structured note is issued by a special purpose entity domiciled in Ireland, it will be considered an Irish risk in a “country of domicile” view, but if the underlying assets collateralizing the structured note are German mortgage loans, then the exposure would be included as German risk in the ”risk management” view.
  • In our “country of domicile” view we aggregate credit risk exposures to counterparties by allocating them to the domicile of the primary counterparty, irrespective of any link to other counterparties, or in relation to credit default swaps underlying reference assets from, these eurozone countries. Hence we also include counterparties whose group parent is located outside of these countries and exposures to special purpose entities whose underlying assets are from entities domiciled in other countries.

Net credit risk exposure with certain eurozone countries – Risk Management View

in € m.

Jun 30, 2013

Dec 31, 2012

Greece

507

646

Ireland

1,189

1,443

Italy

17,814

19,068

Portugal

1,273

1,187

Spain

12,533

12,664

Total

33,316

35,008

Net credit risk exposure with certain eurozone countries is down € 1.7 billion since year-end 2012. This was primarily driven by decreases in Italy from lower derivative positions as well as reductions in our retail portfolio. Cyprus credit exposure stands at € 27 million (risk management view) and will continue to be tightly managed.

Our above exposure is principally to highly diversified, low risk retail portfolios and small and medium enterprises in Italy and Spain, as well as stronger corporate and diversified mid-cap clients. Our financial institutions exposure is predominantly geared towards larger banks in Spain and Italy, typically under collateral agreements, with the majority of Spanish financial institution exposure being covered bonds. Sovereign exposure is moderate and principally in Italy and Spain.

The following tables, which are based on the “country of domicile” view, present our gross position, the included amount thereof of undrawn exposure and our net exposure to these eurozone countries. The gross exposure reflects our net credit risk exposure grossed up for net credit derivative protection purchased with underlying reference assets domiciled in one of these countries, guarantees received and collateral. Such collateral is particularly held with respect to the retail category, but also for financial institutions predominantly based on derivative margining arrangements, as well as for corporates. In addition the amounts also reflect the allowance for credit losses. In some cases, our counterparties’ ability to draw on undrawn commitments is limited by terms included in the specific contractual documentation. Net credit exposures are presented after effects of collateral held, guarantees received and further risk mitigation, but excluding net notional amounts of credit derivatives for protection sold/(bought). The provided gross and net exposures to certain eurozone countries do not include credit derivative tranches and credit derivatives in relation to our correlation business which, by design, is structured to be credit risk neutral. Additionally the tranche and correlated nature of these positions does not lend itself to a disaggregated notional presentation by country, e.g., as identical notional exposures represent different levels of risk for different tranche levels.

Gross position, included undrawn exposure and net exposure to certain eurozone countries – Country of Domicile View

 

Sovereign

Financial Institutions

Corporates

Retail

Other

Total2

in € m.

Jun 30, 2013

Dec 31, 20121

Jun 30, 2013

Dec 31, 2012

Jun 30, 2013

Dec 31, 2012

Jun 30, 2013

Dec 31, 2012

Jun 30, 2013

Dec 31, 2012

Jun 30, 2013

Dec 31, 2012

1

Includes impaired available for sale sovereign debt positions in relation to Greece as of December 31, 2012. There are no other sovereign related impaired exposures included.

2

Approximately 66 % of the overall exposure will mature within the next 5 years.

3

Other exposures to Ireland include exposures to counterparties where the domicile of the group parent is located outside of Ireland as well as exposures to special purpose entities whose underlying assets are from entities domiciled in other countries.

4

Total net exposure excludes credit valuation reserves for derivatives amounting to € 197 million as of June 30, 2013 and € 231 million as of December 31, 2012.

Greece

 

 

 

 

 

 

 

 

 

 

 

 

Gross

23

40

520

715

1,246

1,501

9

9

0

0

1,798

2,265

Undrawn

0

0

14

8

153

160

2

2

0

0

169

170

Net

23

39

50

67

294

356

3

3

0

0

370

465

Ireland

 

 

 

 

 

 

 

 

 

 

 

 

Gross

942

932

1,128

1,438

6,717

6,612

52

56

3,3093

4,3003

12,147

13,338

Undrawn

0

0

13

14

1,539

1,581

2

2

3373

3663

1,891

1,963

Net

513

400

882

1,016

5,026

4,768

7

7

1,9973

2,9223

8,425

9,113

Italy

 

 

 

 

 

 

 

 

 

 

 

 

Gross

2,442

3,059

5,977

7,154

8,575

8,740

19,912

20,291

581

149

37,487

39,393

Undrawn

0

1

880

809

3,891

3,162

184

261

2

0

4,957

4,233

Net

2,358

2,969

2,274

3,263

6,066

6,653

7,367

7,749

513

(51)

18,579

20,583

Portugal

 

 

 

 

 

 

 

 

 

 

 

 

Gross

186

258

369

456

1,325

1,548

2,334

2,375

75

33

4,290

4,670

Undrawn

0

0

3

52

203

188

33

5

4

0

244

245

Net

186

153

300

322

753

769

345

501

75

32

1,658

1,777

Spain

 

 

 

 

 

 

 

 

 

 

 

 

Gross

1,881

1,659

4,515

5,605

9,490

10,296

10,862

11,106

790

221

27,537

28,887

Undrawn

4

0

584

563

2,925

2,684

531

547

3

0

4,047

3,794

Net

1,880

1,659

3,294

3,683

6,814

7,683

1,723

1,789

737

149

14,447

14,963

Total gross

5,474

5,948

12,509

15,368

27,353

28,697

33,169

33,837

4,755

4,703

83,260

88,553

Total undrawn

4

1

1,494

1,446

8,712

7,775

752

817

346

366

11,308

10,405

Total net4

4,960

5,220

6,800

8,351

18,953

20,229

9,444

10,049

3,323

3,052

43,479

46,901

Total net exposure to the above selected eurozone countries decreased by € 3.4 billion in the first six months of 2013 driven largely by financial institutions and corporates reductions in Italy and corporates in Spain and in others in Ireland, partly offset by increases in others in Italy and Spain and corporates in Ireland.

Aggregate net credit risk exposure to certain eurozone countries by type of financial instrument

 

Financial assets carried at amortized cost

Financial assets measured at fair value

Financial instruments
at fair value through profit or loss

Jun 30, 2013

in € m.

Loans before loan loss allowance

Loans after loan loss allowance

Other1

Financial assets available for sale2

Derivatives

Other

Total3

1

Primarily includes contingent liabilities and undrawn lending commitments.

2

Excludes equities and other equity interests.

3

After loan loss allowances.

Greece

296

255

48

5

9

73

390

Ireland

1,559

1,553

2,640

1,067

1,068

3,175

9,503

Italy

10,711

9,887

4,237

1,770

3,713

(1,835)

17,772

Portugal

744

700

319

207

100

582

1,908

Spain

5,761

5,116

2,986

2,782

704

2,268

13,856

Total

19,070

17,512

10,230

5,832

5,594

4,261

43,429

 

Financial assets carried at amortized cost

Financial assets measured at fair value

Financial instruments
at fair value through profit or loss

Dec 31, 2012

in € m.

Loans before loan loss allowance

Loans after loan loss allowance

Other1

Financial assets available for sale2

Derivatives

Other

Total3

1

Primarily includes contingent liabilities and undrawn lending commitments.

2

Excludes equities and other equity interests.

3

After loan loss allowances.

Greece

324

296

23

5

58

73

455

Ireland

2,188

2,181

2,982

978

1,387

3,048

10,576

Italy

11,345

10,615

3,817

1,585

4,132

(2,145)

18,004

Portugal

939

901

379

202

323

437

2,242

Spain

5,986

5,481

3,263

3,254

591

1,970

14,559

Total

20,782

19,474

10,464

6,024

6,491

3,383

45,836

For our credit derivative exposure with these eurozone countries we present the notional amounts for protection sold and protection bought on a gross level as well as the resulting net notional position and its fair value. For a more detailed description of our usage of credit derivatives to manage credit risk see the respective risk sections of our Financial Report 2012.

Credit derivative exposure with underlying assets domiciled in certain eurozone countries

 

Jun 30, 2013

Dec 31, 2012

in € m.

Protection sold

Protection bought

Net protection sold/(bought)

Net fair value

Protection sold

Protection bought

Net protection sold/(bought)

Net fair value

Greece

1,499

(1,519)

(20)

(4)

1,396

(1,386)

10

(8)

Ireland

9,256

(10,335)

(1,079)

1

8,280

(9,743)

(1,463)

55

Italy

70,581

(69,774)

807

88

60,638

(58,059)

2,579

145

Portugal

11,599

(11,848)

(249)

(13)

10,744

(11,209)

(465)

(5)

Spain

34,112

(33,521)

591

(14)

30,408

(30,004)

404

(8)

Total

127,047

(126,997)

50

57

111,466

(110,401)

1,065

179