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”). When making our assessment we consider information on such events that is reasonably available up to the date the financial statements are authorized for issuance in line with the requirements of IAS 10;
  • 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, 2014

Dec 31, 2013

2014 increase (decrease)
from 2013

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

Corporate Banking & Securities

637

318

50

818

344

42

(181)

8

Private & Business Clients

4,269

2,486

58

4,121

2,519

61

148

(3)

Global Transaction Banking

1,574

995

63

1,662

1,078

65

(88)

(2)

Deutsche Asset & Wealth Management

66

33

50

69

39

56

(3)

(6)

Non-Core Operations Unit

2,803

1,380

49

3,473

1,609

46

(670)

3

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

986

518

53

1,007

479

48

(20)

5

Total

9,348

5,212

56

10,143

5,589

55

(795)

1

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

 

Dec 31, 2014

 

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 %

N/M – Not meaningful

Banks and insurance

0

0

0

0

0

16

16

N/M

Fund management activities

64

0

64

1

0

5

6

9

Manufacturing

525

232

757

428

126

71

625

83

Wholesale and retail trade

362

229

591

211

148

36

395

67

Households

451

3,299

3,750

370

1,947

85

2,402

64

Commercial real estate activities

1,733

314

2,047

475

39

21

535

26

Public sector

50

0

50

29

0

2

32

63

Other

1,806

284

2,090

849

195

158

1,202

58

Total

4,990

4,359

9,348

2,364

2,455

393

5,212

56

 

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

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

 

Dec 31, 2014

 

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 %

N/M – Not meaningful

Germany

1,604

1,896

3,499

740

1,017

116

1,873

54

Western Europe (excluding Germany)

2,683

2,303

4,986

1,302

1,311

128

2,741

55

Eastern Europe

107

152

259

51

125

10

186

72

North America

423

2

425

204

0

70

274

64

Central and South America

2

0

3

3

0

6

9

356

Asia/Pacific

170

5

174

63

1

50

114

65

Africa

0

1

1

0

0

3

4

346

Other

1

0

1

0

0

11

11

N/M

Total

4,990

4,359

9,348

2,364

2,455

393

5,212

56

 

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

Development of Impaired Loans

 

Dec 31, 2014

Dec 31, 2013

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 (as per December 31, 2013).

Balance, beginning of year

5,922

4,221

10,143

6,129

4,206

10,335

Classified as impaired during the year1

2,112

2,181

4,293

4,553

2,939

7,492

Transferred to not impaired during the year1

(1,425)

(1,182)

(2,607)

(2,618)

(2,134)

(4,752)

Charge-offs

(1,037)

(613)

(1,651)

(730)

(485)

(1,215)

Disposals of impaired loans

(514)

(254)

(768)

(744)

(293)

(1,037)

Exchange rate and other movements

(68)

6

(62)

(669)

(12)

(680)2

Balance, end of year

4,990

4,359

9,348

5,922

4,221

10,143

In 2014 our impaired loans decreased by € 795 million or 7.8 % to € 9.3 billion driven by individually assessed impaired loans and partly offset by a slight increase in collectively assessed impaired loans. The reduction in individually assessed impaired loans is mainly caused by disposals along with a reduction of new impairments mainly in NCOU reflecting impairments booked in the previous years and the consequent de-risking of our book. Our Core bank also contributed to the overall reduction again related to disposals along with lower new impairments in an improving economic environment. The increase in collectively assessed impaired loans results from Postbank’s Core business.

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)) slightly increased from 55 % as of year-end 2013 to 56 % driven by NCOU.

Our impaired loans included € 986 million of loans reclassified to loans and receivables in accordance with IAS 39, down € 20 million from prior year’s level.

Provision for loan losses and recoveries by Industry1

 

2014

2013

 

Provision for loan losses before recoveries

 

 

 

in € m.

for individually assessed loans

for collectively assessed impaired loans

for collectively assessed non- impaired loans

total

Recoveries

Provision for loan losses before recoveries (total)

Recoveries

1

The split of 2014 provisions for loan losses into its components in accounts for CRR Art. 442 g) iii), which was not applicable for reporting periods prior to 2014.

Banks and insurances

0

0

(1)

(1)

0

40

0

Fund management activities

0

0

1

1

0

(41)

0

Manufacturing

10

31

15

56

11

40

15

Wholesale and retail trade

27

38

2

67

9

105

4

Households

119

589

(18)

690

101

822

120

Commercial real estate activities

187

13

(17)

182

5

732

2

Public sector

8

0

0

8

0

19

0

Other

188

64

14

266

15

505

21

Total

539

735

(3)

1,270

141

2,222

162

Our existing commitments to lend additional funds to debtors with impaired loans amounted to € 76 million as of December 31, 2014 and € 168 million as of December 31, 2013.

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

in € m.

Dec 31, 2014

Dec 31, 2013

Financial and other collateral

3,215

3,411

Guarantees received

296

763

Total collateral held for impaired loans

3,511

4,174

Our total collateral held for impaired loans as of December 31, 2014 decreased in line with the reduction of impaired loans by € 663 million compared to prior year and predominantly for loans held in London and Spain. 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) slightly decreased to 93 % as of December 31, 2014 compared to 96 % as of December 31, 2013.

Financial assets available for sale

The impairment concept is also applicable for available for sale debt instruments, which are otherwise carried at fair value with changes in fair value reported in other comprehensive income. If an available for sale debt instrument is considered impaired, the cumulative impairment loss reflects the difference between the amortized cost and the current fair value of the instrument. For a detailed discussion of our accounting procedures please refer to Note 1 “Significant Accounting Policies and Critical Accounting Estimates”.

Impaired financial assets available for sale, accumulated impairments and coverage ratio

in € m.

Dec 31, 20141

1

First time data collection was only feasible for 2014 figures.

Impaired financial assets available for sale

200

Accumulated impairment for financial assets available for sale

68

Impaired financial assets available for sale coverage ratio in %

34


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