Counterparty Credit Risk: Regulatory Assessment

This section provides details on our exposure at default (EAD) and RWA by regulatory defined exposure classes and model approaches, including our securitization positions. The tables presented for the current reporting period are based on the CRR/CRD 4 framework, while the comparative information for year-end 2013 is based on the then prevailing Basel 2.5 framework excluding the transitional adjustment according to section 64h (3) of the German Banking Act as valid through December 31, 2013. Quantitative information presented follows the regulatory scope of consolidation.

We generally apply the advanced internal rating based approach (IRBA) for the majority of our advanced IRBA eligible credit portfolios to calculate the regulatory capital requirements according to the CRR/CRD 4 framework, based on respective approvals received from BaFin. The advanced IRBA is the most sophisticated approach available under the regulatory framework for credit risk allowing us to make use of our internal rating methodologies as well as internal estimates of specific other risk parameters. Moreover, we apply the foundation IRBA for a portion of Postbank’s IRBA eligible credit portfolios, for which Postbank received respective BaFin approvals in recent years. Exposures which we do not treat under the advanced or the foundation IRBA are allocated either to “Other IRBA Exposure” or to the “Standardized Approach”.

We have always met the regulatory minimum requirements with regard to the respective coverage ratio thresholds as calculated by EAD and RWA according to Section 10 SolvV applicable since January 1, 2014 and Section 67 SolvV applicable through December 31, 2013, respectively. Nevertheless, because institutions are urged to apply the advanced IRBA as comprehensively as possible, we continue our efforts to further enhance our respective coverage ratio. For a few remaining advanced IRBA eligible portfolios temporarily assigned to the standardized approach, an implementation plan and approval schedule have been set up and agreed with the competent authorities, the BaFin and the Bundesbank.

The BaFin approvals obtained as a result of the advanced IRBA audit processes for our counterparty credit exposures excluding Postbank allow the usage of 68 internally developed rating systems for regulatory capital calculation purposes. Postbank’s approvals, excluding PB Capital Corporation, obtained from the BaFin as a result of its IRBA audit processes for the counterparty credit exposures allow the usage of 13 internally developed rating systems for regulatory capital calculation purposes.

The line item “Other exposures” contains predominantly collective investment undertakings, equity exposures and non-credit obligations treated under other internal rating based approaches as well as remaining exposures classes for the standardized approach which do not fall under central governments, institutions, corporates or retail.

EAD and RWA according to the model approaches applied to our credit risk portfolios

 

Jun 30, 2014
CRR/CRD 4

 

Advanced IRBA

Foundation IRBA

Other IRBA

Standardized Approach

Total

in € m.

EAD

RWA

EAD

RWA

EAD

RWA

EAD

RWA

EAD

RWA

Capital Require­ments

Central governments

107,774

4,408

0

0

0

0

74,838

222

182,612

4,631

370

Institutions

70,864

14,718

1

2

1,599

1,981

28,837

794

101,302

17,495

1,400

Corporates

277,210

96,024

5,741

2,019

9,554

6,277

23,207

15,640

315,712

119,959

9,597

Retail exposures secured by real estate property

154,062

24,320

0

0

0

0

0

0

154,062

24,320

1,946

Qualifying revolving retail exposures

4,450

558

0

0

0

0

0

0

4,450

558

45

Other retail exposures

32,941

12,876

0

0

0

0

12,972

7,919

45,913

20,795

1,664

Other exposures

2,613

6,533

0

0

7,607

21,016

26,305

11,003

36,525

38,551

3,084

Securitizations

49,240

13,173

0

0

0

0

2,066

2,229

51,306

15,402

1,232

Total

699,155

172,611

5,742

2,021

18,760

29,274

168,226

37,807

891,883

241,712

19,337

Thereof: counterparty credit risk from

128,903

37,382

161

117

574

1,125

37,804

2,645

167,442

41,269

3,302

Derivatives

74,954

33,467

161

117

574

1,125

34,074

2,520

109,763

37,228

2,978

Securities financing transactions

53,949

3,915

0

0

0

0

3,730

126

57,680

4,041

323

 

Dec 31, 2013
Basel 2.5

 

Advanced IRBA

Foundation IRBA

Other IRBA

Standardized Approach

Total

in € m.

EAD

RWA

EAD

RWA

EAD

RWA

EAD

RWA

EAD

RWA

Capital Require­ments

Central governments

92,354

4,353

8

2

0

0

75,706

213

168,068

4,569

366

Institutions

60,912

9,175

5,592

1,320

0

0

4,976

198

71,481

10,693

855

Corporates

264,751

81,397

7,396

4,880

10,169

6,067

23,248

15,235

305,564

107,578

8,606

Retail exposures secured by real estate property

153,271

22,523

0

0

0

0

5,173

2,275

158,443

24,799

1,984

Qualifying revolving retail exposures

4,537

621

0

0

0

0

0

0

4,537

621

50

Other retail exposures

33,082

13,990

0

0

0

0

8,593

5,982

41,675

19,972

1,598

Other exposures

0

0

0

0

7,958

10,424

25,287

14,507

33,245

24,931

1,994

Securitizations

49,368

7,834

0

0

0

0

2,175

1,222

51,543

9,057

725

Total

658,273

139,894

12,997

6,202

18,127

16,490

145,159

39,633

834,557

202,219

16,178

Thereof: counterparty credit risk from

122,455

28,265

317

193

414

394

9,571

1,833

132,757

30,684

2,455

Derivatives

75,738

25,900

317

193

414

394

8,630

1,806

85,099

28,292

2,263

Securities financing transactions

46,716

2,365

0

0

0

0

941

27

47,657

2,392

191

The movements in EAD in the exposure class “central governments” in the advanced IRBA resulted from higher positions in interest earning deposits with central banks.

The increase in EAD in the exposure class “institutions” within the advanced IRBA predominantly results from the transfer of the Postbank Large Cap Corporates / Financial Institutions portfolio and corresponds with the decrease in the exposure class “institutions” within the foundation IRBA. Furthermore the increase in RWA was primarily driven by growth in CB&S.

The increase in EAD and RWA in the exposure class “institutions” within the standardized approach mainly relates to central counterparties which are newly introduced into the RWA calculation according to the CRR/CRD 4 framework.

Overall we saw in the advanced IRBA an increase in EAD and RWA within the exposure class “corporate”, mainly resulting from growing business in CB&S and GTB and to a lesser extent also from above mentioned portfolio switch in the Postbank portfolio.

The decrease in EAD and RWA in the exposure class “retail exposures secured by real estate property” within the standardized approach is mainly a result of a re-design of the regulatory defined exposure class segmentation following the CRR/CRD 4 framework where this exposure has been entirely allocated to the exposure class “other retail exposures”.

The increase in EAD and RWA within the exposure class “other exposures” across all model approaches mainly results from components like deferred tax assets and financial sector entities newly considered within the RWA calculation as introduced by the CRR/CRD 4 framework.

The movement in the first six months of 2014 in the securitisation segment is driven by the CRR/CRD 4 framework where positions formerly being deducted from the capital, which now have to be included into RWA.

Internal Ratings and Probability of Defaults

All internal ratings and scorings are based on a uniform master scale, which assigns each rating or scoring result to the default probability determined for that class.

Internal ratings and their PD ranges

Internal rating

PD range in %1

1

Reflects the probability of default for a one year time horizon.

iAAA

> 0.00 ≤ 0.01

iAA+

> 0.01 ≤ 0.02

iAA

> 0.02 ≤ 0.03

iAA–

> 0.03 ≤ 0.04

iA+

> 0.04 ≤ 0.05

iA

> 0.05 ≤ 0.07

iA–

> 0.07 ≤ 0.11

iBBB+

> 0.11 ≤ 0.18

iBBB

> 0.18 ≤ 0.30

iBBB–

> 0.30 ≤ 0.50

iBB+

> 0.50 ≤ 0.83

iBB

> 0.83 ≤ 1.37

iBB–

> 1.37 ≤ 2.27

iB+

> 2.27 ≤ 3.75

iB

> 3.75 ≤ 6.19

iB–

> 6.19 ≤ 10.22

iCCC+

> 10.22 ≤ 16.87

iCCC

> 16.87 ≤ 27.84

iCCC–

> 27.84 ≤ 99.99

Default

100.00

Advanced IRBA Exposure with Corporates

The table below shows our advanced IRBA exposures with Corporates, including portfolios from Postbank. The presentation excludes counterparty credit risk exposures from derivatives and securities financing transactions (SFT). The exposures are distributed on our internal rating scale, showing also the probability of default (PD) range for each grade. Our internal ratings correspond to the respective external Standard & Poor’s rating equivalents. The EAD net is presented in conjunction with exposures-weighted average PD and loss given default (LGD), the RWA and the average risk weight (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 effect of double default, to the extent applicable to exposures outside of Postbank is considered in the average risk weight. It implies that for a guaranteed exposure a loss only occurs if the primary obligor and the guarantor fail to meet their obligations at the same time.

EAD net for Advanced IRBA Credit Exposures by PD Grade with Corporates (excluding derivatives and SFTs)

in € m. (unless stated otherwise)

Jun 30, 2014
CRR/DRD 4

Dec 31, 2013
Basel 2.5

Internal rating

EAD net

Average PD in %1

Average LGD in %

RWA

Average RW in %

EL/EAD in %

EAD net

Average PD in %1

Average LGD in %

RWA

Average RW in %

EL/EAD in %

1

Higher average PD in % than defined for the internal rating scales iAAA and iAA+ results for Corporates exposure subject to a PD floor of 3 basis points.

iAAA

4,058

0.03

21.22

229

5.64

0.01

3,084

0.03

24.81

196

6.35

0.01

iAA+

6,183

0.03

22.60

392

6.34

0.01

5,448

0.03

19.67

286

5.25

0.01

iAA

7,667

0.03

19.37

439

5.73

0.01

7,555

0.03

18.29

420

5.56

0.01

iAA–

10,941

0.04

33.83

1,572

14.36

0.01

11,213

0.04

31.29

922

8.22

0.01

iA+

11,169

0.05

30.17

1,533

13.72

0.01

11,167

0.05

28.56

1,293

11.58

0.01

iA

16,730

0.07

31.30

2,855

17.06

0.02

14,927

0.07

31.28

2,349

15.73

0.02

iA–

18,387

0.09

38.12

4,515

24.56

0.03

17,690

0.09

35.62

3,705

20.95

0.03

iBBB+

20,424

0.14

35.24

6,033

29.54

0.05

18,121

0.14

31.90

4,512

24.90

0.04

iBBB

18,494

0.23

31.27

6,087

32.91

0.07

18,145

0.23

32.54

5,984

32.98

0.07

iBBB–

18,376

0.39

32.28

8,129

44.23

0.12

16,884

0.39

31.05

6,885

40.78

0.11

iBB+

11,759

0.64

30.78

5,788

49.22

0.18

9,958

0.64

32.21

5,436

54.60

0.20

iBB

11,980

1.07

26.94

6,588

54.99

0.27

11,819

1.07

28.10

6,835

57.83

0.30

iBB–

11,869

1.76

29.99

7,756

65.35

0.51

9,062

1.76

24.59

5,625

62.07

0.43

iB+

7,552

2.92

22.10

5,018

66.45

0.63

6,452

2.92

19.94

3,969

61.51

0.84

iB

6,264

4.81

22.80

5,289

84.43

1.09

5,167

4.79

21.45

3,948

76.42

1.02

iB–

3,480

7.94

21.33

3,291

94.57

1.72

3,935

7.94

15.90

2,664

67.71

1.26

iCCC+

1,243

13.00

22.27

1,316

105.82

2.59

1,140

13.00

14.58

809

70.94

1.89

iCCC

706

21.94

19.98

827

117.14

4.47

738

21.95

23.77

1,035

140.38

5.19

iCCC–

888

31.00

15.47

561

63.22

3.36

802

31.00

12.15

569

70.92

3.77

Default

9,109

100.00

24.73

2,030

22.28

N/M

9,975

100.00

25.77

2,405

24.11

N/M

Total

197,282

5.63

29.92

70,248

35.61

0.24

183,284

6.44

28.70

59,847

32.65

0.23

The majority of these exposures are assigned to investment-grade customers. The exposures in the lowest rating class are predominantly collateralized.

EAD levels increased over the reporting period, mainly in the second quarter 2014, primarily based on growth in CB&S and GTB. An additional contribution resulted from the transfer of Postbank Large Cap Corporates/Financial Institutions portfolio from Foundation IRBA to Advanced IRBA.

Foundation IRBA Exposure with Corporates

The table below shows our foundation IRBA exposures with Corporates. It excludes counterparty credit risk exposures from derivatives and SFT. The exposure is distributed on our internal rating scale, showing also the PD range for each grade. The internal ratings correspond to the respective external Standard & Poor’s rating 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.

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

in € m. (unless stated otherwise)

Jun 30, 2014
CRR/CRD 4

Dec 31, 2013
Basel 2.5

Internal rating

EAD net

Average PD in %

RWA

Average RW in %

EAD net

Average PD in %

RWA

Average RW in %

iAAA

0

0.00

0

0.00

0

0.00

0

0.00

iAA+

0

0.00

0

0.00

0

0.00

0

0.00

iAA

1,884

0.03

194

10.31

35

0.03

5

15.31

iAA–

10

0.04

2

21.12

0

0.00

0

0.00

iA+

0

0.00

0

0.00

0

0.00

0

0.00

iA

670

0.06

84

12.47

518

0.06

115

22.13

iA–

180

0.09

42

23.11

405

0.10

127

31.30

iBBB+

559

0.15

123

21.93

912

0.15

362

39.65

iBBB

598

0.23

245

41.03

1,510

0.23

754

49.93

iBBB–

568

0.38

307

53.92

1,666

0.38

1,076

64.60

iBB+

544

0.69

345

63.36

1,121

0.69

951

84.81

iBB

274

1.23

230

83.96

272

1.23

284

104.62

iBB–

70

2.06

57

81.56

287

2.06

347

120.99

iB+

0

0.00

0

0.00

0

0.00

0

0.00

iB

19

3.78

20

102.22

170

3.78

246

144.76

iB–

21

7.26

37

179.76

37

7.26

66

177.02

iCCC+

1

12.76

0

61.13

1

12.76

3

223.09

iCCC

92

18.00

229

248.36

163

18.00

382

234.34

iCCC–

0

0.00

0

0.00

0

0.00

0

0.00

Default

94

100.00

0

0.00

80

100.00

0

0.00

Total

5,584

2.28

1,915

34.27

7,177

2.05

4,718

65.73

The decrease in EAD as well as in RWA is mainly driven by the transfer of Postbank’s Large Cap Corporates/Financial Institutions portfolio from Foundation IRBA to Advanced IRBA.