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. This heightened risk is driven by a number of factors impacting the associated sovereign including high public debt levels and/or large deficits, 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. Funding conditions and overall financial stability have improved over the past 18 months with bond yields returning, in most cases, to sustainable levels and capital outflows having partly reversed and weaker countries having regained access to the capital markets. Ireland and Portugal have both exited their bailouts without precautionary credit lines. Some of these countries have exited recession and all are expected to return to positive growth over the course of 2014.

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 approach and principles as outlined in our Financial Report 2013. Also, in our risk management view, 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, 2014

Dec 31, 2013

Greece

492

466

Ireland

518

455

Italy

15,895

15,419

Portugal

1,336

708

Spain

8,744

9,886

Total

26,984

26,935

Net credit risk exposure with certain eurozone countries increased by € 50 million since year-end 2013. This was mainly driven by increases of trading positions across Sovereign and diversified Corporates in Portugal and Italy mostly offset by lower Sovereign positions in Spain.

Our above exposure is principally 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 collateralised. 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 our retail portfolio, 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 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 do not allow a meaningful 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

Total1

in € m.

Jun 30,
2014

Dec 31,
2013

Jun 30,
2014

Dec 31,
2013

Jun 30,
2014

Dec 31,
2013

Jun 30,
2014

Dec 31,
2013

Jun 30,
2014

Dec 31,
2013

Jun 30,
2014

Dec 31,
2013

1

Approximately 55 % of the overall exposure will mature within the next 5 years.

2

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.

3

Total net exposure excludes credit valuation reserves for derivatives amounting to € 101 million as of June 30, 2014 and € 136 million as of December 31, 2013.

Greece

 

 

 

 

 

 

 

 

 

 

 

 

Gross

84

52

634

605

1,371

1,338

8

9

32

0

2,129

2,004

Undrawn

0

0

23

18

99

101

2

3

0

0

125

122

Net

72

52

74

23

69

214

3

3

32

0

251

291

Ireland

 

 

 

 

 

 

 

 

 

 

 

 

Gross

693

765

873

721

7,141

6,177

45

48

1,9402

1,9582

10,691

9,669

Undrawn

0

0

48

6

2,223

1,680

2

1

2642

3582

2,537

2,045

Net

84

175

533

438

5,385

4,537

7

9

1,9302

1,9512

7,939

7,110

Italy

 

 

 

 

 

 

 

 

 

 

 

 

Gross

4,656

1,900

5,245

5,232

9,020

8,400

19,586

19,650

1,311

648

39,818

35,830

Undrawn

0

0

868

955

3,215

3,407

209

190

2

2

4,294

4,554

Net

1,192

1,374

2,764

2,500

6,689

6,529

7,461

6,994

1,201

572

19,306

17,969

Portugal

 

 

 

 

 

 

 

 

 

 

 

 

Gross

185

38

315

257

1,136

1,392

2,013

2,163

163

78

3,811

3,928

Undrawn

0

0

37

36

112

172

8

28

0

0

157

237

Net

185

25

262

222

517

849

227

282

163

78

1,353

1,456

Spain

 

 

 

 

 

 

 

 

 

 

 

 

Gross

527

1,473

3,006

3,349

9,650

9,288

10,643

10,721

771

637

24,598

25,468

Undrawn

3

4

868

662

4,233

3,321

507

521

4

3

5,615

4,510

Net

429

1,452

2,663

2,389

7,340

6,436

2,400

2,060

719

502

13,551

12,839

Total gross

6,145

4,228

10,072

10,164

28,318

26,595

32,294

32,591

4,216

3,321

81,047

76,899

Total undrawn

3

4

1,845

1,677

9,882

8,680

727

743

270

364

12,727

11,468

Total net3

1,962

3,078

6,296

5,572

20,000

18,566

10,098

9,347

4,044

3,103

42,400

39,666

Total net exposure to the above selected eurozone countries increased by € 2.7 billion in the first six months of 2014 mainly driven by increased corporate and financial institutions portfolios in Spain and Ireland partly offset by the sovereign exposure reductions in Spain and Italy.

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

 

Jun 30, 2014

 

Financial assets carried at amortized cost

Financial assets measured at fair value

Financial instruments at fair value through profit or loss

 

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

112

86

88

0

36

62

273

Ireland

1,705

1,696

3,022

301

783

2,011

7,813

Italy

11,686

10,643

3,883

733

3,786

3,008

22,053

Portugal

429

380

356

23

103

712

1,575

Spain

5,720

5,718

4,229

864

488

1,468

12,767

Total

19,653

18,524

11,578

1,920

5,197

7,262

44,481

 

Dec 31, 2013

 

Financial assets carried at amortized cost

Financial assets measured at fair value

Financial instruments at fair value through profit or loss

 

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

240

207

15

5

7

69

302

Ireland

1,342

1,332

2,840

502

800

1,518

6,993

Italy

10,678

9,735

4,143

875

3,559

(176)

18,136

Portugal

686

640

400

34

94

538

1,706

Spain

6,214

5,460

3,386

1,015

510

1,483

11,853

Total

19,159

17,373

10,784

2,431

4,970

3,432

38,990

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 2013.

Credit derivative exposure with underlying assets domiciled in certain eurozone countries

 

Jun 30, 2014

Dec 31, 2013

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

1,173

(1,196)

(22)

0

1,260

(1,271)

(11)

(1)

Ireland

5,779

(5,654)

126

(1)

7,438

(7,321)

117

0

Italy

49,150

(51,896)

(2,746)

73

60,203

(60,370)

(167)

100

Portugal

7,418

(7,640)

(222)

2

10,183

(10,432)

(250)

7

Spain

22,248

(21,464)

784

2

28,452

(27,466)

986

(4)

Total

85,768

 (87,850)

 (2,081)

76

107,536

(106,860)

675

101