Risk Management Executive Summary

Credit Risk Summary

  • After a slow-down in the first quarter of 2014, global growth is accelerating supported by a strong rebound in the US and more modest acceleration in China. Geopolitical risks remain elevated with tensions between Russia and the West in relation to the Ukraine reaching new highs and pockets of heightened stress in the Middle East. The economic and financial market impact of these events remains predominantly localized and potential impacts on the credit portfolio are being monitored closely. We currently expect no material credit losses as a result of those events. Credit exposure to Russia based on a country of domicile principle is € 6.1 billion as of June 30, 2014, focused on sovereigns, majority government owned banks as well as corporates in strategically important industry sectors. The increase of € 0.3 billion in credit exposures compared with December 31, 2013 is mostly collateralised. Credit exposure to Ukraine is relatively small at € 0.5 billion as of June 30, 2014.
  • Provision for credit losses was € 496 million in the first six months 2014, a decrease of € 332 million, or 40 %, compared to the first six months 2013. This reduction primarily results from lower provisions in NCOU, ongoing good performance of the German retail market and the non-recurrence of large single items in our Core business recorded in the first six months 2013.
  • Our corporate credit loan exposure increased by 5 % or € 9.8 billion in the first six months of 2014, mainly in investment grade rating classes.
  • The portion of our corporate credit portfolio book carrying an investment-grade rating amounted to 72 % at June 30, 2014, marginally higher compared with December 31, 2013.
  • The economic capital usage for credit risk slightly decreased by € 0.1 billion to € 11.9 billion as of June 30, 2014, compared with € 12.0 billion at year-end 2013. This was mainly driven by operational model improvements in 2014 partly offset by increased exposure, primarily in GTB.

Market Risk Summary

  • The nontrading market risk economic capital usage increased to € 9.0 billion as of June 30, 2014, compared with € 8.5 billion at year-end 2013. This was largely driven by additional structural foreign exchange risk arising from our issuance of Additional Tier 1 notes on May 20, 2014 denominated in US dollars and Pound Sterling.
  • The economic capital usage for trading market risk totalled € 5.4 billion as of June 30, 2014, compared with € 4.2 billion at year-end 2013. This was mainly driven by increased exposures in the fair value banking book and in securitization.
  • The average value-at-risk for the first six months of 2014 was € 55 million and increased slightly by € 2 million compared with the full year 2013. There has been an increase in interest rate risk partly offset by reductions in credit spread and commodities risk. Overall value-at-risk has increased due to a reduction in diversification benefit due to a change in the portfolio composition.

Operational Risk Summary

  • The economic capital usage for operational risk increased by € 1.1 billion to € 6.4 billion as of June 30, 2014, compared to year-end 2013.
  • The increase was mainly driven by a proactive recognition of the impact of model enhancements to our Advanced Measurement Approach (AMA) model.
  • While our dialogue with BaFin on these model enhancements is on-going, management has decided to recognise the impact of these model changes where they will lead to an increase in capital requirement over our models that have been previously approved by the BaFin.

Liquidity Risk Summary

  • Liquidity reserves amounted to € 199 billion as of June 30, 2014 (compared with € 196 billion as of December 31, 2013). We maintained a positive liquidity stress result as of June 30, 2014 (under the combined scenario).
  • Our initial issuance plan of € 20 billion was completed in May 2014 and was subsequently increased to € 30-35 billion. Capital markets issuance activities in the first six months of 2014 amounted to € 24.8 billion.
  • 66 % of our overall funding came from the funding sources we categorize as the most stable including capital markets issuance and equity, retail and transaction banking deposits.

Capital Management Summary

  • The CRR/CRD 4 Common Equity Tier 1 capital ratio was 14.7 % as of June 30, 2014, compared with 14.6 % at year-end 2013.
  • Risk-weighted assets according to CRR/CRD 4 increased by € 101 billion to € 401 billion as of June 30, 2014, compared with € 300 billion according to Basel 2.5 at year-end 2013, largely reflecting the impact of the CRR/CRD 4 framework.
  • The internal capital adequacy ratio increased to 179 % as of June 30, 2014, compared with 167 % as of December 31, 2013.
  • The CRR/CRD 4 fully loaded Common Equity Tier 1 ratio was 11.5 % as of June 30, 2014, compared with 9.7 % at year-end 2013.

Balance Sheet Management Summary

  • Our leverage ratio calculated as the ratio of total assets under IFRS to total equity under IFRS was 24 as of June 30, 2014, down compared with 29 at year end 2013.
  • As of June 30, 2014, our fully loaded CRR/CRD 4 leverage ratio, which is a non-GAAP financial measure, was 3.4 %, compared with 2.4 % as of December 31, 2013, taking into account a fully loaded Tier 1 capital of € 49.4 billion over an applicable exposure measure of € 1,447 billion (€ 34.0 billion and € 1,445 billion as of December 31, 2013, respectively).