Movements in the Allowance for Credit Losses

Our allowance for credit losses comprises of the allowance for loan losses and the allowance for off-balance sheet positions.

Development of allowance for credit losses

 

Nine months ended Sep 30, 2014

 

Allowance for Loan Losses

Allowance for Off-Balance Sheet Positions

 

in € m.
(unless stated otherwise)

Individually assessed

Collectively assessed

Subtotal

Individually assessed

Collectively assessed

Subtotal

Total

Balance, beginning of year

2,857

2,732

5,589

102

114

216

5,805

Provision for credit losses

300

441

742

10

13

23

765

Thereof: (Gains)/Losses from disposal of impaired loans

(39)

(16)

(56)

0

0

0

(56)

Net charge-offs:

(760)

(427)

(1,187)

0

0

0

(1,187)

Charge-offs

(789)

(508)

(1,296)

0

0

0

(1,296)

Recoveries

29

80

109

0

0

0

109

Changes in the group of consolidated companies

0

0

0

0

0

0

0

Exchange rate changes/other

9

0

8

(1)

7

7

15

Balance, end of period

2,406

2,745

5,152

112

134

246

5,398

 

 

 

 

 

 

 

 

Changes compared to prior year

 

 

 

 

 

 

 

Provision for credit losses

 

 

 

 

 

 

 

In € m.

(556)

(10)

(566)

0

(8)

(9)

(575)

In %

(65)

(2)

(43)

(2)

(40)

(27)

(43)

Net charge-offs

 

 

 

 

 

 

 

In € m.

(300)

(244)

(543)

0

0

0

(543)

In %

65

133

84

0

0

0

84

Our allowance for credit losses was € 5.4 billion as at September 30, 2014, thereof 95 % or € 5.2 billion related to our loan portfolio and 5 % or € 246 million to off-balance sheet positions (predominantly loan commitments and guarantees). The allowance for loan losses is attributable 53 % to collectively assessed and 47 % to individually assessed loan losses. The net decrease in our allowance for loan losses of € 437 million compared with prior year end results from € 1.2 billion of net charge-offs, partly offset by additions of € 742 million provisions and € 8 million other changes, such as accretion on impaired loans and foreign exchange effects. Our allowance for off-balance sheet positions increased net by € 30 million compared with prior year end mainly due to additional provisions.

Provision for credit losses recorded in the first nine months of 2014 decreased by € 575 million or 43 % to € 765 million compared with the first nine months of 2013. Our overall loan loss provisions decreased by € 566 million or 43 % in the first nine months of 2014 compared with the first nine months of 2013. This reduction largely results from our individually assessed loan portfolio, where provisioning declined by € 556 million reflecting lower provisions in NCOU mainly from IAS 39 reclassified assets and the non-recurrence of large single items in our Core business recorded in the first nine months 2013. Despite low level of provisions in the first nine months of 2013 due to a one off gain from the sale of non-performing loan portfolios, provisions for our collectively assessed portfolio in the first nine months 2014 decreased compared to prior year period reflecting amongst others the ongoing good environment in the German credit market. Our overall provisions for off-balance sheet positions decreased by € 9 million compared with previous year’s first nine months driven by GTB as a result of lower charges for collectively assessed positions.

Net charge-offs increased by € 543 million in the first nine months of 2014 compared to the first nine months of 2013 largely driven by the individually assessed loan portfolio at Postbank following an alignment of processes in the first quarter of 2014. This alignment resulted in an adjustment of the level of loan loss allowance for loans recorded at Postbank by € 233 million reflecting accelerated write-offs as well as the elimination of previous misclassification of recoveries in the credit quality of Postbank loans, which had been impaired after change of control, as interest income. Furthermore, the overall increase resulted from charge offs related to disposal of impaired loan portfolios in Italy partly offset by lower charge offs for IAS 39 reclassified positions.

Our allowance for loan losses for IAS 39 reclassified assets, which are reported in NCOU, amounted to € 511 million as at September 30, 2014, representing 10 % of our total allowance for loan losses, up 7 % from the level at the end of the prior year which amounted to € 479 million (9 % of total allowance for loan losses). This increase was a result of additional provisions for loan losses of € 62 million and other changes of € 18 million partly offset by net charge offs of € 48 million.

Compared to the first nine months 2013, provision for loan losses for IAS 39 reclassified assets dropped by € 272 million to € 62 million and net charge offs decreased by € 188 million to € 48 million in the first nine months of 2014. Both reductions result from the non-recurrence of large items in the present year compared to high levels in the comparison period.

 

Nine months ended Sep 30, 2013

 

Allowance for Loan Losses

Allowance for Off-Balance Sheet Positions

 

in € m.
(unless stated otherwise)

Individually assessed

Collectively assessed

Subtotal

Individually assessed

Collectively assessed

Subtotal

Total

Balance, beginning of year

2,266

2,426

4,692

118

97

215

4,907

Provision for credit losses

856

452

1,308

11

21

32

1,340

Thereof: (Gains)/Losses from disposal of impaired loans

4

(43)

(39)

0

0

0

(39)

Net charge-offs:

(460)

(183)

(644)

0

0

0

(644)

Charge-offs

(482)

(294)

(776)

0

0

0

(776)

Recoveries

22

110

132

0

0

0

132

Changes in the group of consolidated companies

0

0

0

0

0

0

0

Exchange rate changes/other

(70)

(25)

(95)

(2)

(2)

(4)

(100)

Balance, end of period

2,592

2,669

5,261

126

116

242

5,503

 

 

 

 

 

 

 

 

Changes compared to prior year

 

 

 

 

 

 

 

Provision for credit losses

 

 

 

 

 

 

 

In € m.

16

(5)

12

24

16

40

52

In %

2

(1)

1

(177)

302

(476)

4

Net charge-offs

 

 

 

 

 

 

 

In € m.

145

30

175

0

0

0

175

In %

(24)

(14)

(21)

0

0

0

(21)