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 14 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

 

Sep 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

90,973

4,876

0

0

0

0

84,671

122

175,644

4,998

400

Institutions

80,876

14,946

1

1

1,731

2,094

39,315

852

121,923

17,893

1,431

Corporates

296,665

104,755

6,179

2,044

9,409

5,323

24,109

15,561

336,363

127,683

10,215

Retail exposures secured by real estate property

155,055

24,572

0

0

0

0

0

0

155,055

24,572

1,966

Qualifying revolving retail exposures

4,411

543

0

0

0

0

0

0

4,411

543

43

Other retail exposures

32,892

12,918

0

0

0

0

12,790

7,839

45,682

20,757

1,661

Other exposures

2,831

7,079

0

0

8,701

20,879

29,649

11,585

41,182

39,543

3,163

Securitizations

50,474

12,961

0

0

0

0

2,172

2,113

52,646

15,074

1,206

Total

714,177

182,651

6,180

2,044

19,841

28,297

192,707

38,071

932,904

251,063

20,085

Thereof: counterparty credit risk from

141,582

40,009

163

116

641

698

44,956

2,304

187,341

43,126

3,450

Derivatives

88,314

36,810

163

116

641

698

41,935

2,204

131,052

39,828

3,186

Securities financing transactions

53,268

3,199

0

0

0

0

3,021

100

56,289

3,299

264

 

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 Standardized Approach 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 nine 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)

Sep 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 %

N/M – Not meaningful

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

4,461

0.03

19.73

251

5.63

0.01

3,084

0.03

24.81

196

6.35

0.01

iAA+

5,169

0.03

20.32

315

6.10

0.01

5,448

0.03

19.67

286

5.25

0.01

iAA

9,924

0.03

17.03

491

4.94

0.00

7,555

0.03

18.29

420

5.56

0.01

iAA–

11,998

0.04

32.40

1,299

10.83

0.01

11,213

0.04

31.29

922

8.22

0.01

iA+

13,095

0.05

29.50

1,780

13.59

0.01

11,167

0.05

28.56

1,293

11.58

0.01

iA

21,445

0.07

33.60

3,687

17.19

0.02

14,927

0.07

31.28

2,349

15.73

0.02

iA–

20,862

0.09

36.13

4,927

23.62

0.03

17,690

0.09

35.62

3,705

20.95

0.03

iBBB+

20,667

0.14

34.41

6,055

29.30

0.05

18,121

0.14

31.90

4,512

24.90

0.04

iBBB

18,495

0.23

32.09

6,284

33.98

0.07

18,145

0.23

32.54

5,984

32.98

0.07

iBBB–

19,098

0.39

32.86

8,554

44.79

0.12

16,884

0.39

31.05

6,885

40.78

0.11

iBB+

16,112

0.64

33.45

8,808

54.67

0.21

9,958

0.64

32.21

5,436

54.60

0.20

iBB

13,998

1.08

25.85

7,577

54.13

0.28

11,819

1.07

28.10

6,835

57.83

0.30

iBB–

12,378

1.77

26.34

8,082

65.29

0.47

9,062

1.76

24.59

5,625

62.07

0.43

iB+

8,404

2.92

21.27

5,368

63.88

0.60

6,452

2.92

19.94

3,969

61.51

0.84

iB

7,490

4.79

24.17

6,730

89.86

1.14

5,167

4.79

21.45

3,948

76.42

1.02

iB–

4,354

7.93

21.38

3,716

85.34

1.57

3,935

7.94

15.90

2,664

67.71

1.26

iCCC+

1,610

12.96

21.74

1,797

111.57

3.04

1,140

13.00

14.58

809

70.94

1.89

iCCC

768

21.93

18.90

863

112.38

4.32

738

21.95

23.77

1,035

140.38

5.19

iCCC–

611

31.00

19.64

707

115.76

6.13

802

31.00

12.15

569

70.92

3.77

Default

8,365

100.00

26.03

2,057

24.59

N/M

9,975

100.00

25.77

2,405

24.11

N/M

Total

219,304

4.81

29.65

79,347

36.18

0.25

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 and third 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 as well as a portion of the Commercial Real Estate 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)

Sep 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

2,175

0.03

268

12.35

35

0.03

5

15.31

iAA–

22

0.04

4

16.32

0

0.00

0

0.00

iA+

0

0.00

0

0.00

0

0.00

0

0.00

iA

666

0.06

82

12.37

518

0.06

115

22.13

iA–

246

0.09

47

19.25

405

0.10

127

31.30

iBBB+

555

0.15

137

24.62

912

0.15

362

39.65

iBBB

647

0.23

258

39.86

1,510

0.23

754

49.93

iBBB–

627

0.38

322

51.39

1,666

0.38

1,076

64.60

iBB+

535

0.69

361

67.52

1,121

0.69

951

84.81

iBB

292

1.23

209

71.57

272

1.23

284

104.62

iBB–

63

2.06

50

79.38

287

2.06

347

120.99

iB+

0

0.00

0

0.00

0

0.00

0

0.00

iB

28

3.78

21

77.15

170

3.78

246

144.76

iB–

10

7.26

16

167.36

37

7.26

66

177.02

iCCC+

1

12.76

1

61.13

1

12.76

3

223.09

iCCC

60

18.00

151

249.10

163

18.00

382

234.34

iCCC–

0

0.00

0

0.00

0

0.00

0

0.00

Default

90

100.00

0

0.00

80

100.00

0

0.00

Total

6,017

1.95

1,927

32.04

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.