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. Greece, however, saw yields rise sharply in late September/early October 2014 due to concerns over whether its fundamentals are strong enough to exit the bailout. Some of these countries have exited recession and all are expected to return to positive growth over the course of 2015.

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.

Sep 30, 2014

Dec 31, 2013

Greece

436

466

Ireland

445

455

Italy

14,931

15,419

Portugal

1,002

708

Spain

8,559

9,886

Total

25,373

26,935

Net credit risk exposure with certain eurozone countries decreased by €1.6 billion since year-end 2013. This was mainly due to lower exposure to Spain and Italy driven by reductions in trading and derivative Sovereign positions, partly offset by increases in Portugal mostly from trading positions to diversified Corporates.

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 at low level. 

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, including 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.

Sep 30,
2014

Dec 31,
2013

Sep 30,
2014

Dec 31,
2013

Sep 30,
2014

Dec 31,
2013

Sep 30,
2014

Dec 31,
2013

Sep 30,
2014

Dec 31,
2013

Sep 30,
2014

Dec 31,
2013

1

Approximately 54 % 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 € 8 million as of September 30, 2014 and € 136 million as of December 31, 2013.

Greece

 

 

 

 

 

 

 

 

 

 

 

 

Gross

123

52

658

605

1,329

1,338

8

9

21

0

2,139

2,004

Undrawn

0

0

24

18

45

101

3

3

0

0

72

122

Net

120

52

103

23

52

214

3

3

21

0

298

291

Ireland

 

 

 

 

 

 

 

 

 

 

 

 

Gross

488

765

1,576

721

9,725

6,177

42

48

1,9082

1,9582

13,738

9,669

Undrawn

0

0

45

6

3,760

1,680

2

1

2952

3582

4,101

2,045

Net

(40)

175

1,170

438

6,991

4,537

6

9

1,9082

1,9512

10,034

7,110

Italy

 

 

 

 

 

 

 

 

 

 

 

 

Gross

4,702

1,900

5,116

5,232

8,612

8,400

19,300

19,650

1,211

648

38,942

35,830

Undrawn

0

0

906

955

3,237

3,407

206

190

28

2

4,376

4,554

Net

542

1,374

2,075

2,500

6,114

6,529

6,815

6,994

1,108

572

16,654

17,969

Portugal

 

 

 

 

 

 

 

 

 

 

 

 

Gross

37

38

441

257

985

1,392

2,092

2,163

180

78

3,735

3,928

Undrawn

0

0

36

36

117

172

32

28

0

0

185

237

Net

(19)

25

384

222

429

849

254

282

180

78

1,228

1,456

Spain

 

 

 

 

 

 

 

 

 

 

 

 

Gross

788

1,473

2,324

3,349

9,246

9,288

10,539

10,721

870

637

23,766

25,468

Undrawn

2

4

725

662

3,739

3,321

476

521

10

3

4,952

4,510

Net

533

1,452

2,029

2,389

6,634

6,436

1,878

2,060

821

502

11,896

12,839

Total gross

6,137

4,228

10,115

10,164

29,897

26,595

31,981

32,591

4,189

3,321

82,319

76,899

Total undrawn

2

4

1,734

1,677

10,898

8,680

718

743

333

364

13,685

11,468

Total net3

1,136

3,078

5,761

5,572

20,218

18,566

8,957

9,347

4,037

3,103

40,110

39,666

Total net exposure to the above selected eurozone countries increased by € 444 million in the first nine months of 2014 mainly driven by increased corporate and financial institutions portfolios in Ireland offset by reduced sovereign exposure in Italy, Spain and Portugal and reduced financial institution exposure in Italy and Spain.

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

 

Sep 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

107

74

95

0

51

79

298

Ireland

1,876

1,866

5,093

435

948

1,601

9,943

Italy

10,882

9,955

4,032

649

4,055

1,848

20,539

Portugal

565

514

341

11

25

631

1,522

Spain

5,684

5,008

3,636

583

439

1,779

11,446

Total

19,114

17,417

13,197

1,678

5,519

5,938

43,748

 

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

 

Sep 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

785

(785)

0

2

1,260

(1,271)

(11)

(1)

Ireland

4,461

(4,370)

91

4

7,438

(7,321)

117

0

Italy

41,044

(44,929)

(3,885)

119

60,203

(60,370)

(167)

100

Portugal

6,463

(6,757)

(294)

4

10,183

(10,432)

(250)

7

Spain

18,723

(18,273)

450

16

28,452

(27,466)

986

(4)

Total

71,476

(75,114)

(3,638)

146

107,536

(106,860)

675

101