Deutsche Bank

Annual Report 2017

Development of risk-weighted assets

The table below provides an overview of RWA broken down by risk type and business division. They include the aggregated effects of the segmental reallocation of infrastructure related positions, if applicable, as well as reallocations between the segments.

Risk-weighted assets by risk type and business division according to transitional rules

 

Dec 31, 2017

in € m.

Corporate & Investment Bank

Private & Commercial Bank

Deutsche Asset Management

Non-Core Operations Unit

Consoli­dation & Adjustments and Other

Total

Credit Risk

118,940

75,377

3,273

0

16,552

214,142

Settlement Risk

142

0

0

0

5

147

Credit Valuation Adjustment (CVA)

6,189

171

84

0

7

6,451

Market Risk

30,896

70

0

0

0

30,966

Operational Risk

74,936

11,654

5,020

0

0

91,610

Total

231,103

87,272

8,378

0

16,564

343,316

 

Dec 31, 2016

in € m.

Corporate & Investment Bank

Private & Commercial Bank

Deutsche Asset Management

Non-Core Operations Unit

Consoli­dation & Adjustments and Other

Total

Credit Risk

124,274

72,735

3,756

4,075

15,505

220,345

Settlement Risk

36

0

0

0

0

36

Credit Valuation Adjustment (CVA)

8,886

294

139

90

8

9,416

Market Risk

30,198

62

0

3,502

0

33,762

Operational Risk

73,610

12,696

4,957

1,413

0

92,675

Total

237,003

85,788

8,853

9,079

15,512

356,235

The RWA according to CRR/CRD 4 were € 343.3 billion as of December 31, 2017, compared to € 356.2 billion at the end of 2016. The overall decrease of € 12.9 billion mainly reflects decreases in credit risk RWA. Credit Risk RWA are € 6.2 billion lower mainly from foreign exchange reductions of € 10.2 billion which is partly offset by business driven increase in our Corporate & Investment Bank and Private & Commercial Bank segments. In addition book quality changes due to improved portfolio quality have contributed to the overall decrease in Credit Risk RWA. The decrease in RWA for market risk since December 31, 2016 was primarily driven by value-at-risk and stressed value-at-risk components, which was partly offset by an increase in the incremental risk charge and market risk standardized approach for securitizations. The € 2.9 billion reduction in RWA for CVA was mainly driven by de-risking of the portfolio. The slight decrease in Operational Risk RWA was mainly driven by the internal and external loss profile.

RWA calculated on CRR/CRD 4 fully loaded basis were € 344.2 billion as of December 31, 2016 compared with € 357.5 billion at the end of 2016. The decrease was driven by the same movements as outlined for the transitional rules. The fully loaded RWA were € 0.9 billion higher than the risk-weighted assets under the transitional rules due to the application under the transition rules of the equity investment grandfathering rule according to Article 495 CRR, pursuant to which certain equity investments receive a 100 % risk weight instead of a risk weight between 190 % and 370 % determined based on Article 155 CRR that would apply under the CRR/CRD 4 fully loaded rules.

As of December 31, 2017, we have not applied the grandfathering rule anymore, but instead applied a risk weight between 190 % and 370 % determined based on Article 155 CRR under the CRR/CRD 4 fully loaded rules to all our equity positions. Consequently, no transitional arrangements are considered in our fully loaded RWA numbers for December 31, 2017. Only for the comparative period, year-end 2016, are these transitional rules within the risk weighting still applied.

As of December 31, 2016, our portfolio of transactions for which we applied the equity investment grandfathering rule in calculating our fully loaded RWA consisted of 15 transactions amounting to € 220 million in exposures. Had we not applied the grandfathering rule for these transactions, their fully loaded RWA would have been no more than € 816 million, and thus our Group fully loaded RWA would have been no more than € 358.1 billion as of December 31, 2016, rather than the Group fully loaded RWA of € 357.5 billion that we reported on a fully loaded basis with application of the grandfathering rule. Also, had we calculated our fully loaded CET 1 capital ratio, Tier 1 capital ratio and Total capital ratio as of December 31, 2016 using fully loaded RWAs without application of the grandfathering rule, such capital ratios would have remained unchanged (due to rounding) at the 11.8 %, 13.1 % and 16.6 %, respectively, that we reported on a fully loaded basis with application of the grandfathering rule.

The tables below provide an analysis of key drivers for risk-weighted asset movements observed for credit, market, operational risk and the credit valuation adjustment in the reporting period.

Development of risk-weighted assets for Credit Risk including Counterparty Credit Risk

 

Dec 31, 2017

Dec 31, 2016

in € m.

Credit risk RWA

Capital requirements

Credit risk RWA

Capital requirements

Credit risk RWA balance, beginning of year

220,345

17,628

242,019

19,362

Book size

3,523

282

(8,085)

(647)

Book quality

506

40

(3,827)

(306)

Model updates

1,272

102

2,328

186

Methodology and policy

0

0

(1,280)

(102)

Acquisition and disposals

0

0

(12,701)

(1,016)

Foreign exchange movements

(10,162)

(813)

350

28

Other

(1,342)

(107)

1,539

123

Credit risk RWA balance, end of year

214,142

17,131

220,345

17,628

Thereof: Development of risk-weighted assets for Counterparty Credit Risk

 

Dec 31, 2017

Dec 31, 2016

in € m.

Counterparty credit risk RWA

Capital requirements

Counterparty credit risk RWA

Capital requirements

Counterparty credit risk RWA balance, beginning of year

35,614

2,849

37,276

2,982

Book size

(4,628)

(370)

(2,740)

(219)

Book quality

3,715

297

511

41

Model updates

1,272

102

1,439

115

Methodology and policy

0

0

(60)

(5)

Acquisition and disposals

0

0

(707)

(57)

Foreign exchange movements

(2,048)

(164)

(106)

(8)

Other

0

0

0

0

Counterparty credit risk RWA balance, end of year

33,924

2,714

35,614

2,849

Organic changes in our portfolio size and composition are considered in the category “Book size”. The category “Book quality” mainly represents the effects from portfolio rating migrations, loss given default, model parameter recalibrations as well as collateral coverage and netting activities. “Model updates” include model refinements and advanced model roll out. RWA movements resulting from externally, regulatory-driven changes, e.g. applying new regulations, are considered in the “Methodology and policy” category. “Acquisition and disposals” shows significant exposure movements which can be clearly assigned to new businesses or disposal-related activities. Changes that cannot be attributed to the above categories are reflected in the category “Other”.

The decrease in RWA for credit risk by 3 % or € 6.2 billion since December 31, 2016 is predominantly driven by reductions in “Foreign exchange movements”. This is partly offset by “Book Size” and “Model updates”. The increase in “Book size” is driven by the FX neutral business driven growth in our Corporate & Investment Bank and Private & Commercial Bank segments. The increase in “Model updates” corresponds predominantly to a revised treatment of the applicable margin period of risk and general wrong way risk of specific derivatives portfolios, which was partially offset by a refinement in the calculation of effective maturity for collateralized counterparties.

The increase in “Book quality” within the counterparty credit risk table is predominantly driven by the revised treatment of netting application of our security financing products which is partly offset by reductions from recalibrations of our risk parameters as well as process enhancements. This increase is offset by a decrease in “Book size” where there was a decline due to de-risiking measures and exposure reductions.

Based on the CRR/CRD 4 regulatory framework, we are required to calculate RWA using the CVA which takes into account the credit quality of our counterparties. RWA for CVA covers the risk of mark-to-market losses on the expected counterparty risk in connection with OTC derivative exposures. We calculate the majority of the CVA based on our own internal model as approved by the BaFin.

Development of risk-weighted assets for Credit Valuation Adjustment

 

Dec 31, 2017

Dec 31, 2016

in € m.

CVA RWA

Capital requirements

CVA RWA

Capital requirements

CVA RWA balance, beginning of year

9,416

753

15,877

1,270

Movement in risk levels

(3,228)

(258)

(5,600)

(448)

Market data changes and recalibrations

0

0

278

22

Model updates

0

0

(1,000)

(80)

Methodology and policy

870

70

0

0

Acquisitions and disposals

0

0

0

0

Foreign exchange movements

(607)

(49)

(139)

(11)

CVA RWA balance, end of year

6,451

516

9,416

753

The development of CVA RWA is broken down into a number of categories: “Movement in risk levels”, which includes changes to the portfolio size and composition; “Market data changes and calibrations”, which includes changes in market data levels and volatilities as well as recalibrations; “Model updates” refers to changes to either the IMM credit exposure models or the value-at-risk models that are used for CVA RWA; “Methodology and policy” relates to changes to the regulation. Any significant business acquisitions or disposals would be presented in the category with that name.

As of December 31, 2017, the RWA for CVA amounted to € 6.5 billion, representing a decrease of € 2.9 billion (31 %) compared with € 9.4 billion for December 31, 2016. The overall reduction was driven by de-risking of the portfolio and currency effects with some offset from “Methodology and policy” changes.

Development of risk-weighted assets for Market Risk

 

Dec 31, 2017

in € m.

VaR

SVaR

IRC

CRM

Other

Total RWA

Total capital requirements

Market risk RWA balance, beginning of year

5,957

14,271

8,662

273

4,599

33,762

2,701

Movement in risk levels

(1,658)

(3,375)

2,598

(217)

922

(1,729)

(138)

Market data changes and recalibrations

81

0

0

0

581

661

53

Model updates/changes

0

0

(1,390)

0

(38)

(1,428)

(114)

Methodology and policy

0

0

0

0

0

0

0

Acquisitions and disposals

0

0

0

0

0

0

0

Foreign exchange movements

0

0

0

0

(301)

(301)

(24)

Other

0

0

0

0

0

0

0

Market risk RWA balance, end of year

4,380

10,896

9,871

56

5,763

30,966

2,477

 

Dec 31, 2016

in € m.

VaR

SVaR

IRC

CRM

Other

Total RWA

Total capital requirements

Market risk RWA balance, beginning of year

6,931

17,146

11,608

2,378

11,491

49,553

3,964

Movement in risk levels

(655)

(1,547)

(2,716)

(3,553)

(8,852)

(17,323)

(1,386)

Market data changes and recalibrations

403

0

0

0

2,018

2,421

194

Model updates/changes

(57)

237

(230)

0

0

(50)

(4)

Methodology and policy

(665)

(1,565)

0

1,475

0

(754)

(60)

Acquisitions and disposals

0

0

0

0

0

0

0

Foreign exchange movements

0

0

0

(27)

(58)

(84)

(7)

Other

0

0

0

0

0

0

0

Market risk RWA balance, end of year

5,957

14,271

8,662

273

4,599

33,762

2,701

The analysis for market risk covers movements in our internal models for value-at-risk, stressed value-at-risk, incremental risk charge and comprehensive risk measure as well as results from the market risk standardized approach, which are captured in the table under the category “Other”. The market risk standardized approach covers trading securitizations and nth-to-default derivatives, longevity exposures, relevant Collective Investment Undertakings and market risk RWA from Postbank.

The market risk RWA movements due to changes in market data levels, volatilities, correlations, liquidity and ratings are included under the “Market data changes and recalibrations” category. Changes to our market risk RWA internal models, such as methodology enhancements or risk scope extensions, are included in the category of “Model updates”. In the “Methodology and policy” category we reflect regulatory driven changes to our market risk RWA models and calculations. Significant new businesses and disposals would be assigned to the line item “Acquisition and disposals”. The impacts of “Foreign exchange movements” are only calculated for the CRM and Standardized approach methods.

As of December 31, 2017 the RWA for market risk was € 31.0 billion which has decreased by € 2.8 billion (8.3 %) since December 31, 2016. The reduction was driven by the value-at-risk and stressed value-at-risk components in the "Movement in risk levels" category, partly offset by an increase in the incremental risk charge in the “Movement risk levels” category and the market risk standardized approach for securitization positions in the “Movement in risk levels” and “Market data changes” categories.

Development of risk-weighted assets for Operational Risk

 

Dec 31, 2017

Dec 31, 2016

in € m.

Operational risk RWA

Capital requirements

Operational risk RWA

Capital requirements

Operational risk RWA balance, beginning of year

92,675

7,414

89,923

7,194

Loss profile changes (internal and external)

(2,815)

(225)

7,048

564

Expected loss development

1,104

88

(1,798)

(144)

Forward looking risk component

(3,265)

(261)

(1,140)

(91)

Model updates

3,912

313

(358)

(29)

Methodology and policy

0

0

(1,000)

(80)

Acquisitions and disposals

0

0

0

0

Operational risk RWA balance, end of year

91,610

7,329

92,675

7,414

Changes of internal and external loss events are reflected in the category “Loss profile changes”. The category “Expected loss development” is based on divisional business plans as well as historical losses and is deducted from the AMA capital figure within certain constraints. The category “Forward looking risk component” reflects qualitative adjustments and as such the effectiveness and performance of the day-to-day Operational Risk management activities via Key Risk Indicators and Self-Assessment scores, focusing on the business environment and internal control factors. The category “Model updates” covers model refinements such as the implementation of model changes. The category “Methodology and policy” represents externally driven changes such as regulatory add-ons. The category “Acquisition and disposals” represents significant exposure movements which can be clearly assigned to new or disposed businesses.

The overall RWA decrease of € 1.1 billion was mainly driven by a lighter loss profile from internal and external losses feeding into our capital model. An additional increased benefit from the forward looking risk component overcompensated the impact of a model change regarding an enhanced scoring mechanism for the Self-Assessment results. This model change replaced the existing Self-Assessment process by our enhanced Risk and Control Assessment process. In Q4 2017, we have implemented a model change concerning the consistent use of loss data in our AMA model.