Deutsche Bank

Annual Report 2017

Credit Exposure Classification

We also classify our credit exposure under two broad headings: consumer credit exposure and corporate credit exposure.

  • Our consumer credit exposure consists of our smaller-balance standardized homogeneous loans, primarily in Germany, Italy and Spain, which include personal loans, residential and non-residential mortgage loans, overdrafts and loans to self-employed and small business customers of our private and retail business.
  • Our corporate credit exposure consists of all exposures not defined as consumer credit exposure.

Corporate Credit Exposure

The tables below show our Corporate Credit Exposure by product types and internal rating bands. Please refer to section "Measuring Credit Risk" for more details about our internal ratings.

Main corporate credit exposure categories according to our internal creditworthiness categories of our counterparties – gross

in € m.
(unless stated otherwise)

Dec 31, 2017

Rating band

Probability of default in %1

Loans

Irrevocable lending commitments2

Contingent liabilities

OTC derivatives3

Debt securities4

Total

1

Reflects the probability of default for a one year time horizon.

2

Includes irrevocable lending commitments related to consumer credit exposure of € 10.1 billion as of December 31, 2017.

3

Includes the effect of netting agreements and cash collateral received where applicable.

4

Includes debt securities on financial assets available for sale and securities held to maturity.

iAAA–iAA

> 0.00 ≤ 0.04

38,743

18,643

5,108

13,025

39,405

114,924

iA

> 0.04 ≤ 0.11

39,428

44,388

13,899

8,416

6,277

112,407

iBBB

> 0.11 ≤ 0.5

56,245

51,021

16,165

5,204

2,174

130,809

iBB

> 0.5 ≤ 2.27

41,888

25,652

7,882

3,390

371

79,183

iB

> 2.27 ≤ 10.22

23,556

15,286

3,434

1,174

5

43,456

iCCC and below

> 10.22 ≤ 100

13,688

3,264

1,723

220

19

18,913

Total

 

213,547

158,253

48,212

31,430

48,251

499,693

in € m.
(unless stated otherwise)

Dec 31, 2016

Rating band

Probability of default in %1

Loans

Irrevocable lending commitments2

Contingent liabilities

OTC derivatives3

Debt securities4

Total

1

Reflects the probability of default for a one year time horizon.

2

Includes irrevocable lending commitments related to consumer credit exposure of € 10.3 billion as of December 31, 2016.

3

Includes the effect of netting agreements and cash collateral received where applicable.

4

Includes debt securities on financial assets available for sale and securities held to maturity.

iAAA–iAA

> 0.00 ≤ 0.04

43,149

21,479

5,699

16,408

46,014

132,749

iA

> 0.04 ≤ 0.11

39,734

45,635

13,712

12,566

6,616

118,264

iBBB

> 0.11 ≤ 0.5

57,287

47,480

16,753

8,300

1,696

131,515

iBB

> 0.5 ≤ 2.27

46,496

29,274

9,663

5,333

366

91,132

iB

> 2.27 ≤ 10.22

22,920

18,173

4,477

1,053

9

46,631

iCCC and below

> 10.22 ≤ 100

15,069

4,022

2,038

533

21

21,683

Total

 

224,655

166,063

52,341

44,193

54,722

541,974

The above table shows an overall decrease in our corporate credit exposure in 2017 of € 42.3 billion or 7.8 %. Loans decreased by € 11.1 billion, mainly attributable to Luxembourg and the United States. The decrease is primarily due to reduced loan balance across businesses as well as by a strengthening of the Euro in comparison to the US Dollar. Debt securities decreased by € 6.5 billion, almost entirely related to the top rating band and mainly due to sale of debt securities available for sale. The decrease in irrevocable lending commitments of € 7.8 billion was primarily attributable to North America and Asia/Pacific. The quality of the corporate credit exposure before risk mitigation is at 72 % share of investment-grade rated exposures as of December 2017 compared to 71 % as of December 31, 2016.

We use risk mitigation techniques as described above to optimize our corporate credit exposure and reduce potential credit losses. The tables below disclose the development of our corporate credit exposure net of collateral, guarantees and hedges.

Main corporate credit exposure categories according to our internal creditworthiness categories of our counterparties – net

in € m.
(unless stated otherwise)

Dec 31, 20171

Rating band

Probability of default in %2

Loans

Irrevocable lending commitments

Contingent liabilities

OTC derivatives

Debt securities

Total

1

Net of eligible collateral, guarantees and hedges based on IFRS requirements.

2

Reflects the probability of default for a one year time horizon.

iAAA–iAA

> 0.00 ≤ 0.04

27,580

18,281

4,272

7,370

39,405

96,907

iA

> 0.04 ≤ 0.11

25,355

42,104

11,882

6,528

6,277

92,146

iBBB

> 0.11 ≤ 0.5

32,131

49,095

13,461

4,490

2,174

101,351

iBB

> 0.5 ≤ 2.27

18,845

24,056

5,267

2,506

371

51,046

iB

> 2.27 ≤ 10.22

8,306

14,130

2,097

1,106

5

25,645

iCCC and below

> 10.22 ≤ 100

4,157

2,540

629

216

15

7,557

Total

 

116,374

150,206

37,608

22,216

48,247

374,652

in € m.
(unless stated otherwise)

31.12.20161

Rating band

Probability of default in %2

Loans

Irrevocable lending commitments

Contingent liabilities

OTC derivatives

Debt securities

Total

1

Net of eligible collateral, guarantees and hedges based on IFRS requirements.

2

Reflects the probability of default for a one year time horizon.

iAAA–iAA

> 0.00 ≤ 0.04

32,305

19,653

4,351

10,480

46,014

112,802

iA

> 0.04 ≤ 0.11

24,970

41,435

11,393

10,032

6,616

94,448

iBBB

> 0.11 ≤ 0.5

28,369

43,659

13,845

7,439

1,672

94,984

iBB

> 0.5 ≤ 2.27

19,573

27,206

5,932

4,034

361

57,105

iB

> 2.27 ≤ 10.22

8,090

16,745

2,176

1,020

9

28,041

iCCC and below

> 10.22 ≤ 100

5,954

2,872

889

509

21

10,246

Total

 

119,261

151,571

38,586

33,514

54,694

397,626

The corporate credit exposure net of collateral amounted to € 374.7 billion as of December 31, 2017 reflecting a risk mitigation of 25 % or € 125.0 billion compared to the corporate gross exposure. This includes a more significant reduction of 46 % for our loans exposure which includes a reduction by 60 % for the lower rated sub-investment-grade rated loans and 37 % for the higher-rated investment-grade rated loans. The risk mitigation for the total exposure in the weakest rating band was 60 %, which was significantly higher than 16 % in the strongest rating band.

The risk mitigation of € 125.0 billion is split into 20 % guarantees and hedges and 80 % other collateral.

CPSG Risk Mitigation for the Corporate Credit Exposure

Our Credit Portfolio Strategies Group (“CPSG”) helps mitigate the risk of our corporate credit exposures. The notional amount of CPSG’s risk reduction activities decreased from € 43.3 billion as of December 31, 2016, to € 32.7 billion as of December 31, 2017. The notional of risk reduction activities reduced across the course of 2017 following Management Board approval granted in 2016 to increase the Group’s risk appetite for Investment Grade exposures.

As of year-end 2017, CPSG mitigated the credit risk of € 32 billion of loans and lending-related commitments as of December 31, 2017, through synthetic collateralized loan obligations supported predominantly by financial guarantees. This position totaled € 42.2 billion as of December 31, 2016.

CPSG also held credit derivatives with an underlying notional amount of € 0.7 billion. The position totaled € 1.1 billion as of December 31, 2016. The credit derivatives used for our portfolio management activities are accounted for at fair value.

CPSG has elected to use the fair value option under IAS 39 to report loans and commitments at fair value, provided the criteria for this option are met. The notional amount of CPSG loans and commitments reported at fair value decreased during the year to € 2.8 billion as of December 31, 2017, from € 3.9 billion as of December 31, 2016.

Consumer Credit Exposure

In our consumer credit exposure we monitor consumer loan delinquencies in terms of loans that are 90 days or more past due and net credit costs, which are the annualized net provisions charged after recoveries.

Consumer credit exposure, consumer loan delinquencies and net credit costs

 

Total exposure
in € m.1

90 days or more past due
as a % of total exposure1

Net credit costs as a % of total exposure2

 

Dec 31, 2017

Dec 31, 2016

Dec 31, 2017

Dec 31, 2016

Dec 31, 2017

Dec 31, 2016

1

Includes impaired loans amounting to € 2.8 billion as of December 31, 2017 and € 3.1 billion as of December 31, 2016.

2

Net credit costs for the twelve months period ended at the respective balance sheet date divided by the exposure at that balance sheet date.

Consumer credit exposure Germany:

153,728

150,639

0.73

0.75

0.12

0.13

Consumer and small business financing

21,224

20,316

2.96

2.45

1.07

0.99

Mortgage lending

132,505

130,323

0.37

0.48

(0.03)

0.00

Consumer credit exposure outside Germany

38,345

38,162

3.77

4.22

0.39

0.68

Consumer and small business financing

15,298

13,663

6.54

8.44

0.78

0.98

Mortgage lending

23,047

24,499

1.93

1.87

0.12

0.51

Total consumer credit exposure

192,074

188,801

1.34

1.45

0.17

0.24

The volume of our consumer credit exposure increased from year-end 2016 to December 31, 2017 by € 3.3 billion, or 1.7 %, driven by our loan books in Germany, which increased by € 3.1 billion and in India, which increased by € 239 million. Our loan book in Spain decreased by € 116 million and in Italy by € 111 million, which were partially driven by non-performing loan sales.

The 90 days or more past due ratio of our consumer credit exposure decreased from 1.45 % as of year-end 2016 to 1.34 % as of December 31, 2017. The total net credit costs as a percentage of our consumer credit exposure decreased from 0.24 % as of year-end 2016 to 0.17 % as of December 31, 2017. This ratio was positively affected by the further improved and stabilized environment in countries in which we operate and by non-performing loan sales in Spain and Italy.

Consumer mortgage lending exposure grouped by loan-to-value buckets1

 

Dec 31, 2017

Dec 31, 2016

1

When assigning the exposure to the corresponding LTV buckets, the exposure amounts are distributed according to their relative share of the underlying assessed real estate value.

≤ 50 %

68 %

68 %

> 50 ≤ 70 %

16 %

16 %

> 70 ≤ 90 %

9 %

9 %

> 90 ≤ 100 %

3 %

3 %

> 100 ≤ 110 %

2 %

2 %

> 110 ≤ 130 %

1 %

1 %

> 130 %

1 %

1 %

The LTV expresses the amount of exposure as a percentage of assessed value of real estate.

Our LTV ratios are calculated using the total exposure divided by the current assessed value of the respective properties. These values are updated on a regular basis. The exposure of transactions that are additionally backed by liquid collateral is reduced by the respective collateral values, whereas any prior charges increase the corresponding total exposure. The LTV calculation includes exposure which is secured by real estate collateral. Any mortgage lending exposure that is collateralized exclusively by any other type of collateral is not included in the LTV calculation.

The creditor’s creditworthiness, the LTV and the quality of collateral is an integral part of our risk management when originating loans and when monitoring and steering our credit risks. In general, we are willing to accept higher LTV’s, the better the creditor’s creditworthiness is. Nevertheless, restrictions of LTV apply for countries with negative economic outlook or expected declines of real estate values.

As of December 31, 2017, 68 % of our exposure related to the mortgage lending portfolio had a LTV ratio below or equal to 50 %, unchanged to the previous year.