Deutsche Bank

Annual Report 2017

Main Credit Exposure Categories

The tables in this section show details about several of our main credit exposure categories, namely loans, irrevocable lending commitments, contingent liabilities, over-the-counter (“OTC”) derivatives, traded loans, traded bonds, debt securities available for sale and repo and repo-style transactions:

  • “Loans” are net loans as reported on our balance sheet at amortized cost but before deduction of our allowance for loan losses.
  • “Irrevocable lending commitments” consist of the undrawn portion of irrevocable lending-related commitments.
  • “Contingent liabilities” consist of financial and performance guarantees, standby letters of credit and other similar arrangements (mainly indemnity agreements).
  • “OTC derivatives” are our credit exposures from over-the-counter derivative transactions that we have entered into, after netting and cash collateral received. On our balance sheet, these are included in financial assets at fair value through profit or loss or, for derivatives qualifying for hedge accounting, in other assets, in either case, before netting and cash collateral received.
  • “Traded loans” are loans that are bought and held for the purpose of selling them in the near term, or the material risks of which have all been hedged or sold. From a regulatory perspective this category principally covers trading book positions.
  • “Traded bonds” include bonds, deposits, notes or commercial paper that are bought and held for the purpose of selling them in the near term. From a regulatory perspective this category principally covers trading book positions.
  • “Debt securities” include debentures, bonds, deposits, notes or commercial paper, which are issued for a fixed term and redeemable by the issuer, which we have classified as available for sale.
  • “Repo and repo-style transactions” consist of reverse repurchase transactions, as well as securities or commodities borrowing transactions before application of netting and collateral received.

Although considered in the monitoring of maximum credit exposures, the following are not included in the details of our main credit exposure: brokerage and securities related receivables, cash and central bank balances, interbank balances (without central banks), assets held for sale, accrued interest receivables, traditional securitization positions as well as equity investments.

Main Credit Exposure Categories by Business Divisions

 

Dec 31, 2017

in € m.

Loans1

Irrevocable lending commit­ments2

Contingent liabilities

OTC derivatives3

Traded Loans

Traded Bonds

Debt securities4

Repo and repo-style trans­actions5

Total

1

Includes impaired loans amounting to € 6.2 billion as of December 31, 2017.

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. Excludes derivatives qualifying for hedge accounting.

4

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

5

Before reflection of collateral and limited to securities purchased under resale agreements and securities borrowed.

Corporate & Investment Bank

137,954

141,892

45,342

30,993

10,875

83,067

2,667

99,335

552,125

Private & Commercial Bank

267,554

16,201

2,802

422

1

0

14,421

835

302,235

Deutsche Asset Management

87

53

16

0

0

67

39

0

262

Non-Core Operations Unit

-

-

-

-

-

-

-

-

-

Consolidation & Adjustments

26

107

52

15

0

4,130

31,124

4,630

40,084

Total

405,621

158,253

48,212

31,430

10,876

87,264

48,251

104,800

894,707

 

Dec 31, 2016

in € m.

Loans1

Irrevocable lending commit­ments2

Contingent liabilities

OTC derivatives3

Traded Loans

Traded Bonds

Debt securities4

Repo and repo-style trans­actions5

Total

1

Includes impaired loans amounting to € 7.4 billion as of December 31, 2016.

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. Excludes derivatives qualifying for hedge accounting.

4

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

5

Before reflection of collateral and limited to securities purchased under resale agreements and securities borrowed.

Corporate & Investment Bank

145,187

148,599

48,778

43,230

12,996

72,342

3,568

98,135

572,835

Private & Commercial Bank

264,385

16,976

2,985

737

0

1

17,360

4,290

306,734

Deutsche Asset Management

343

55

21

27

6

2,569

26

0

3,047

Non-Core Operations Unit

3,133

131

434

175

191

257

0

34

4,355

Consolidation & Adjustments

407

302

123

24

0

6,124

33,768

2,450

43,197

Total

413,455

166,063

52,341

44,193

13,193

81,293

54,722

104,909

930,169

As part of our resegmentation in 2017, Global Markets along with Corporate & Investment Banking were merged together to form Corporate & Investment Bank as a new business segment. Similarly, Private, Wealth and Commercial Clients along with Postbank were merged together to form Private & Commercial Bank. The divisional balances for 2017 and comparative balances for 2016 have been allocated as per the new segmentation. The activities of the Non-Core Operations Unit, including a total credit exposure of € 4.4 billion as of December 31, 2016 were moved to Private & Commercial Bank and Corporate & Investment Bank, in the beginning of 2017.

Our main credit exposure decreased by € 35.5 billion.

  • From a divisional perspective, decreases in exposure are observed across all divisions. Corporate & Investment Bank decreased by € 20.7 billion is the main contributor to the overall decrease.
  • From a product perspective strong exposure reductions have been observed for OTC derivatives, Loans, Irrevocable lending commitments and Debt securities while an increase is observed for Traded Bonds.

Main Credit Exposure Categories by Industry Sectors

 

Dec 31, 2017

in € m.

Loans1

Irrevocable lending commit­ments2

Contingent liabilities

OTC derivatives3

Traded Loans

Traded Bonds

Debt securities4

Repo and repo-style trans­actions5

Total

1

Includes impaired loans amounting to € 6.2 billion as of December 31, 2017.

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. Excludes derivatives qualifying for hedge accounting.

4

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

5

Before reflection of collateral and limited to securities purchased under resale agreements and securities borrowed.

Financial intermediation

52,087

31,839

9,407

17,991

1,635

16,982

15,590

100,006

245,536

Fund management activities

18,668

6,213

173

1,232

306

737

53

44

27,426

Manufacturing

27,569

38,450

14,893

1,347

628

1,991

294

85,172

Wholesale and retail trade

19,246

10,684

5,623

413

388

501

50

36,905

Households

186,687

9,975

671

398

74

197,805

Commercial real estate activities

29,180

4,343

508

1,185

2,080

1,468

1

41

38,806

Public sector

13,510

844

138

3,510

611

54,989

30,301

4,694

108,597

Other

58,674

55,904

16,799

5,353

5,154

10,596

1,963

16

154,459

Total

405,621

158,253

48,212

31,430

10,876

87,264

48,251

104,800

894,707

 

Dec 31, 2016

in € m.

Loans1

Irrevocable lending commit­ments2

Contingent liabilities

OTC derivatives3

Traded Loans

Traded Bonds

Debt securities4

Repo and repo-style trans­actions5

Total

1

Includes impaired loans amounting to € 7.4 billion as of December 31, 2016.

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. Excludes derivatives qualifying for hedge accounting.

4

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

5

Before reflection of collateral and limited to securities purchased under resale agreements and securities borrowed.

Financial intermediation

49,630

31,296

10,189

22,554

3,115

19,580

16,452

104,095

256,911

Fund management activities

26,062

6,843

53

1,441

115

1,322

183

59

36,077

Manufacturing

29,932

41,801

15,067

2,850

1,658

2,368

302

2

93,980

Wholesale and retail trade

16,733

10,473

5,607

518

443

556

30

0

34,360

Households

187,862

9,936

1,267

652

105

2

0

0

199,825

Commercial real estate activities

27,324

4,372

512

1,780

2,015

861

78

67

37,008

Public sector

15,707

1,795

189

6,457

629

47,265

35,515

480

108,037

Other

60,206 7

59,548

19,456

7,941

5,114

9,339

2,162

205

163,972

Total

413,455

166,063

52,341

44,193

13,193

81,293

54,722

104,909

930,169

The above table gives an overview of our credit exposure by industry, allocated based on the NACE code of the counterparty. NACE (Nomenclature des Activités Économiques dans la Communauté Européenne) is a European industry standard classification system.

From an industry classification perspective, our credit exposure is lower compared with last year mainly due to a decrease in Financial Intermediation by € 11.4 billion, Other sectors by € 9.5 billion, Manufacturing sector by € 8.8 billion and Fund management activities by € 8.7 billion, driven by lower OTC derivatives, Loans and Irrevocable lending commitments.

Loan exposures to the industry sectors Financial Intermediation, Manufacturing and Public sector comprise predominantly investment-grade loans. The portfolio is subject to the same credit underwriting requirements stipulated in our “Principles for Managing Credit Risk”, including various controls according to single name, country, industry and product-specific concentration.

Material transactions, such as loans underwritten with the intention to syndicate, are subject to review by senior credit risk management professionals and (depending upon size) an underwriting credit committee and/or the Management Board. High emphasis is placed on structuring such transactions so that de-risking is achieved in a timely and cost effective manner. Exposures within these categories are mostly to good quality borrowers and also subject to further risk mitigation as outlined in the description of our Credit Portfolio Strategies Group’s activities.

Our household loans exposure amounting to € 186.7 billion as of December 31, 2017 (€ 187.9 billion as of December 2016) is principally associated with our Private & Commercial Bank portfolios. € 150.2 billion (80 %) of the portfolio comprises mortgages, of which € 121.4 billion are held in Germany. The remaining exposures (€ 36.5 billion, 20 %) are predominantly Consumer and small business financing related. Given the largely homogeneous nature of this portfolio, counterparty credit-worthiness and ratings are predominately derived by utilizing an automated decision engine.

Mortgage business is principally the financing of owner-occupied properties sold by various business channels in Europe, primarily in Germany but also in Spain, Italy and Poland, with exposure normally not exceeding real estate value. Consumer finance is divided into personal instalment loans, credit lines and credit cards. Various lending requirements are stipulated, including (but not limited to) maximum loan amounts and maximum tenors and are adapted to regional conditions and/or circumstances of the borrower (i.e., for consumer loans a maximum loan amount taking into account household net income). Interest rates are mostly fixed over a certain period of time, especially in Germany. Second lien loans are not actively pursued.

The level of credit risk of the mortgage loan portfolio is determined by assessing the quality of the client and the underlying collateral. The loan amounts are generally larger than consumer finance loans and they are extended for longer time horizons. Consumer finance loan risk depends on client quality. Given that they are uncollateralized, compared with mortgages they are also smaller in value and are extended for shorter time. Based on our underwriting criteria and processes, diversified portfolio (customers/properties) and low loan-to-value (LTV) ratios, the mortgage portfolio is categorized as lower risk and consumer finance as medium risk.

Our commercial real estate loans, primarily in the U.S. and Europe, are generally secured by first mortgages on the underlying real estate property. Credit underwriting policy guidelines provide that LTV ratios of generally less than 75 % are maintained. Additionally, given the significance of the underlying collateral independent external appraisals are commissioned for all secured loans by a valuation team (part of the independent Credit Risk Management function) which is also responsible for reviewing and challenging the reported real estate values regularly.

The Commercial Real Estate Group only in exceptional cases retains mezzanine or other junior tranches of debt (although we do underwrite mezzanine loans). Loans originated for distribution are carefully monitored under a pipeline limit. Securitized loan positions are entirely sold (except where regulation requires retention of economic risk), while we frequently retain a portion of syndicated bank loans. This hold portfolio, which is held at amortized cost, is also subject to the aforementioned principles and policy guidelines. We also participate in conservatively underwritten unsecured lines of credit to well-capitalized real estate investment trusts and other public companies, which are generally investment-grade. We provide both fixed rate (generally securitized product) and floating rate loans, with interest rate exposure subject to hedging arrangements. In addition, sub-performing and non-performing loans and pools of loans are acquired from other financial institutions at generally substantial discounts to both the notional amounts and current collateral values. The underwriting process for these is stringent and the exposure is managed under separate portfolio limits. Commercial real estate property valuations and rental incomes can be significantly impacted by macro-economic conditions and underlying properties to idiosyncratic events. Accordingly, the portfolio is categorized as higher risk and hence subject to the aforementioned tight restrictions on concentration.

The category Other loans, with exposure of € 58.7 billion as of December 31, 2017 (€ 60.2 billion as of December 31, 2016) relates to numerous smaller industry sectors with no individual sector greater than 7 % of total loans.

Our credit exposure to our ten largest counterparties accounted for 8 % of our aggregated total credit exposure in these categories as of December 31, 2017 compared with 7 % as of December 31, 2016. Our top ten counterparty exposures were with well-rated counterparties or otherwise related to structured trades which show high levels of risk mitigation.

The statement on focus industries below follows the Credit Risk Management view on industries, which can differ from the allocation on the basis of NACE codes.

Our credit exposure to the focus industry “Shipping & other maritime” accounts for approximately € 4.8 billion of which € 3.7 billion pertains to vessel financings. The difference consists of other maritime (e.g. port facilities, yards). The reduction of the vessel financing related exposure by more than € 1 billion in 2017 demonstrates the Bank’s applied discipline to reduce exposure to this higher risk industry as well as the impact of the weakening of the US Dollar versus the Euro. Over a number of years, the shipping industry has suffered from persistent low earnings in oversupplied markets. Demand is driven by the macroeconomic environment and affected by geopolitical tensions and oil price movements. Container and dry bulk transportation segments were most severely impacted in 2016 and have experienced slightly improved freight rates in 2017 driven by significant scrapping and moderate new building activity. The tanker segment faced very high levels of scheduled deliveries for 2017 and 2018, which caused freight rates to fall notably in early 2017 from 2016 levels. Overall freight rates have now stabilized at the lower levels. Ongoing new building activity on global markets, which is occurring to an unknown extent, for example in China, poses a threat for further market developments. Any significant improvement in charter rates and subsequent asset values is not expected in the short term. A high portion of the portfolio is non-investment-grade rated in reflection of the prolonged challenging market conditions over recent years. A net provision for credit losses of € 198 million before a release of provision for collectively assessed non-impaired loans was booked for the shipping industry portfolio in 2017.

The “Oil & Gas” and “Metals, Mining & Steel” industries both benefitted from recovering commodity prices in 2017. As of December 31, 2017, our loan exposure to the “Oil & Gas” industry is approximately € 7 billion and our loan exposure to the “Metals, Mining and Steel” industry is approximately € 4 billion. Overall, provisions for credit losses were lower than in 2016 for both industries.

Main credit exposure categories by geographical region

 

Dec 31, 2017

in € m.

Loans1

Irrevocable lending commit­ments2

Contingent liabilities

OTC derivatives3

Traded Loans

Traded Bonds

Debt securities4

Repo and repo-style trans­actions5

Total

1

Includes impaired loans amounting to € 6.2 billion as of December 31, 2017.

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. Excludes derivatives qualifying for hedge accounting.

4

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

5

Before reflection of collateral and limited to securities purchased under resale agreements and securities borrowed.

Europe

299,937

65,739

27,574

18,353

3,149

33,120

35,304

26,648

509,825

thereof:

 

 

 

 

 

 

 

 

 

Germany

199,867

27,483

10,739

1,661

146

4,912

12,414

3,421

260,644

United Kingdom

6,895

5,748

1,514

5,849

190

9,668

864

10,123

40,851

France

2,651

8,265

1,266

1,231

242

3,096

3,597

3,442

23,788

Luxembourg

15,983

2,858

484

1,102

247

1,017

6,142

711

28,544

Italy

21,836

1,642

3,657

1,750

497

4,167

642

820

35,012

Netherlands

8,304

6,498

1,627

2,292

493

2,022

2,793

82

24,112

Spain

13,250

1,866

3,046

704

227

2,188

946

987

23,213

Ireland

4,415

1,843

481

972

272

1,022

655

2,673

12,333

Switzerland

6,922

2,324

2,488

313

65

644

163

416

13,336

Poland

7,871

807

234

26

36

296

1,820

0

11,089

Belgium

1,177

1,280

405

352

12

601

1,574

0

5,401

Other Europe

10,765

5,124

1,633

2,099

723

3,486

3,696

3,975

31,500

North America

64,086

85,358

10,031

10,015

5,129

31,636

10,986

56,776

274,017

thereof:

 

 

 

 

 

 

 

 

 

U.S.

53,795

80,776

9,489

8,036

4,750

29,972

10,623

44,659

242,101

Cayman Islands

2,312

1,951

52

700

103

1,041

17

9,162

15,336

Canada

838

1,564

110

1,092

87

272

346

1,688

5,996

Other North America

7,141

1,068

380

187

190

351

0

1,267

10,584

Asia/Pacific

34,469

4,447

8,967

2,254

1,735

20,319

1,025

19,909

93,126

thereof:

 

 

 

 

 

 

 

 

 

Japan

1,093

276

349

366

66

4,760

15

10,354

17,278

Australia

1,477

1,076

128

277

310

3,716

588

1,453

9,026

India

7,034

717

1,645

219

86

3,973

0

1,517

15,191

China

4,393

378

1,195

263

2

836

0

3,130

10,198

Singapore

4,946

419

794

177

75

927

0

220

7,559

Hong Kong

4,224

385

598

144

551

399

2

45

6,348

Other Asia/Pacific

11,300

1,197

4,259

808

644

5,707

419

3,190

27,526

Other geographical areas

7,130

2,708

1,639

808

862

2,190

936

1,466

17,739

Total

405,621

158,253

48,212

31,430

10,876

87,264

48,251

104,800

894,707

 

Dec 31, 20166

in € m.

Loans1

Irrevocable lending commit­ments2

Contingent liabilities

OTC derivatives3

Traded Loans

Traded Bonds

Debt securities4

Repo and repo-style trans­actions5

Total

1

Includes impaired loans amounting to € 7.4 billion as of December 31, 2016.

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. Excludes derivatives qualifying for hedge accounting.

4

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

5

Before reflection of collateral and limited to securities purchased under resale agreements and securities borrowed.

6

Comparatives have been restated to reflect the changes in the reported geographical areas.

Europe

303,329

65,926

28,747

25,944

4,157

23,924

41,438

24,418

517,881

thereof:

 

 

 

 

 

 

 

 

 

Germany

197,368

27,954

11,511

2,636

236

3,070

12,970

5,571

261,316

United Kingdom

7,942

7,331

1,422

7,925

519

4,224

1,929

9,327

40,620

France

2,703

5,854

1,373

1,436

216

2,255

4,866

1,830

20,534

Luxembourg

19,312

2,998

575

1,521

330

1,228

7,179

372

33,515

Italy

21,374

1,462

3,607

3,183

444

2,195

279

1,808

34,351

Netherlands

8,934

6,370

1,749

3,270

224

2,164

4,143

474

27,328

Spain

13,196

1,785

3,045

671

361

1,451

756

674

21,939

Ireland

5,113

1,742

465

1,525

305

1,251

746

1,216

12,364

Switzerland

7,350

2,285

2,044

243

162

1,134

186

230

13,635

Poland

7,402

702

208

65

6

281

1,542

0

10,205

Belgium

1,581

1,423

399

481

5

424

2,520

80

6,914

Other Europe

11,055

6,018

2,349

2,988

1,347

4,248

4,322

2,836

35,162

North America

69,921

92,699

12,013

12,162

6,471

36,332

11,444

61,771

302,814

thereof:

 

 

 

 

 

 

 

 

 

U.S.

56,567

87,503

11,336

9,307

6,181

30,961

10,843

47,528

260,225

Cayman Islands

2,993

1,045

86

725

37

1,215

24

11,679

17,804

Canada

2,247

2,288

163

1,723

112

628

249

95

7,505

Other North America

8,115

1,863

428

406

142

3,528

328

2,470

17,279

Asia/Pacific

31,644

5,782

9,958

4,753

1,606

18,525

1,425

17,515

91,208

thereof:

 

 

 

 

 

 

 

 

 

Japan

888

299

350

941

95

3,932

17

9,002

15,522

Australia

1,259

1,142

166

445

143

3,357

949

1,157

8,619

India

7,589

371

1,735

537

8

3,148

0

1,578

14,966

China

2,953

722

1,113

446

11

687

0

1,945

7,877

Singapore

3,885

434

807

142

419

1,528

1

280

7,497

Hong Kong

2,405

944

566

407

174

343

0

64

4,903

Other Asia/Pacific

12,664

1,869

5,221

1,834

757

5,531

458

3,490

31,824

Other geographical areas

8,561

1,655

1,624

1,334

960

2,513

414

1,204

18,266

Total

413,455

166,063

52,341

44,193

13,193

81,293

54,722

104,909

930,169

The above table gives an overview of our credit exposure by geographical region, allocated based on the counterparty’s country of domicile, see also section “Credit Exposure to Certain Eurozone Countries” of this report for a detailed discussion of the “country of domicile view”.

Our largest concentration of credit risk within loans from a regional perspective is in our home market Germany, with a significant share in households, which includes the majority of our mortgage lending business.

Within OTC derivatives, tradable assets as well as repo and repo-style transactions, our largest concentrations from a regional perspective were in Europe and North America. From the industry classification perspective, exposures from OTC derivative as well as repo and repo-style transactions have a significant share in highly rated Financial Intermediation companies. For tradable assets, a large proportion of exposure is also with Public Sector companies.

As of December 31, 2017, our loan book decreased to € 405.6 billion (compared to € 413.5 billion as of December 31, 2016) mainly as a result of lower levels of exposures in Luxembourg and the United States. Our Fund Management activities, household and manufacturing loan books experienced the largest decreases. The decrease in loans in Western Europe and United States was primarily due to reduced loan balances across businesses as well as by a strengthening of the Euro in comparison to the US dollar. Traded bonds increased by € 6.0 billion mainly in Europe region driven by an increased client activity and an increased bond positions in EU rates business. Debt securities reduced by € 6.5 billion majorly in the United Kingdom and the Netherlands mainly due to sale of available for sale bonds.