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Risk categories of the comdirect Group

We classify risks in line with the German Accounting Standard DRS 5-10 and distinguish between market risk, credit risk, liquidity and operational risk. The other risks are business risk and model risk, which are also included in the risk-bearing capability calculation as considerably risk types.

A market risk describes the potential loss on positions in the bank’s own portfolio caused by future market price fluctuations. A distinction is made between general changes in market prices and a specific market risk related to individual financial instruments. With regard to risk factors, we distinguish between interest rate, credit spread, equity price and currency risks. The main market risks for the comdirect group are the interest rate risk and the credit spread risk in the banking book. The interest rate risk arises, in particular, from maturity transformations, i.e. the mismatching of fixed rates on assets and liabilities. The credit spread risk results from changes in risk premiums on bonds against a low risk reference interest rate. Assets essentially comprise bonds and promissory notes as well as money market transactions with other financial institutions, which are used for the investment of surplus customer deposits. If required, interest rate swaps and forward rate agreements are concluded for the purposes of hedging and general interest book management.

The credit risk describes the risk of a financial loss which arises when a borrower is unable to pay or to pay on time the contractually agreed consideration. This primarily includes counterparty and issuer risks arising from transactions in the money and capital markets, as well as credit risks in retail business.

Liquidity risk in the narrower sense is understood as the risk that the bank will be unable to meet or to meet on time its current and future payment obligations. The broader definition of liquidity risk also encompasses refinancing risk, which is the risk that the liquidity will not be sufficient if required or that it can only be acquired in the money and capital markets at terms that are significantly less favourable than expected, and market liquidity risk. The latter describes the risk of being unable to close out securities positions to the desired extent or only at a loss as a result of inadequate market depth or market disruptions. The liquidity risk is a material risk for the comdirect group and is adequately taken into account in the risk management and controlling processes of the comdirect group. Nevertheless, the liquidity risk is not included when calculating the risk-bearing capability, since in line with the definition chosen, it cannot be usefully limited through economic capital.

Operational risk is understood as possible losses resulting from the use of operating processes and systems that are inappropriate or susceptible to failure as well as human error and external events such as natural disasters or terrorist attacks. Often such incidents entail other secondary risks, especially reputation risks, which describe the risk of the public or customers losing confidence in the bank. Furthermore, operational risks comprise the legal risks resulting from contractual agreements or a change to legal framework parameters. Personnel risks are also classified as operational risks. These essentially comprise the potential loss of personnel in key positions, who play a major role in the success of the bank or its subsidiaries.

Business risk encompasses possible losses from negative deviations from plans which can result, for example, from changes in market parameters and competitive behaviour or from incorrect planning.

The model risk describes the risk of losses from the early sale of bonds or promissory notes in response to unexpectedly high deposit outflows.