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Credit risk

Risk management, quantification and reporting

Credit risks at the comdirect group primarily exist in the form of counterparty and issuer risks as a result of trading transactions. In addition, retail lending involves credit risks.

Treasury acts as the front office for counterparty and issuer risks and Customer Services fulfils this function for retail lending. In accordance with MaRisk, other tasks are to be carried out by departments other than the front office departments. The back office tasks for retail lending and the function of risk controlling are carried out by the Risk Management department. The Finance department is responsible for the settlement of trading transactions.

Trading transactions in Treasury are conducted within the limits approved by the Board of Managing Directors of comdirect bank AG as well the Group-wide requirements of Commerzbank. These limits are defined for both counterparties and issuers as well as the underlying transactions. In the capital market, in principle, comdirect bank only takes direct positions in the investment grade segment, for example with an external rating of BBB- (Standard & Poor’s) or Baa3 (Moody’s) or better. When assessing the credit rating, comdirect bank uses both the internal ratings of Commerzbank AG – in accordance with the AIRB approach – as well as those of the external rating agencies.

In retail lending in the B2C business line, a distinction is made between loans against securities and the overdraft facility on the comdirect current account. Loans against securities are secured by pledged securities. Potential losses may arise if the price of the pledged securities falls as a result of the general market development or specific market risks of individual securities and it is no longer sufficient to secure the claims on customers. The decision to provide the loan is made with the aid of internal scoring models.

The comdirect group maintains an early warning system for the credit risks associated with the overdraft facility and loans against securities. The necessary adjustments or cancellations of credit lines are carried out immediately.

Credit risks are quantified by calculating the credit value-at-risk (CVaR) for trading transactions (excluding intragroup receivables) and retail lending on a monthly basis. The method is described in detail in note (56).

Specific loan loss provisions are recognised separately for each product type for customers in the significant lending business, provided a Basel II default criterion applies to those customers.

Portfolio loan loss provisions are recognised for all other customers with claims and/or existing credit lines. The level is primarily influenced by

  • the level of claims and open lines, allowing for conversion factors,
  • the level of the expected probability of default,
  • the consideration of collateral and the recovery rate.

Called-in claims, which we hand over to collection agencies for recovery, are written down in the amount of the loss incurred.

Current risk situation

The rise in the total CVaR to €61.1m (previous year: €33.6m) is mainly due to changes in method. The average rating in the Treasury portfolio outside the Commerzbank Group stood at Aa3 compared with A2 in the previous year (Moody’s). In terms of external ratings, around 95% of the portfolio remained within the investment grade range.

At the end of 2011, 10% (previous year: 26%) of the banking book portfolio was invested short-term in the money market. The share of capital market investments increased accordingly, with the investment focus on promissory notes as in the previous year. Of the capital market investments, €0.42bn (previous year: €0.47bn) was attributable to five special funds which were invested almost exclusively in fixed-income securities (see note (70)).

As in the previous year, over 90% of the portfolio was ascribed to German counterparties, with the rest primarily for by European issuing countries, and in particular the economically strong countries in the eurozone.

In retail lending in the B2C business line, the average total utilisation of loans against securities was essentially unchanged on the previous year. The credit facility for loans against securities was down slightly on the level at the end of 2010 (€2.63bn) at €2.59bn. However, potential utilisation of the credit facility is restricted through the specific collateral value of the respective securities portfolio. As a result of price losses in the equity markets, the collateral value decreased during the year from €870m to €766m. Equities accounted for nearly three quarters of the collateral portfolio. Particularly as a result of the sharp correction in the third quarter, the average number and volume of overdrafts during the financial year exceeded the comparative figure for 2010. For this reason, a considerably higher number of default action processes were started, although the situation returned to normal again in the fourth quarter. On average during the reporting year, taking account of collateral values, the utilisation rate of the credit facility for loans against securities provided by the bank stood at 19.5% (previous year: 19.4%); as of year-end 2011, the volume of loans against securities amounted to €150m (previous year: €164m).

The increased number of current accounts with a credit line facility associated with the growth in current accounts also led to greater utilisation of overdrafts than in 2010. The volume rose over the course of the year from €27.3m to €31.2m as of 31 December 2011; this equated to 5.5% of the overdraft facilities of €565m made available (end 2010: €516m). On average the number of overdrafts in 2011 was higher than in the previous year, but still remained almost stable relative to the number of accounts.

At the end of 2011, the total receivables in retail lending amounted to €188.7m and were therefore somewhat lower than in the previous year (€197.9m). Once again, there was no need to recognise specific loan loss provisions. Portfolio loan loss provisions amounted to €1.9m during the reporting period. Allocations stood at €1.4m, while reversals totalled €1.0m and utilisation was €0.2m. The provisions for possible loan losses therefore increased slightly from €1.7m to €1.9m (see note (28) as well as note (39)).