SEC Form 20-F - Deutsche Bank Annual Report 2012

Deutsche Bank
Annual Report 2010 on Form 20-F
Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk 141
— We are selective in taking outright cash risk positions unless secured, guaranteed and/or adequately hedged.
Exceptions to this general principle are lower risk, short-term transactions and facilities supporting specific
trade finance requests as well as low risk businesses where the margin allows for adequate loss coverage.
— We aim to secure our derivative portfolio through collateral agreements and may additionally hedge concentration
risks to further mitigate credit risks from underlying market movements.
— Every extension of credit or material change to a credit facility (such as its tenor, collateral structure or major
covenants) to any counterparty requires credit approval at the appropriate authority level. We assign credit
approval authorities to individuals according to their qualifications, experience and training, and we review
these periodically.
— We measure and consolidate all our credit exposures to each obligor on a global basis that applies across
our consolidated Group, in line with regulatory requirements of the German Banking Act (Kreditwesengesetz).
Postbank has comparable uniform standards in place.
Credit Risk Ratings
A basic and key element of the credit approval process is a detailed risk assessment of each credit-relevant
counterparty. When rating a counterparty we apply in-house assessment methodologies, scorecards and our
26-grade rating scale for evaluating the credit-worthiness of our counterparties. The majority of our rating methodologies
are authorized for use within the Advanced Internal Rating Based Approach under Basel II rules.
Our rating scale enables us to compare our internal ratings with common market practice and ensures comparability
between different sub-portfolios of our institution. Several default ratings therein enable us to incorporate
the potential recovery rate of unsecured defaulted counterparty exposures. We generally rate our counterparties
individually, though certain portfolios of securitized receivables are rated on a pool basis.
In our retail business, creditworthiness checks and counterparty ratings of the homogenous portfolio are derived
by utilizing an automated decision engine. The decision engine incorporates quantitative aspects (e.g.
financial figures), behavioral aspects, credit bureau information (such as SCHUFA in Germany) and general
customer data. These input factors are used by the decision engine to determine the creditworthiness of the
borrower and, after consideration of collateral evaluation, the expected loss as well as the further course of
action required to process the ultimate credit decision. The established rating procedures we have implemented
in our retail business are based on multivariate statistical methods and are used to support our individual credit
decisions for this portfolio as well as managing the overall retail portfolio.
The algorithms of the rating procedures for all counterparties are recalibrated frequently on the basis of the
default history as well as other external and internal factors and expert judgments.
Postbank makes use of internal rating systems authorized for use within the Foundation Internal Rating Based
Approach under Basel II. Similar to us all internal ratings and scorings are based on a uniform master scale,
which assigns each rating or scoring result to the default probability determined for that class.
Credit Limits and Approval
Credit limits set forth maximum credit exposures we are willing to assume over specified periods. In determining
the credit limit for a counterparty we consider the counterparty’s credit quality by reference to its internal credit
rating. Credit limits are established by the Credit Risk Management function via the execution of assigned credit
authorities. Credit authority is generally assigned to individuals as personal credit authority according to the
individual’s professional qualification and experience. All assigned credit authorities are reviewed