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 155
Problem Loans
Our problem loans consist mainly of impaired loans. Credit Risk Management regularly assesses whether there
is objective evidence that a loan or group of loans is impaired. A loan or group of loans is impaired and impairment
losses are incurred if:
— there is objective evidence of impairment as a result of a loss event that occurred after the initial recognition
of the asset and up to the balance sheet date (a “loss event”),
— the loss event had an impact on the estimated future cash flows of the financial asset or the group of financial
assets, and
— a reliable estimate of the loss amount can be made.
Credit Risk Management’s loss assessments are subject to regular review in collaboration with Group Finance.
The results of this review are reported to and approved by an oversight committee comprised of Group
Finance and Legal, Risk and Capital senior management.
The impairment loss is generally calculated on the basis of discounted expected cash flows using the original
effective interest rate of the loan. For troubled debt restructurings (as defined below) the original effective interest
rate before modification of terms is used.
While we assess the impairment for our corporate credit exposures individually, we assess the impairment of
our smaller-balance standardized homogeneous loans collectively.
The loan loss provisioning methodology for the majority of our Private & Business Client portfolio is based on
statistical models. Our loan portfolio is divided into homogenous and non-homogeneous parts. These parts are
further differentiated into sub-portfolios based on the nature of the exposure and the type of the customer.
Using historical data the level of loan loss provision for the homogeneous portfolio is automatically calculated
using statistical models, based on allowance rates for each respective arrears class (days past due). The nonhomogeneous
portfolio is characterized by large credit facilities or certain loan categories which are not comparable
due to their size, complexity or quality. These credit facilities undergo a case by case review on a regular
basis and once it has been determined that an impairment loss has been incurred, a loan loss allowance is
determined according to an expected loss methodology.
Postbank’s methodology for establishing loan loss allowances is similar to ours. Exceptions include the fact
that Postbank executes direct charge-offs without first establishing a loan loss allowance and the fact that the
loan loss allowances in its retail mortgage portfolio are assessed individually for loans being 180 days or more
past due. In reflecting Postbank in our consolidated results, the effects of the aforementioned differences have
been aligned to our policies for reporting purposes.
Loan loss allowances established for loans prior to consolidation of Postbank, Sal. Oppenheim/BHF-BANK and
parts of the commercial banking activities in the Netherlands acquired from ABN AMRO, have not been consolidated
into our stock of loan loss allowances. Instead, these loan loss allowances have been considered in
determining the fair value representing the cost basis of the newly consolidated loans. Subsequent improvements
in the credit quality of these loans are reflected as an appreciation in their carrying value with a corresponding
gain recognized in other income. Loan loss allowances established for loans after consolidation of Postbank,
Sal. Oppenheim/BHF-BANK and parts of the commercial banking activities in the Netherlands acquired from
ABN AMRO, however, are included in our provision for credit losses and loan loss allowances.