The staff of Deutsche Hypo ... ... the basis of our success

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Individual financings (new business and loan port-
folio) are processed on the basis of clearly defi-
ned, tried-and-tested work instructions and
levels of authority. The latter are based primarily
on the risk element of the individual financing.
Problem loans are processed by a team of
experts, which operates independently from the
Bank’s operational divisions. Over and above dea-
ling with ailing financings, one of the focuses lies
in the preventive management of cases that are
not yet non-performing so that suitable measures
can be introduced in good time to avert default.
With regard to risk-oriented pricing, the risk
costs included in the margin are continuously
monitored and adapted, taking into account the
current development of the markets and the risk
expenses incurred in practice. The stipulation of
the equity capital costs contained in the margin is
also based on risk aspects. During the year under
review the Bank already implemented key areas of
the new equity regulations (Basel II) in the design
of its terms and conditions applicable to long-term
lending. These new regulations are more strongly
geared towards the risk element of financing.
Alongside risk monitoring of individual cases,
various models are also in place to measure
credit default risk across the entire portfolio.
The Bank uses its own technical processes, which
have been proven to provide a high degree of fore-
casting accuracy in the past.
Public-sector lending and derivative partners
segment
Despite the fundamentally lower-risk character of
business with the public sector and suitable banks
in the area of derivatives business, the same
benchmarks and processes as detailed above with
regard to property financings apply in this seg-
ment too.
Risk management in this area focuses on the limit
system, which, in addition to the usual limits for
counterparties, also includes sub-limits for indivi-
dual countries. A minimum rating of A is, as a
general rule, required for any new business. The
average rating of the claims allocated to the public
sector loan pool is AA.
In this segment too, limits and the stipulation of
minimum ratings help to avoid any concentration
of risk and to guarantee the high quality of new
business and of the public sector loan pool.
·· SETTLEMENT RISK
Settlement risks arise with regard to all transac-
tions involving the delayed transfer of cash or
securities in order to settle the transaction. This
risk is somewhat less relevant to our commercial
practice. With regard to trading, limits apply in this
respect. In terms of property financing, measures
are taken to secure the Bank's position. Notaries
are involved in the process and additional insuran-
ce is taken out to cover damage caused by breach
of trust.