COMMERZBANK AKTIENGESELLSCHAFT

Group Financial Statements
278
222 Commerzbank Annual Report 2011
(7) Cash reserve
The cash reserve comprises cash on hand, balances held at
central banks, debt issued by public-sector borrowers and bills
of exchange eligible for rediscounting at central banks. With the
exception of debt issued by public-sector borrowers, which is
shown at its fair value, all the items are stated at their nominal
value.
(8) Claims
The Commerzbank Group’s claims on banks and customers
which are not held for trading and are not quoted on an active
market are reported at amortised cost. Premiums and discounts
are recognised in net interest income over the term of the claim.
Claims on banks and customers for which the fair value option is
applied are accounted for at fair value. The carrying amounts of
claims to which micro fair value hedge accounting is applied are
adjusted for changes in fair value attributable to the hedged risk.
In portfolio fair value hedge accounting changes in fair value are
reported in the balance sheet item value adjustments for
portfolio fair value hedges.
(9) Loan loss provisions
We make provision for the particular risks of on- and off-balance
sheet lending in the loans and receivables category in the form
of specific loan loss provisions (SLLPs), portfolio loan loss
provisions (PLLPs) and general loan loss provisions (GLLPs).
When determining provisioning levels the fundamental
criteria include whether the claims are in default or not and
whether the claims are significant (over €1m) or insignificant
(up to €1m). All claims which are in default under the Basel II
regulations are identified as in default or non-performing. The
following events can be indicative of a customer default:
• Imminent insolvency (over 90 days past due).
• The Bank is assisting in financial rescue/restructuring
measures at the customer with or without restructuring
contributions.
• The Bank has demanded immediate repayment of its claims.
• The customer is in insolvency proceedings.
For significant claims which are in default we recognise specific
loan loss provisions in accordance with uniform standards
across the Group. The net present value of the expected future
cash flows is used to calculate both specific valuation allowances
as well as specific loan loss provisions. In addition to the
expected payments the cash flows include the expected
proceeds from realising collateral and other recoverable cash
flows. The loan loss provision or valuation allowance is therefore
equal to the difference between the carrying value of the loan
and the net present value of all the expected cash flows. The
increase in the net present value over time using the original
effective interest rate (unwinding) is recognised as interest
income.
A portfolio loan loss provision (PLLP impaired) is recognised
for insignificant defaulted claims using internal parameters.
For non-defaulted claims we account for credit risk in the
form of general loan loss provisions (GLLPs). The level of the
general loan loss provisions, both for on- and off-balance sheet
lending, is determined using parameters derived from Basel II
methodology.
We deduct the total loan loss provision, insofar as it relates to
on-balance sheet claims, directly from the respective asset item.
However, the provision for losses in off-balance sheet business
(e.g. contingent liabilities, lending commitments) is shown
under provisions for lending business.
Unrecoverable accounts for which no specific loan loss
provisions have been formed are written off immediately.
Amounts recovered on claims written off are recognised in the
income statement under loan loss provisions. Impaired claims
are (partially) written down, utilising any specific provisions, if
such claims prove to be partially or entirely unrecoverable. We
also directly write off portions of impaired claims that exceed
existing loan loss provisions if they are unrecoverable.
(10) Repurchase agreements and securities lending
Repurchase (repo) transactions combine the spot purchase or
sale of securities with their forward sale or repurchase, the
counterparty being identical in both cases. The securities sold
under repurchase agreements (spot sale) continue to be
recognised and measured in the consolidated balance sheet as
part of the securities portfolio in accordance with the category to
which they are assigned. The securities are not derecognised as
we retain all risks and opportunities connected with the
ownership of the security sold under the repurchase agreement.
The same risks and opportunities therefore apply to financial
assets which have been transferred but not derecognised as
apply to the non-transferred financial assets described in Note 5.
The inflow of liquidity from the repo transaction is shown in
the balance sheet as a liability to either banks or customers,
depending on the counterparty. Agreed interest payments are
recognised as interest expense in net interest income according
to maturity.
The outflows of liquidity arising from reverse repos are
accounted for as claims on customers or banks. They are
measured either at fair value using the fair value option or at
amortised cost. The securities bought under repurchase
agreements which underlie the financial transaction (spot
purchase) are not carried in the balance sheet and are thus not