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110 Report on the Bank and the Group
} Derivatives
business in 2004
} Risk provisioning
in 2004
BayernLB uses derivative instruments in order to reduce price and / or interest rate risks
associated with the conclusion of customer transactions, as well as those arising from
asset / liability management and the issuance of structured bonds. After these instru-
ments have been used, any residual risks are subject to the risk limit and risk capital
controlling. Derivatives are principally used to diversify credit risks or as hedging
instruments. In addition to the use of derivatives, risk hedging is also carried out by
the active syndication of loans, or with the help of structured products such as asset
backed securities (ABS).
At Group level, the credit equivalent amount from derivative transactions, taking
account of netting agreements, totalled EUR 3.8 billion at year-end, which corresponds
to 0.38 percent of the nominal contract volumes (for detailed information on the entire
scope of derivatives business, see “Notes to the Accounts” in Section V).
All counterparty risks identified in this period were covered appropriately through risk
provisions. In 2004 on balance, EUR 222 million was allocated to provisions for coun-
terparty and country risks at Group level (write-backs totalling EUR 92 million at Bank
level). Allocations were thus reduced by 83.5 percent year on year. In relation to the
average credit volume, the default rate in the credit business at Group level was 0.36
percent (0.38 percent at BayernLB alone). Direct write-offs on claims came to EUR 87
million at Group level and EUR 58 million at Bank level.
Provisions for counterparty and country risks*
EUR million
Group
2004 2003 2002 2001
As at 1 January 5,038 4,625 2,784 2,178
Write-backs – 525 – 420 – 398 – 220
Utilisation – 846 – 692 – 346 – 377
Allocations 748 1,766 2,659 1,166
Other changes** – 33 – 241 – 74 37
As at 31 December 4,382 5,038 4,625 2,784
* excluding general loan loss provisions, other loan loss provisions, change in reserve pursuant to Sections 340f and 340g
German Commercial Code and credit standing-related write-downs on securities
** Change in group of consolidated companies, exchange rate changes and account transfers