ANNUAL REPORT 2006 - DG Hyp

Management Report
strategy, monitoring the counterparty risk within the scope
of granting and processing loans, early identification of
potential risks in the lending business and intensified handling
of distressed loans, plus restructuring and recovery of
lending exposures through the corresponding procedures
and control systems. Credit Treasury is responsible for credit
risk management on a portfolio level. The management
of market and liquidity risks is the responsibility of Treasury,
within the scope of asset/liability management.
Risk Controlling. Risk Controlling is responsible for
current reporting and – together with the respective risk
management unit – for monitoring risk on a portfolio level.
This comprises quantifying the risk exposure, monitoring
the quality and accuracy of data relevant to the risk exposure,
monitoring the limit utilisations, and risk reporting to
the Management Board. For this purpose, Risk Controlling
prepares a MaRisk-compliant credit risk report on a quarterly
basis, which outlines the key structural features of the
lending business. A specific monitoring report for the retail
business is produced on a quarterly basis, using scoring
data generated from new business and behavioural scoring
of the existing portfolio. An overall risk report is drafted
monthly, which illustrates current credit risks as well as
market risks and operational risk. Furthermore, Risk
Controlling also carries out daily risk reporting on the
market risks to which DG HYP is exposed, in accordance
with MaRisk. Risk Controlling’s key findings are regularly
reported to the Supervisory Board, or to the Risk and
Participations Committee of the Supervisory Board. The
regular portfolio evaluations are used to recognize
abnormalities in the portfolio at an early state and counter
these if required. In addition, portfolio evaluations form the
basis for the annual review of the credit risk strategy.
Internal Audit. The internal audit examines whether
the demands on the internal controlling systems, the risk
management and controlling systems, and the necessary
reporting, are adequately met.
d) Basel II
The new Basel Capital Accord (commonly referred to as
“Basel II”), implemented in the German Solvability
Ordinance (Solvabilitätsverordnung – “SolvV”), which has
come into effect as of 1 January 2007, is focused on
securing the stability of the banking system and promoting
banking supervision with greater qualitative focus.
The core element of Basel II is greater risk-adjusted
differentiation of the regulatory capital requirements for
loans, depending on the credit quality of the borrower.
All told, the planned regulations of the Basel Committee
confirm our approach to a risk/return-oriented business
and portfolio management. DG HYP will implement the
Foundation Internal Rating Based Approach (FIRB) as part
of Basel II. Developing our internal rating systems to
implement the requirements of the Basel II Accord remains
on schedule. In 2005, we concluded the implementation of
all the internal rating and scoring processes required for
adopting the FIRB.
All projects involved in preparing for the introduction of
Basel II have been run in close cooperation with the
corresponding requirements for the DZ BANK Group since
2003. They also correlate closely with the cross-institutional
Basel II projects carried out by the Federal Association of
German Credit Unions and Rural Banking Cooperatives
(Bundesverband der Deutschen Volksbanken und Raiffeisenbanken
– „BVR“ and the Association of German
Pfandbrief Banks (Verband deutscher Pfandbriefbanken –
„vdp“).
The acceptance audit for the first entry level of FIRB
from 1 January 2007 by the Bundesbank and the German
Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht
– “BaFin”) took place in the autumn
of 2006 and was successfully completed, with confirmation
of admission.
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