ANNUAL REPORT 2006 - DG Hyp

d) Management of problem loans
DG HYP has developed an early warning system for its
investors. This uses a variety of indicators to highlight the
necessity for more intensive handling of the loan account.
A differentiation is made between compulsory and optional
requirements, as a result of the parameter weighting.
The effectiveness of the indicators is reviewed on a quarterly
basis. All cases of intensified handling are reported on
a quarterly basis. In addition, all borrowers under intensive
handling with a volume of more than € 10 million are
reported once per month. Within the scope of monitoring,
as a rule, a checklist is maintained for all such exposures
subject to intensive handling, which provides information
on the renewed review of collateral, the property and rating
assessment, as well as measures that have already been
initiated. At the same time, the outcome of this intensive
review forms the basis for the decision on further support
measures (normal or intensified handling, or restructuring).
The intensive handling phase is generally limited to
twelve months. This is followed by a review as to whether
a return to normal coverage is possible, or if a handover to
the restructuring/workout division is required.
Those problem credit exposures whose economic perspective
can be assessed as positive are processed in the
restructuring department, which forms part of the backoffice.
Submitting a concept that must comprise a differentiated
analysis and assessment of the overall situation of
the exposure and a cost-benefit analysis, as well as a comprehensive
restructuring plan, forms the basis for a restructuring
decision. Loan exposures are transferred to workout
if restructuring has failed or if this is deemed to be fruitless
from the outset.
Non-performing retail loan exposure is included in an
integrated reminder and restructuring process within
DG HYP at an early stage. Initial telephone contact with the
borrower is made two to four weeks after the first
reminder. If standardised activities (e. g. short-term postponement
of the outstanding instalment) are unsuccessful,
the non-performing loan exposures are transferred to the
restructuring department. The probability of successful
38 Deutsche Genossenschafts-Hypothekenbank AG | Annual Report 2006
Management Report
restructuring is then assessed in detail, and further action
implemented based on the results. The focus is on stabilising
the customer and recovering the outstanding amounts.
If it is not possible to restructure the exposure, the loan
exposures are transferred to workout for rapid liquidation
of the collateral.
e) Portfolio management
Besides the management of individual credit risks,
active portfolio management is central to DG HYP’s risk
management process. This comprises both the assessment
of individual exposures from a portfolio perspective and
the risk/return-oriented management of the overall portfolio
through securitisations, MBS purchases, and the
acquisition and disposal of loan portfolios. Risk Management
and Credit Treasury are jointly responsible for portfolio
management, while Credit Treasury alone is charged
with implementing the approved strategy.
Credit Risk Controlling uses a credit risk model (based
on CreditRisk+TM) to measure the counterparty risks on the
basis of a portfolio analysis involving all asset classes.
A Credit Value at Risk (CVaR), calculated with a confidence
interval of 99.9 per cent and a one-year holding period,
serves as the basis for limiting counterparty risk across the
entire bank as well as for portfolio management in Credit
Treasury. This process allows the bank (amongst other
things) to calculate the risk contribution of individual exposures
in terms of diversification within the overall portfolio,
and the ensuing utilisation of economic capital. The results
of credit risk modelling are used particularly efficiently, as
part of the so-called CVaR analysis. In this analysis, which
is conducted monthly, the impact of current transactions –
for example placements or portfolio purchases – are ascertained
and reported as part of the overall risk report, as are
all material changes to the risk structure at an individual
customer level and division level, as well as changes to the
ten largest risk drivers. The results of this regular analysis
are continuously integrated in the credit risk strategy, and
are taken into consideration as an additional parameter in
the process of granting large-volume loans (upwards of
€ 25 million).