DHL 2004 Annual Report Download - page 120

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Risk management thus forms part of overall risk- and earn-
ings-based group management. The Deutsche Postbank group
aims to ensure that risks are entered into in a controlled manner in
terms of the group strategy and the available risk capital. An effec-
tive risk management system provides the necessary stimulus for
strategic and daily business decisions, and enables the responsible,
earnings-driven management of risk. The Deutsche Postbank
group measures this management of risk for its board departments
and business divisions using the ratio of capital employed to
earnings, expressed by the performance indicator RoE (return on
equity).
The Management Board of Deutsche Postbank AG is respon-
sible for risk strategy, proper risk management organization, mon-
itoring the risk content of all transactions, and risk control.
The risk control units measure and assess group-wide risks
and ensure that limits are monitored and complied with.
Definition of risk categories and risk types
Price risk refers to potential losses from financial transactions that
may be triggered by changes in interest rates, volatility, foreign
exchange rates and share prices. The changes in value are derived
from daily marking-to-market, irrespective of the carrying
amounts of assets and liabilities.
The Deutsche Postbank group defines counterparty (default)
risk as the potential loss that may arise due to changes in credit-
worthiness or default by a counterparty (e.g. through insolvency).
Counterparty (default) risk comprises the following risk types:
credit risk, i.e. the potential loss that may arise due to the inabil-
ity of a counterparty to discharge its payment obligations or due to
a deterioration in its credit rating,
country or transfer risk inherent in cross-border payments due
to the unwillingness (political risk) or inability (economic risk) of a
country to discharge its payment obligations,
counterparty risk, which may occur due to the default of a coun-
terparty during the settlement of payment obligations (replace-
ment risk) or the untimely performance of payment obligations
(settlement risk).
The Deutsche Postbank group defines risks from sharehold-
ings firstly as potential losses that could arise from the provision of
equity to third parties, and secondly as liability risks arising from
the profit transfer agreements entered into with a large number of
subsidiaries.
The liquidity risk is the risk that the Deutsche Postbank
group will be unable to meet its current and future payment obli-
gations either as they fall due or in the full amount due. Funding
risk, a special form of liquidity risk, arises when the necessary li-
quidity cannot be obtained on the expected terms when required.
Model risk is a general term for the risk that arises when
information for risk management can only be presented to decision-
makers on the basis of modeling that relies on assumptions.
The Deutsche Postbank group defines strategic risk as the
risk of earnings targets not being met as a result of the group re-
sponding insufficiently to the respective business environment,
in cluding any changes at short notice. This means that strategic risks
may result from inadequate strategic decision-making processes,
unforeseeable discontinuities on the market, or the inappropriate
implementation of the chosen strategy.
Operational risk is defined by Basel II as “the risk of direct or
indirect loss resulting from inadequate or failed internal processes,
people and systems or from external events”. Legal risks are also
included here in accordance with the Basel II definition.
Presentation of the risk situation
Risk management is becoming more and more important given the
ongoing phase of low interest rates and fierce competition on the
deposit and lending market and the resulting pressure on interest
rate margins, as well as the general trend with respect to insolven-
cies at the macroeconomic level. The Deutsche Postbank group has
introduced a range of enhanced risk management instruments and
processes for the various risk types. They are constantly upgraded
to reflect changes in the market and the development of the group,
as well as future regulatory requirements. This enables the Deutsche
Postbank group to meet the challenges posed by the market and to
ensure risk control and limitation across all risk types and business
divisions in a manner that optimizes both risks and earnings. The
methods and processes applied conform with all current statutory
and regulatory requirements.
With regard to credit risk, a low risk profile for the lending
business and the beneficial situation of relatively low risk costs
could also be ensured in 2004, which was another difficult year in
macroeconomic terms. The increase in risk costs is mainly due to
the scheduled expansion of the group’s private customer business
in recent years. The Deutsche Postbank group will continue to
pursue its risk-sensitive business policy in the future.