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e Internal Audit Unit is a key element of the Deutsche Postbank Group’s
business and process-independent monitoring system. In terms of the bank’s
organizational structure, it is assigned to the Chairman of the Management
Board and reports independently to the whole Management Board. e Postbank
Group Management Board is responsible for risk strategy, the appropriate
organization of risk management, monitoring the risk content of all transactions,
and risk control. In conjunction with the Risk Committees, the Group
Management Board has dened the underlying strategies for activities on the
nancial markets and the other business sectors of the group.
Denition of risk types
e Deutsche Postbank Group distinguishes between the following
risk types:
•Market risk
•Credit risk
•Liquidity risk
•Operational risk
•Real estate and investment risk
•Collective risk from the home savings business
•Business risk
Market risk denotes the potential risk that may lead to losses in nancial trans-
actions from changes in interest rates, spreads, volatility, foreign exchange
rates, and equity prices. Changes in value are derived from daily marking to
market, independently of their measurement for nancial accounting purposes.
e Deutsche Postbank Group denes credit risk as the potential losses that
may be caused by changes in the creditworthiness of, or default by, a
counterparty (for example, as a result of insolvency). Counterparty risk
consists of the following risk types:
•default risk, that is, the possible losses arising from the inability of a
counterparty to discharge its payment obligations, or from a deterioration
in its credit rating,
•country risk, that is, the risk of possible losses arising from political or
social upheaval, nationalization and expropriation, a government’s non-
recognition of foreign debts, currency controls, and devaluation or
depreciation of a national currency (transfer risk),
•settlement risk, that is, the risk of possible losses during the settlement or
netting of transactions,
•counterparty risk, that is, the risk of possible losses arising from potential
default by a counterparty, and hence the risk to unrealized prots on
executory contracts (replacement risk).
Liquidity risk is the risk that the Deutsche Postbank Group will be unable to
meet its current and future payment obligations either in the full amount, or
as they fall due (default risk). Liquidit y matur ity transformation risk describes
the risk of a loss occurring due to a change in the bank’s own renancing
curve (spread risk) resulting from an imbalance in the liquidity maturity
structure within a given period for a certain condence level.
e Basel Committee on Banking Supervision denes operational risk as “the
risk of losses resulting from inadequate or failed internal processes, people,
and systems or external events.” e Deutsche Postbank Group has used
this denition as the basis for introducing a corresponding group-wide
control process.
Real estate risk refers to Deutsche Postbank AG’s real estate holdings and
describes the risk of loss of rental income, and from write-downs to the going
concern value, losses on sale, and the reduction of hidden reserves relating to
real estate.
BHW Sparkasse AG’s home savings business is subject to a specic business
risk, called “collective risk.” is is dened by the home loan and savings
association as the negative impact of (non interest-related) deviations in the
actual behavior of home savings customers from their forecast behavior.
Business risk refers to unexpected declines in earnings that arise when
expenses cannot be reduced in line with a decline in income (excess xed
costs) or when expenses increase unexpectedly. Such declines in earnings can
be caused by both internal and external factors, such as unfavorable economic
changes or political decisions leading to a change in customer behavior.
Presentation of risk position
e importance of ecient risk control has further increased against the
background of volatile capital markets, signicantly low interest rates as
against previous years and continued intense competition in the markets for
deposits and loans, with consequent pressure on interest margins. An
additional factor is the insolvency trend in the economy as a whole. In scal
year , the Deutsche Postbank Group enhanced the structures, instruments,
and processes for risk management and controlling for the relevant risk
categories and has state-of-the-art tools for overall bank management. e
new BHW AG group units acquired in the course of the scal year and the retail
outlets acquired from Deutsche Post AG were rapidly integrated into the
bank’s overall group management. As a result, the Deutsche Postbank Group
is in a position to meet the challenges it faces in the market, and to manage and
limit all categories of risk across all business divisions in a way that minimizes
risk while maximizing earnings. e methods and procedures employed meet
all current statutory and regulatory requirements.
With respect to credit risk, the Deutsche Postbank Group maintained the low
risk prole of its credit business during , as well as the advantage of having
relatively low risk costs. Among other things, the increasing credit risks in the
retail segment in Germany were countered by a restrictive scoring-based
lending policy as well as by more ecient and faster workout processes for
loans in default.
e absolute increase in risk costs is mainly the result of the planned
expansion of private customer business over recent years. e Deutsche
Postbank Group reported discounting eects when measuring future cash
ows for impaired receivables separately in the allowance for losses on loans
and advances and the reversal of the discounting eects over time (unwinding)
in interest income for the rst time in scal year . e recognition of
discounting eects and unwinding in separate income statement items
resulted in a somewhat sharper increase in additions to the allowance for
losses on loans and advances in relation to the business volume as against the
previous year; however, this is oset by the unwinding in interest income. e
Deutsche Postbank Group will continue to pursue its risk-sensitive business
policy in the future.
With regard to the allocation of risk capital, the Deutsche Postbank Group
has been, and continues to be able to allow the business divisions sucient
scope to achieve business growth in line with its strategy. No risks that could
impair the Deutsche Postbank Group’s development or even jeopardize
its continued existence have been identied among the above-mentioned
risk types.
147
Deutsche Post World Net Annual Report 2006
Consolidated Financial Statements