Annual Report 2010 - Muenchener Hypothekenbank eG

The ability to monitor and keep risks under control at all times is essential for the successful steering of business development at Münchenerhyp. for this reason risk management plays a very important role in the overall management of the Bank. The business and risk strategy defines the parameters of the Bank’s business activities. Münchenerhyp’s entire Board of Management is responsible for this strategy, which is regularly – at least once a year – reviewed and updated as necessary and presented to the Supervisory Board. As part of its supervisory duties, the Supervisory Board is advised about the Bank’s risk profile on a quarterly basis. This takes place using the reports on the Bank’s risk-taking capabilities, lending risks as well as the risk report prepared in accordance with the “Minimum Requirements for Risk Management” (MaRisk). The basis of risk management consists of, on one hand, the analy- sis and presentation of existing risks, and, on the other, compar- ing these risks with the collateral available to cover them (ability to bear risk). Appropriate monitoring processes are in place involving internal process-dependent supervision to ensure that this balance is maintained. our internal audit department, as process-independent unit, has the monitoring function within the Bank. The analysis and presentation of existing risks primar- ily distinguishes between borrower failure, market price, liquidity and operational risks. Additional risks such as credit spread risks, placement risk, reputational risk, business risk etc., are viewed as parts of the abovementioned risks and are taken into consid- eration in the appropriate manner in the individual calculations. borrower faiLUre risk Borrower failure risk – also referred to as lending risk – is of major significance for Münchenerhyp. Borrower failure risk refers to the danger that a counterparty or group of counter- parties may delay, make partial repayment or even default on repaying a loan to the lender. The Credit handbook presents the competencies and procedural requirements of entities involved in lending, as well as the Bank’s credit products. The Bank’s business and risk strategy contains additional explanations pertaining to sub-strategies regarding target customers and target markets, as well as definitions for measuring and controlling credit risks at the level of individual deals and the portfolio level. A procedure based on the credit risk value-at-risk (Credit-vaR) is used to determine lending lim- its. The specific contribution of every entity/borrower – called the Marginal Credit-vaR – to the Bank’s total credit risk is lim- ited. furthermore, limits are also set for each category of trans- action and property. There are also limits for each country to ensure adequate regional diversification. We always take care to ensure that the vast majority of our mortgage business activities consist of top tier mortgages with moderate mortgage lending value ratios. Currently, the breakdown of our loans based on mortgage lending value is as follows: RISk REPORT