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ePaper created 2012-04-20, 15:08:32 | version 1.23.0
41Management Report Münchener Hypothekenbank eG diligence and take appropriate measures as they become nec- essary. Business relationships with financial institutions are primarily based on master agreements that permit settlement of claims and liabilities (netting) vis-à-vis the other institution. In gen- eral, we also enter into collateral agreements. Market price risks Market price risks consist of the risk of possible changes in the value of positions or portfolios arising from changes in market parameters including interest rates and exchange rates. These risks are quantified as potential losses of present value using a present value model that differentiates between risks related to interest rates, options and currency rates. Interest rate risks are divided into two categories: general and specific interest rate risks. General interest change risks refers to risk arising from changes in the market value of investments or liabilities that are dependent on the level of interest rates, and which will react negatively if interest rates change. It re- presents the most important component of market price risks for MünchenerHyp. contained in a Federal Ministry of Finance notice dated January 10, 1994. The key default rate is calculated using 60 percent of the aver- age volume of defaults that took place over the last five years vis-à-vis the average volume of loans-at-risk made over this period. The general adjustment to value is the result of multi- plying the default rate by the volume of loans-at-risk on the balance sheet date. Individual adjustments to value taken remained comparatively low for our residential property lending business due to the great stability of the residential property market. We continued to pay special attention to our portfolio of commercial property loans in the USA. The result of a careful examination of this portfolio we decided to make provisions for risk for certain individual loans. However, due to our successful restructuring of these loans we were able to reverse individual adjustments to value. In the past our USA business generally focused on loans secured by top tier mortgages and with moderate mort- gage lending value ratios. In the interim, this area of business has been defined as being discontinued pursuant to the terms of Art. 69 of the German Solvency Regulation. This means that MünchenerHyp will no longer enter into any new business deals in the USA. Accordingly, the existing portfolio of loans will con- tinuously shrink, as it did in 2011. We will continue to monitor the further development with undiminished intensity and Total lending business in million euros Opening balance Addition Reversals Utilisation Changes related to exchange rate shifts and other factors Closing balance individual adjust- ment to value 90.0 11.3 25.7 14.1 0.1 61.6 general adjust- ment to value 14.1 0.0 1.2 0.0 0.0 12.9 The individual and general adjustments to value developed as follows in 2011: