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ePaper created 2013-04-15, 17:20:51 | version 1.25.7
Management report 39 Interest rate risks are divided into two categories: general and specific interest rate risks. General interest rate risks refers to risk arising from changes in the market value of investments or liabilities that are dependent on the general level of interest rates, and which will react negatively if interest rates change. Specific interest rate risks are also referred to as (credit) spread risks, and are included under market price risks. Credit Spread is the term used to describe the difference between the yield generated by a risk-less bond and a risky bond. Spread risks take into account the danger that this difference in interest rates can change although creditworthiness ratings remain unchanged. The reasons for altered yield premiums are: >> varying opinions in the market, >> the creditworthiness of the issuer actually changes although the issuer’s credit rating does not yet reflect this change, >> macro-economic factors that influence creditworthiness categories. This risk remained in the focus of attention in 2012 due to the debt and confidence crisis in certain European countries. The valuation of our securities portfolio was affected by the sharply widening spreads that were seen at times during the year. How- ever, spreads narrowed substantially by the end of the year. The Bank‘s portfolio of bonds issued by eurozone countries that were more heavily affected by the sovereign debt crisis, or in bonds issued by banks domiciled in these countries, remained Individual adjustments to value taken remained at a low level for our residential property financing business due to the great stability of the residential property market. In the past our busi- ness in the USA, as well as in other key markets, generally focused on loans secured by top tier mortgages and with mode rate mortgage 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 (SolvV). This means that MünchenerHyp will no longer enter into any new business deals in the USA. Accordingly, the existing port- folio of loans will continuously shrink, as it did in 2012, too. Nevertheless, we will continue to monitor further developments with undiminished intensity and due diligence and accompany them with appropriate measures. Business relationships with financial institutions are primarily based on master agreements that permit settlement of claims and liabilities (netting) vis-a-vis the other institution. In gene ral, we also enter into collateral agreements. Market price risks Market price risks consist of the risks to the value of positions due to changes in market parameters including interest rates, volatility and exchange rates among others. These risks are quantified as potential losses of present value using a present value model that differentiates between risks related to inter- est rates, options and currency rates. 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 61.6 10.3 -9.4 -13.9 -0.1 48.5 general adjust- ment to value 12.9 0.6 0.0 0.0 0.0 13.5 The individual and general adjustments to value developed as follows in 2012: