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ePaper created 2013-04-15, 17:20:51 | version 1.25.7
Management report 43 tices, unauthorised actions and transaction errors. The major portion of damages incurred in 2012 stemmed from losses related to the disposal of too highly mortgaged properties. We minimise our operational risks by qualifying our employees, using transparent processes, automating standard procedures, and by having fixed working instructions, comprehensive func- tional testing of the IT-systems, as well as appropriate emer- gency plans and preventive measures. Insurable risks are covered by insurance to the normal extent required by banks. Ability to bear risks The professional concepts and models used to calculate the abili- ties to bear risks are continuously further developed in accord- ance with legal supervisory requirements. MünchenerHyp cal- culates its ability to bear risks based on the Going-Concern as well as the so-called Insolvency Case scenarios. The Going-Con- cern scenario is the relevant method used for control purposes. This scenario is used to determine if the bank still would have an adequate equity capital ratio exceeding the legally required minimums after the occurrence of risks contained in all of the risk categories. The only cover potential that may be used to cover risks in this scenario is the freely available regulatory equity capital. The scenario deducts market risks, counterparty risks, operational risks, spread and migration risks, participation risks, as well as model risks containing other non-explicitly defined risks. Risks on cover potential for risks are accounted for on a conservative basis and without taking diversification effects between the risk categories into consideration. MünchenerHyp’s related risk-bearing capacity was continuously given throughout the entire 2012 business year. The Gone-Concern, or insolvency scenario, was additionally introduced in 2012 to establish a method of controlling in accordance with the BaFin paper, “Supervisory assessment of banks‘ internal concepts concerning their ability to bear risks“. This method of controlling takes all unrealised losses into con- sideration, as they, naturally, do not have an impact in the Going-Concern scenario. We are still in discussions with the >> Various liquidity risk factors were identified for the Münchener Hypothekenbank. These factors are focused on either market or reputational effects. >> A total of five stress tests were defined on the basis of these risk factors. 1) Reputation scenario (high stress) 2) Market scenario (high stress) 3) Market and reputations scenario (light stress) 4) Market and reputations scenario (high stress) 5) Worst Case scenario >> Complementary to the stress tests corresponding meas- ures were defined for simulation purposes to reduce the liquidity risks in the respective cases. The limitation of liquidity risks takes place using the structured liquidity forecast and the stress scenarios based on the Bank’s uncovered refinancing needs. In order to reduce refinancing risks, Münchener Hypothekenbank strives to refinance loans with concordant amounts and matu- rity dates and continuously checks if its relevant refinancing sources (primarily those within the Cooperative Financial Net- work) remain available. In order to limit market liquidity risks in its lending business with public-sector borrowers and banks, MünchenerHyp primarily acquires securities that are acceptable as collateral by the European Central Bank (ECB), and which can be used for open market business at any time. Investments in less liquid bonds, like Mortgage Backed Securities (MBS), are no longer being made. The portfolio of 3 securities was valued at € 29 million as of December 31, 2012 (previous year € 69 million) and consisted solely of Commercial Mortgage Backed Securities (CMBS) and Residential Mortgage Backed Securities (RMBS), backed by property in Europe. All of the MBS have investmentgrade ratings issued by the major rating agencies. As of December 31, 2012 the weighted anticipated time-to- maturity of the MBS in our portfolio was about 3.25 years. Operational risks Operational risks refer to possible losses caused by personal misconduct, weaknesses in procedural or project management, technical failure or negative outside influences. Personal mis- conduct also includes unlawful actions, improper sales prac-