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ePaper created 2014-04-15, 13:56:41 | version 1.30.00
Management report 35 Total lending business in € millions Opening balance Addition Reversals Utilisation Changes related to exchange rate shifts and other factors Closing balance individual adjust- ment to value 48.5 14.9 -3.2 -6.0 -1.3 52.8 general adjust- ment to value 13.5 0.0 0.0 0.0 0.0 13.5 The individual and general adjustments to value developed as follows in 2013: applies for our commercial property financing business, whereby difficult market conditions in the Netherlands in 2013 led to moderately precautionary provisions for risk. MünchenerHyp has not entered into any new business transactions in the USA since 2009. As a result, the portfolio of existing loans will con- tinue to shrink rapidly, just as in 2013. Precautionary provisions for risks associated with the remaining American loan portfolio were marginally increased. 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 general, we also enter into collateral agreements. In the future we will use a so-called Central Counterparty (CCP) as the preferred basis for settling derivative trades. 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 quan- tified 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 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 of market participants regarding positions, 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 the focal point of attention in 2013, especially for supervisory authorities and market participants, due to the ongoing debt and confidence crisis in certain European countries. The valuation of our securities portfolio was favourably affected as spreads – which had widened sharply in earlier years – nar- rowed significantly over the last two years. The Bank’s portfolio of bonds issued by eurozone countries more heavily affected by the sovereign debt crisis, or in bonds issued by banks domiciled in these countries, remained at a moderate level. The Bank has not made any new investments in countries located on the pe- riphery of eurozone since 2011.