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36 münchener Hypothekenbank eg | annual report 2014management report Total portfolio of mortgage and other loans (including open commitments) Sovereign state 31 Dec. 2014 31 Dec. 2013 € relative € relative Austria 86,468,268.87 0.3 % 92,608,765.44 0.4 % France 328,108,652.83 1.3 % 293,493,261.96 1.3 % UK 543,292,444.74 2.1 % 583,135,176.07 2.5 % Spain 180,231,516.48 0.7 % 97,070,685.01 0.4 % Luxembourg 33,500,000.00 0.1 % 4,279,856.25 0.0 % Sweden 4,863,941.23 0.0 % 5,157,070.13 0.0 % Switzerland 3,379,571,177.72 13.3 % 3,161,580,918.31 13.7 % The Netherlands 159,888,888.82 0.6 % 168,722,890.10 0.7 % Belgium 6,439,938.24 0.0 % 6,439,938.24 0.0 % USA 566,795,915.50 2.2 % 832,344,755.01 3.6 % Total foreign 5,289,160,744.43 20.8% 5,244,833,316.52 22.7% Total domestic and foreign 25,442,059,496.10 100.0% 23,148,856,800.25 100.0% The management of lending risks begins with the selection of the target business when drafting the terms of the loan, using risk-cost functions that are regularly reviewed. A variety of rat- ing or scoring procedures are used depending on the type and risk content of the transaction. In addition, a computer-based early warning system is used to identify risks on a timely basis. A widely diversified property finance portfolio with an empha- sis on residential property financing, combined with our credit approval procedures, which have proven their value over many years, ensures a portfolio with a low level of credit risk. Our lending business with public sector borrowers and banks is pri- marily focused on central and regional governments, regional and local administrative authorities, and west European banks. Regional emphasis is on Germany or Western Europe. Our ob- jective is to achieve further substantial reductions in this port- folio. Highly liquid sovereign bonds and other very creditworthy securities will, however, continue to be needed in order to meet the new liquidity requirements mandated within the framework of Basel III. Depending on their ratings, mortgage loans are examined to de- termine any non-performance or other negative factors which could trigger an individual adjustment to value. Furthermore, an additional system to monitor individual adjustment to value is used by the Bank’s work-out management group, especially for the non-retail market business. The Bank has created a general adjustment-to-value reserve as a precautionary measure to cover latent lending risks. This general adjustment to value is calculated per the terms con- tained in a Federal Ministry of Finance notice dated January 10, 1994. The key default rate mentioned in this notice is calculated using 60 percent of the average volume of defaults that took place over the last five years compared to the average volume of loans- at-risk made over this period. The general adjustment to value is the result of multiplying the default rate by the volume of loans-at-risk on the balance sheet date. Individual adjustments to value taken remained at a low level for our residential property financing business due to the great 31 Dec. 201431 Dec. 2013 Austria 86,468,268.870.3 % 92,608,765.440.4 % France 328,108,652.831.3 % 293,493,261.961.3 % UK 543,292,444.742.1 % 583,135,176.072.5 % Spain 180,231,516.480.7 % 97,070,685.010.4 % Luxembourg 33,500,000.000.1 % 4,279,856.250.0 % Sweden 4,863,941.230.0 % 5,157,070.130.0 % Switzerland 3,379,571,177.7213.3 % 3,161,580,918.3113.7 % The Netherlands 159,888,888.820.6 % 168,722,890.100.7 % Belgium 6,439,938.240.0 % 6,439,938.240.0 % USA 566,795,915.502.2 % 832,344,755.013.6 % Total foreign 5,289,160,744.4320.8% 5,244,833,316.5222.7% Total domestic and foreign 25,442,059,496.10100.0% 23,148,856,800.25100.0%