Credit risks
Definition
Credit risk is the risk that a counterparty will fail to meet its payment obligations, or will meet them only in part, as well as the risk of valuation losses resulting from rating downgrades. A distinction is made between the following risk sub-types: default risk, migration risk and country risk.
Lending business is largely limited to the refinancing of banks or institutions and financial institutions within the meaning of Article 4 of the CRR, as well as other interbank business. In the case of special promotional loans, the default risk relating to the ultimate borrower lies with the local bank. In addition, German federal states, districts and municipalities are refinanced.
Risk assessment and management
The credit assessment of counterparties is reviewed at least annually on the basis of an evaluation of their annual financial statements and an analysis of their economic circumstances. In doing so, account is taken of financial ratios, qualitative characteristics, shareholder background and further support factors, such as membership of an institutional protection scheme or government liability mechanisms. The country risk of the counterparty’s country of domicile is also taken into account in determining credit quality. For certain products, such as German mortgage bonds (Pfandbriefe), the associated collateral or cover assets are taken into account as an additional criterion for determining the product rating, alongside the relevant national statutory provisions. If current information becomes available regarding negative financial data or a weakening of a counterparty’s economic outlook, the credit rating is reviewed and adjusted if necessary.
Loss given default quantifies the proportion of an exposure that remains irrecoverable after a counterparty has defaulted and the collateral provided has been realised. To quantify counterparty credit risks, Rentenbank uses product-specific or business-type-specific loss given default parameters, which are determined using analytical and expert-based methods. In particular, the recovery chain of special promotional loans granted under the so-called on-lending procedure is taken into account in the assessment and parameterisation of loss given default for special promotional loans. In addition, Rentenbank relies on external data sources for certain types of business.
Exposure at default corresponds to the reporting-date balance plus off-balance-sheet transactions of individual counterparties. This corresponds to the residual amount of the receivable or the market value. For derivatives, exposure is determined as the amount of the exposure plus an add-on for market value fluctuations, taking contractual netting and posted and received collateral (cash collateral) into account.
Credit risk under the economic approach (credit value at risk) is calculated using a credit portfolio model, taking into account correlations between counterparties and including migration risks.
The method described makes it possible to assess, monitor and manage risks within the meaning of MaRisk. Negative developments and portfolio concentrations can thus be identified at an early stage and countermeasures initiated.
Limitation and monitoring
The overall credit ceiling for all counterparty default risk limits, as well as an unsecured ceiling, are set by the Management Board and thereby limit counterparty default risks. Concentration risks within Rentenbank are managed and limited at several levels through various targeted approaches. Country lending limits and currency transfer limits are also in place to limit risk.
A limit system manages the amount and structure of all counterparty default risks. Internal limits are recorded for all borrowers, issuers and counterparties and are, where appropriate, broken down by product and maturity. Rentenbank’s risk classification system constitutes the central basis for decisions on limit allocation. In addition, specific minimum credit qualities apply to certain business types or limit types.
The limitation of credit risks within the framework of risk-bearing capacity is based on the credit value at risk determined in the credit portfolio model.
In addition, risk indicators provide early signals of a possible increase in risk or shifts in risk within the portfolio. Warning thresholds ensure that higher levels of limit utilisation are identified at an early stage and that appropriate courses of action can be taken.
Limits are monitored on a daily basis. Limit overruns are immediately reported to the Management Board.
Credit risks are therefore managed, monitored and reported at the level of individual transactions, at the level of the borrowers and the group of connected clients, at country level and at the level of the overall credit portfolio.
Portfolio overview
For more than 90% of the risk exposures, collateral exists in the form of assignments of the refinanced receivables of the ultimate borrowers and state liability mechanisms, or the exposures consist of collateralised products such as German mortgage bonds (Pfandbriefe) or covered bonds. Unsecured risk exposures relate predominantly to receivables from credit institutions belonging to domestic liability schemes.
The total credit portfolio of EUR 88 billion (EUR 92 billion) comprises the nominal amounts of the risk exposures denominated in euros. These include special promotional loans with assignment of the refinanced receivables of the ultimate borrowers, state-guaranteed special promotional loans, registered bonds, promissory notes and securities, money market and derivative transactions, participations, venture capital investments and all externally committed credit lines, but not lending from the Federal Government’s Special-Purpose Fund. In the case of participations, the risk exposures of Rentenbank’s direct participations are included.
The conclusion of financial instruments in derivatives business is permissible exclusively as a hedging instrument on the basis of a netting and collateral agreement.
Aggregation in the following three presentations is based on the counterparty’s country of domicile or at the level of the legally independent counterparty, without taking group relationships into account. Allocation to the rating categories is based on product ratings. The amounts shown are based on nominal values.
More than 90% of the portfolio is collateralised and distributed as follows:
Credit Rating Categories (in euro billions)
Country Groups (in euro billions)
Counterparty Groups (in euro billions)
Rentenbank has no exposure to Russian, Belarusian or Ukrainian counterparties or their subsidiaries. The exposure of Rentenbank’s counterparties in Russia and/or Ukraine is limited. The direct effects of the Russia-Ukraine crisis on the business development of the institutions concerned are therefore manageable overall. Rentenbank is also monitoring domestic political developments in the United States, the ongoing trade conflicts, particularly with China, and regional hotspots (Gaza, Iran, Venezuela). At present, Rentenbank sees no direct effects on its banking counterparties.
Loan loss provisions
Specific valuation provision
Each month, an assessment is made as to whether there is objective evidence that not all interest and principal payments can be made in accordance with the contractual terms. For accounting purposes, the need to recognise a specific valuation allowance for a receivable is assessed on the basis of the following criteria:
- internal credit assessment in the non-investment-grade category,
- non-performing, forborne or restructured exposures,
- material deterioration in the counterparty’s credit quality,
- material deterioration in the credit quality of the counterparty’s country of domicile.
As in the previous year, there was no need to recognise specific valuation allowances at the reporting date.
Valuation adjustments for venture capital participations
At Rentenbank, the venture capital funds are classified as fixed assets. No valuation adjustments were required in 2025.
General valuation allowance
General valuation allowances are recognised for latent credit risks, the amount of which is calculated on the basis of probability of default and loss given default.
General valuation allowances for receivables, securities and irrevocable loan commitments amount to EUR 2.9 million and were therefore slightly below the previous year’s level (EUR 3.1 million).