Group Management Report Contents

6 DZ BANK 2019 Annual Report Group management report Contents Group management report 10 DZ BANK Group fundamentals 45 Events after the balance sheet date 10 Business model and strategic focus 10 DZ BANK – central institution and corporate bank 47 Human resources report 12 BSH and sustainability 13 DVB 13 DZ HYP 13 DZ PRIVATBANK 48 Outlook 14 R+V 14 TeamBank 48 Economic conditions 15 UMH 48 Global economic trends 15 VR Smart Finanz 48 Trends in the USA 49 Trends in the eurozone 16 Management of the DZ BANK Group 49 Trends in Germany 16 Management units 49 Trends in the financial sector 16 Governance 20 Key performance indicators 50 Financial position and financial 20 Management process performance 51 Liquidity and capital adequacy 22 Business report 52 Operating segments in detail 22 Economic conditions 52 BSH 52 R+V 22 The banking industry amid continued 54 TeamBank efforts to stabilize the economy 54 UMH of the eurozone 55 DZ BANK – CICB 56 DZ HYP 26 Financial performance 57 DZ PRIVATBANK 26 Financial performance at a glance 57 VR Smart Finanz 29 Financial performance in detail 58 DVB 58 DZ BANK – holding function 42 Net assets 43 Financial position DZ BANK 7 2019 Annual Report Group management report Contents 60 Combined opportunity 102 Bank sector and risk report 102 Credit risk 60 Disclosure principles 102 Definition 103 Specific risk factors 61 DZ BANK Group 103 Business background and risk strategy 104 Sustainability review in the lending process 61 Summary 104 Organization, responsibility, and risk reporting 61 Material changes 104 Risk management 62 Opportunity and risk management system 112 Lending volume 64 Potential opportunities and risk factors 117 Credit portfolios with increased risk content 65 Risk 120 Volume of non-performing loans 120 Risk position 69 Fundamental principles of managing opportunities and risks 122 Equity investment risk 69 Regulatory framework for risk management 122 Definition 70 Risk culture 122 Specific risk factors 70 Risk strategies 122 Business background, risk strategy, 71 Risk appetite and responsibility 71 Opportunity and risk-oriented corporate governance 122 Risk management 77 Risk management tools 123 Risk position 81 Opportunities 123 Market risk 81 Management of opportunities 123 Definition 81 Potential opportunities 123 Specific risk factors 123 Business background and risk strategy 83 General risk factors 124 Organization, responsibility, and risk reporting 83 Regulatory risk factors 124 Management of market risk 84 Macroeconomic risk factors 126 Management of market liquidity risk 87 Rating downgrades 127 Risk position 87 Liquidity adequacy 128 Technical risk of a home savings 87 Principles and loan company 87 Economic perspective 128 Definition 92 Normative internal perspective 128 Specific risk factors 128 Business background, risk strategy, 93 Capital adequacy and responsibility 93 Strategy, organization, and responsibility 129 Risk management 94 Economic perspective 129 Risk position 97 Normative internal perspective 101 Stress tests for types of risk covered by capital 8 DZ BANK 2019 Annual Report Group management report Contents 129 Business risk 139 Actuarial risk 129 Definition and business background 139 Definition and business background 129 Specific risk factors 140 Specific risk factors 130 Organization and risk management 141 Management of life actuarial risk 130 Risk position 142 Management of health actuarial risk 143 Management of non-life actuarial risk 131 Reputational risk 144 Claims rate trend in non-life insurance 131 Definition and business background 144 Risk position 131 Specific risk factors 131 Risk strategy and responsibility 146 Market risk 131 Risk management 146 Definition and business background 146 Specific risk factors 131 Operational risk 147 Risk management 131 Definition 149 Lending volume 132 Business background and risk strategy 152 Risk position 132 Organization, responsibility, and risk reporting 132 Central risk management 152 Counterparty default risk 133 HR risk 152 Definition and business background 134 IT risk 152 Specific risk factors 135 Outsourcing risk 153 Risk management 135 Legal risk 153 Risk position 136 Tax risk 137 Compliance risk 153 Reputational risk 137 Risks in connection with the (consolidated) 153 Definition and business background financial reporting process 153 Specific risk factors 137 Loss events 153 Risk management 138 Risk position 154 Operational risk 138 Insurance sector 154 Definition and business background 154 Central risk management 138 Basic principles of risk management 155 HR risk in the Insurance sector 155 IT risk 138 Risk strategy 155 Legal risk 139 Organization, responsibility, and risk reporting 156 Tax risk 156 Risk position 156 Risks from entities in other financial sectors DZ BANK 9 2019 Annual Report Group management report Contents Note The figures in this report are rounded to the nearest whole number. This may give rise to small discrepancies between the totals shown in the tables and diagrams and totals calculated from the individual values shown. 10 DZ BANK 2019 Annual Report Group management report DZ BANK Group fundamentals DZ BANK – holding function1. They are reported I DZ BANK Group separately in these financial statements for the first time. The strategic focus of DZ BANK, as described fundamentals below, essentially relates to the activities of DZ BANK – central institution and corporate bank. 1 Business model and strategic focus In 2018, DZ BANK launched ‘Verbund First 4.0’, a strategic program designed to ensure the bank’s The strategic focus in the DZ BANK Group follows resilience for the future. The program is aimed at the guiding principle of fulfilling the role of a network- improvements in three key areas: market offering, oriented central institution and financial services control and production processes, and corporate group. Business activities are centered on the local culture. Under the program, DZ BANK is working on cooperative banks and their customers. The objective various action plans based on 28 defined action areas. of this strategic approach is to consolidate the positioning of the cooperative financial network as DZ BANK is applying its strategic focus in the various one of the leading financial services providers in business lines, as described below. Germany on a long-term basis. 1.1.1 Cooperative Banks/Verbund The entities in the DZ BANK Group work with one The Cooperative Banks/Verbund division is another and with the cooperative banks and Fiducia & responsible for providing support for the German GAD IT AG, Karlsruhe and Münster, (Fiducia & cooperative banks, which are both a customer group GAD) under the leadership of the Bundesverband der and the shareholders of DZ BANK. The Deutschen Volksbanken und Raiffeisenbanken e.V., Regionaldirektoren [regional directors] of DZ BANK Berlin, (BVR) [National Association of German are the first port of call and customer relationship Cooperative Banks] to shape their future. The strategy manager for the cooperative banks, with the aim of agenda entitled ‘Shaping the future cooperatively’ assisting them with their business activities in the provides a framework within which the companies of regional markets. the cooperative financial network are implementing the initiatives in the strategic KundenFokus (customer DZ BANK offers the cooperative banks consultancy focus) project with the aim of establishing an and other services at every stage of the strategic bank omnichannel model. management process and advises them on regulatory matters. In addition, DZ BANK assists the local 1.1 DZ BANK – central institution and corporate cooperative banks with treasury and controlling aspects bank of bank management, such as planning and risk Following the merger of DZ BANK AG Deutsche management, as well as with optimization for strategic Zentral-Genossenschaftsbank, Frankfurt am Main, bank management purposes and with own-account (DZ BANK) with the former WGZ BANK in 2016, investing activities. DZ BANK offers the cooperative DZ BANK has been refining its governance structure banks systems such as GENO-SAVE and EGon that along the lines of a holding company model. To this help them to meet requirements in the areas of own- end, it set up a Central Advisory Council in 2018, account investing, reporting, and accounting. enabling the cooperative banks to participate in and influence strategic decisions to a greater extent. 1.1.2 Corporate Banking Furthermore, responsibility for the holding company In the corporate banking market, DZ BANK supports activities and for the central institution and corporate the marketing of the local cooperative banks. This bank activities within DZ BANK were separated from support concept is geared to the needs of corporate each other. To this end, the DZ BANK AG operating customers and the individual market situation of the segment was split into the DZ BANK – central cooperative banks and is closely integrated with the institution and corporate bank operating segment and activities of the cooperative financial network. 1 DZ BANK – holding function is not an operating segment within the meaning of IFRS 8.5. DZ BANK 11 2019 Annual Report Group management report DZ BANK Group fundamentals In 2019, DZ BANK modified its organizational to widen its market coverage. It has already entered structure in the Corporate Banking business line in into similar agreements with banks in China, India, and order to ensure targeted marketing. Four regional Indonesia. divisions now look after not only DZ BANK’s direct

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