Annual Financial Statements and Management Report of DZ BANK AG Key Figures
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2016 Annual Financial Statements and Management Report of DZ BANK AG Key figures DZ BANK AG Dec. 31, Dec. 31, € million 2016 2015 2016 2015 FINANCIAL PERFORMANCE LIQUIDITY ADEQUACY Operating profit before allowances Economic liquidity adequacy for losses on loans and advances 827 769 (€ billion)2 3.8 4.0 Allowances for losses on loans and Liquidity coverage ratio – LCR advances -313 123 (percent) 139.9 106.6 Operating profit 514 892 Net income for the year 323 399 CAPITAL ADEQUACY Cost/income ratio (percent) 64.7 63.1 Economic capital adequacy (percent)3 4 163.5 173.5 Dec. 31, Jan. 1, Common equity Tier 1 capital ratio 2016 2016 (percent)5 18.1 19.0 NET ASSETS Common equity Tier 1 capital ratio applying CRR in full (percent)6 18.1 19.0 Assets Tier 1 capital ratio (percent)5 19.1 20.2 Loans and advances to banks 118,095 101,022 Total capital ratio (percent)5 24.4 26.6 Loans and advances to customers 33,744 31,710 Leverage ratio (percent)5 4.0 4.6 Bonds and other fixed-income Leverage ratio applying CRR in full securities 45,591 48,253 (percent)6 4.0 4.6 Shares and other variable-yield securities 68 56 AVERAGE NUMBER OF EMPLOYEES Trading assets 38,187 45,929 DURING THE YEAR 5,673 5,590 Other assets 17,630 17,681 LONG-TERM RATING Equity and liabilities Standard & Poor’s AA- AA- Deposits from banks 120,150 119,986 Moody’s Investors Service Aa3 Aa3 Deposits from customers 27,938 22,720 Fitch Ratings AA- AA- Debt certificates issued including bonds 48,173 45,782 Trading liabilities 31,966 31,889 Other liabilities 14,832 14,131 Equity 10,256 10,143 Total assets/total equity and liabilities 253,315 244,651 Volume of business1 284,037 274,059 1 Total equity and liabilities including contingent liabilities and other obligations. 2 Stress scenario with the lowest minimum liquidity surplus. 3 Owing to the close ties between the management of economic capital adequacy at DZ BANK and that of the DZ BANK Group, the figures for the group also apply to DZ BANK. 4 The figure as at December 31, 2015 differs from the figure in the 2015 annual financial statements and management report due to a scheduled recalculation of the overall solvency requirement for the Insurance sector in the second quarter of 2016. 5 In accordance with the requirements applicable as at the reporting date. 6 In accordance with the requirements applicable from 2019. DZ BANK AG 01 2016 Annual Financial Statements and Management Report Contents Contents 02 Management report of DZ BANK AG 06 DZ BANK AG fundamentals 14 Business report 28 Events after the balance sheet date 29 Human resources report and sustainability 35 Outlook 41 Combined opportunity and risk report 156 Annual financial statements of DZ BANK AG 158 Balance sheet as at December 31, 2016 160 Income statement for the period January 1 to December 31, 2016 162 Notes 220 Responsibility statement 221 Audit opinion (translation) 222 Advisory councils 236 Principal shareholdings 02 DZ BANK AG 2016 Annual Financial Statements and Management Report Management report of DZ BANK AG Contents Management report of DZ BANK AG 06 DZ BANK AG fundamentals 29 Human resources report and sustainability 06 Business model 29 Human resources report 06 Strategic focus as a network- 29 HR work in the year of the merger oriented central institution and 29 New HR marketing concept at DZ BANK financial services group 29 ‘Verbund First’ career development program 07 Cooperative Banks/Verbund 29 DZ BANK Group’s employer branding campaign 07 Corporate Banking 29 Professional development 08 Retail Banking 30 Training and development of young talent 08 Capital Markets 30 Corporate Campus for Management & Strategy 09 Transaction Banking 31 Health management 31 Work-life balance 09 Management of DZ BANK 31 Employer awards 09 Management units 31 Declaration on corporate governance 10 Governance 12 Key performance indicators 32 Sustainability 13 Management process 32 Cooperatives: responsibility as a corporate objective 32 Sustainability-related products and services 33 Group Corporate Responsibility Committee 14 Business report 33 Transparency in sustainability activities 14 Economic conditions 35 Outlook 15 The banking industry amid continued efforts to stabilize the economy of 35 Economic conditions the eurozone 35 Global economic trends 35 Trends in the USA 17 Financial performance 35 Trends in the eurozone 17 Financial performance at a glance 36 Trends in Germany 18 Financial performance in detail 36 Trends in the financial sector 24 Number of branches 37 Changes in financial position 25 Net assets and financial performance 37 Financial performance 26 Financial position 39 Liquidity 28 Events after the balance sheet date DZ BANK AG 03 2016 Annual Financial Statements and Management Report Management report of DZ BANK AG Contents 41 Combined opportunity 76 Capital adequacy and risk report 76 Principles 76 Economic capital adequacy 41 Disclosure principles 81 Regulatory capital adequacy 85 Outlook 41 DZ BANK Group 86 Bank sector 41 Summary 41 Statements from the Board of Managing Directors 86 Credit risk 42 Impact of the merger 86 Definition and causes 42 Opportunity and risk management system 87 Risk strategy 43 Risk factors, risks, and opportunities 87 Organization, responsibility, and risk reporting 88 Risk management 44 Fundamental principles of managing 96 Lending volume opportunities and risks 104 Portfolios with increased risk content 44 Regulatory framework for risk management 106 Non-performing lending volume 45 Risk strategies 107 Allowances for losses on loans and advances 45 Risk appetite 109 Risk position 48 Opportunity and risk-oriented corporate governance 111 Summary and outlook 54 Risk management tools 111 Equity investment risk 60 Opportunities 111 Definition and causes 60 Management of opportunities 112 Risk strategy and responsibility 60 Potential opportunities 112 Risk management 112 Risk factors and risk position 62 General risk factors 62 Market and sector risk factors 113 Market risk 67 Overarching bank-related risks 113 Definition and causes 113 Risk strategy 69 Liquidity adequacy 115 Organization, responsibility, and risk reporting 69 Principles 115 Risk management 69 Economic liquidity adequacy 119 Risk factors 75 Regulatory liquidity adequacy 119 Risk position 76 Outlook 120 Summary and outlook 04 DZ BANK AG 2016 Annual Financial Statements and Management Report Management report of DZ BANK AG Contents 122 Technical risk of a home savings 136 Actuarial risk and loan company 136 Definition and causes 122 Definition and causes 137 Management of life actuarial risk 122 Risk strategy and responsibility 138 Management of health actuarial risk 122 Risk management 139 Management of non-life actuarial risk 122 Risk factors 141 Risk factors 123 Risk position 142 Claims rate trend in non-life insurance 142 Risk position 123 Business risk 142 Summary and outlook 123 Definition and causes 123 Organization and risk management 143 Market risk 123 Risk factors 143 Definition and causes 124 Risk position 144 Risk management 147 Risk factors 125 Reputational risk 148 Lending volume 125 Definition and causes 150 Credit portfolios with increased risk content 125 Risk strategy and responsibility 150 Risk position 125 Risk management 151 Summary and outlook 125 Risk factors 151 Counterparty default risk 125 Operational risk 151 Definition and causes 125 Definition and causes 151 Risk management 126 Risk strategy 152 Risk position 126 Organization, responsibility, and risk reporting 126 Central risk management 152 Operational risk 127 Management of special risks 152 Definition and causes 134 Loss events 152 Risk management 134 Risk position 153 Risk factors 134 Summary and outlook 154 Risk position 135 Insurance sector 154 Non-controlling interests in insurance companies and entities in other 135 Basic principles of risk management financial sectors in the Insurance sector 135 Risk strategy 136 Organization, responsibility, and risk reporting DZ BANK AG 05 2016 Annual Financial Statements and Management Report Management report of DZ BANK AG Contents Note DZ BANK AG Deutsche Zentral-Genossenschafts- bank, Frankfurt am Main, (DZ BANK) implements the transparency requirements as specified in section 289 of the German Commercial Code (HGB) with the publication of this management report. In addition, the report satisfies German accounting standard no. 20 (Group Management Report), which relates to management reports that apply at group level. All figures are rounded to the nearest whole number. This may result in very small discrepancies in the calculation of totals and percentages. 06 DZ BANK AG 2016 Annual Financial Statements and Management Report Management report of DZ BANK AG DZ BANK AG fundamentals I. DZ BANK AG banks and their customers in the bank’s home market of Germany. The objective of this strategic approach fundamentals is to consolidate the positioning of the cooperative financial network as one of the leading financial services providers in Germany on a long-term basis. DZ BANK AG Deutsche Zentral-Genossenschafts- To achieve this aim, DZ BANK is steadfastly pursuing bank, Frankfurt am Main, and WGZ BANK AG a three-pronged strategy of growth oriented to the Westdeutsche Genossenschafts-Zentralbank, cooperative financial network, a continuation of the Düsseldorf, (WGZ BANK) completed their legal focusing of business activities, and integration within merger in the reporting year and started operations the network and with the cooperative banks. as the joint central institution of the local coopera- tive banks on schedule. DZ BANK works jointly with the special committees of the Bundesverband der Deutschen Volksbanken The objectives behind the merger are pooling the und Raiffeisenbanken e.V., Berlin, (BVR) [National strategic expertise and operational strength of the two Association of German Cooperative Banks] on key cooperative central institutions, refining processes, future-related issues to safeguard the competitiveness leveraging income and cost synergies, deploying avail- of the cooperative financial network.