Risk structure and problem loans at the BA-CA Group in 2006

BA-CA’s overall risk exposure is classified using a 10-point rating scale which is further divided into 28 rating categories for detailed classification and fine tuning. The rating classes 1 to 5 are classified as not showing any identifiable default risk and comprise borrowers with a strong ability to repay their loans. At year-end 2006 almost 90.8% of the total risk exposure was assigned to this category.

The rating classes 6 and 7 are classified as substandard and contain exposures with a noticeably higher risk factor, which are subject to continual monitoring and assigned to the watch list process. € 11.3 bn or 6.6% of the total risk exposure is assigned to this category.

Problem loans (rating classes 8, 9 and 10): The rating categories 8+ and 8 comprise those companies with no specific provisions, for which, however, measures have been taken by Special Accounts Management to restructure the exposure or reduce loans. At year-end 2006, 0.2% of the total risk exposure was assigned to these categories. In 2006, the volume was reduced by a further 12% to € 0.351 bn, 27% of this amount is secured.

The rating categories 8–, 9 and 10 reflect the Basel II default definition. While our rating system automatically assigns a rating of 9 or 10 (in the case of insolvencies) to loans to customers for whom a specific provision exists, a rating of 8– is assigned, at best, if they correspond to the Basel II event-of-default definitions and, for example, show a payment delay of 90 days. The volume of loans in rating categories 8 –, 9 and 10 fell by a further 15% in 2006 to € 4.1 bn (2.4% of the total risk exposure).