Aareal Bank : Regulatory Disclosure Report 2021 of Aareal Bank Group

Regulatory Disclosure Report for the 2021 financial year of Aareal Bank Group

Regulatory Disclosure Report for the 2021 financial year

3	Preface	68	Quantitative information on the use of the
IRB Approach
4	Summary	76	Qualitative information on the use of the
Credit Risk Standard Approach
5	Overview of Regulatory Key Metrics	77	Quantitative information on the use of the
Credit Risk Standard Approach
7	Aareal Bank Group
Risk Management	79	Counterparty Credit Risk
79	Management of counterparty credit risk
17	Information about Corporate	80	Other qualitative disclosures on counterparty
Governance Regulations	credit risk
82	Quantitative disclosures on counterparty credit risk
22	Scope of Application of the
Regulatory Framework	86	Liquidity Risks
23	Comparison of the scopes of consolidation	86	Management of liquidity risks
26	Utilisation of the "waiver" regulation	89	Liquidity Coverage Ratio
26	Differences between accounting and regulatory	92	Net Stable Funding Ratio (NSFR)
scopes of consolidation and mapping of financial
statements categories with regulatory risk categories	95	Operational Risks
28	Main sources of differences between regulatory	95	Management of operational risks
risk exposure amounts and carrying values in financial	98	Regulatory assessment
statements
99	Market Risks
30	Regulatory Capital	99	Management of market risks
30	Main features of capital instruments	101	Regulatory assessment
31	Composition of regulatory own funds
38	Reconciliation of regulatory own funds to balance	101	Interest Rate Risk in the
sheet in the audited financial statements	Banking Book
39	Risk-weighted assets and capital requirements	101	Management of interest rate risk in the
banking book
42	Countercyclical Buffer	103	Regulatory assessment
44	Credit Risks and General Information	105	Encumbered and
on Credit Risk Mitigation	Unencumbered Assets
44	Management of credit risks	107	Information on importance of encumbrance
47	Loss allowance
50	Credit quality of exposures	108	Remuneration
59	Exposures subject to a general payment moratorium
60	General information on credit risk mitigations	108	Leverage Ratio
64	Qualitative information on the use of the
IRB Approach	111	Imprint

Preface

Preface

In addition to the details contained in the Aareal Bank Group Annual Report, this Regulatory Disclosure Report explains the business policy standards and facts that are relevant for assessing our situation from a regulatory perspective. Besides providing a qualified description of the manner in which our risks are identified, evaluated, weighted and reviewed, the Regulatory Disclosure Report also contains detailed quantitative statements about the sizes of the individual areas.

The Regulatory Disclosure Report implements the requirements in accordance with part 8 of Regulation (EU) 575/2013 (Capital Requirements Regulation - "CRR"). The existing disclosure requirements are specified by the Commission Implementing Regulation (EU) 2021/637, published in March 2021.

Aareal Bank Group is classified as a significant institution within the scope of the Single Supervisory Mechanism (SSM) and is therefore subject to direct supervision by the European Central Bank (ECB).

Due to its total assets of more than € 30 billion, Aareal Bank Group is classified as a large institution in accordance with Article 4 No. 146 lit. d) of the CRR.

The Regulatory Disclosure Report is prepared in accordance with Bank-internal provisions and procedures stipulated in writing in order to fulfil disclosure requirements.

In line with the requirements of Article 431 (3) of the CRR, Aareal Bank Group has created formal procedures through disclosure guidelines, which ensure that the disclosure requirements are met. The disclosure guidelines of Aareal Bank Group contain rules on

• • the scope and content of the disclosure requirements,

• • the principles of disclosure, in particular on appropriateness, structure of the report, locations, reporting date and frequency,

• • determining the materiality, confidential information and trade secrets,

• • responsibilities and organisational units involved,

• • the structure of the disclosure process,

• • the data sources and relevant IT systems and

• • the review of the disclosure procedure.

The specific structure and implementation of the disclosure requirements is described in detail in the supplementary documents.

Aareal Bank Group has implemented comprehensive control mechanisms as part of its disclosure process, which are used to review the disclosed data for completeness, accuracy, and appropriateness. These control activities associated with the disclosure process are an integral component of Aareal Bank Group's Internal Control System (ICS). Besides the ongoing control in the course of the creation process, the control activities include an annual, central review of the following aspects:

• • appropriateness of the details,

• • content-related design of the disclosures,

• • frequency of the disclosures,

• • new regulatory requirements and adjustments.

Summary

The Regulatory Disclosure Report and the disclosure guidelines are approved by the Management Board of Aareal Bank AG.

In addition, compliance with the disclosure requirements is regularly reviewed by Internal Audit of Aareal Bank Group.

Overall, the Regulatory Disclosure Report is subject to control mechanisms comparable to those used in the management report for financial reporting.

In accordance with the legal requirements, the Regulatory Disclosure Report does not require a qualified audit opinion and is therefore not audited.

The Regulatory Disclosure Report is published pursuant to Article 434 (1) of the CRR on the Aareal Bank AG website, under the menu item "Investor Relations".

Aareal Bank AG publishes the Regulatory Disclosure Report on a quarterly basis. The scope of the information to be disclosed as at the respective reporting dates is based on the requirements set out in Article 433a of the CRR.

Summary

Aareal Bank AG, whose registered office is in Wiesbaden, Germany, is the parent institution of the Group (LEI code EZKODONU5TYHW4PP1R34).

Due to the use of the waiver option (section 2a (1) sentence 1 of the German Banking Act (Kredit-wesengesetz - "KWG") in conjunction with Article 7 (3) of the CRR), Aareal Bank complies with the requirements of parts 2, 3, 4, 6, 7 and 8 of the CRR at a Group level.

The details we have published in this Regulatory Disclosure Report are based on both the Credit Risk Standard Approach (CRSA) and the Advanced IRB Approach (Advanced Internal Ratings-Based Approach - AIRBA). We only mention the disclosure requirements explicitly relevant for us.

As at the reporting date, Aareal Bank holds no securitisation exposures in its portfolio, so that the disclosure requirements pursuant to Article 449 of the CRR shall not apply. In addition, the transitional provisions, pursuant to Article 473a of the CRR, to mitigate the impact of the introduction of IFRS 9 on regulatory capital requirements will not be applied. Accordingly, the obligation to provide additional disclosures (as specified in detail in EBA guidelines EBA/GL/2018/01) is waived.

Since the ECB does not classify Aareal Bank Group as a Global Systemically Important Institution (G-SII) on the basis of Delegated Regulation (EU) 1222/2014, the disclosure requirements pursuant to Article 437a of the CRR ("Disclosure of own funds and eligible liabilities") do not apply.

Minor differences may occur regarding the figures stated, due to rounding.

The Regulatory Disclosure Report includes all the requirements of the CRR. References to our Annual Report are only made for additional information beyond the disclosure requirements.

Overview of Regulatory Key Metrics

Overview of Regulatory Key Metrics

The table EU KM1 provides an overview of the regulatory key metrics in accordance with Article 447 of the CRR. The overview also includes the additional regulatory capital as required by the Supervisory Review and Evaluation Process (SREP).

Due to the first-time disclosure of the Net Stable Funding Ratio (NSFR) and the SREP capital requirements as at 30 June 2021, their disclosure for prior periods is omitted.

EU KM1: Key metrics

€ mn

1) The RWAs disclosed in this report do not reflect the RWAs published in the Annual Report, which are based on an RWA estimate, using the revised AIRBA for commercial property lending, based on the European Commission's draft for the European implementation of Basel IV dated 27 October 2021.

Available own funds

• 1 Common Equity Tier 1 (CET1) capital

• 2 Tier 1 (T1) capital

• 3 Own funds

  Risk-weighted exposure amounts1)

• 4 Risk-weighted exposure amounts (Risk-weighted assets, RWAs)

  Capital ratios (as a percentage of risk-weighted

  exposure amount)

• 5 Common Equity Tier 1 ratio (CET1 ratio)

• 6 Tier 1 ratio (T1 ratio)

• 7 Total capital ratio (TC ratio)

  Additional own funds requirements to address risks other than the risk of excessive leverage

  (as a percentage of risk-weighted exposure amount)

EU 7aAdditional own funds requirements to address risks other than the risk of excessive leverage

EU 7c

EU 7bof which: to be made up of CET1 capital of which: to be made up of Tier 1 capital

EU 7d

Total SREP own funds requirements

Combined buffer and overall capital requirement (as a percentage of risk-weighted exposure amount)

8

Capital conservation buffer

EU 8a

Conservation buffer due to macro-prudential or systemic risk identified at the level of a Member State

9

EU 9a 10

Institution-specific countercyclical capital buffer Systemic risk buffer

Global Systemically Important Institution bufferEU 10a Other Systemically Important Institution buffer

11

Combined buffer requirementEU 11a Overall capital requirements

12

CET1 available after meeting the total SREP own funds requirements