HSH Nordbank is awarded major seal of approval by BaFin

HSH Nordbank is one of the first banks in Europe to have been granted approval by the Federal Financial Supervisory Authority (BaFin) as a bank that has implemented the advanced approach. With this seal of approval, the world’s largest provider of ship finance and market leader in the Northern German corporate client business is pursuing its systematic orientation toward the capital market.

Hamburg/Kiel, November 7, 2007 - HSH Nordbank’s risk-management systems meet the heavy demands set out in the new EU equity rules. The so-called IRB Advanced Approach pursuant to Basle II will be officially introduced on January 1, 2008, but the Bank’s internal processes already comply with this demanding set of rules.

The German Banking Supervisory Authority attested to HSH Nordbank AG on October 25 that its internal credit-risk management methods and processes were in line with demands as laid out in the Advanced Approach. As in a German MOT examination, the supervisory authority examines and approves the Basle II suitability of systems. The new IRB Approach is the most demanding of the three approaches outlined in Basle II.

Since 2001, the predecessor banks (Hamburgische Landesbank and Landesbank Kiel) and, since 2003, HSH Nordbank, have systematically invested in the Bank’s processes and IT equipment. The lion’s share of spending was aimed at developing internal rating procedures to assess clients’ credit worthiness. The new methods were developed in conjunction with eight other state banks in a joint company, RSU Rating Service Unit GmbH & Co. KG.

Thanks to its innovative risk methods, HSH Nordbank has achieved a high level in the analysis that precedes a lending decision: the credit worthiness of clients and the value of the collateral provided are taken into account with extreme accuracy, so that the terms set for a loan correspond to the risks involved.

HSH Nordbank’s clients have benefited from risk-differentiated credit pricing for some time, as the new rating systems and methods used to calculate loss ratios are already proving their worth in practice. The changes have been gradually introduced and implemented since 2003 with a view to Basle II.

The ambitious project aimed at improved risk management, developed in-house, started five years ago under the management of Hartmut Strauss, the member of HSH Nordbank’s Management Board responsible for risks. The Bank demonstrated great foresight in taking into account the changes that were expected to result from Basle II, thanks to which the approval process for Advanced Approach status made swift progress.

“The focused function of the Management Board member responsible for risks that was introduced within the Group’s management and the newly established Group Risk Management business unit are evidence of the high priority that the Bank attaches to the issues of risk transparency and risk management. The BaFin’s approval shows that our internal credit-risk measuring and management meet the highest requirements,” said Hartmut Strauss.

As, Martin van Gemmeren, Head of Group Risk Management, explains, “HSH Nordbank expects the current implementation of Basle II to provide stockholders’ equity with relief. This is due to the excellent quality of the Bank’s credit portfolio, which thanks to the application of the new IRB approach will have a bigger impact than it did previously.”