G ROUP MANAGEMENT REPORT Risk Report 87 The volume of the overall portfolio is to a great extent deter- mined by the bank’s trading business, which involves primarily transactions with counterparties in rating classes I to VI, i. e. with state and local agencies and financial services providers. These counterparties account for approximately 93 percent of the bank’s trading business and 63 percent of its total portfolio. Counterparty risks are centrally controlled by Dresdner Bank’s Risk Executive Committee (REC), which is headed by the Chief Risk Officer of Dresdner Bank. This body issues the appropriate guidelines and standards for the risk strategy and risk control. In addition, the Risk Executive Committee decides on essential projects involving a credit risk and has a decisive influence on the modalities of the bank’s risk management. The REC is also responsible for the regular audit of the overall port- folio.  The Group Credit Committee was set up to decide on cred- its which do not fall under the responsibility of the risk man- agement units in the divisions and for which no decision by the Board of Management is required. It will help to further im- prove the credit approval process. In the past fiscal year, credits were transferred from the busi- ness segments to the Institutional Restructuring Unit (IRU). These are loans which are not of strategic importance or which are exposed to higher risks. Mainly concerned are credit lines in North and South America and in Germany, as well as commit- ments in the areas of private equity and commercial real estate. The IRU has the task of reducing these commitments in order to free up risk capital. We account for the development of risks in the lending busi- ness by making allowances for individual risks and country risks. In setting up risk provisions, we consider the creditworthiness of the borrower, the general economic environment and risk- reducing measures, for example securities. Total risk provisions in the banking business amounted to about 6 billion euros as of December 31, 2003. Counterparty risk from trading activities: in the credit-sensitive trading business with OTC derivatives, the selection of coun- terparties plays a decisive role. The selection process is aimed at counterparties with top-quality credit ratings. In the rated de- rivatives portfolios of Dresdner Bank, 97 percent of the positive replacement values involve counterparties in risk classes I to VI and are thus of “investment grade”.  Country risks We control these risks by using internal country ratings. These ratings are based upon macroeconomic data and key qualitative indicators. The latter take into account the eco- nomic, social and political environment. At present, Dresdner Bank’s country rating system includes eight risk groups. To estab- lish a parallel to the category system used to determine indi- vidual creditworthiness in the lending business, the country rat- ing system will be expanded to 16 rating classes in the current year. At the end of 2003, Dresdner Bank’s country risk provi- sions totaled 269 million euros. Banks and financial services providers Governmental agencies and organizations Services Industry 12 14 3 0.4 38 0,5 11 Non self-employed Wholesale and retail Others Latin America Near and Middle East Emerging Europe 61 19 9 6 5 Asia-Pacific Region Africa Country risk provision by region in % Loan and trading portfolio by industry in % 12/31/2003 12/31/2002 ¤ mn ¤ mn Specific loan loss allowances/reserves 5,019 6,069 Country risk allowance 269 367 General loan loss allowance 664 813 Total 5,952 7,249