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Corporate clients are of an outstanding significance to most commercial banks. The proportions of business volume and profits raised by dealing with corporates often have the largest impact on a bank’s balance sheet. On the other hand, the same can be said about the risks associated especially with lending. So analyzing and assessing the risks that corporate clients pose to their banks is a key competence that every bank has to master in order to secure its own long-term survival and profitability.

The recession of the early nineties had caught many western banks unprepared. Banks had to suffer considerable losses resulting from bad loans. The German economy, for example, counted a total of 15100 bankruptcies in 1993, the year the recession hit hardest. The number of bankruptcies rose continuously in the following years, hitting 18800 in 1994 and a record 22100 in 1995. The damages done to the economy during those years rose from 30 billion DM in 1993 to 54 billion DM in 1995.

Corporate Bankruptcies in Germany

As companies and their banks had failed to properly prepare themselves for the recession, they got caught in an economic and structural downturn that eventually left its marks in the balance sheets of most banks. So the 1993 balance sheet of Deutsche Bank, both Germany’s and Europe’s largest bank, showed loans of 333 billions DM and interest earnings of 11.7 billion DM. More than one quarter of these earnings, however, were consumed by 3.3 billion DM of provisions for bad loans . More than 90 % of these provisions are made up of credit risks with domestic corporate clients. Most other European banks faced similar problems and found it hard to make any money at all in their lending business.

1993 key figures of Germanys most important banks showing the impact of loan loss provisions  and write-offs for bad loans:

	1993		Deutsche Bank		Dresdner Bank		Commerzbank
	Balance sheet
	Total assets		556,6		380,8		285,4
	Changes in %		+11,6		+15,4		+22,6
	Lending volume		332,8		267,4		181,3
	Changes in %		+3,5		10,9		+9,0
	Derivatives
	Notional volume		1341,4		602,2		486,7
	Profit and loss account
	Net interest income		11706		6270		4849
	Changes in %		+7,4		+9,6		+11,9
	Net commission income		5846		3156		1960
	Changes in %		+26,3		+28,6		+21,5
	Operating expenses		11731		6321		4824
	Changes in %		+12,6		+10,0		+10,2
	Trading profit		1997		650		550
	Changes in %		+76,1		+121,9		+109,0
	Provision for credit losses		3286		1771		1770
	Changes in %		+72,0		+46,7		+14,9
	Operating profit		5266		2038		1134
	Changes in %		+15,7		+23,5		+24,5
Net income		2243		1065		586
Changes in %		+22,6		+10,3		-14,7
	Additional key figures
	Staff		73176		46425		28241
	Changes in %		-1,5		+1,3		-1,7
	Branches		2431		1564		766
	Interest margin		2,21		2,18		1,85