KB prezent. angl - Komerční banka
KB prezent. angl - Komerční banka KB prezent. angl - Komerční banka
098 ➔099 Unconsolidated Financial Statements under CAS 27. Risk management and financial instruments (A) Credit risk Credit rating of borrowers The Bank quantifies counterparty risk using ratings on the basis of a number of criteria depending upon the type and size of the borrower. The rating of the borrower serves as a basis for calculating anticipated risk expenses taking into account the type of the credit product and underlying collateral. The Bank rates corporate borrowers based upon quantitative (financial statements of an enterprise) and qualitative (gradings assigned by financial analysts) criteria. The quantitative analysis of the financial statements is undertaken using various ratios depending upon the size of the borrower (turnover) and type of business (manufacturing, leasing, municipality). The used methodology is based upon the methodology implemented throughout the whole Société Générale Group. The Bank additionally refers to ratings published by external rating agencies. With effect from 2003, the Bank has also used the information supplied by the Central Loan Register (information about legal entities) operated by the Czech National Bank to which banks are required to provide relevant information. Special teams regularly assess the ratings assigned to individual borrowers for correctness and accuracy. In arriving at the rating of retail clients, the Bank principally uses quantitative criteria as well as information supplied by the Client Information Bank Register (information about individuals – citizens and businessmen) operated by CBCB, a. s. The Bank monitors credit risk concentrations on an aggregate basis in respect of all on and off balance sheet positions. The Bank specifically monitors credit risk concentrations by industry and groups of economically linked entities. With a view to identifying significant credit risk concentrations, the Bank compares the proportion of industries to its on and off balance sheet position and the proportion of industries in the Czech Republic (share of GDP). With regard to groups of economically linked entities, the Bank monitors the proportion of credit exposures to the groups to the Bank’s capital. Receivables that are not categorised The Bank does not classify other amounts due from customers pursuant to the applicable regulation issued by the Czech National Bank. These amounts consist of non-loan receivables that principally originated from the system of payment, fraudulent withdrawals, bank cheques, receivables associated with purchases of securities on behalf of clients that have not been settled, and balances receivable that arise from business arrangements that do not represent financial activities, specifically prepayments made to social security authorities and amounts due from these authorities. As a general policy, the Bank records full provisions against these balances if they are overdue by three months or greater. Provisioning for receivables The Bank charges provisions against amounts due from borrowers by reference to the uncovered exposure which represents the balance receivable after deducting eligible collateral. The Bank is prudent in determining the level of provisioning. The provisioning charge is equal to the greater of the provision calculated pursuant to the CNB Regulation, which provides guidance on loan classification and provisioning for loans on the basis of their classification, and the provision determined on the basis of the Bank’s internal estimate of the expected recovery rates of individual receivables. The Bank uses this approach both in respect of on and off balance sheet exposures. The Bank also establishes full provisions against past due interest payments and accrued interest on substandard, doubtful and loss receivables. Pursuant to the applicable CNB regulation, loan classification grades are determined using the following parameters: “Analysis of the client’s financial position”, “Number of overdue days”, “Provision of information by the client”, “Restructuring of the receivable” and “Initiation of liquidation”. An internal assessment of the loan is determined using a counterparty rating and ratings prepared by analysts. Significant loan exposures are discussed by the Provisioning Committees (a significant proportion of the Bank’s loan portfolio is reviewed by these Committees).
Loan collateral Collateral values are determined by the Risk Management Division based upon discount factors used in valuing collateral received. Information about collateral values is transferred to relevant client accounts and is used to calculate uncovered exposures in respect of individual loans for provisioning purposes. The Bank monitors collateral values using two methods. The first method involves monitoring actual market conditions, and changes to legal regulations that have a direct impact on collateral values. Under the second method, the Risk Management Division re-assesses collateral values on a quarterly basis. This re-assessment involves comparing the actual recoverability of collateral to the original values carried in the Bank’s books. A significant proportion of the Bank’s loan portfolio is collateralised by real estate which presently represents more than 50 percent of aggregate collateral values. Recovery of amounts due from borrowers The Bank has set up a special work-out division. The Debt Recovery Division is engaged in restructuring loans, recovering and selling loans and realising collateral in accordance with the agreement entered into between the Bank and the relevant borrower. Credit risk reallocation instruments The Bank has not entered into any credit derivative transactions to hedge or reallocate its credit exposures. Revocable contractual commitments The Bank monitors revocable contractual commitments on the same basis as irrevocable commitments. The risk is identified on a client basis and is monitored on a monthly basis but no provisions or reserves are established. These commitments account for 7 percent (2002: 6 percent) of all the Bank’s contracted undrawn commitments. Credit risk of financial derivatives Credit exposure or replacement cost of financial derivative instruments represents the Bank’s credit exposure from derivative contracts, that is, it indicates the estimated maximum potential losses of the Bank in the event that counterparties fail to perform their obligations. It is usually a small fraction of the notional amounts of the contracts. The credit exposure of each contract is indicated by the credit equivalent calculated pursuant to a newly implemented methodology, Current Average Risk (“CAR”), as the average of estimated potential exposures which the Bank may have over the remaining term of the contract. Credit risk is established depending on the type of contract and takes into account, among other things, the market value of the contract and its maturity. The Bank assesses credit risks of all financial instruments on a daily basis. As of 31 December 2003, the Bank has a potential credit exposure of CZK 16,093 million (2002: 20,791 million) in the event of non-performance by counterparties to its financial derivative instruments. This amount represents the gross replacement cost at market rates as of 31 December 2003 of all outstanding agreements in the event of all counterparties defaulting and does not allow for the effect of netting arrangements. (B) Market risk Segmentation of the Bank’s financial operations For market risk management purposes, the Bank has internally split its activities into two books: the Market Book and the Structural Book. The Market Book includes transactions entered into by the Bank’s dealers in the interbank markets and instruments acquired for trading purposes. The Structural Book principally consists of business transactions (lending, acceptance of deposits, amounts due to and from customers), hedging transactions within the Structural Book and other transactions not included in the Market Book. In order to measure market risk, the Bank primarily operates a system of limits that reflect the Bank’s needs as well external requirements.
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098 ➔099<br />
Unconsolidated Financial Statements<br />
under CAS<br />
27. Risk management and financial instruments<br />
(A) Credit risk<br />
Credit rating of borrowers<br />
The Bank quantifies counterparty risk using ratings on the basis of a number of criteria depending upon the type and size of the<br />
borrower. The rating of the borrower serves as a basis for calculating anticipated risk expenses taking into account the type of the<br />
credit product and underlying collateral. The Bank rates corporate borrowers based upon quantitative (financial statements of an<br />
enterprise) and qualitative (gradings assigned by financial analysts) criteria. The quantitative analysis of the financial statements is<br />
undertaken using various ratios depending upon the size of the borrower (turnover) and type of business (manufacturing, leasing,<br />
municipality). The used methodology is based upon the methodology implemented throughout the whole Société Générale Group.<br />
The Bank additionally refers to ratings published by external rating agencies. With effect from 2003, the Bank has also used the<br />
information supplied by the Central Loan Register (information about legal entities) operated by the Czech National Bank to which<br />
banks are required to provide relevant information. Special teams regularly assess the ratings assigned to individual borrowers for<br />
correctness and accuracy. In arriving at the rating of retail clients, the Bank principally uses quantitative criteria as well as information<br />
supplied by the Client Information Bank Register (information about individuals – citizens and businessmen) operated by CBCB, a. s.<br />
The Bank monitors credit risk concentrations on an aggregate basis in respect of all on and off balance sheet positions. The Bank<br />
specifically monitors credit risk concentrations by industry and groups of economically linked entities. With a view to identifying<br />
significant credit risk concentrations, the Bank compares the proportion of industries to its on and off balance sheet position and the<br />
proportion of industries in the Czech Republic (share of GDP). With regard to groups of economically linked entities, the Bank<br />
monitors the proportion of credit exposures to the groups to the Bank’s capital.<br />
Receivables that are not categorised<br />
The Bank does not classify other amounts due from customers pursuant to the applicable regulation issued by the Czech National<br />
Bank. These amounts consist of non-loan receivables that principally originated from the system of payment, fraudulent withdrawals,<br />
bank cheques, receivables associated with purchases of securities on behalf of clients that have not been settled, and balances<br />
receivable that arise from business arrangements that do not represent financial activities, specifically prepayments made to social<br />
security authorities and amounts due from these authorities. As a general policy, the Bank records full provisions against these<br />
balances if they are overdue by three months or greater.<br />
Provisioning for receivables<br />
The Bank charges provisions against amounts due from borrowers by reference to the uncovered exposure which represents the<br />
balance receivable after deducting eligible collateral. The Bank is prudent in determining the level of provisioning. The provisioning<br />
charge is equal to the greater of the provision calculated pursuant to the CNB Regulation, which provides guidance on loan<br />
classification and provisioning for loans on the basis of their classification, and the provision determined on the basis of the<br />
Bank’s internal estimate of the expected recovery rates of individual receivables. The Bank uses this approach both in respect of on<br />
and off balance sheet exposures. The Bank also establishes full provisions against past due interest payments and accrued interest<br />
on substandard, doubtful and loss receivables.<br />
Pursuant to the applicable CNB regulation, loan classification grades are determined using the following parameters: “Analysis of the<br />
client’s financial position”, “Number of overdue days”, “Provision of information by the client”, “Restructuring of the receivable” and<br />
“Initiation of liquidation”. An internal assessment of the loan is determined using a counterparty rating and ratings prepared by<br />
analysts. Significant loan exposures are discussed by the Provisioning Committees (a significant proportion of the Bank’s loan<br />
portfolio is reviewed by these Committees).