KB prezent. angl - Komerční banka

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Consolidated Financial Statements
under IFRS
38. Risk management and financial instruments
(A) Credit risk
Credit rating of borrowers
The Group 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 Group 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 Group additionally refers to ratings published by external rating agencies. With effect from 2003, the Group 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 Group 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 Group monitors credit risk concentrations on an aggregate basis in respect of all on and off balance sheet positions. The Group
specifically monitors credit risk concentrations by industry and groups of economically linked entities. With a view to identifying
significant credit risk concentrations, the Group 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 Group
monitors the proportion of credit exposures to the groups to the Group’s capital.
Receivables that are not categorised
The Group 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 Group records full provisions against these
balances if they are overdue by three months or greater.
Provisioning for receivables
The Group charges provisions against amounts due from borrowers by reference to the uncovered exposure which represents the
balance receivable after deducting eligible collateral. The Group 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
Group’s internal estimate of the expected recovery rates of individual receivables. The Group uses this approach both in respect of on
and off balance sheet exposures. The Group 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 Group’s loan
portfolio is reviewed by these Committees).