KB prezent. angl - Komerční banka

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 Group 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 Group’s books.
A significant proportion of the Group’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 Group 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 Group and the relevant borrower.
Credit risk reallocation instruments
The Group has not entered into any credit derivative transactions to hedge or reallocate its credit exposures.
Revocable contractual commitments
The Group 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 Group’s contracted undrawn commitments.
Credit risk of financial derivatives
Credit exposure or replacement cost of financial derivative instruments represents the Group’s credit exposure from derivative
contracts, that is, it indicates the estimated maximum potential losses of the Group 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 Group 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 Group assesses credit risks of all financial instruments on a daily basis.
As of 31 December 2003, the Group 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 Group’s financial operations
For market risk management purposes, the Group has internally split its activities into two books: the Market Book and the Structural
Book. The Market Book includes transactions entered into by the Group’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 Group primarily operates a system of limits that reflect the Group’s needs as well external
requirements.