UBI Banca Group

Credit risk
Credit risk constitutes the most important characteristic risk of the UBI Banca Group:
historically this risk accounts for approximately 90% of the supervisory risk capital.
The year just ended was characterised by weak domestic demand, which was confirmed by
recent economic indicators (two consecutive falls in Italian GDP in the third and fourth
quarters of 2011) and opinion among businesses. The continuing difficulties of the economy in
general and the related consumer crisis have continued to have a negative impact on the ability
of businesses and individuals to meet their obligations, thereby maintaining high levels of
credit risk and as a consequence also high rates of loan impairment and credit provision.
In this situation of objective difficulty, the Group has nevertheless reviewed its credit
monitoring and control processes, in order to prevent a further deterioration in its portfolio and
to also maximise recoveries on already deteriorated loans. The following initiatives were taken
in this respect during 2011:
• the CR2 Programme – Credit Recovery and Regularisation:
- the consolidation and progressive rationalisation of the process for monitoring
performing positions in order to anticipate intervention by account managers for at risk
counterparties and to prevent the deterioration of accounts by taking prompt action;
- the update and development of the credit recovery system in order to increase credit
recovery on non-performing loans partly through improving IT support and innovation in
operating processes.
• the Problem Loan Quality Project: an initiative launched in the network banks to reduce
size of the impaired loan portfolio, through the adoption of a new approach to the
management of non-performing loans, as a consequence of portfolio segmentation and the
assignment of strategies and objectives to personnel in the distribution network;
• Credit Quality Contacts: improved monitoring at local level in the network banks with the
introduction of a new role responsible for credit quality management.
Liquidity risk
The problems of confidence on institutional and interbank markets, caused primarily by fears
of sovereign state insolvencies, in a context of a slowdown in trends for traditional funding,
due to lower household disposable income, has led to the risk of shortfalls in the liquidity
required to fund the core lending of the Bank. In this context, the recent Eurosystem
refinancing operations relaxed pressures on funding. Nevertheless, the recent recommendation
on capital issued by the European Banking Authority (EBA) on 8 th December 2011, designed
to strengthen the capital positions of European banks, by creating an exceptional and
temporary capital buffer by the end of June 2012, sufficient to bring the core tier one ratio up
to 9%, could have further repercussions on bank lending. In the light of this the Group took
part in the ECB’s LTRO operations and prepared a capital management plan compatible with
the EBA recommendations.
Detailed information on financial risk management objectives and policies and also on the
exposure of the Group to price risk, credit risk, liquidity risk and the risk of changes in cash
flows – pursuant to article 2428 of the Italian Civil Code – is given in Part E of the notes to the
consolidated financial statements, which may be consulted.
Uncertainties
An uncertainty is defined as a possible event for which the potential impact, attributable to one
of the risk categories just mentioned, cannot be determined and therefore quantified at
present.
The scenario in which the Group is operating is one of a recession already in progress – and
which will probably last for most of 2012 – with substantial risks of it worsening, due mainly
to the continuation of the process to solve the European sovereign debt crisis and the
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