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  • Credit risk exposures

    This version of Module PD was replaced in April 2008. Click here for the current Module PD.

    • PD-1.3.8

      This version of Module PD was replaced in April 2008. Click here for the current Module PD.

      The following information relating to credit risk should be included in the bank's Annual Report:

      (a) Details on how the bank manages credit risk and information on whether or not strategies used have been effective;
      (b) Descriptive information about the business lines that create credit risk, the bank's strategies regarding those business lines, and the nature and composition of the exposures that arise;
      (c) The magnitude of the bank's current credit exposure on an aggregate basis, as well as its significant components; and
      (d) Quantitative and qualitative information on the use of credit scoring and portfolio credit risk measurement models. More specifically, descriptive information about the types of models, portfolio(s) covered and size of portfolio(s), and quantitative and qualitative information about the credit risk measurement models used, including model parameters (e.g. holding period, observation period, confidence interval etc.), their performance over time, model validation, back testing and stress testing information;
      (e) Summary information about internal rating processes and explanation of the loss concept used and how internal ratings are used in the bank's internal capital allocation process, and based on these internal credit rating processes, summary information on the quality of on- and off-balance sheet credit exposures, including a discussion of counterparty and internal credit rating (information about credit exposures based on external rating is encouraged, however, proprietary information is not expected);
      (f) High-level descriptive information on the techniques and methods used for managing past due and impaired assets, including the procedures for credit quality classifications and practices and procedures to determine provisions and to evaluate the adequacy of credit loss provisions (both general and specific);
      (g) Quantitative information about gross positions by major business segments (e.g. lending, investments, trading, leasing and off-balance sheet exposures). Such information should include current and future potential exposures, (e.g. for guarantees given and derivatives etc) where appropriate. In addition, maturity breakdowns should be provided (these should be consistent with the maturity bands as required under IAS but should also be extended to include 5-10 years, 10-20 years and 20 years and over), as well as average balances for the current period (as distinct from end of period balances) where materially different;
      (h) Quantitative information about the composition of on- and off-balance sheet credit exposures to:
      (i) Major types of counterparty, including domestic and foreign governments, domestic and foreign corporates, consumers, and other financial institutions (such information should be provided without taking account of the effects of credit risk mitigation techniques),
      (ii) Intragroup transactions and exposures to related parties, Directors and shareholders (separately identified) and whether such transactions have been made on an arms length basis, and
      (iii) Highly leveraged institutions and other high-risk counterparties (separately disclosed);
      (i) Quantitative information concerning concentrations of credit risk, and the magnitude of concentrations of credit exposures in different types of counterparty;
      (j) Comprehensive quantitative information about the non-performing loans or other impaired and past due loans:
      (i) Ageing schedule (over 3 months, over 1 year, and over 3 years) of past due loans and other assets
      (ii) Breakdown by relevant asset Category, counterparty type and geographic area, and
      (iii) Where applicable, specific, general and other provisions on the major asset categories;
      (k) Aggregate quantitative information about credit facilities that have been restructured, during the period, including:
      (i) The balance of any restructured loans,
      (ii) The magnitude of any restructuring activity,
      (iii) The impact of restructured credit facilities on provisions and present and future earnings, and
      (iv) The basic nature of concessions on all credit relationships that are restructured, including loans, derivatives and other on- and off-balance sheet activities,
      If full repayment is expected, the restructured credit need not be disclosed in this Section after satisfactory performance for a period of six months in accordance with the modified terms;
      (l) An individual breakdown of movement of general and specific provisions and interest in suspense, and the key methodologies assumptions behind how these provisions are determined (including historical experience, current market conditions and trends);
      (m) Quantitative and qualitative information about the use of credit derivatives and other instruments (e.g. netting agreements and guarantees received) that mitigate and reallocate credit risk. Information should include:
      (i) Discussion of how instruments are used, including strategy and objectives,
      (ii) Notional amounts and fair value of instruments,
      (iii) Amount of credit risk bought and/or sold,
      (iv) Breakdown by type of instrument (e.g., total return swap, credit default swap, or other credit derivatives), and
      (v) Where instruments are recorded (i.e., trading vs. banking book);
      (n) Quantitative information on securitised assets under the management of the bank, the amount and type of assets securitised, and the amount of risks or assets retained, details of subordinated or first loss assets retained, and any other recourse provisions; and
      (o) Quantitative information concerning obligations with respect to recourse transactions (i.e. where the asset has been sold, but the bank retains responsibility for repayment if the original counterparty defaults or fails to fulfil obligations). Information should include the amount of the assets sold and any expected losses.
      October 07