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ANNUAL REPORT 2023
OUR NUMBERS
47. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D.)
(a) Credit risk (cont’d.)
Credit exposures are controlled via a thorough credit assessment process which include, among others, assessing
the adequacy of the identified source of payments and/or income generation from the customer, as well as
determining the appropriate structure for financing.
As a supporting tool for the assessment, the Group and the Bank adopt credit risk rating (internal/external)
mechanisms. The internal risk rating/grading mechanism is consistent with the nature, size and complexity of
the Group’s and the Bank’s activities. It is also in compliance with the regulatory authority’s requirements.
Where applicable, the external rating assessment will be applied. This is provided by more than one of
the selected reputable External Credit Assessment Institutions (“ECAI”).
To mitigate credit concentration risks, the Group and the Bank set exposure limits to individual/single customer,
groups of related customers, connected parties, global counterparty, industry/sector and other various funded and
non-funded exposures. This is monitored and enforced throughout the credit delivery process.
The Group and the Bank also introduced the Credit Risk Mitigation Techniques (“CRMT”) to ascertain the strength
of collaterals and securities pledged for financing. The technique outlines the criteria for the eligibility and valuation
as well as the monitoring process of the collaterals and securities pledged.
The Group’s and the Bank’s credit risk disclosures also cover past due and impaired financing including the
approaches in determining the individual and collective impairment provisions.
Included in financing of customers is a financing given to a corporate customer which are hedged by profit rate
derivatives. The hedge achieved the criteria for hedge accounting and the financing are carried at fair value.
(i) Maximum credit risk exposures and credit risk concentration
The following tables present the Group’s and the Bank’s maximum exposure to credit risk (without taking
account of any collateral held or other credit enhancements) for each class of financial assets, including
derivatives with positive fair values, and commitments and contingencies. Where financial assets are recorded
at fair value, the amounts shown represent the current credit risk exposure but not the maximum risk exposure
that could arise in the future as a result of changes in values. Included in commitments and contingencies
are contingent liabilities and credit commitments. For contingent liabilities, the maximum exposures to credit
risk is the maximum amount that the Group or the Bank would have to pay if the obligations for which the
instruments are issued are called upon. For credit commitments, the maximum exposure to credit risk is the
full amount of undrawn credit granted to customers and derivative financial instruments.
A concentration credit risk exists when a number of counterparties are engaged in similar activities and have
similar economic characteristics that would cause their ability to meet contractual obligations to be similarly
affected by changes in economic and other conditions.
By sector analysis
The presented analysis of credit risk concentration relates to financial assets, including derivatives with
positive fair values, and commitments and contingencies, subject to credit risk and are based on the sector
in which the counterparties are engaged (for non-individual counterparties) or the economic purpose of
the credit exposure (for individuals). The exposures to credit risk are presented without taking into account
of any collateral held or other credit enhancements.
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