Financial assets liabilities not carried at fair value Maximum exposure to credit risk

164 | DBS Annual Report 2016

40.3 Financial assets liabilities not carried at fair value

For financial assets and liabilities not carried at fair value in the financial statements, the Group has ascertained that their fair values were not materially different from their carrying amounts at year-end. For cash and balances with central banks, due from banks, loans and advances to customers, as well as due to banks and deposits and balances from customers, the basis of arriving at fair values is by discounting cash flows using the relevant market interest rates for the respective currencies. For investment debt securities and subordinated term debts issued, fair values are determined based on independent market quotes, where available. Where market prices are not available, fair values are estimated using discounted cash flow method. For unquoted equities not carried at fair value, fair values have been estimated by referencing to the net tangible asset backing of the investee. Unquoted equities of 242 million as at 31 December 2016 2015: 574 million were stated at cost less accumulated impairment losses because the fair value cannot be reliably estimated using valuation techniques supported by observable market data. The Group intends to dispose of such instruments through public listing or trade sale. The fair value of variable interest-bearing as well as short-term financial instruments accounted for at amortised cost is assumed to be approximated by their carrying amounts. 41 Credit Risk

41.1 Maximum exposure to credit risk

The following table shows the exposure to credit risk of on-balance sheet and off-balance sheet financial instruments, before taking into account any collateral held, other credit enhancements and netting arrangements. For on-balance sheet financial assets, the maximum credit exposure is the carrying amounts. For contingent liabilities, the maximum exposure to credit risk is the amount the Group would have to pay if the instrument is called upon. For undrawn facilities, the maximum exposure to credit risk is the full amount of the undrawn credit facilities granted to customers. The Group In millions 2016 2015 On-Balance sheet Cash and balances with central banks excluding cash on hand 23,902 15,759 Government securities and treasury bills 33,401 34,501 Due from banks 30,018 38,285 Derivatives 25,757 23,631 Bank and corporate debt securities 41,439 36,995 Loans and advances to customers 301,516 283,289 Other assets excluding deferred tax assets 10,709 11,263 466,742 443,723 Off-Balance sheet Contingent liabilities and commitments excluding operating lease and capital commitments 258,047 239,683 Total 724,789 683,406 The Group’s exposures to credit risk, measured using the expected gross credit exposures that will arise upon a default of the end obligor are as shown in the Group’s Basel II Pillar 3 Disclosures. These exposures, which include both on-balance sheet and off-balance sheet financial instruments, are shown without taking into account any collateral held or netting arrangements. Analysis of Collateral Whilst the Group’s maximum exposure to credit risk is the carrying amount of the assets or, in the case of off-balance sheet instruments, the amount guaranteed, committed, accepted or endorsed, the likely exposure may be lower due to offsetting collateral, credit guarantees and other actions taken to mitigate the Group’s exposure. The description of collateral for each class of financial asset is set out below: Balances with central banks, government securities and treasury bills, due from banks and bank and corporate debt securities Collateral is generally not sought for these assets. Derivatives The Group maintains collateral agreements and enters into master netting agreements with most of the counterparties for derivative transactions. Please refer to Note 37 for the impact of netting arrangements recognised for the computation of Capital Adequacy Ratio CAR. | 165 Financial statements Loans and advances to customers, contingent liabilities and commitments Certain loans and advances to customers, contingent liabilities and commitments are typically collateralised to a substantial extent. In particular,