DBS BANK CHINA LIMITED NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2012 All amounts expressed in Rmb unless otherwise stated
[English translation for reference only]
46
48 FINANCIAL RISK MANAGEMENT continued
48.2 Credit risk continued A
Credit risk measurement
i Loans and advances and off balance exposures
The Bank uses internal rating system adopted by the group to identify, out of the 11 broad ratings in the system, the risk rating of the borrowers. At the same time, the Bank also
assigns loan grade to each facility under a five grade asset classification system to manage the
quality of its loan portfolio. Such classification system is based on “the Guidance on Credit Risk Classification” ”the Guidance” issued by CBRC. Under the Bank’s own
system and the CBRC Guidance, the Bank classifies its credit assets and off-balance sheet credit exposures into five categories, which are namely pass, special mention,
substandard, doubtful and loss. The last three categories are also classified as “non- performing credit assets
”. The core definition of the Bank’s credit asset classification is as follows:
Pass: The borrower is able to fulfil the contractual obligations, and there is no uncertainty that principal and interest can be paid on time.
Special Mention: The borrower is able to make current due payments, but there exist some indications
that may have negative impact on the borrower’s future payments. Substandard: The borrowers repayment ability has been in doubt and its normal income
cannot repay the loan principal and interest in full. Losses may be incurred by the Bank, even with the enforcement of guarantees and collateral.
Doubtful: The borrower cannot repay the principal and the interest in full. Significant losses will be incurred even with the enforcements of guarantees and collateral.
Loss: After taking into consideration all possible recovery actions and necessary legal procedures, the principal and interest cannot be collected or only a very small
portion of principal and interest can be collected. ii
Debt securities The Bank manages credit risks through limiting
the issuers’ credit rating. Investments in Rmb debt securities include treasury bonds, PBOC notes, debts of policy banks and
corporate bonds. iii
Loans to other banks and financial institutions The Headquarter reviews and monitors the credit risk of individual financial institutions on
regular basis. Limits are placed for each individual bank or non-banking financial institution which has business relationship with the Bank.
DBS BANK CHINA LIMITED NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2012 All amounts expressed in Rmb unless otherwise stated
[English translation for reference only]
47
48 FINANCIAL RISK MANAGEMENT continued
48.2 Credit risk continued B
