Risk management 85
4 Risk Appetite
Our Risk Appetite is defined by the Risk Appetite Statement set by the Board and is governed by the Risk Appetite Framework. The framework also serves to reinforce our risk culture through ‘tone from the top’ articulation of risks that we are willing to accept. A strong organisational
risk culture, including an appropriate incentive framework please refer to Remuneration Report section on page 68, helps to further embed our Risk Appetite.
4.1 Risk constraining thresholds and use of economic capital
Our Risk Appetite considers the various risk types and is operationalised via thresholds, policies, processes and controls. The inclusion of threshold structures into the risk frameworks is integral in driving Risk Appetite into our businesses. Effective thresholds are essential in
managing aggregate risks within acceptable levels. Portfolio risk limits for the quantifiable risk types are cascaded through a top-down approach and operationalised through formal frameworks. Other significant risk aspects are guided by qualitative expression of principles.
In order to ensure that the thresholds emanating from the Risk Appetite are fully risk sensitive to individual risk drivers as well as portfolio effects, we have adopted economic capital EC as our primary risk metric. EC is also deployed as a core component in our Internal Capital
Adequacy Assessment Process ICAAP.
The following chart provides a broad overview of how we cascade Risk Appetite throughout DBS. Please refer to Sections 5 to 9 for more information on each risk type.
Risk Appetite Capital allocation
Credit risk
Manage concentration risk
through the use of triggers and limits
Market risk
Manage market risk through the use of
limits Manage through
frameworks, policies and
standards
Operational risk
Maintain counterbalancing
capacity to meet the liquidity risk
exposure
Reputational risk
Manage through frameworks,
policies and standards
transfer risk
Obligor economic capital triggers
Expected Shortfall limits
a
capital triggers
institutions
institutions
Country transfer risk limits
product desk
business
segment
Liquidity risk
DBS Annual Report 2015 86
Credit risk arises from our daily activities in various businesses – lending to retail, corporate and institutional customers; trading
activities such as foreign exchange, derivatives and debt securities; and settlement of transactions. Credit risk is the most significant
measurable risk faced by DBS.
Lending exposures are typically represented by the notional value or principal amount of on-balance sheet financial instruments.
Financial guarantees and standby letters of credit, which represent the undertaking that DBS will make payments on behalf of a
customer that is unable to meet its obligations to third parties, carry the same credit risk as loans even though they are contingent
in nature. Pre-settlement credit exposures PCE for trading and securities transactions are measured taking into account collateral
and netting arrangements. Settlement risk is the risk of loss due to the counterparty’s failure to perform its obligation after DBS has
performed its obligation under an exchange of cash or securities.
page 156 for details on DBS’ maximum exposure to credit risk.
5.1 Credit risk management at DBS
