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Loans and Advances to Banks
Inlinewithmarketstandards,LoansandAdvancestoBanksaretypicallyunsecured.Wemanagetheriskofsuchexposuresbykeeping atightcontrolontheexposuretenor,andthecreditqualityofthebankcounterparties.
Derivatives Counterparty Credit Risk by Markets and Settlement Methods Wecontinuetomanageourderivativescounterpartyriskexposureswithnettingandcollateralarrangementstoprotectourbalancesheet
intheeventofcounterpartydefault.
AbreakdownofourderivativescounterpartycreditriskbymarketsOTCvsexchange-tradedandsettlementmethodsclearedthrough acentralcounterpartyvssettledbilaterallycanbefoundbelow.
Notional OTC Exchange Traded Products IN NOTIONAL TERMS, SGD MILLION
AS AT 31 DEC 2014
OTCderivativesclearedthroughacentralcounterparty 222,011
OTCderivativessettledbilaterally 1,642,049
Total OTC derivatives 1,864,060
Exchangetradedderivatives 13,097
Total derivatives only with external parties 1,877,157
PleaserefertoNote37totheFinancialStatementsonpage161forabreakdownofthederivativespositionsheldbyDBS.
6 MARKET RISK
Ourexposuretomarketriskiscategorisedinto:
• Trading portfolios:Arisingfrompositionstakenforimarket-making,iiclient-facilitationandiiibeneitingfrommarketopportunities.
•
Non-trading portfolios:Arisingfromipositionstakentomanagetheinterestrateriskofourretailandcommercialbankingassets andliabilities,iiequityinvestmentscomprisingofinvestmentsheldforyieldandorlong-termcapitalgains,iiistrategicstakesin
entitiesandivstructuralforeignexchangeriskarisingmainlyfromourstrategicinvestmentswhicharedenominatedincurrenciesother thantheSGD.
6.1 Market Risk Management at DBS
DBS’ framework for market risk management comprises the following building blocks:
POLICIES RISK METHODOLOGIES
PROCESSES, SYSTEMS AND REPORTS
POLICIES TheMarketRiskFrameworksetsoutDBS’overallapproachtowards
marketriskmanagement.TheCoreMarketRiskPolicyCMRP establishesthebasestandardsformarketriskmanagementwithin
DBS.ThePolicyImplementationGuidanceandRequirementsPIGR complementtheCMRPandsetoutguidanceandrequirements
withmoredetailsforspeciicsubjectmatters.BothCMRPandPIGR facilitatetheidentiication,measurement,control,monitoring
andreportingofmarketriskinaconsistentmannerwithinDBS. TheMarketRiskStressTestFrameworksetsouttheoverall
approach,standardsandcontrolsgoverningmarketriskstress testingacrosstheGroup.Thecriteriafordeterminingthepositions
tobeincludedinthetradingbookarestipulatedintheTrading BookPolicyStatement.
6.2 Market Risk in 2014
DBS’TVaRconsidersthemarketrisksofboththetradingandbankingbooks.OurTVaRistabulatedbelow,showingtheperiod-end, average,highandlowTVaR.
1 Jan 2014 to 31 Dec 2014 In SGD million
As at 31 Dec 2014 Average High Low
Total 68
85 124
49
1 Jan 2013 to 31 Dec 2013 In SGD million
As at 31 Dec 2013 Average High Low
Total 87
66 89
31 DBS’majormarketriskdriverisinterestrateriskinthetradingandbankingbooks.TheaverageTVaRfor2014washigherthan2013
mainlyduetomorevolatileratesscenariosforVaRcalculation,changesofdurationduetocapitalmanagement,updateofmodelsfor non-maturitydepositsandincreaseinliquidassets.
RISK METHODOLOGIES Value-at-RiskVaRisamethodthatcomputesthepotential
lossesonriskpositionsasaresultofmovementsinmarketrates andprices,overaspeciiedtimehorizonandtoagivenlevelof
conidence.OurVaRmodelisbasedonhistoricalsimulationwith aone-dayholdingperiodanda95levelofconidence.TailVaR
TVaR,whichisanaverageofthepotentiallossesbeyondthegiven 95levelofconidence,isusedbyDBStomonitorandlimitmarket
riskexposures.Themarketriskeconomiccapitalthatisallocatedby theBRMCislinkedtoTVaRbyamultiplier.TVaRissupplemented
byriskcontrolmetricssuchassensitivitiestoriskfactorsandloss triggersformanagementaction.
WeconductbacktestingtoverifythepredictivenessoftheVaR model.BacktestingcomparesVaRcalculatedforpositionsatthe
closeofeachbusinessdaywiththeProitandLossPLwhich actuallyariseonthosepositionsonthefollowingbusinessday.
ThebacktestingPLexcludefeesandcommissions,andrevenues fromintra-daytrading.Forbacktesting,VaRatthe99levelof
conidenceandoveraone-dayholdingperiodisused.Weadopt thestandardisedapproachtocomputemarketriskregulatory
capitalunderMASNotice637forthetradingbookpositions. Giventheabove,VaRbacktestingwouldnotimpactthe
regulatorycapitalformarketrisk.
VaRmodelssuchashistoricalsimulationVaRpermittheestimation oftheaggregateportfoliomarketriskpotentiallossduetoarange
ofmarketriskfactorsandinstruments.VaRmodelshavelimitations whichincludebutarenotlimitedto:ipastchangesinmarketrisk
factorsmaynotprovideaccuratepredictionsofthefuturemarket movementsandiimayunderstatetheriskarisingfromsevere
marketriskrelatedevents.
Tomonitorourvulnerabilitytounexpectedbutplausibleextreme marketriskrelatedevents,wehaveimplementedanextensivestress
testingpolicyformarketriskwhereregularandmultiplestresstests wereruncoveringtradingandnon-tradingportfoliosthrougha
combinationofhistoricalandhypotheticalscenariosdepictingrisk factorsmovement.
TVaRisthekeyriskmetricusedtomanageourassetsandliabilities exceptforcreditspreadriskunderLoansandReceivableswhereitis
underthecreditframework.Wemanagebankingbookinterestrate riskarisingfrommismatchesintheinterestrateproileofassets,
liabilitiesandcapitalinstrumentsandassociatedhedges,including basisriskarisingfromdifferentinterestratebenchmarks,interest
ratere-pricingrisk,yieldcurveriskandembeddedoptionality. Behaviouralassumptionsareappliedinmanagingtheinterestrate
riskofbankingbookdepositswithindeterminatematurities.We measureinterestrateriskinthebankingbookonaweeklybasis.
Creditderivativesareusedinthetradingbookwithsinglenameor indexunderlyingstosupportbusinessstrategyinbuildingaregional
FixedIncomefranchise.Weactivelymonitorourcounterpartycredit riskincreditderivativecontracts.Morethan90ofthegross
notionalvalueofourcreditderivativepositionsasat31December 2014isto17large,establishednameswithwhichwemaintain
collateralagreements.
PROCESSES, SYSTEMS AND REPORTS Robustinternalcontrolprocessesandsystemsaredesignedand
implementedtosupportourapproachformarketriskmanagement. Additionally,regularreviewsofthesecontrolprocessesandsystems
areconducted.Thesereviewsprovideseniormanagementwith objectiveandtimelyassessmentsofthecontrolprocessesand
systems’appropriatenessandeffectiveness.
Theday-to-daymarketriskmonitoring,controlandanalysis ismanagedbytheRMGMarketandLiquidityRiskunit–an
independentmarketriskmanagementfunctionthatreports totheCRO.Thisgroupcomprisesriskcontrol,riskanalytics,
productionandreportingteams.
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Thefollowingtableshowstheperiod-end,average,highandlowdiversiiedTVaRandTVaRbyriskclassforTreasury’stradingportfolios:
1 Jan 2014 to 31 Dec 2014 In SGD million
As at 31 Dec 2014 Average High Low
Diversiied 16
12 19
8 InterestRates
9 10
17 7
ForeignExchange 5
5 8
2 Equity
2 1
3 1
CreditSpread 14
6 14
4 Commodity
1
2
Amount under SGD 500,000
1 Jan 2013 to 31 Dec 2013 In SGD million
As at 31 Dec 2013 Average High Low
Diversiied 11
10 14
8 InterestRates
9 9
11 7
ForeignExchange 4
6 9
3 Equity
1 1
1 CreditSpread
4 4
5 3
Commodity 1
1 1
Amount under SGD 500,000
InDBS,themainriskfactorsdrivingTreasury’stradingportfoliosin2014wereinterestrates,creditspreadsandforeignexchange. Treasury’stradingportfolios’averageTVaRincreasedbySGD2million20andthiswasdrivenpartlybytherecalibrationofourown
fundingspreadcurveinFebruary2014.
Treasury’stradingportfolioexperiencedthreeback-testingexceptionsin2014comparedwithivein2013.Theexceptionsoccurredin February,SeptemberandDecember.PronouncedvolatilitiesinforeignexchangeandinterestrateledtotheexceptionsinFebruaryand
thesecondhalfof2014respectively.
Thekeymarketriskdriversofournon-tradingportfoliosareSGDandUSDinterestratepositions.Theeconomicvalueimpactofchanges ininterestratesissimulatedundervariousassumptionsforthenon-tradingriskportfolio.Theeconomicvaluechangesarenegative
SGD275millionandSGD489million2013:negativeSGD288millionandSGD532millionbasedonparallelshiftstoallyieldcurves of100basispointsand200basispointsrespectively.Thereportediguresarebasedontheworseofanupwardordownwardparallel
shiftintheyieldcurves.
40 30
20 10
10 20
J SGD
million
J J
F M
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D
BacktestingProitandLoss VaRat99ConidenceInterval
7 LIQUIDITY RISK
DBS’liquidityriskarisesfromitsobligationstohonourwithdrawalsofdeposits,repaymentsofborrowedfundsatmaturity,and commitmentstoitscustomerstoextendloans.
Weseektomanageourliquidityinamannerthatensuresthatourliquidityobligationswouldcontinuetobehonouredundernormal aswellasadversecircumstances.
7.1 Liquidity Risk Management at DBS Liquidity Management and Funding Strategy