FINANCIAL ASSETS LIABILITIES NOT CARRIED AT FAIR VALUE MAXIMUM EXPOSURE TO CREDIT RISK

40.3 FINANCIAL ASSETS LIABILITIES NOT CARRIED AT FAIR VALUE

For inancial assets and liabilities not carried at fair value on the inancial 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 lows using the relevant market interest rates for the respective currency. 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 low method. For unquoted equities not carried at fair value, fair values have been estimated by reference to the net tangible asset backing of the investee. Unquoted equities of 278 million as at 31 December 2013 2012: 228 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 inancial 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 inancial instruments, before taking into account any collateral held, other credit enhancements and netting arrangements. For on-balance sheet inancial 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 2013 2012 Cash and balances with central banks excluding cash on hand 16,923 16,116 Government securities and treasury bills 27,497 36,426 Due from banks 39,817 29,406 Derivatives 17,426 17,280 Bank and corporate debt securities 31,662 24,114 Loans and advances to customers 248,654 210,519 Other assets excluding deferred tax assets 8,720 8,611 Credit exposure 390,699 342,472 Contingent liabilities and commitments excluding operating lease and capital commitments 178,968 156,863 Total credit exposure 569,667 499,335 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 inancial 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 value 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 inancial 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. 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, residential mortgage exposures are generally fully secured by residential properties. Income-producing real estate, which is a sub-set of the Specialised Lending exposure, are fully secured by the underlying assets inanced. The extent to which credit exposures are covered by Basel II-eligible collateral, besides real estate, after the application of the requisite regulatory hair-cuts, is shown in the Group’s Basel II Pillar 3 Disclosures. The amounts are a sub-set of the actual collateral arrangements entered by the Group as Basel II imposes strict legal and operational standards before collateral can be admitted as credit risk mitigants. As a result, certain collateral arrangements which do not meet its criteria will not be included. Certain collateral types which are not permitted as credit risk mitigants for credit exposures under the Standardised Approach are also excluded.

41.2 LOANS AND ADVANCES TO CUSTOMERS