Risk management 89
5.2 Credit risk mitigants
Collateral received Where possible, DBS takes collateral as a secondary recourse to the
borrower. Collateral include cash, marketable securities, properties, trade receivables, inventory and equipment and other physical and
financial collateral. We may also take fixed and floating charges on the assets of borrowers. We have put in place policies to
determine the eligibility of collateral for credit risk mitigation. These include requiring specific collaterals to meet minimum operational
requirements in order to be considered as effective risk mitigants.
Our collateral are generally diversified and valued periodically. Properties constitute the largest percentage whilst marketable
securities and cash are immaterial.
For derivatives, repurchase agreement repo and other repo- style transactions with financial market counterparties, collateral
arrangements are typically covered under market standard documentation such as Master Repurchase Agreements and
International Swaps and Derivatives Association ISDA Agreements. Collateral received is marked to market on a frequency mutually agreed
with the counterparties. These are governed by internal guidelines with respect to the eligibility of collateral. In the event of a default, the credit
risk exposure is reduced by master netting arrangements where DBS is allowed to offset what we owe to a counterparty against what is
due from that counterparty in a netting-eligible jurisdiction.
Collateral held against derivatives generally consist of cash in major currencies and highly rated government or quasi government
bonds. Exceptions may arise in certain countries, where due to domestic capital markets and business conditions, the bank may
be required to accept less highly-ratedliquid government bonds and currencies. Reverse repo transactions are generally limited to
large institutions with reasonably good credit standing. The bank takes haircuts against the underlying collateral of these transactions
that commensurate with collateral quality to ensure credit risks are adequately mitigated.
In times of difficulty, we will review customers’ specific facts and circumstances to assist them in restructuring their repayment
liabilities. However, should the need arise, disposal and recovery processes are in place for disposal of collateral held by DBS. We also
maintain a panel of agents and solicitors for the expeditious disposal of non-liquid assets and specialised equipment.
Collateral posted DBS is required to post additional collateral in the event of a rating
downgrade. As at 31 December 2015, for a three-notch downgrade of its Standard Poor’s Ratings Services and Moody’s Investors
Services ratings, DBS Bank would have to post additional collateral amounting to SGD 57 million.
Other risk mitigants DBS also uses guarantees as credit risk mitigants. Internal thresholds
for considering guarantors to be eligible for credit risk mitigation are in place.
5.3 Internal credit risk models
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