Financial assets liabilities not carried at fair value Maximum exposure to credit risk

40.3 Financial assets liabilities not carried at fair value

For financial assets and liabilities not carried at fair value on the financial 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 flows using the relevant market interest rates for the respective currencies. 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 flow method. For unquoted equities not carried at fair value, fair values have been estimated by referencing to the net tangible asset backing of the investee. Unquoted equities of 259 million as at 31 December 2014 2013: 278 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 financial 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 financial instruments, before taking into account any collateral held, other credit enhancements and netting arrangements. For on-balance sheet financial 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 2014 2013 Cash and balances with central banks excluding cash on hand 17,581 16,923 Government securities and treasury bills 29,694 27,497 Due from banks 42,263 39,817 Derivatives 16,995 17,426 Bank and corporate debt securities 35,524 31,662 Loans and advances to customers 275,588 248,654 Other assets excluding deferred tax assets 10,992 8,720 Credit exposure 428,637 390,699 Contingent liabilities and commitments excluding operating lease and capital commitments 209,707 178,968 Total credit exposure 638,344 569,667 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 financial 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 amount 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 financial 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