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The table below gives an overview of the locations of our risk disclosures.
In 2014, we have implemented most of the Enhanced Disclosure Task Force EDTF recommendations for improved bank risk disclosures
1
. For an overview of the recommendations and where we have incorporated the relevant disclosures,
please refer to Appendix on page 115.
Management
Risk
RISK MANAGEMENT SECTION OTHER LOCATIONS IN
ANNUAL REPORT PILLAR 3 QUANTITATIVE
DISCLOSURES
R IS
K O
V E
RV IE
W
1
RiskTakingandour BusinessSegments
2
RiskOverview 89
89 CapitalManagement
andPlanning 118
1
Introduction
2 CapitalAdequacy 3
ExposuresandRiskWeighted AssetsRWA
RI S
K G
O V
ERN A
N C
E
3.1 RiskandControl 3.2 GovernanceStructure
92 93
CorporateGovernanceReport 57
R IS
K A
P PE
T IT
E
4.1 RiskConstrainingThresholds
andUseofEconomicCapital
4.2 StressTesting
94 95
RemunerationReport 77
C R
ED IT
RI S
K
5.1 CreditRiskManagement
atDBS
5.2 CreditRiskMitigants 5.3 InternalCreditRiskModels
5.4 CreditRiskin2014
96 99
99 102
Note 14
FinancialAssetsand Liabilitiessubject
toNettingAgreement
Note 41.1 MaximumExposure
toCreditRisk
Note 41.2 LoansandAdvances
toCustomers
Note 41.3 CreditQualityof
GovernmentSecurities andTreasuryBillsand
BankandCorporate DebtSecurities
Note 41.4 CreditRiskby
Geographyand Industry
141 169
170 174
174
4.1 CreditRiskassessed
usingInternalRatings- BasedApproach
4.2 CreditRiskassessedusing
StandardisedApproach
4.3CreditRiskMitigation 4.4 CounterpartyCredit
Risk-relatedExposures
5
EquityExposuresunderIRBA
6
SecuritisationExposures
7.1 CreditExposures 7.2
MajorCreditExposuresby GeographyandIndustry
7.3
LoansandAdvancesto Customersbyperforming
non-performing
7.4
MovementsinSpeciicand GeneralAllowances
1 See ‘Enhancing the Risk Disclosure of Banks’ published by the Financial Stability Board in October 2012 Please refer to www.dbs.cominvestorfinancial-performancedefault. page for DBS’ Pillar 3 Quantative Disclosures
Please refer to www.dbs.cominvestorfinancial-performancedefault.page for DBS’ Pillar 3 Quantative Disclosures
RISK MANAGEMENT SECTION OTHER LOCATIONS IN
ANNUAL REPORT PILLAR 3 QUANTITATIVE
DISCLOSURES
M A
RK E
T RI
S K
6.1 MarketRiskManagement
atDBS
6.2 MarketRiskin2014
105 106
7.6 InterestRateRiskinthe
BankingBook
7.7 EquityExposuresinthe
BankingBook
LI Q
UI D
IT Y
RI S
K
7.1
LiquidityRiskManagement atDBS
7.2
LiquidityRiskin2014
7.3 LiquidAssets 7.4
RegulatoryRequirements 108
110 110
111
Note 42.1 ContractualMaturity
ProileofAssetsand Liabilities
175
7.5
TotalAssetsbyResidual ContractualMaturity
O PE
R A
T ION
AL RI
S K
8.1 OperationalRisk
ManagementatDBS
8.2 OperationalRiskin2014
111 113
RE PU
T A
T ION
AL RI
S K
9.1
ReputationalRisk ManagementatDBS
9.2
ReputationalRiskin2014 114
114
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THE SECTIONS MARKED BY A GREY LINE IN THE LEFT MARGIN FORM PART OF THE GROUP’S AUDITED FINANCIAL STATEMENTS
1 RISK TAKING AND OUR BUSINESS SEGMENTS
WearefocusedonAsiaandarecommittedtobuildinglastingcustomerrelationshipsastheyexpandacrossAsia.Thisnaturallyexposes ustoadegreeofconcentrationrisktotheregion.Wemanageourrisksthroughdiversiicationofindustriesandportfoliosaswellas
concentrationmanagementofexposures.Inaddition,wefocusondevelopingspecialistknowledgeoftheregionalmarketsanda deepunderstandingofourtargetsegmentswithintheconsumerandinstitutionalbankingbusinesses;thesetargetsegmentsare
furtherassessedusingdeinedriskparameters.
Wemanageourrisksalongthedimensionsofcommercialbankingversusinvestmentbanking;theformerwouldlargelyarisefromour consumerbankingandinstitutionalbankingbusinessesandthelatterfromourtreasurymarketmakingandwarehousingactivities.We
allocateinternaleconomiccapitalalongthesedimensionswithahigherallocationtocommercialbankinggivenourproileasacommercial bank;wealsomaintainabufferforotherriskssuchascountryrisk,operationalrisk,reputationalriskandmodelrisk.
Thechartbelowprovidesahighleveloverviewoftherisksarisingfromourbusinesssegments.Theassetsizegivesanindicationofthe contributionofthebusinesssegmentstothebalancesheet,whiletheRiskWeightedAssetsRWArelectstherelativesizeoftherisks
incurredinrespectofeachbusinesssegment.
PleaserefertoNote44totheFinancialStatementsonpage177formoreinformationonDBS’businesssegments.
CONSUMER BANKINGWEALTH
MANAGEMENT INSTITUTIONAL
BANKING TREASURY
OTHERS
a
TOTAL SGD million
Assets
b
84,451 225,504
90,586 35,008
435,549
Risk Weighted Assets
31,995 151,059
62,207 18,925
264,186
of RWA Credit Risk
87 94
36 74
78
Market Risk
61 22
16
Operational Risk
13 6
3 4
6
a Encompasses assetsRWA from capital and balance sheet management, funding and liquidity activities, DBS Vickers Group and The Islamic Bank of Asia Limited b Before goodwill and intangibles
2 RISK OVERVIEW
Inexecutingourstrategy,wearefacedwitheconomic,inancialandothertypesofrisk.Theserisksareinterdependentandrequire aholisticapproachtoriskmanagement.Verybroadly,theseriskscanbealignedaroundthefollowingriskcategories.
BUSINESS AND STRATEGIC
CREDIT MARKET
LIQUIDITY OPERATIONAL
REPUTATIONAL
Page 96 Page 105
Page 108 Page 111
Page 113
BUSINESS AND STRATEGIC RISK
LIQUIDITY RISK CREDIT RISK
OPERATIONAL RISK MARKET RISK
REPUTATIONAL RISK
isanover-archingriskthatarisesfromchangesinthebusinessenvironmentandfromadversedecisionsthatcanmateriallyimpactDBS’ longtermobjectives.Thisriskismanagedseparatelyunderothergovernanceprocesses.
istheriskarisingfromtheinabilityofDBStomeetobligationswhentheybecomedue. istheriskoflossresultingfromthefailureofborrowersorcounterpartiestomeettheirdebtorcontractualobligations.
istheriskoflossresultingfrominadequateorfailedinternalprocesses,peopleorsystems,orfromexternalevents,includinglegalrisk, butdoesnotincludestrategicorreputationalrisk.
istheriskoflossarisingfromadversechangesininterestrates,foreignexchangerates,equityprices,creditspreadsandcommodity prices,aswellastheircorrelationsandimpliedvolatilities.
isthecurrentorprospectiverisktoourshareholdervalueincludingearningsandcapitalarisingfromadverseperceptionofDBS’ imageonthepartofitsstakeholders.ItaffectsDBS’abilitytoestablishnewrelationshipsorservices,orcontinueservicingexisting
relationships,andhavecontinuedaccesstosourcesoffunding.Reputationalriskistypicallyanoutcomeoffailuretomanagethe otherrisktypes.
Top and Emerging Risks
Aspartofourriskmanagementprocess,weproactivelyidentify andmonitortopandemergingriskswhich,iftheymaterialise,
mayhaveamaterialimpactonourbusinessactivities,inancial resultsandreputationandaffectourabilitytodeliveragainst
ourstrategicpriorities.Ouridentiicationprocessstartswith adiscussionamongseniormanagementaboutourkeyareas
offocusandtheriskoutlookforthebankingindustry.Itisalso supplementedbydiscussionswiththeboardandmanagement
riskcommittees.Periodicupdatesonactionplansareprovided totherelevantriskcommittees.
In2014,wepaidparticularattentiontothefollowingtopand emergingrisks.Theserisksremainourkeyconcernsinthe
comingyear.
CREDIT RISK Creditriskremainsourmostmaterialriskandincursthehighest
usageofcapital;itislargelydeterminedbytheglobalmacro- economicenvironmentandtheeconomicsituationofthecountries
weoperatein,aswellasconcentrationriskswemayrun.We continuetomonitorthesesituationsactivelyandassesswhether
ourpositionscontinuetobeinlinewithourriskappetite.Our portfolioconcentrationstrategiesarepro-activelymanagedand
modiiedtomitigatepotentialportfoliothreats.
TheIndianeconomymarkedasecondstraightyearofslowgrowth. This,coupledwithabusinessenvironmentcharacterisedbyhigh
debtlevelsandconstrainedliquidity,ledtohigherdefaultsand delinquenciesintheIndiaportfolio.Weconductedstresstests
andportfolioreviewsandtightenedourTargetMarketand
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RiskAcceptanceCriteriaTMRAC
2
aswellasstrengthenedour earlywarningmonitoring.Withanewmajoritygovernmentinplace
sincethesecondhalfof2014,declininginlationandreducedoil andcommodityprices,weexpecttheIndianeconomytoshow
improvementinthenearfuture.
TheeconomicslowdownseeninChinaduringtheyearwasone ofourkeyconcerns.Weconsideredtheimpactarisingfromour
exposurestothelocalbanksandthepropertysectorinChina. OurexposureislargelytothesystemicallyimportantChinesebanks
andwedealmainlyinshort-datedandtrade-relatedtransactions. IntheChinesepropertysector,welendprimarilytotoplocaland
internationalnames.Whilewewillcontinuetomonitorthe developmentsinChinaclosely,weremaincomfortablewith
ourexposures.
Afterseveralroundsofcoolingmeasures,theresidentialhousing marketinSingaporeremainedsubdued,resultingindeclining
propertypricetrendsonreducedtransactionvolumes.Wehave stresstestedourrealestateportfoliorigorouslyandconcluded
thattheportfolioisresilient.Notwithstandingthepositiveoutcome, wewillcontinuetomonitortheportfolioproactivelyforsignsof
weaknessesandexerciseprudenceinclientselectionandthe underwritingofnewloans.
Commoditypriceshavebeenunderpressuresince2014.Wehave conductedseveralscenarioanalysesacrossthecommodityspectrum.
Wecontinuetoenhanceourduediligenceandprocessesinthis sector,aswellasandpaycloseattentiontostructuringand
collateralisingindividualtrades.
COUNTRY RISK DBS’strategyistobearegionalbankinAsia.Consequently,
wehavelargeconcentrationsinalimitednumberofcountries andtherisksinthosecountriescanalsobecorrelated.Instability
inandacrossourtargetmarkets,suchaspoliticalandeconomic developmentsinChina,IndiaandIndonesia,maygiveriseto
countryriskevents.Thisriskismitigatedbysettinglimitsforthe maximumtransferandconvertibilityrisk“transferrisk”exposure
toeachcountry.Inaddition,thepotentiallossismonitoredonthe basisofhowtheexposureisdividedamongshorttermandlong
term,tradeandnon-trade.Italsotakesintoaccountwrong-way riskandoffshorefundingoflocalcurrencyassets.Basedonthe
outlookformacroeconomicandcountrytransferrisk,thelimits andexposureswillbeadjustedtostaywithinDBS’RiskAppetite.
REGULATORY TRENDS Theglobalregulatorylandscapecontinuestoevolve,particularly
incapitalandliquiditymanagement,posingrisksandchallenges tousaswellasbanksinourpeergroup.Wecontinuetotrack
internationalanddomesticdevelopmentstoensurethatweremain ontopoftrendsandchangesimpactingourbusinesses.New
requirementsarepromptlyanalysedanddisseminatedtothe respectiveactionpartiesand,whereapplicable,embeddedinto
DBS’processesandsystems.
Wealsorecognisetheimportanceofproactiveengagementwith regulatorsandwecontinuetocontributeactivelytoindustry
andregulatoryforums.Towardsthisend,westrivetobuildand maintainpositiverelationshipswithregulatorsthathaveoversight
responsibilitiesinthelocationswhereweoperate.
Oneinternationaltrendwhichwecontinuetoobserveisagrowing emphasisoninancialmarketsconduct,asubjectonwhichvarious
regulatorshavepublishedin2014.Weanticipatethatinternational consensuswillevolvein2015particularlyintheareaofconductof
businessintheforeignexchangemarkets.Asaparticipantinthese markets,wewillalwaysseektoalignwithbestpracticesas
consensusdevelops.
Forabankwithoperationsinmultiplecountries,risksfrom cross-bordertransactionsareexpectedtoincreaseasglobal
regulatoryreformsspurlocalpolicyandeconomicagenda.These risksarediverseandrangefromlocallicensingrules,tohighly
complexinteractionbetweenlocallawsinoriginatingandbooking centres.In2015,weexpecttofocusadegreeofefforttoenhance
ourapproachtocross-bordertransactionstoensurethatweare inlinewithregulatoryrequirementsnotwithstandingthepotential
complexitiesinvolved.
Further,wehaveputinplaceasetofgovernanceandoperational standardsinouroverseaslocations.Werecognisetheimportance
ofmaintainingconsistencyintheadoptionandrolloutofpolicies atoverseaslocationsandwillcontinuetomaintainoversightin
thisarea.
CYBER SECURITY Theincreasingthreatofcyberattacksoninancialinstitutions
continuestobeoneofourtopriskconcerns.Cybercriminals, hacktivists,insidersandnationstatesponsoredadversariesare
amongthosethatmaytargetinancialcomputersystems.To monitortheseevolvingthreats,wehaveinplacearobustcyber
securityframework.Wearecontinuouslyenhancingoursecurity controlsandsurveillancetoprotectourassetsandoperations.
2 We use Target Market TM to define industryor geographical target markets and identify acceptable businessindustry segments. Risk Acceptance Criteria RAC is used as a client screening tool to guide credit extension and how much risk is acceptable or tolerable.
FINANCIAL CRIME Financialcrimeriskisafocusareaformanypeerbanks.Thishas
beenatrendforanumberofyears,withheightenedpenalties imposedbyregulatorsforissuesinsanctionsandmoneylaundering.
Fraudandbriberycorruptionarealsoissuesthatoccupysigniicant amountsofspaceonainancialcrimeriskmitigationagenda.
2014alsosawfocusbeinggiventotradeinance,andwealth managementparticularlyaroundtaxevasionrisk.Weexpect
thistrend,andtheevolutionofinancialcrimerisktogether withtheregulatoryresponse,tocontinue.
Ourinancialcrimeriskmitigationcontrolsinclude,without limitation,know-your-clientpolicies,personneladvisingon
anti-moneylaunderingsanctionsandanti-briberycorruption policies,training,transactionscreeningandperiodictesting.
Wehavemadeseveralenhancementsinourpolicies,systems andoperationstoaddressthewayinwhichtheriskisevolving,
andhaveallocatedadditionalresourcesforfurtherworkin2015. Wealsoconductedaspeciicreviewoftaxevasionrisk.Theseare
closelyalignedtoregulatorydevelopmentsandwillensurethat wecontinuetobenchmarkwellagainstinternationalstandards.
3 RISK GOVERNANCE
3.1 Risk and Control