Managing credit risk 

Exposure to credit risk arises primarily from lending activities and, to a lesser extent, in sales and trading activities, derivatives activities and from participation in payment transactions and securities settlement on our own behalf and as agent for our clients. Managing credit risk has both qualitative and quantitative aspects. Experienced credit officers evaluate the credit quality of the firm's obligors and counterparties and assign internal credit ratings based upon this evaluation. These officers are responsible for credit screening and monitoring. Credit concentration limits for various industries, products, and countries are set by the Credit Committee. Credit limits for individual clients and counterparties are established by credit officers with direct knowledge of the client's creditworthiness. Established limits and actual levels of exposure are reviewed regularly by the Risk Management Committee.

Organisation Structure
Y2K DBS Initiative
Best Practices Guide
Managing Specific Risks

Market Risk
Credit Risk
Liquidity Risk
Operational Risk

Exposure measurement 

Credit exposure includes current as well as potential credit exposure. Current credit exposure is represented by the notional value or principal amount for on-balance sheet financial instruments and off-balance sheet direct credit substitutes, and by the positive market value of derivative instruments. We also estimate the potential credit exposure over the remaining term of transactions through statistical analysis. In determining our exposure, we consider collateral and market netting agreements, which we utilise to reduce individual counterparty exposure, primarily in connection with off-balance sheet items.

Estimating potential losses and the aggregate provision for credit losses 

In managing our credit risk, we also estimate potential losses associated with credit exposures. This process involves some judgement and considers a number of variables including the credit quality of counterparties; tenor of our credit exposure; default probabilities and their volatilities; collateral values; and expected recovery rates in the event of default, as well as the diversification across counterparties, industries, and geographic regions of our global credit portfolio. DBS' credit review procedures are designed to identify country, industry, product, and client exposures that require a higher-than-normal degree of scrutiny. Once identified, individual exposures are carefully monitored by the Credit Committee. In assessing the adequacy of our provisions for credit losses, the Credit Committee recommends the portion of credit exposures that should be classified as non-performing, the portion that should be charged off, and further actions to be taken to minimise credit losses, maximise recoveries and ensure adequacy of the aggregate provision for credit losses.