Pillar 3 Disclosure Report For the First Half 2013

Transcription

1 Pillar 3 Disclosure Report For the First Half 2013 United Overseas Bank Limited Incorporated in the Republic of Singapore Company Registration Number: Z

2 SUMMARY OF RISK WEIGHTED ASSETS ( RWA ) Credit Risk RWA IRB Approach Corporate 71,147 Sovereign 46 Bank 9,882 Residential Mortgage 7,998 Qualifying Revolving Retail 2,078 Other Retail 2,016 Equity 10,061 Securitisation 931 Total IRB Approach 104,159 Standardised Approach Corporate 7,038 Sovereign 85 Bank 407 Retail 3,988 Residential Mortgage 448 Commercial Real Estate 2,629 Fixed Assets 2,272 Other Exposures 1,828 Total Standardised Approach 18,694 Credit Valuation Adjustment 3,179 Investments approved under section 32 of the Banking Act (below threshold for deduction) 5,833 Total Credit Risk 131,865 Market Risk RWA Standardised Approach Interest rate 5,811 Equity 53 Foreign Exchange 3,482 Commodity 670 Total Standardised Approach 10,016 Operational Risk RWA Standardised Approach 10,093 Total RWA 151,975 IRB: Internal Ratings-Based Based on the Group s Total RWA, the Group s minimum capital requirement as at is $15,198 million. 2 of 15

3 CREDIT RISK Credit risk is defined as the risk of loss arising from any failure by a borrower or a counterparty to fulfil its financial obligations as and when they fall due. Credit Committee is delegated the authority by the Board of Directors to oversee all credit matters. It maintains oversight on the effectiveness of the Group s credit and country risk management structure including framework, people, processes, information, infrastructure, methodologies and systems. Credit risk exposures are managed through a robust credit underwriting, structuring and monitoring process. The process includes monthly review of all non-performing and special mention loans, ensuring credit quality and the timely recognition of asset impairment. In addition, credit review and audit are performed regularly to proactively manage any delinquency, minimise undesirable concentrations, maximise recoveries, and ensure that credit policies and procedures are complied with. Past dues and credit limit excesses are tracked and analysed by business and product lines. Country risk arises where the Group is unable to receive payments from customers as a result of political or economic events in the country. These events include political and social unrest, nationalisation and expropriation of assets, government repudiation of external indebtedness, and currency depreciation or devaluation. Credit exposure s maximum 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, is shown in the table below: Average 1 End Balances and placements with central banks 30,421 29,192 Singapore Government treasury bills and securities 12,121 12,243 Other government treasury bills and securities 10,332 9,982 Trading debt securities Placements and balances with banks 18,986 21,980 Loans to non-bank customers 161, ,909 Investment debt securities 8,261 8,559 Others 2 7,935 8, , ,387 Contingent liabilities 19,209 19,991 Commitments 62,816 65, , ,757 1 Average of periods ended 31 December 2012 and 2 Comprise derivative financial assets, interest receivable and sundry debtors As a fundamental credit principle, the Group generally does not grant credit facilities solely on the basis of the collateral provided. All credit facilities are granted based on the credit standing of the borrower, source of repayment and debt servicing ability. Collateral is taken whenever possible to mitigate the credit risk assumed. The value of the collateral is monitored periodically. The frequency of valuation depends on the type, liquidity and volatility of the collateral value. The main types of collateral taken by the Group are cash, marketable securities, real estate, equipment, inventory and receivables. Policies and processes are in place to monitor collateral concentration. In extending credit facilities to small and medium enterprises, personal guarantees are often taken as a form of moral support to ensure moral commitment from the principal shareholders and directors. 3 of 15

4 Corporate guarantees are often obtained when the borrower s credit worthiness is not sufficient to justify an extension of credit. For internal risk management, agreements such as International Swaps and Derivatives Association Master Agreements and Credit Support Annex have been established with active counterparties to manage counterparty credit risk arising from foreign exchange and derivative activities. The agreements allow the Group to settle all transactions in the event of counterparty default, resulting in a single net claim against or in favour of the counterparty. Cross-border exposure above 1 of total assets Banks Non-banks Central banks and governments Investments Total of total assets China 6,472 3,304 * , United States ,596 1,199 3, Hong Kong 1,390 1, , * Less than $500,000 4 of 15

5 Cashflow analysis by remaining contractual maturities on an undiscounted basis The following table shows the cash flow analysis of the Group s assets by remaining contractual maturities on an undiscounted basis. Actual maturity dates may differ from contractual maturity dates due to behavioural patterns such as prepayment of loans. Up to 7 days Over 7 days to 1 month Over 1 to 3 months Over 3 to 12 months Over 1 to 3 years Over 3 years No specific maturity Total Cash, balances and placements with central banks 11,376 7,147 3,915 1, ,962 30,332 Securities 883 1,602 3,364 6,940 8,222 12,514 3,605 37,130 Placements and balances with banks Loans to non-bank customers Investment in associates and joint ventures 2,917 3,230 6,831 7, , ,017 6,148 11,491 15,590 18,703 38,137 95,677 2, , ,120 1,120 Intangible assets ,171 4,171 Others 358 1, ,166 7,796 11,434 Total assets 21,682 24,549 29,981 35,260 47, ,613 24, ,986 5 of 15

6 Counterparty Credit Risk Exposures Gross fair value of contracts 8,375 Netting effects - Net fair value 8,375 Collateral held Financial Collateral 9 Other 6 Net credit exposure 8,375 Analysed as: Interest rate contracts 3,717 Foreign exchange contracts and gold 3,984 Equity contracts 622 Credit derivative contracts 12 Precious metals and other commodity contracts 40 Credit Derivative Exposures Notional amounts bought Notional amounts sold Own credit portfolio 95 - Intermediation portfolio Total credit default swaps Credit Exposures under Basel III Standardised a FIRB AIRB Corporate 7, ,431 NA Sovereign and Bank 2,736 89,744 NA Retail 6,521 NA 75,891 Commercial Real Estate 2,622 NA NA Other (including Equity, Asset Securitisation, Fixed Assets) 6,565 3,262 NA Total 26, ,437 75,891 a Amount under Standardised Approach refers to credit exposure where IRB approach is not applicable, or portfolios that will eventually adopt IRB Approach. FIRB : Foundation Internal Ratings Based AIRB : Advanced Internal Ratings - Based NA: Not Applicable 6 of 15

7 Credit Exposures Secured by Eligible Collateral, Guarantees and Credit Derivatives Amount by which total exposures are covered by: Eligible Collateral a Credit Protection Standardised Corporate 1, Bank 1 - Retail Commercial Real Estate 46 7 Other Standardised Total 2, FIRB Corporate 14,604 5,352 Sovereign 1,802 - Bank 2,422 - FIRB Total 18,828 5,352 Total 21,302 5,514 a currently uses supervisory prescribed haircuts for eligible financial collateral Credit Exposures Subject to Standardised Approach Risk Weights Net exposures a 0 to 35 6, to 75 6, and above 13,483 Total 26,033 a Net exposures after credit mitigation and provisions Credit Exposures Subject to Supervisory Risk Weight under IRB Approach Risk Weights Specialised Lending Equity 0 to 50 2, to 100 2, and above 838 2,295 Total 5,276 2,295 7 of 15

8 RWA based on the assessments of each recognized ECAI ECAI RWA Moody s 558 S&P 324 Fitch 16 Total 898 Securitisation Exposures The following table shows the amount of securitisation exposures purchased: Risk Weights Securitisation a 0 to to and above 69 Total 123 a Securitisation exposures purchased CREDIT RISK PROFILE The following tables show the breakdown of exposures by RWA and exposure at default () using the respective internal rating scale for the model applicable to the asset classes: Large Corporate, SME and Specialised Lending (IPRE) Exposures CRR Band Exposure-weighted average risk weights ,547 88, ,822 9, Default Total 67,369 98, SME : Small and Medium Enterprises IPRE : Income Producing Real Estate CRR : Customer Risk Rating 8 of 15

9 Specialised Lending (CF, PF, SF and UOB Thailand s IPRE) Exposures CRR Band Exposure-weighted average risk weights Strong 1,035 1, Good 1,591 1, Satisfactory Weak Default NA Total 3,778 5, CF : Commodities Finance PF : Project Finance SF: Ship Finance Sovereign Exposures CRR Band Exposure-weighted average risk weights ,458 NA Default - - NA Total 46 53,055 0 Bank Exposures CRR Band Exposure-weighted average risk weights 1 9 7,629 33, ,253 3, Default - - NA Total 9,882 36, Equity (PD/LGD Method) Exposures CRR Band Exposure-weighted average risk weights 1 9 1, Default - - NA Total 2, PD: Probability of Default LGD : Loss given Default 9 of 15

10 Retail (Residential Mortgage) Exposures PD Band Exposureweighted average risk weights Exposureweighted average LGD Undrawn $million 0.00 to ,402 43, , to ,109 6, to ,296 9, Default Total 7,998 59, ,279 Retail (QRRE) Exposures PD Band Exposureweighted average risk weights Exposureweighted average LGD Undrawn $million 0.00 to , , to to ,576 1, Default Total 2,078 4, ,511 QRRE : Qualifying Revolving Retail Exposures Retail (Other Retail) Exposures PD Band Exposureweighted average risk weights Exposureweighted average LGD Undrawn $million 0.00 to , to to ,336 4, Default Total 2,016 11, , of 15

11 Past due but not impaired and non-performing assets analysed by industry Past due but not impaired Non-performing Individual impairment Transport, storage and communication Building and construction Manufacturing Financial institutions General commerce Professionals and private 1, individuals Housing loans Others Total 3,879 2, Past due but not impaired and non-performing assets analysed by geographical segment Past due but not impaired Non-performing Individual impairment Singapore 1, Malaysia 1, Thailand Indonesia Greater China Others Total 3,879 2, of 15

12 Movements of allowance for impairment on loans Individual Collective impairment impairment Balance at 1 January (960 1,964 Currency translation adjustments (15) 3 Write-off/disposal (189) - Net charge to income statement Balance as at 30 June (855 2,145 Impairment charge / (write-back) on loans and other assets Individual impairment on: Loans 73 Investment securities 9 Other (54) Collective impairment Included in the impairment charges are the following: Bad debts written off Bad debts recovery 19 (41) 12 of 15

13 MARKET RISK Value-at-risk (VaR) adopts a daily Value-at-Risk (VaR) to estimate market risk within a 99 confidence interval using the historical simulation method. This methodology does not make assumptions on the distribution of returns and the correlations between risk classes. The method assumes that possible future changes in market rates may be implied by observed historical market movements. The level of VaR is dependent on the exposures, as well as market prices and volatilities. The table below shows the VaR profile by risk classes for the first half of End June High Low Average Interest rate Foreign exchange Equity Commodity Specific risk Total Specific risk encompasses specific equity market risk and specific credit market risk. It is computed from the residual volatility implied from the movement of individual assets and their corresponding indices. Group trading backtesting chart (Hypothetical daily profit and loss versus VaR at 99 confidence interval) 13 of 15

14 As VaR is the statistical measure for potential losses, the VaR measures are backtested against profit and loss of the trading book to validate the robustness of the methodology. The backtesting process analyses whether the exceptions are due to model deficiencies or market volatility. All backtest exceptions are tabled at ALCO with recommended actions and resolutions. The new Basel market risk measures, Stressed VaR and Incremental Risk Charge (IRC), have also been implemented as part of the controls and incorporated in the market risk appetite limits. The Stressed VaR estimates the ten day holding period at 99 per cent confidence level potential loss, using stressed market prices observed during the subprime crisis. The IRC measures the migration and default risks of the corporate bonds warehoused in the trading book at the 99.9 per cent confidence level over a one-year period. To complement the VaR measure, stress and scenario tests are performed to identify the Group s vulnerability to event risk. These tests serve to provide early warnings of plausible extreme losses to facilitate proactive management of market risks. s daily VaR on was $3.79 million. Group Trading VaR for General Market Risk by Risk Class a a Contribution from commodity risk is insignificant Equity Exposures in the Banking Book The following table shows the value of the Equity exposures in the banking book: IRB Approach (SRW) Average risk weights IRB Approach (PD/LGD) Average risk weights Listed securities 1, Other equity holdings Total 2, Note: The equity exposures were included in the investment securities table below. Total Equity exposures that were deducted from capital amounted to $20 million. 14 of 15

15 Gains and losses Unrealised Gains/(Losses) Eligible as CET1 Capital Realised Gains/(Losses) during the Period Total Investment Securities Quoted securities Debt 6,335 Equity 1,789 Unquoted securities Debt 2,489 Equity 1,948 Allowance for impairment (570) Investment securities 11,991 INTEREST RATE RISK The economic value of equity ( EVE ) sensitivity at 100 and 200 basis points parallel interest rate shocks were negative $301 million and $560 million respectively. This is computed on the banking book for major currencies (Singapore dollar, US dollar and Malaysian ringgit) from major subsidiaries and branches. EVE is the present value of assets less present value of liabilities of the Group. The reported figures are based on the worst case of an upward and downward parallel shift in the yield curve. The repricing profile of loans and deposits that do not have maturity dates is generally based on the earliest possible repricing dates, taking into account the notice period to be served to the customers. Loan prepayment is generally estimated based on past statistics and trends where possible and material. There may be some differences in the assumptions across geographical locations due to variation in local conditions. 15 of 15