Basel II Pilar 3 Disclosures
DBS Group Holdings Ltd and its subsidiaries (the Group) have adopted Basel II as set out in the revised Monetary Authority of Singapore Notice to Banks No. 637 (Notice on Risk Based Capital Adequacy Requirements for Banks incorporated in Singapore or MAS Notice 637) with effect from 1 January 2008.
The Group views Basel II as part of continuing efforts to strengthen its risk management culture and ensure that the Group pursues business growth across segments and markets with the right risk management discipline, practices and processes in place.
The qualitative disclosures as required by MAS Notice 637 are presented in the Risk Management report on page 52 to page 59, the Capital Management and Planning report on page 60 and the Notes to the Financial Statements as referred to below. The following information does not form part of the audited accounts.
SCOPE OF APPLICATION
The Group applies the Basel II Internal Ratings-Based Approach (IRBA) for computing part of its regulatory capital requirements for credit risk. Approved wholesale portfolios are on the Foundation IRBA, while the approved retail portfolios are on the Advanced IRBA. Most of the remaining credit exposures are on the Standardised Approach (SA) for credit risk. The Group also adopts the SA for operational and market risks.
The Group’s capital requirements are generally based on the principles of consolidation adopted in the preparation of its financial statements, as discussed in Note 2.2 to the Financial Statements, except where deductions from eligible capital are required under MAS Notice 637 or where entities meet separation requirements set by the MAS. Refer to Note 49 to the Financial Statements for the list of consolidated entities.
Capital Adequacy
The following table sets forth details on the capital resources and capital adequacy ratios for the Group as at 31 December 2010. The Group’s Tier 1 and total capital adequacy ratios as at 31 December 2010 were 15.1% and 18.4% respectively, which are above the MAS minimum requirements of 6.0% and 10.0%, while Core Tier 1 ratio was 11.8%.
The constituents of total eligible capital are set out in MAS Notice 637 Part VI. These include shareholders’ funds after regulatory-related adjustments, minority interests, and eligible capital instruments issued by the Group. Refer to Notes 35 and 34 to the Financial Statements for the terms of these capital instruments, and Note 47 on the capital management policies and processes for the group.
| in $ Millions | 2010 |
 |
|
| Tier 1 capital | |
| Share capital | 8,780 |
| Disclosed reserves | 17,424 |
| Paid-up non-cumulative preference shares | 3,600 |
| Minority interests | 370 |
| Innovative Tier 1 instruments | 2,533 |
| Less: Deductions from Tier 1 capital | |
| Goodwill and deferred tax assets | 4,922 |
| Other deductions (50%) | 142 |
|
|
| Eligible Tier 1 capital | 27,643 |
| Tier 2 capital | |
| Loan allowances admitted as Tier 2 | 696 |
| Subordinated debts | 5,281 |
| Revaluation surplus from equity securities | 149 |
| Less: Deductions from Tier 2 capital | |
| Other deductions (50%) | 142 |
|
|
| Total eligible capital | 33,627 |
|
|
| Risk-Weighted Assets (RWA) | |
| Credit | 142,037 |
| Market | 26,220 |
| Operational | 14,437 |
| Total RWA | 182,694 |
|
|
| Core Tier 1 Ratio (%) | 11.8 |
|
|
| Tier 1 Capital Adequacy Ratio (%) | 15.1 |
|
|
| Total Capital Adequacy Ratio (%) | 18.4 |
|
|
Summary of RWA
| in $ milions | 2010 RWA |
|
|
| Credit Risk: | |
| IRBA | |
| Retail exposures | |
| Residential mortgage exposures | 2,497 |
| Qualifying revolving retail exposures | 1,590 |
| Other retail exposures | 805 |
| Wholesale exposures | |
| Sovereign exposures | 2,964 |
| Bank exposures | 10,331 |
| Corporate exposures | 60,983 |
| Corporate small business exposures (SME) | 2,484 |
| Specialised lending exposures (SL) | 22,850 |
| Equity exposures | 4,039 |
| Securitisation exposures | 7 |
|
|
| Total IRBA RWA | 108,550 |
|
|
| Adjusted IRBA RWA post scaling factor of 1.06 | 115,063 |
|
|
| SA | |
| Residential mortgage exposures | 1,096 |
| Regulatory retail exposures | 882 |
| Corporate exposures | 13,243 |
| Other exposures | |
| Real estate, premises, equipment and other fixed assets | 1,383 |
| Exposures to individuals | 7,137 |
| Others | 3,233 |
|
|
| Total SA RWA | 26,974 |
|
|
| Total RWA for credit risk | 142,037 |
|
|
| Market risk: | |
| Standardised approach (SA) | |
| Interest rate risk | 18,840 |
| Equity position risk | 327 |
| Foreign exchange risk | 7,053 |
| Commodity risk | # |
|
|
| Total RWA for market risk | 26,220 |
|
|
| Operational risk (SA) | 14,437 |
|
|
| Total RWA | 182,694 |
# Amount below $0.5m
Credit Risk
SUMMARY OF CREDIT EXPOSURES(a)
| In $ Millions | 2010 Exposures |
|
|
| Advanced IRBA | |
| Retail exposures | |
| Residential mortgage exposures | 40,195 |
| Qualifying revolving retail exposures | 4,107 |
| Other retail exposures | 3,111 |
| Foundation IRBA | |
| Wholesale exposures | |
| Sovereign exposures | 51,133 |
| Bank exposures | 43,317 |
| Corporate exposures | 96,729 |
| Corporate small business exposures | 2,698 |
| Specialised lending exposures | 20,254 |
| IRBA for equity exposures | 2,296 |
| IRBA for securitisation exposures | 107 |
|
|
| Total IRBA | 263,947 |
|
|
| SA | |
| Residential mortgage exposures | 3,131 |
| Regulatory retail exposures | 1,167 |
| Corporate exposures | 13,694 |
| Other exposures | |
| Real estate, premises, equipment and other fixed assets | 1,383 |
| Exposures to individuals | 7,131 |
| Others | 5,747 |
|
|
| Total SA | 32,253 |
|
|
| Total | 296,200 |
|
|
(a)
Amounts represent exposures after credit risk mitigation and where applicable include on-balance sheet amounts and credit equivalent amounts of off-balance sheet items determined in accordance with MAS Notice 637
Refer to Notes 44.1 and 46 to the Financial Statements for analysis of maximum exposures to credit risk by geographic location, industry and residual contractual maturity distribution.
CREDIT RISK ASSESSED USING INTERNAL RATINGS – BASED APPROACH
RETAIL EXPOSURES
Residential mortgage exposures
| Expected Loss (EL) % range | Exposures(a) (In $ millions) |
Exposure-weighted average risk weight(b) |
|
||
| Up to 0.10% | 38,590 | 5 |
| > 0.10% to 0.50% | 1,298 | 23 |
| > 0.50% | 307 | 59 |
|
||
| Total | 40,195 | 6 |
|
||
(a)
Includes undrawn commitments
(b)
Percentages disclosed are before the application of IRBA scaling factor and exclude defaulted exposures
Qualifying revolving retail exposures
| Expected Loss (EL) % range | Exposures(a) (In $ millions) |
Exposure-weighted average risk weight(b) |
|
||
| Up to 5% | 3,869 | 26 |
| > 5% | 238 | 257 |
|
||
| Total | 4,107 | 39 |
|
||
(a)
Includes undrawn commitments
(b)
Percentages disclosed are before the application of IRBA scaling factor and exclude defaulted exposures
Other Retail Exposures
| Expected Loss (EL) % range | Exposures (In $ millions) |
Exposure-weighted average risk weight(a) |
|
||
| Up to 0.30% | 2,250 | 17 |
| > 0.30% | 861 | 49 |
|
||
| Total | 3,111 | 26 |
|
||
(a) Percentages disclosed are before the application of IRBA scaling factor and exclude defaulted exposures
Undrawn commitments for retail exposures
| Expected Loss (EL) % range | Notional amount |
Credit equivalent amount(a) |
|
||
| Residential mortgage exposures | 5,157 | 5,157 |
| Qualifying revolving retail exposures | 8643 | 3097 |
|
||
| Total | 13,800 | 8254 |
|
||
(a)
Credit equivalent amount represents notional amounts multiplied by the applicable credit conversion factors
WHOLESALE EXPOSURES
Sovereign exposures
| PD grade | PD range (%) |
Exposures (In $ millions) |
Exposure -weighted average risk weight(a) (%) |
|
|||
| PD grade 1-3 | 0.00 – 0.10 | 49,677 | 5 |
| PD grade 4A/4B | 0.10 – 0.33 | 27 | 27 |
| PD grade 5 | 0.33 – 0.47 | 929 | 47 |
| PD grade 6A/6B | 0.47 – 1.11 | 500 | 55 |
| PD grade 7A-9 | 1.11 – 99.99 | # | 92 |
|
|||
| Total | 51,133 | 6 | |
|
|||
(a)
Percentages disclosed are before the application of IRBA scaling factor
#
Amount below $0.5m
Bank Exposures
| PD grade | PD range (%) |
Exposures (In $ millions) |
Exposure -weighted average risk weight(a) (%) |
|
|||
| PD grade 1-3 | 0.03(b) – 0.10 | 26,904 | 11 |
| PD grade 4A/4B | 0.10 – 0.33 | 8,642 | 33 |
| PD grade 5 | 0.33 – 0.47 | 2,804 | 41 |
| PD grade 6A/6B | 0.47 – 1.11 | 3,693 | 61 |
| PD grade 7A-9 | 1.11 – 99.99 | 1,257 | 92 |
| PD grade 10 | Default | 17 | – |
|
|||
| Total | 43,317 | 24(c) | |
|
|||
(a)
Percentages disclosed are before the application of IRBA scaling factor
(b)
For bank exposures, the PD is the greater of the one-year PD associated with the internal borrower grade to which that exposure is assigned, or 0.03% as specified in MAS Notice 637
(c)
Excludes defaulted exposures
Corporate Exposures
| PD grade | PD range (%) |
Exposures (In $ millions) |
Exposure -weighted average risk weight(a) (%) |
|
|||
| PD grade 1-3 | 0.03(b) – 0.10 | 19,503 | 18 |
| PD grade 4A/4B | 0.10 – 0.33 | 13,044 | 48 |
| PD grade 5 | 0.33 – 0.47 | 15,994 | 54 |
| PD grade 6A/6B | 0.47 – 1.11 | 21,231 | 73 |
| PD grade 7A-9 | 1.11 – 99.99 | 24,921 | 109 |
| PD grade 10 | Default | 2036 | – |
|
|||
| Total | 96,729 | 64(c) | |
|
|||
(a)
Percentages disclosed are before the application of IRBA scaling factor
(b)
For corporate exposures, the PD is the greater of the one-year PD associated with the internal borrower grade to which that exposure is assigned, or 0.03% as specified in MAS Notice 637
(c)
Excludes defaulted exposures
Corporate small business(a) exposures
| PD grade | PD range (%) |
Exposures (In $ millions) |
Exposure -weighted average risk weight(b) (%) |
|
|||
| PD grade 1-3 | 0.03(c) – 0.10 | – | – |
| PD grade 4A/4B | 0.10 – 0.33 | 10 | 28 |
| PD grade 5 | 0.33 – 0.47 | 75 | 51 |
| PD grade 6A/6B | 0.47 – 1.11 | 670 | 67 |
| PD grade 7A-9 | 1.11 – 99.99 | 1889 | 106 |
| PD grade 10 | Default | 54 | – |
|
|||
| Total | 2698 | 94 | |
|
|||
(a)
SME refers to corporations with reported annual sales of less than S$100 million as defined under MAS Notice 637
(b)
Percentages disclosed are before the application of IRBA scaling factor
(c)
For SME exposures, the PD is the greater of the one-year PD associated with the internal borrower grade to which that exposure is assigned, or 0.03% as specified in MAS Notice 637
(d)
Excludes defaulted exposures
Specialised lending exposures
| 2010 | RWA (In $ millions) |
Exposures (In $ millions) |
Exposure -weighted average risk weight(a) (%) |
|
|||
| Strong | 3,061 | 5,361 | 57 |
| Good | 5,543 | 7,011 | 79 |
| Satisfactory | 4,212 | 3,663 | 115 |
| Weak | 10,034 | 4,014 | 250 |
| Default | – | 205 | – |
|
|||
| Total | 22,850 | 20,254 | 114(b) |
|
|||
(a)
Percentages disclosed are before the application of applicable IRBA scaling factor
(b)
Excludes defaulted exposures
SECURITISATION EXPOSURES
The table below sets out the securitisation exposures (net of specific allowances) purchased by the Group, analysed by risk weights:
| 2010 (In $ millions) |
Exposures subject to Rating-Based Method (RBM) |
Exposures not subject to RBM |
RWA | Deductions from Tier 1 capital and Tier 2 capital |
|
||||
| Risk weights | ||||
| 0%-18% | 12 | – | 1 | – |
| 20%-50% | 26 | – | 6 | – |
| Deducted | 66 | 3 | – | 69 |
|
||||
| Total | 104 | 3 | 7 | 69 |
|
||||
The table below sets out the securitisation exposures (net of specific allowances) purchased by the Group, analysed by exposure type:
| 2010 (In $ millions) |
Total Exposures |
Exposures risk-weighted |
Deductions from Tier 1 capital and Tier 2 capital |
|
|
||||
| Exposure type | ||||
| ABS collateralised | ||||
| debt/loan | ||||
| obligations (CDO) | 66 | – | 66 | |
| Mortgage-Backed | ||||
| Securities(MBS) | ||||
| and others | 41 | 38 | 3 | |
|
||||
| Total | 41 | 38 | 69 | |
|
||||
PROVISIONING POLICIES FOR PAST DUE AND IMPAIRED EXPOSURES
Refer to the Notes to the Financial Statements listed in the following table for the Group’s provisioning policies in relation to past due and impaired exposures.
| Note to the Financial Statements |
Financial Disclosures |
|
|
| 2.8 | The Group’s accounting policies on the assessment of specific and general allowances on financial assets |
|
|
| 44.2 | Classified loans and past due loans by geographic and industry distribution |
|
|
| 13, 20, 21 and 32 | Movements in specific and general allowances during the year for the Group |
|
|
COMPARISON OF EXPECTED LOSS AGAINST ACTUAL LOSSES
The following table sets out actual loss incurred in 2010 compared with EL reported for certain IRBA asset classes at December 2009. Actual loss refers to specific impairment loss allowance and charge-offs to the Group’s income statement during the financial year ended 31 December 2010.
| Basel Asset Class | 2009 Expected Loss In $ millions |
2010 Actual Loss In $ millions |
||
|
||||
| Wholesale Exposures | ||||
| Sovereign exposures | 9 | – | ||
| Bank exposures | 44 | |||
| Corporate exposures | ||||
| (including SME & SL) | 869 | 274 | ||
| Retail Exposures | ||||
| Residential mortgage exposures | 21 | 1 | ||
| Qualifying revolving retail exposures | 75 | 12 | ||
| Other retail exposures | 20 | 3 | ||
|
||||
EL is a Basel II measure of expected future losses based on Internal Ratings-Based models where PD grades are more through-the-cycle and LGD estimates are on a downturn basis, floored by regulatory minimums for retail exposures and based on supervisory estimates for wholesale exposures. Actual Loss is an accounting construct which includes net impairment allowances for non-defaulting accounts at the onset of the financial year as well as write-offs during the year. The two measures of losses are therefore not directly comparable and it is not appropriate to use Actual Loss data to assess the performance of internal rating processes or to undertake comparative trend analysis.
CREDIT RISK ASSESSED USING STANDARDISED APPROACH
The following table shows the exposures under SA, analysed by risk weights:
| In $ millions | 2010 Exposures |
|
|
| Risk Weights | |
| 0% | 2,331 |
| 20% | 225 |
| 35% | 2,130 |
| 50% | 960 |
| 75% | 1,156 |
| 100% | 24,381 |
| 150% | 70 |
|
|
| Total | 32,253 |
CREDIT RISK MITIGATION
The following table summarises the extent to which credit exposures are covered by eligible financial collateral, other eligible collateral and eligible credit protection after the application of haircuts:
| 2010 In $ millions |
Eligible financial collateral |
Other financial collateral |
Amount by which credit exposure have been reduced by eligible credit protection |
|
|||
| Foundation IRBA | |||
| Wholesale exposures | |||
| Sovereign exposures | 369 | – | – |
| Bank exposures | 1,022 | – | 39 |
| Corporate exposures | 3,489 | 4,036 | 2,605 |
| Corporate SME | 208 | 1,136 | 168 |
|
|||
| Sub-total | 5,088 | 5,172 | 2,812 |
|
|||
| SA | |||
| Residential mortgage | |||
| exposures | 198 | – | – |
| Regulatory retail | |||
| exposures | 143 | 1 | 1 |
| Corporate/other exposures | 3,055 | 50 | 844 |
|
|||
| Sub-total | 3,396 | 51 | 845 |
|
|||
| Total | 8,484 | 5,223 | 3,657 |
|
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The above table excludes exposures where collateral has been taken into account directly in the risk weights, such as the specialised lending and residential mortgage exposures. It also excludes exposures where the collateral, while generally considered as eligible under Basel II, does not meet the required legal/ operational standards e.g. in the case of legal enforcement uncertainty in specific jurisdictions. Certain exposures where the collateral is eligible under Foundation IRBA and not under SA have also been excluded for portfolios where the SA is applied e.g. exposures collateralised by commercial properties.
COUNTERPARTY CREDIT RISK-RELATED EXPOSURES
NOTIONAL PRINCIPAL AMOUNTS OF CREDIT DERIVATIVES
| In $ millions | Notional of Protection Bough |
Credit Derivatives Protection Sold |
|
||
| Own Credit Portfolio | 30,403 | 28,573 |
| Client Intermediation Activities | 8,096 | 8,067 |
|
||
| Total | 38,499 | 36,640 |
|
||
| Credit default swaps | 38,422 | 36,640 |
| Total return swaps | 77 | – |
|
||
| Total | 38,499 | 36,640 |
|
||
Notional values of credit derivatives do not accurately reflect their economic risks. They comprise both beneficiary and guarantor (buy and sell protection) positions.
The Group generally has a mismatch between the total notional amounts of protection bought and sold as these credit derivatives are used to hedge risks from other instruments, including those from customer flows. The protection sold in credit derivatives are largely matched with the protection bought after notional amounts are adjusted, either to a duration-based equivalent basis, or to reflect the level of subordination in tranched structures.
The Group actively monitors its counterparty credit risk in credit derivative contracts. More than 95% of the notional value of the Group’s credit derivative positions as at 31 December 2010 is to 15 large, established names with which the Group maintains collateral agreements.
CREDIT EQUIVALENT AMOUNTS FOR COUNTERPARTY EXPOSURES
| In $ millions | 2010 |
|
|
| Replacement cost | 16,691 |
| Potential future exposure | 14,053 |
|
|
| Gross credit equivalent amount | 30,744 |
| Comprising: | |
| Interest rate contract | 9,774 |
| Credit derivative contracts | 4,413 |
| Equity contracts | 221 |
| Foreign exchange contracts and gold | 16,328 |
| Commodities contracts | 8 |
|
|
| Gross credit equivalent amount | 30,744 |
| Less: Effect of netting arrangement | 13,889 |
|
|
| Credit equivalent amount after netting | 16,855 |
| Less: Collateral amount | |
| Eligible financial collateral | 504 |
| Other eligible collateral | 1 |
|
|
| Net credit equivalent amount | 16,350 |
|
|
Counterparty credit exposure is mitigated by exposure netting through ISDA agreements and recognition of eligible collateral, effects of which have been included in regulatory capital calculations where appropriate.
EQUITY EXPOSURES IN BANKING BOOK
SCOPE OF APPLICATION
The Group’s banking book equity investments consist of:
Investments held for yield and/or long-term capital gains;
Strategic stakes in entities held as part of growth initiatives and/or in support of business operations.
The Group’s banking book equity investments are classified and measured in accordance with Financial Reporting Standards and are categorised as either AFS investments or Investments in Associates; refer to Notes 2.2 and 2.7 to the Financial Statements for the Group’s accounting policies. Entities in which the Group holds significant interests are disclosed in Note 49 to the Financial Statements.
CAPITAL TREATMENT
The Group has adopted the IRBA simple risk weight method to calculate regulatory capital for equity exposures in its banking book.
The following table summarises the Group’s equity exposures in the banking book, including investments in Tier 1 capital instruments of financial institutions:
| 2010 In $ millions |
Exposures subject to risk-weighting |
Risk Weight (%) |
Deductions from Tier1 or Tier 2 Capital |
|
|||
| Equities listed on | |||
| MAS-recognised exchanges | 623 | 150 | 28 |
| Equities not listed on | |||
| MAS-recognised exchanges | 1,553 | 200 | 92 |
|
|||
| Total | 2,176 | 186 | 120 |
|
|||
Equity exposures subject to simple risk weight method are further analysed as follows:
| 2010 In $ millions |
Exposures subject to risk-weighting (in $ millions) |
Exposure-weighted average risk-weight(a) (%) |
|
|
|||
| Major stake companies | 703 | 195 | |
| approved under section 32 of the Banking Act | |||
| Capital investments | |||
| in financial institutions incorporated in Singapore, approved, licensed, registered or otherwise regulated by the Authority <= 2% of Eligible | |||
| Total Capital | 32 | 150 | |
| Other equity exposures | 1,441 | 182 | |
|
|||
| Total | 2,176 | 186 | |
|
|||
(a) Percentages disclosed are before the application of IRBA scaling factor
Details of the Group’s investments in AFS securities and Associates are set out in Notes 21 and 25 to the Financial Statements respectively, while realised gains arising from sale and liquidation of equity exposures are set out in Note 9 to the Financial Statements.
Total unrealised gains for equity that have not been reflected in the Group’s income statement, but have been included in Tier 2 Capital, amounted to $149 million.