ETAPA 060 TECHOS Y FASCIAS

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2.1.2 Credit monitoring Monitoring

A system of alerts and internal renewal reviews is used to detect individual situations in which risk has increased. The system of alerts is based on close monitoring of exceeded limits and on other factors (including automatic re-ratings) that may indicate situations of increased risk or even impairment. Whenever instances of exceeded limits are detected, specific actions are taken by BCV’s credit advisors and analysts. These actions are overseen by a supervisory entity in the CCO’s organization. The system of internal renewal reviews sets a maximum time interval between credit analyses for positions of a given size and for counterparties for which no intervention has been required because no alert has been triggered. This time interval is set according to the nature of the credit and the type of counterparty. Analyzing the loan portfolio

The risk profile of the loan portfolio is reviewed quarterly. Credit- risk exposures and the breakdowns by internal counterparty default rating, by loss given default, by expected loss, and by risk-weighted assets are analyzed for each customer segment and reported to management.

2.1.3 Managing impaired loans Credit recovery management policies

Impaired loans are managed by the Credit Recovery Management Department within the Credit Management Division. Each case is handled according to one of five possible strategies. The choice of strategy is based on established criteria that, for business borrowers, take into account the possibility of successful turnaround as well as the borrower’s willingness to collaborate actively with the Bank.

Provisioning

The Bank establishes specific provisions for each impaired loan. The need for provisions is determined individually for each impaired loan based on an analysis performed according to a clearly defined procedure. In this analysis, collateral is taken at its liquidation value. This is the net amount that the Bank could expect to obtain by liquidating the collateral at current market conditions, after deducting the expenses of realizing the transaction and any costs of owning the collateral. The liquidation value is obtained by applying a haircut determined by the Risk Management Department.

2.2 Interbank credit risk

2.2.1 Risk strategy and lending policy

Credit-risk exposure on other banks arises mainly from treasury management, from BCV’s trading activities in over-the-counter derivatives, from securities and payment transactions (unwinding), and from bank guarantees on trade-finance operations. The Bank reviews the limits applicable to each bank counterparty at least once a year. 2.2.2 Lending authority and monitoring

Authority to approve bank-counterparty limits is expressed in terms of limits on exposures before settlement and maximum settlement exposure. Depending on the magnitude of the limit, interbank credit lines may require the approval of the Board of Directors, the Executive Board Credit Committee or the Bank-Counterparty Committee. Approval limits are specified in the Bank’s lending policy rule book.

The Corporate, Trade Finance and Bank Credit Analysis Department, which reports to the CCO, is responsible for analyzing interbank credit risk and monitoring drawdowns on interbank credit limits.

2.2.3 Collateral management

BCV has entered into collateral management agreements with most of its bank counterparties that cover all its trading activities in over-the-counter derivatives. These agreements significantly reduce the Bank’s exposure to credit risk. 2.3 Exposure to credit risk

The Parent Company’s total lending commitments amounted to CHF 33.2bn at 31 December 2015, a year-on- year decrease of 0.6%. At CHF 2.7bn, bank-counterparty exposures represented 8% of total commitments.

For non-bank-counterparty lending, the Bank’s business is largely with customers located in Vaud Canton and accounts for 81% of total lending. BCV’s corporate loan book reflects the economic structure of the Canton, albeit with a somewhat larger exposure to real estate and construction (41%).

53 2015 Annual Report 52 41% 13% 8% 8% 2% 1% 7% 4% 4% 6% 4% 3% Sector

as a % of on-balance-sheet customer loan exposure, for the parent company, at 31 December 2015

Customer loans by economic sector

Real estate and construction Retail

Healthcare and welfare Finance

Other Manufacturing

Arts & culture and miscellaneous services Government administration and IT

Primary sector

Transport, communication, mining and energy

Hotels and restaurants

Teaching, research and development Dec. 12 28.9 2.4 31.7 0.4 Dec. 13 29.8 2.0 32.1 0.3 Dec. 14 30.8 2.4 33.4 0.2 Dec. 15 30.31) 2.7 33.2 0.2 Due from banks

Non-impaired customer loans

Impaired customer loans

CHF billions, on and off balance sheet, for the parent company1

Customer loans and amounts due from banks

1) _{Excluding financial investments}

Dec. 12 Dec. 13 6% 52% 20% 19% 3% Dec. 14 6% 51% 20% 19% 3% Dec. 15 6% 51% 20% 19% 4% 5% 53% 19% 20% 3% as a % of total non-impaired customer loan exposure,

for the parent company

Corporates

Retail and Private Banking

Real-estate professionals Trade Finance Public-sector entities

Customer loans by segment

Customer loans by geographical zone

as a % of on-balance-sheet customer loan exposure, for the parent company Client domicile 31/12/2014 31/12/2015 Vaud Canton 79% 81% Rest of Switzerland 14% 13% European Union + North America 2% 2% Other 5% 4% Risk Management

The 2015 breakdown by sector was generally stable compared with 2014. Retail and private banking clients remained the largest sector in total non-impaired loan-book exposures, at 53%.

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