Importancia de la microempresa en el desarrollo

The Bank also holds a 40% equity investment in Egypt Factors, a company incorporated in Egypt, where the other shareholders are Commercial International Bank (Egypt) holding 40% and International Finance Corporation (“IFC”) holding 20% of the shares. Egypt Factors is active in providing international factoring and forfaiting services to Egyptian and other Middle Eastern exporting companies.

Egypt Factors is included to the Group using the “equity method” of accounting and the investment is deducted from the Group’s Own Funds.

4.

identification of risks

The Group identified the following Pillar 1 and Pillar 2 risks as being significant and manages such risks as detailed below; a. Credit risk and Concentration risk

b. Operational risk – incorporating legal, compliance and insurance risk;

c. Market risk – incorporating foreign currency risk, interest rate risk and other price risk; d. Liquidity risk;

e. Reputational risk;

f. Information Technology risk g. Settlement risk; and h. Strategic and business risk

In the following sections we lay out the manner in which the Group manages and mitigates the above mentioned risks and we also indicate whether such risks are allocated a capital charge under Pillar 1 and Pillar 2.

4.1

pillar 1 risks for which a capital allocation is made

credit risk

Credit risk is the risk that one party to a financial transaction might fail to discharge an obligation and cause the other party to incur a financial loss. The Group finances international trade in many countries worldwide, especially emerging markets, which in turn entails an exposure to sovereign, bank and corporate credit risk respectively. Credit risk is not only akin to loans but also to other on- and off- balance sheet exposures such as letters of credit, guarantees, acceptances and money market operations.

4.1.1.1

minimum capital requirements under pillar 1: credit risk

The Group calculates the overall minimum capital requirement for credit risk using the Standardised Approach to credit risk as defined in BR/04 “Capital Requirements of Credit Institutions Authorised under the Banking Act 1994 “ expressed as 8% of the risk weighted exposure amounts for each of the Standardised Credit Risk Exposure Classes. The table below illustrates the capital requirement for credit risk for 2013.

additional regulatory disclosures (Pillar 3) - continued

4.1.1.2

credit risk management principles and strategy

Strict credit assessment and control procedures are in place in order to monitor credit exposures. The Credit Committee is responsible for overseeing the Group’s credit policy and risk, for approving individual limits for banks and corporates within its delegated parameters of authority as set out in the Statement of Compliance with the Principles of Good Corporate Governance in page 134 of the Annual Report.

All on- and off- balance sheet exposures are approved after a thorough review of the counterparties’ credit worthiness. This is done by primarily evaluating the risk rating of the counterparty by reference to established Rating Agencies. In the absence of this and when it is deemed appropriate to do so, review is also done by means of other assessment criteria, including but not limited to, financial statement review.

The Group also ensures that it has a reasonable mix of loans to customers. This diversification of credit among different economic sectors is a policy adopted by the Group to control such risks. The Group also monitors its risk on balances held with other banks by establishing bank and country limits. The risks associated with off- balance sheet assets and liabilities arise from the normal course of banking operations. In the case of risks associated with inter-bank participants under letters of credit, the Group exercises the same credit controls as those applied to on-balance sheet risks. The Group maintains a prudent provisioning policy in accordance with the applicable laws and regulations to ensure that losses are immediately recognised in the income statements. Efforts at recovering losses incurred in past financial periods are continuous. To this purpose, legal proceedings have been undertaken in the courts of competent jurisdiction.

4.1.1.3

credit risk limit setting and monitoring

Over the years, the Group has established policies requiring limits on counterparties, countries as well as specific sectors, and industries, thus ensuring a more diversified on- and off- balance sheet lending portfolios.

Single-name counterparty limits follow the prudential rules adopted throughout European banking legislation (in Malta BR/02), which apply maximum limits for large exposures. A large exposure is defined as a consolidated exposure to a single entity or an economic group that exceeds 10% of a bank’s regulatory capital (Tier 1 plus Tier 2). The maximum limit for non-institutions is 25% of regulatory capital. The maximum limit for institutions is determined by the Group and shall not exceed 100% of regulatory capital. It must also be noted that a further prudential rule-of-thumb followed by the Group on large exposures is that initial lending limits for new counterparties are usually set at a much lower level than the group’s legal lending limit. These limits might either remain at the original level, based on ongoing credit research on the name, or build up towards the legal lending limit in a gradual manner, as the knowledge of the counterparty by the bank consolidates through time.

Concentration risk by geographical region/country is monitored by the Executive Committee, which set up a specific policy for country risk concentration. This policy defines a ceiling – in terms of percentage of the Group’s Own Funds - for each individual country exposure, which is linked to the rating granted to each country by international rating agencies. The ceiling increases (up to a maximum of 100% of the Bank’s Own Funds for investment grade countries) with the rating of the country. As for single-name limits, country limits do not automatically increase to the pre-defined ceiling, as the initial assessment is based on the country’s specific economic, financial and political risk conditions.

Concentration risk by sector is mitigated by the particular nature of the Group’s business, i.e. a specialised trade finance institution with a focus on Emerging Markets. Most of the bank’s exposure relates to banks’ risk, located in a number of geographies and hence diversified by virtue of the country limit policy specified in the above paragraph, which usually guarantee/confirm the payment risk of the importers under international trade finance operations. Exposure to particular sectors is monitored indirectly through monitoring of the trends of the underlying commodities. Exposure to corporate entities in many cases consists of bridge financing towards a sale of goods/commodities eventually covered by a bank guarantee (provided by the bank of the ultimate buyer of the goods). Other specialised sectors of exposure, in particular shipping pre-demolition finance, which are collateralised through a mortgage on each vessel financed, are assigned an overall sector limit by the Bank’s Risk Committee, which is reviewed regularly.

4.1.1.4

collateral and credit risk mitigation

In addition, the Group also makes use of different types of collaterals, all aimed at mitigating credit risk within on- and off- balance sheet credit facilities.