Annual Report & Accounts 2009 - Anglo Irish Bank

Treasury credit risk
Anglo Irish Bank
Annual Report & Accounts 2009
At 31 December 2009, the top 20 customer groups (as defined by the Irish Financial Regulator), including loans classified as
held for sale, represented €14.8bn or 21% (30 September 2008: €13.9bn or 19%) of the Group's total loans and advances to
customers and loans classified as held for sale before provisions for impairment. 15 of the top 20 customer groups are
scheduled for transfer to NAMA and included in assets classified as held for sale at 31 December 2009. Excluding these loans,
the remaining top 20 customer groups represent €8.8bn or 24% of the Group's loans and advances to customers before
provisions for impairment.
The Treasury Credit Risk team manages credit risk inherent in all Group Treasury business including interbank activity, derivative
transactions and investment in debt securities. The Group's policy on treasury credit risk is set out in a detailed credit policy
that has been approved by the Risk and Compliance Committee. Limits are assessed and proposed by an independent credit
team within Group Risk Management and are presented for consideration at the weekly Treasury Credit Committee meeting.
The Group uses external ratings and market information, supplemented by internal analysis, to assess the risks associated with
treasury assets. The performance of all asset-backed securities is monitored closely through monthly trustee reports and rating
agency commentary. Impairment is monitored on a monthly basis and recognised when there is objective evidence that a
specific financial asset is impaired. A range of factors are used in recognition of impairment, which can vary depending on the
nature of the underlying assets or collateral but will typically include a significant or prolonged decline in the fair value of the
security, the level of over-collateralisation, and adverse credit ratings action.
Settlement risk arises in any situation where a payment in cash or securities is made in the expectation of a corresponding
receipt in cash or securities. The settlement risk on many transactions, particularly those involving securities, is substantially
mitigated when effected via assured payment systems or on a delivery-versus-payment basis. Each counterparty's credit profile
is assessed and clearing agents, correspondent banks and custodians are selected with a view to minimising settlement risk.
The most significant portion of the Group’s settlement risk exposure arises from foreign exchange transactions. Daily settlement
limits are established for each counterparty to cover the aggregate of all settlement risk arising from foreign exchange
transactions on a single day.
For the majority of the Group's interbank counterparties, settlement risk is effectively eliminated through the use of Continuous
Linked Settlement ('CLS'). CLS is a real-time, global settlement system which minimises settlement risk and is operated by CLS
Bank, which is supervised and regulated by the US Federal Reserve.
Treasury credit risk is also influenced by country risk, where country risk is defined as the risk that circumstances arise in which
customers and other counterparties within a given country may be incapable of, or precluded from, fulfilling their obligations
to the Group due to economic or political circumstances. Group Risk Management sets appropriate country risk limits, taking
into consideration independent credit information from well established international sources. These limits reflect the country’s
overall credit worthiness and are monitored on an ongoing basis. Country concentrations are addressed through the country
risk policy, which specifies risk appetite by country and avoids excessive geographic risk concentration.
119