Untitled - Saxo World

NOTES – saxo bank risk managementCredit riskCredit risk is defined as the risk that counterparts of theBank fail to fulfil their agreed obligations.Being an online trading and investment bank that is notengaged in traditional lending activities, Saxo Bank’s creditrisk exposure is deemed to be of less significance thanmarket risk exposure.The Bank operates in accordance with the credit policyapproved by the Board of Directors. The policy sets guidelineson accepted counterparties and thereby diversificationof the Bank’s engagements. The policy also setsguidelines on counterparty credit limits, considering creditworthiness,geography and other measures aiming atminimising the credit risk undertaken. Furthermore, thepolicy addresses accepted forms of collateral as well asleverage factors on individual instrument classes for margintrading. The policy is revised as needed and at leastonce a year.The Bank has set limits of authority and has segregatedduties so as to maintain impartiality during limit setting,the approval process and the following control hereof.Limit setting is done based on client classification. An internalcredit evaluation is performed and daily monitoringis performed on issued lines. A periodic line utilisation reviewis performed to monitor and follow up on issuedlines. All lines are re-evaluated at least once a year.The credit risk due to counterparts’ loss on margin tradingrisk is monitored on a real-time basis, automatically andmanually, with the execution of risk mitigative interventionin due time to avoid any credit loss situation occurring.As mentioned the Bank does not engage in traditionallending activities. These two factors have been fundamentalin the Bank’s ability to handle the 2008-09 creditcrisis.The Bank is exposed to four main sources of credit andcounterparty risk as described below.Margin sufficiencyThe first type of credit risk arises as a result of losses sustainedby the counterpart on margin trading. This risk ismonitored on a real-time basis, both automatically andmanually, with the execution of stop-outs in due time toavoid credit loss situations.Credit linesThe second type of credit risk arises as a result of creditlines offered to certain counterparties subject to credit assessment.Deposits, bills and interest bearing assetsThe third type of credit risk arises as a result of the Bank’splacement of funds with credit institutions or in bills andbonds.Credit riskAt 31 december(DKK 1,000) Saxo Bank Group Saxo Bank A/SCredit risk, derivative financial instruments 2009 2008 2009 2008Positive market value, counterparty with risk weighted of 20% 365,181 747,174 365,181 747,174Positive market value, counterparty with risk weighted of 100% 915,221 1,226,403 915,221 1,226,403Total credit risk, derivative financial instruments 1,280,402 1,973,577 1,280,402 1,973,577Provisions against loans, advances and guarantees 11,788 4,587 11,788 4,587ANNUAL REPORT 2009 · SAXO BANK · 69