Annual Accounts and Report as at 30 June 2011 Draft - Mediobanca

Corporate banking (Mediobanca)The Group’s internal system for managing, evaluating and controlling creditrisk reflects its traditional policy based on a prudent and highly selectiveapproach. Lending decisions are based on individual analysis, which builds onadequate and often extensive knowledge of the borrower’s business, assets andmanagement, as well as the macro-economic framework in which it operates.Where possible, covenants are incorporated into the terms and conditions of theloan (having regard inter alia to the maturity and average size of the facilitiesconcerned) in order to provide for protection against impairment. Applications forfinance are processed through the different operating levels, and, if successful,are submitted for approval to the relevant bodies, i.e. the Risks Committee andExecutive Committee, depending on the amount required and the credit rating ofthe counterparty involved, including both internal and external ratings. Once thefinance has been disbursed the account is monitored on an ongoing basis, viaanalysis of published financial statements and a series of other controls to ensurethat the covenants have not been breached. Any deterioration in the risk profile ofa loan is brought swiftly to the attention of the Bank’s operating unit’smanagement.LeasingIndividual applications are processed using similar methods to thosedescribed above for corporate banking. Applications for leases below apredetermined limit received via banks with which Mediobanca has agreementsin place are approved by the banks themselves, against written guarantees fromthem covering a portion of the risk. At SelmaBipiemme and Teleleasing,applications for assets worth less than €75,000 are approved using a creditscoring system developed on the basis of historical series of data, tailored to bothasset type and the counterparty’s legal status (type of applicant company).Sub-standard accounts are managed in a variety of ways which prioritizeeither recovery of the amount owed or the asset under lease, according to thespecific risk profile of the account concerned. All non-performing, sub-standardand restructured accounts plus those considered to be at “high risk” are testedanalytically to establish the relative estimated loss against the value of thesecurity provided and/or any other form of real or personal guarantees issued.Other performing accounts are measured individually on the basis of statistics.152 –