Annual report 2010 - Dexia.com

Notes to the consolidated financial statementsCredit quality of DenizBank's financial assetsAs Dexia rating methodology is not yet fully implementedin DenizBank's organisation, and as few external ratingsare available on Turkish exposures, Dexia reports the creditquality in a separate column. The average credit quality ofDenizBank's financial assets remains closely linked to therating of the Turkish government (internal rating: BB+ stable(foreign currency) / BBB- stable (local currency)).In 2010, the management and monitoring of DenizBankcredit risks continued to be more integrated into Dexia'sglobal credit risk management, particularly with the ongoingdevelopment of internal rating systems specific to Turkishcounterparties aimed at covering the main asset categories, anincreased participation in the different committees at Grouplevel as well as the adaptation and integration of policies andguidelines of the Dexia Group.The average credit quality of DenizBank financial assetsremains closely linked to the rating – positive evolution in2010 – of the Turkish sovereign (internal rating 2010: BB+stable (foreign currency) / BBB- stable (local currency); internalrating 2009: BB- positive (foreign currency)/ BB+ positive (localcurrency)). In fact, a financial asset cannot have a higher ratingthan that of the State where it is issued. As the DenizBankportfolio is composed of 90% of Turkish assets, the majorityof the DenizBank financial assets remain therefore in the“Non-Investment Grade“ category.Detail on the credit quality of the most significant financialassets:• The Corporate & MidCorporate portfolio is entirely composedof Turkish counterparties or related to. The credit risk of thisportfolio is therefore closely linked to the evolution of theTurkish economy. Each of these counterparts is rated annuallywith a Basel II compliant internal rating system, specificallydeveloped for Turkish counterparts, the calibration of whichis on the basis of an average rating BB- area (in 2009 it hasbeen realised on the basis of an average rating between B+et BB-);• DenizBank's financial assets on financial institutions as at theend of 2010 are mainly on “Investment Grade“ internationalbanks. The remaining exposures are concentrated on Turkishbanks with an average rating between BB and BBB (averagerating of BB in 2009);• Exposure to the central government and assimilated to issolely associated with Turkish sovereign risk;• Exposure to the local public sector has a rating betweenB and BB+ (in 2009, the rating was between B and BB-), aconsequence of the rules set by the Dexia credit committeefor this type of assets;• The credit-risk profile of the Retail & PME portfolio ismonitored by the Retail Expertise Centre of the Dexia Groupand is also included in the quarterly risk reviews of thisactivity. Specific PD (Probability of Default) and LGD (LossGiven Default) models have been developed and are beingdeveloped for the Retail & PME parts (including agriculture)and will be completely deployed during the 2011 financialyear.Management reportConsolidatedfinancial statementsAdditional information Annual financial statementsAnnual report 2010 Dexia217