Annual report 2010 - Dexia.com

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Risk managementManagement reportConsolidatedfinancial statementsAdditional information Annual financial statementsFinancialinstitutions• In contrast, a faster recovery in the US economy by 18 monthscompared to the “base case” would decrease the expectedeconomic losses to USD 1.3 billion.Assuming the materialization of one of those scenarios,Dexia’s regulatory solvency ratio is immune from provisionsand losses on the Financial Products portfolio in line with theState guarantee mechanism (1) .Lastly, Dexia launched an active Central work-out process to optimizerecoveries on the US RMBS portfolio governments in 2011, with a dedicatedand experienced team 11.7%13.6% in New York, and filed lawsuits againstIndividuals,different stakeholders involved in the US RMBS market.SMEs andself-employed However,8.8%at this stage no potential positive impact of suchlitigation has been taken into account in the Group’s financialFinancialCentralProject financeinstitutions statements. 3.5%governments4.8% 11.7%ABS/MBS13.6%Individuals, Credit risk exposure (2) 46.2%2.1%SMEs Monolines andself-employed9.3%Corporate 8.8%The credit-risk exposure includes: PublicProject financesector• 3.5% the net carrying amount for balance-sheetentitiesassets other thanderivative 4.8% contracts (i.e. the accounting value after deductionABS/MBS46.2%Monolinesof specific 2.1% provisions);• the market 9.3% value for derivative contracts;Corporate • the fully committed amount for Public off-balance-sheet commitments:the full commitment is either sector the undrawn portion ofentitiesliquidity facilities or the maximum amount Dexia is committedto pay for the guarantees granted to third parties.When credit-risk exposure is guaranteed by a third party witha lower risk weight, the principle of substitution is applied.The credit-risk exposure includes fully consolidated subsidiariesof the Dexia Group and 50% of the joint venture RBC DexiaInvestor Services.Total Group credit risk exposure is EUR 547,617 million as at31 December 2010.Exposure by category of counterpartyas at 31 December 2010The mix of counterparties in Dexia’s portfolio is very stable.Half of the exposure is on the local public sector.FinancialinstitutionsIndividuals,SMEs andself-employedProject financeABS/MBSMonolinesCorporate8.8%3.5%4.8%2.1%13.6%9.3%11.7%Centralgovernments46.2%PublicsectorentitiesNote: the counterparties are the final counterparties, i.e.after taking into account the Basel II eligible guarantee(substitution principle). Monolines exposure is essentially anindirect exposure.Exposure by geographical region as at31 December 2010As at 31 December 2010, the Group’s exposure was mainlyconcentrated in the European Union (75.1%, EUR 411.3 billionat year-end 2010), particularly in France (18.2%) and Belgium(20.3%).Turkey 2.7% United States and Canada 13.7%Spain 6.3% Belgium 20.3%South andCentralAmerica 0.7%South-eastTurkey Asia 2.7% 0.5% United States and Canada 13.7% France 18.2%Spain Rest 6.3% ofEurope 2.0%Belgium 20.3%South andCentral Portugal 1.1%America Other 0.7% 3.6%South-eastAsiaOther EuropeanUnion0.5%countriesGermany France 18.2% 6.7%Rest9.4%ofEurope 2.0%Greece 1.0%Ireland 0.4%Portugal Luxembourg 1.1% 2.4% Japan 1.7%Italy 9.3%Other 3.6%Other EuropeanUnion countriesGermany 6.7%9.4% Exposure by rating Not class rated as at 31 December Greece 1.0% 2010As at 31 DLuxembourg AAAAT IONDecember 2010, about half of Ireland Dexia’s 0.4% exposure2.4% Japan 1.7%was rated AAA or AA. Only 10% Italy was 9.3% rated Non-InvestmentNIG13.7%Grade (NIG).AT IONNIGBBBABBBAD19.8%19.8%9.6%9.6%0.4%0.4%Not rated6.0%6.0%19.4%13.7%AAA31.1%31.1%AAAATurkey 19.4% 2.7% United States and Canada 13.7%Spain 6.3% Belgium 20.South andCentralAmerica 0.7%South-eastAsia 0.5%FranceRest ofEurope 2.0%Portugal 1.1%Other 3.6%Other EuropeanUnion countries9.4%Luxembourg 2.4%AT IONNIGGermany 6Greece 1.0%Ireland 0.4%Japan 1.7%Italy 9.3%DNot rated9.6%0.4%6.0%13.7%AAA(1) More information on the State guarantee is given in the note 9.4.C. to theconsolidated financial statements in this annual report (page 184).(2) More information is given in the note 12.2. “Credit risk exposure” to theconsolidated financial statements in this annual report (page 210).BBB19.8%31.1%AA82 Dexia Annual report 2010A19.4%
Risk managementBreakdown of government bond portfolio on a selection of european countriesThe government bond portfolio on Greece, Ireland, Italy, Portugal and Spain amounted to EUR 21,958 million as at 31 December2010, down EUR 3,802 million compared to 31 December 2009.31 December 2009(in millions of EUR)Totalo/w bankingbooko/w insurancebooko/w tradingbookGreece 5,135 3,772 1,340 23Ireland 143 141 2 1Italy 15,237 13,352 1,873 11Portugal 3,172 2,751 384 37Spain 2,072 1,697 360 15TOTAL 25,760 21,714 3,959 8731 December 2010(in millions of EUR)Totalo/w bankingbooko/w insurancebooko/w tradingbookGreece 4,266 3,437 828 1Ireland 326 0 326 0Italy 13,502 12,354 1,143 5Portugal 2,162 1,927 235 0Spain 1,702 1,373 314 15TOTAL 21,958 19,091 2,846 21Management reportAsset qualityIn 2010, impaired loans and advances to customers increasedby 16% to EUR 5.6 billion mainly due to the FinancialProducts portfolio but also to some commitments in thePublic and Wholesale Banking business. This rise was coupledwith a 21% increase of the specific impairments on loansand advances to customers which reached EUR 3.2 billion.As a result, the coverage ratio stood at 57.9% compared to55.3% in 2009.improving credit environment in Turkey, reversals of collectiveimpairments in Public and Wholesale Banking also reflectingan improvement of the environment (more particularly insectors like shipping, ports and highways) and reversals ofcollective impairments for ABS and subordinated debt relatedto the bond portfolio in run-off. On the other hand, 2010was marked by higher impairments on the Financial Productsportfolio taking into account more conservative assumptionson the US RMBS Market.Consolidatedfinancial statementsOverall, Dexia’s cost of risk (impairments on loans andprovisions for credit commitments) fell sharply in 2010.The Group benefited from a decrease of the cost of riskin Retail and Commercial Banking mainly due to a rapidlyasset quality(in millions of EUR, except where indicated) 31/12/09 31/12/10Impaired loans and advances to customers 4,808 5,554Specific impairments on loans and advances to customers 2,657 3,214Assets quality ratio (1) 1.4% 1.6%Coverage ratio (2) 55.3% 57.9%(1) The ratio between the impaired loans and advances to customers and the gross outstanding loans and advances to customers.(2) The ratio between the specific impairments on loans and advances to customers and the impaired loans and advances to customers.Additional information Annual financial statementsAnnual report 2010 Dexia83
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Annual report 2010 - Dexia.com

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