NEDBANK CAPITAl - Nedbank Group Limited

Counterparty credit riskCounterparty credit limits are set at an individual counterparty level and approved within the Group Credit Risk ManagementFramework. Counterparty credit exposures are reported and monitored at both a business unit and group level. To ensure thatappropriate limits are allocated to large transactions, scenario analysis is performed within a specialised counterparty risk unit.Based on the outcome of such analysis, proposals regarding potential risk-mitigating structures are made prior to final limitapproval. Limits for our Corporate and Business Banking businesses favour a nominal limit to facilitate monitoring.There is continued emphasis on the use of credit risk mitigation strategies, such as netting and collateralisation of exposures.Nedbank Group and its large bank counterparties have International Swaps and Derivatives Association (ISDA) and InternationalSecurities Market Association (ISMA) master agreements as well as credit support (collateral) agreements in place to supportbilateral margining of exposures. Limits and appropriate collateral are determined on a risk-centred basis.Netting is applied only to underlying exposures where supportive legal opinion is obtained as to the enforceability of the relevantnetting agreement in the particular jurisdiction. Margining and collateral arrangements are entered into in order to mitigatecounterparty credit risk. Haircuts, appropriate for the specific collateral type, are applied to determine collateral value. Marginingagreements are pursued with interbank trading counterparties on a proactive basis. Margining thresholds constitute unsecuredexposure to the counterparty and are assessed as such. To deal with a potential deterioration of counterparty credit risk over the lifeof transactions thresholds are typically linked to the counterparty external credit rating.Nedbank Group applies the Basel II Current Exposure Method (CEM) for counterparty credit risk. Economic capital calculations alsocurrently utilise the Basel II CEM results as input in the determination of credit economic capital.Over-the-counter (OTC) derivatives for Nedbank Limited and London branchGROUP REPORTSOTC derivative products2009 2008RmNotionalvalueGross positivefair valueNotionalvalueGross positivefair valueCredit default swaps 2 272 8 2 104 2Equities 1 155 4 497 778Forex and gold 189 601 6 437 215 724 14 807Interest rates 358 738 5 470 324 480 8 598Other commodities 45 302 13 599Precious metals except gold 2 56 4 36Total 550 658 13 428 546 822 24 820OTC derivative productsNettedcurrent creditexposure(premitigation)Nettedcurrent creditexposure(postmitigation)RmGrosspositivefair valueCurrentnettingbenefitsCollateralamountExposure-atdefaultvalueRisk-weightedexposure2009 13 428 7 028 6 963 779 6 443 9 566 3 0182008 24 820 13 272 10 581 1 796 8 996 12 861 3 138OPERATIONAL REVIEWSGOVERNANCEOVERVIEW155NEDBANK GROUP ANNUAL REPORT 2009