Annual report 2009-OK.qxp - Canadia Bank Plc.

Canadia Bank Plc.31. FINANCIAL RISK MANAGEMENT (continued)31.1 Credit risk (continued)a) Credit risk measurementThe Bank assesses the probability of default of individual counterparties using internal rating tool. Creditcommittee is responsible for determining the risk rating for each borrower.In measuring credit risk of loans and advances to customers at a counterparty level, the Bank reflects the ninerisk rating grades which are: (i) minimal risk, (ii) below average risk, (iii) average risk, (iv) above average risk, (v)higher than above average risk but still acceptable, (vi) watch, (vii) substandard, (viii) doubtful and (ix) loss.Risk ratings are reviewed and updated at least annually, and in event of change of loan terms and conditionsincluding extension; repayment irregularities or delinquencies; and adverse information relating to theborrower or transaction.b) Risk limit control and mitigation policiesThe Bank operates and provides loans and advances to individuals or enterprises within the Kingdom ofCambodia.The Bank manages, limits and controls the concentration of credit risk whenever it is identified. Largeexposure is defined by the NBC as overall credit exposure to any individual beneficiary which exceeds 10% ofthe Bank's net worth.The Bank is required, under the conditions of Prakas No. B7-06-226, to maintain at all times a maximum ratio of20% between the Bank's overall credit exposure to any individual beneficiary and the Bank's net worth. Theaggregation of large credit exposure must not exceed 300% of the Bank's net worth.The Bank employs a range of policies and practices to mitigate credit risk.The most traditional of these is the takingof security in the form of collateral for loans and advances to customers.The Bank implements guidelines onthe acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types assecurity for loans and advances to customers are:• Mortgages over residential properties (land, building and other properties);• Charges over business assets such as land and buildings; and• Cash in the form of margin deposits.61Annual Report 2009c) Impairment and provisioning policiesThe Bank is required to follow the mandatory credit classification and provisioning in accordance with PrakasB7-09-074 dated 25 February 2009. The NBC requires commercial banks to classify their loan portfolio into fiveclasses and the minimum mandatory level of specific provision is made depending on the classificationconcerned and regardless of the assets (except for cash) pledged as collateral, as follows: