Annual report 2009 - Santander

1623.6. Other standpoints of credit riskThere are spheres and/or specific points in credit risk thatdeserve specialised attention and which complement globalmanagement.A. Risk of concentrationControl of risk concentration is a vital part of management. TheGroup continuously tracks the degree of concentration of itscredit risk portfolios using various criteria: geographic areas andcountries, economic sectors, products and groups of clients.Distribution of risk by sector%h-55%i-2%a-7%b-5%c-5%d-4%e-4%f-2%The Board’s Risks Committee establishes the policies and reviewsthe appropriate exposure limits for appropriate management ofthe degree of concentration of credit risk portfolios.The Group is subject to the Bank of Spain regulation on largerisks. In accordance with Circular 3/2008, no individual oreconomic group exposure, including all types of credit risks andequities, can exceed 25% of the Group’s shareholders’ equity.The total of large risks (those that exceed 10% of eligible equity)cannot be more than eight times higher than equity (excludedfrom this are exposures to OECD governments and centralbanks).At December 31, 2009, there was only one economic groupclassified as a large risk (11.15% of equity) and it correspondedto a British financial group with an internal rating equivalent toA. After applying risk mitigation techniques and the rules forlarge risks, the percentage came down to 1.67% of eligibleequity (consumption of 6.7% of the limit of 25% established bythe Bank of Spain).a. Real estate activityb. Prod. and distrib. electricity, gas and waterc. Construction and public worksd. Commerce and repairse. Transport and communicationsg-16%f. Food, drink and tobaccog. Resth. Individualsi. Other financial intermediaries(*) Rest includes sectors with concentrationbelow 2%.The Group’s Risks Division works closely with the FinancialDivision to actively manage credit portfolios. Its activities includereducing the concentration of exposures through varioustechniques such as using credit derivatives and securitisation tooptimise the risk-return relation of the whole portfolio.At December 31, 2009, the 20 largest economic and financialgroups, excluding AAA governments and sovereign securitiesdenominated in local currency, represented 6.7% of theoutstanding credit risk of the Group’s clients (lending plusguarantees).The distribution of the portfolio of companies by sectors isadequately diversified. The chart below shows the distribution ofthe credit exposure in the Group’s main units (excludingSovereign).Annual Report 2009 Risk management