Annual Report 2012 - The Cyprus Development Bank

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annual report 2012NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201231. FINANCIAL RISK MANAGEMENTThe Group, as a financial organisation, is exposed to risks, the most important of which are credit risk, market risk, liquidity riskand operational risk.The Group implements internal mechanisms for continuous and systematic monitoring of the above risks in order to avoidexcessive concentration of such risks. The nature of such risks and the manner of dealing with them are explained below:Risk management frameworkThe Group establishes risk management policies to identify and analyse the risks faced by the Group, to set appropriate risk limitsand control procedures, and to continuously monitor such risks as well as the Group’s adherence to limits and controls. Riskmanagement policies are reviewed regularly to reflect changes in market conditions, products and services rendered.(a) Credit riskIn the ordinary course of business the Group is exposed to credit risk. Credit risk emanates from the potential inability ofclients to repay their loans and other credit facilities and the non–compliance with their contractual obligations. Credit riskis monitored through various control mechanisms in order to prevent undue risk concentration and to price facilities andproducts on a risk adjusted basis.The Group establishes the financing policies and sets limits on credit exposures to clients and ensures that these policiesand limits, as well as the related credit sanctioning procedures and controls, are complied with in the conduct of the Group’soperations. The Group takes collateral for the loans and credit facilities it grants to clients. Credit risk from connected clients’accounts is monitored on an aggregated basis. The creditworthiness of clients is assessed using credit rating and creditscoring systems. Provisions for impairment have been made for possible losses that may arise in relation to specific accountsin the portfolio.The Group’s policy relating to suspension of income on loans and advances and provisions for impairment of doubtful accountsis stated in note 3 – Significant Accounting Policies.The Group set limits for the composition of the portfolio of loans and advances and monitors compliance with them. The creditrisk exposure of the Group is diversified across the various sectors of the economy. The terms of loans and advances maybe renegotiated due to deterioration in the client’s financial position. The Group implements a restructuring policy in orderto maximise collection opportunities and minimise the risk of default. The revised terms usually include extending maturity,changing timing of interest and principal payments and amendements of terms of loan covenants.Internal Audit undertakes audits of the Group’s portfolio of loans and advances and of the Group’s credit processes.The Group assesses the credit risk relating to investments in liquid funds, mainly debt securities and placements with banks,and recommendations for counterparty and country limits are submitted to the Assets and Liabilities Committee (ALCO) forapproval.43
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201231. FINANCIAL RISK MANAGEMENT (continued)(a) Credit risk (continued)Concentration of loans and advances:By economic sector:THE GROUP THE COMPANY2012 2011 2012 2011€’ 000 €’ 000 €’ 000 €’ 000Industry 55.238 54.938 52.367 52.460Hotels & catering 43.364 38.496 42.974 38.293Services 212.421 179.081 204.213 175.831Transport and communications 8.538 6.414 6.837 4.496Agriculture 18.540 17.728 15.876 15.223Construction 111.251 96.481 104.013 90.437Other sectors 27.399 18.850 26.578 18.595Analysis of performing loans and advances:476.751 411.988 452.858 395.335THE GROUP THE COMPANY2012 2011 2012 2011€’ 000 €’ 000 €’ 000 €’ 000Carrying amountGrade 1-3: Low-medium risk 311.062 256.070 290.037 240.586Grade 4-5: Special mention 99.913 105.109 97.584 104.183410.975 361.179 387.621 344.769Of which loans and advances with renegotiated terms 73.722 71.265 70.339 70.315Fair value of collateral securityGrade 1-3: Low-medium risk 259.130 183.906 238.105 168.422Grade 4-5: Special mention 95.319 103.324 92.989 102.398354.449 287.230 331.094 270.820Of which loans and advances with renegotiated terms 63.419 58.069 60.036 57.11944
Page 2 and 3: C O N T E N T SPageAdvisers 2Board
Page 4: Board of DirectorsRena Rouvitha Pan
Page 8 and 9: annual report 2012INDEPENDENT AUDIT
Page 10 and 11: annual report 2012INCOME STATEMENTF
Page 12 and 13: annual report 2012STATEMENT OF COMP
Page 14 and 15: annual report 2012BALANCE SHEETAs a
Page 16 and 17: annual report 2012CONSOLIDATED STAT
Page 18 and 19: annual report 2012CONSOLIDATED CASH
Page 20 and 21: annual report 2012NOTES TO THE FINA
Page 64: THE CYPRUS DEVELOPMENT BANK PUBLIC

Annual Report 2012 - The Cyprus Development Bank

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