Credit risk is the risk of loss if another party fails to perform its obligations or fails to perform them in a timely fashion and arises mainly from the lending and treasury activities of our Banking division. Our loan book is well spread, short term, secured and with a low average loan size in order to avoid concentration risk. As a general principle, the group avoids the risk of multiple exposures to one counterparty, for example, we do not normally lend to a corporate finance advisory client, nor does one lending subsidiary seek to lend to customers of another lending subsidiary. Credit risk resulting from our lending activities is controlled by a number of local credit committees within centrally set limits of authority. For transactions above such limits, there is a group Credit Committee. The credit quality of our counterparties with whom we place deposits or whose certificates of deposit or floating rate notes we buy are monitored by the Treasury Committee which establishes specific limits. These counterparties have, almost exclusively, a credit rating of “AA” or better.

Credit risk in our Securities division is limited as our businesses in that division trade in the cash markets with regulated counterparties on a delivery versus payment basis such that any credit exposure is limited to price movements in the underlying securities. Counterparty exposure and settlement failure monitoring controls are in place.