Themes: -
Period : 2003
Organization : ABN AMRO
Pub Date : 2003
Countries : Global
Industry : Banking
Provisioning Policy |
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Difficult credit conditions continued in the US through 2002 and resulted in provision levels of 62 bps of average RWA. Most sectors, including the commercial and asset-based lending businesses were affected. The commercial real estate portfolio remained resilient because of conservative underwriting. In Brazil, provisions of EUR 193 million (unchanged from 2001) were mainly on account of consumer lending and charges related to discontinued (1999) USD car leasing portfolios. Provisions moved from 250 bps of average RWA to 265 bps in 2002. Credit protection measures instituted by local risk committees and GRM enabled ABN AMRO to weather the market volatility and economic turmoil in the region. ABN Amro believed that the quality of the local C&CC portfolio remained satisfactory.
Wholesale Clients
Provisions increased to EUR 742 million from EUR 543 million in 2001, due to difficulties in the telecom, integrated energy sectors, as well as in Argentina. Provisions were also adversely affected by corporate governance and disclosure malpractices, which led to unexpected and specific corporate failures, notably in the US. Nevertheless, the bank considered current provision levels to be adequate.
Country Risk
ABN Amro managed emerging market country risk, on a portfolio basis. The cross-border exposure measurement covered all on- and off- balance sheet assets that were directly affected by transfer and convertibility restrictions. ABN AMRO had been monitoring cross-border exposure for many years by using a VAR model to determine the cross-border risk on the total portfolio. In absolute terms, cross-border exposure in 2002 fell by 4.3% compared with 2001. This decline was mostly due to lower exposure to Latin America, mainly Brazil and Argentina. At end of 2002, cross-border exposure to Brazil accounted for 18.1% of the total cross-border risk exposure. Of this amount, 76% was mitigated since it was trade-related or insured.