REG - Alpha Bank A.E. - Annual Financial Report <Origin Href="QuoteRef">ACBr.AT</Origin> - Part 10
31/03/2017 07:07
- Part 10: For the preceding part double click ID:nRSe0956Bi
following companies were included:
Banks
1. Alpha Bank Srbija A.D.
Real Estate and Hotel
1. Alpha Real Estate D.O.O. Beograd
Special purpose and holding entities
1. AGI-SRE Ariadni DOO
Ireland
Income in Ireland on 31.12.2016 amounted to E 383 thousand.
Special purpose and holding entities
1. Alpha Proodos D.A.C.
Romania
Income in Romania on 31.12.2016 amounted to E 159,666 thousand, results before tax amounted to profit E 20,286 thousand,
taxes on results amounted to E(4,533) thousand, the number of employees was 1,882 and the following companies were
included:
Banks
1. Alpha Bank Romania S.A.
Leasing companies
1. Alpha Leasing Romania IFN S.A.
Investment Banking
1. SSIF Alpha Finance Romania S.A.
Insurance
1. Alpha Insurance Brokers S.R.L.
Real Estate and Hotel
1. Alpha Astika Akinita Romania S.R.L.
2. AGI-RRE Participations 1 S.R.L.
3. Romfelt Real Estate S.A.
4. AGI-RRE Zeus S.R.L.
5. AGI - RRE Athena S.R.L.
6. AGI - RRE Poseidon S.R.L.
7. AGI - RRE Hera S.R.L.
8. AGI-RRE Venus S.R.L.
9. AGI-RRE Cleopatra S.R.L.
10. AGI-RRE Hermes S.R.L.
11. SC Cordia Residence S.R.L.
12. SC Carmel Residential S.R.L.
13. Asmita Gardens S.R.L.
14. Ashtrom Residents S.R.L.
15. Cubic Center Development S.A.
Albania
Income in Albania on 31.12.2016 amounted to E 22,924 thousand, results before tax amounted to losses E(10,238) thousand,
tax on results amounted to E(92) thousand the number of employees was 415 and the following companies were included:
Banks
1. Alpha Bank Albania SH.A.
FYROM
Income in FYROM on 31.12.2016 amounted to E 2,090 thousand, results before tax amounted to losses E(991) thousand, tax on
results amounted to E 21 thousand.
Banks
1. Alpha Bank AD Skopje
Real Estate and Hotel
1. Alpha Astika Akinita D.O.O.E.L. Skopje
Neither the Bank nor the Group companies have received any public subsidies. According to article 82 of Law 4261/5.5.2014
with which incorporated into Greek legislation the article 90 of Directive 2013/36/EU of the European Parliament and of the
Council of 26 June 2013 is established the requirement to disclose the total return on assets.
The overall performance of the assets of the Group* for the year of 2016 amounted to 0.1% (31.12.2015: (1.9)%).
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* In accordance with the guidance of European Securities and Markets Authority (ESMA), the definition and the detailed
calculation of the ratio is included in the appendix of the Annual Financial Statements.
40. Operating segments
a. Analysis by operating segment
(in millions of Euro)
1.1-31.12.2016
Retail CorporateBanking Asset Management/Insurance Investment Banking/ Treasury South-Eastern Europe Other Group
Net interest income 1,001.7 684.8 14.7 (38.3) 257.8 3.4 1,924.1
Net fee and commission income 111.3 136.3 35.6 8.3 25.0 1.4 317.9
Other income 6.9 12.6 (1.5) 66.5 39.1 18.2 141.8
Total income 1,119.9 833.7 48.8 36.5 321.9 23.0 2,383.8
Total expenses* (664.3) (153.5) (26.7) (29.7) (182.2) (137.4) (1,193.8)
Impairment losses (352.2) (536.4) - - (273.8) (5.6) (1,168.0)
Cost for Voluntary Separation Scheme (31.7) (31.7)
Profit/(losses) before income tax 103.4 143.8 22.1 6.8 (165.8) (120.0) (9.7)
Income tax 29.2
Profit/(losses) after income tax from continuing operations 19.5
Profit/(losses) from discontinued operations 22.8 22.8
Profit/(losses) after income tax 42.3
Assets 31.12.2016 24,887.3 15,379.1 380.7 10,436.6 8,813.3 4,975.3 64,872.3
Liabilities 31.12.2016 22,459.0 5,809.3 1,658.7 19,634.3 6,125.6 72.0 55,758.9
Capital expenditure 74.0 73.9 1.9 1.3 25.0 9.9 186.0
Depreciation and Amortization (53.4) (20.2) (1.6) (2.1) (10.3) (9.8) (97.4)
(in millions of Euro)
1.1-31.12.2015
Retail CorporateBanking Asset Management/Insurance Investment Banking/ Treasury South-Eastern Europe Other Group
Net interest income 1,027.2 728.4 16.4 (147.2) 272.1 0.6 1,897.5
Net fee and commission income 106.8 133.9 43.5 (3.2) 26.2 1.4 308.6
Other income 3.1 12.3 1.0 82.1 (4.4) (89.2) 4.9
Total income 1,137.1 874.6 60.9 (68.3) 293.3 (87.2) 2,211.0
Total expenses* (669.7) (148.3) (30.4) (31.4) (182.1) (140.7) (1,202.6)
Impairment losses (1,328.4) (1,334.6) - (2.6) (320.9) (1.1) (2,987.6)
Provision for Voluntary Separation Scheme (64.3) (64.3)
Profit/(losses) before income tax (861.0) (608.3) 30.5 (102.3) (209.1) (293.3) (2,043.5)
Income tax 806.8
Profit/(losses) after income tax from continuing operations (1,236.7)
Profit/(losses) from discontinued operations (134.8) (134.8)
Profit/(losses) after income tax (1,371.5)
Assets 31.12.2015 25,189.1 16,711.1 483.5 11,943.3 9,808.8 5,161.7 69,297.5
Liabilities 31.12.2015 22,417.8 4,827.8 1,359.0 25,038.3 6,309.0 292.4 60,244.3
Capital expenditure 58.6 30.5 1.4 0.9 9.4 6.8 107.6
Depreciation and Amortization (54.5) (19.3) (2.1) (2.2) (9.1) (15.4) (102.6)
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* Excluding the cost/provision for separation schemes.
i. Retail Banking
It includes all individuals (retail banking customers), professionals, small and very small companies operating in Greece
and on abroad, except from South-Eastern Europe countries.
The Group, through its extended branch network, offers all types of deposit products (deposits/ savings accounts, working
capital/ current accounts, investment facilities/ term deposits, Repos, Swaps), loan facilities (mortgages, consumer,
corporate loans, letters of guarantee) and debit and credit cards of the above customers.
ii. Corporate Banking
It includes all medium-sized and large companies, with international activities, corporations with international business
activities, entrerprises which cooperate with the Corporate Banking Division, as well as shipping corporations operating in
Greece and on abroad except from South Eastern European countries. The Group offers working capital facilities, corporate
loans, and letters of guarantee of the abovementioned corporations. This sector also includes leasing products which are
provided by Alpha Leasing A.E. as well as factoring services which are provided by the subsidiary company ABC Factors A.E.
iii. Asset Management/Insurance
It consists of a wide range of asset management services offered through Group's private banking units and its subsidiary,
Alpha Asset Management A.E.D.A.K. In addition, it includes income received from the sale of a wide range of insurance
products to individuals and companies through either AXA insurance, which is the corporate successor of the subsidiary
Alpha Insurance A.E. or the subsidiary Alphalife A.A.E.Z.
iv. Investment Banking/Treasury
It includes stock exchange, advisory and brokerage services related to capital markets, and also investment banking
facilities, which are offered either by the Bank or specialized subsidiaries (Alpha Finance A.E.P.E.Y., Alpha Ventures
S.A.). It also includes the activities of the Dealing Room in the interbank market (FX Swaps, Bonds, Futures, IRS,
Interbank placements Loans etc.).
v. South-Eastern Europe
It consists of the Group's subsidiaries, which operate in South Eastern Europe. It is noted that Bulgaria's Branch and
Alpha Bank's subsidiary Alpha Bank AD Skopje, as well as Alpha Bank Srbija, are not included anymore in the results of the
continuing activities in this sector anymore. Their financial result is included in caption "Profit/Loss from discontinued
operations".
vi. Other
This segment consists of the non-financial subsidiaries of the Group and Bank's income and expenses that are not related to
its operating activity.
The assets of the operating segments "Retail" and "Corporate Banking" include the following figures of the Bank's loans,
which are being managed by the non performing loans retail and wholesale banking units, based on Bank's internal
procedures. The relevant figures for the foreign subsidiaries are included in the operating segment South-Eastern Europe.
31.12.2016 31.12.2015
Total Gross Amount Allowance for impairment losses Total Net Amount Total Gross Amount Allowance for impairment losses Total Net Amount
Mortgages 7,655,203 2,032,511 5,622,692 7,637,046 2,176,285 5,460,761
Consumer Credit Division 4,336,599 2,394,214 1,942,385 4,100,482 2,412,186 1,688,296
Corporate Loans 14,030,221 7,785,885 6,244,336 13,192,810 7,568,345 5,624,465
Total 26,022,023 12,212,610 13,809,413 24,930,338 12,156,816 12,773,522
b. Analysis by geographical sector
(in millions of Euro)
1.1 - 31.12.2016
Greece Other countries Total
Net interest income 1,648.5 275.6 1,924.1
Net fee and commission income 289.2 28.7 317.9
Other income 99.8 42.0 141.8
Total income 2,037.5 346.3 2,383.8
Total expenses* (996.0) (197.8) (1,193.8)
Impairment losses (894.2) (273.8) (1,168.0)
Cost for voluntary separation scheme (31.7) (31.7)
Profit/(losses) before incomem tax 147.3 (157.0) (9.7)
Income tax 29.2
Profit/(losses) after income tax from continuing operations 19.5
Profit/losses from discontinued operations 22.8 22.8
Profit/(losses) after income tax 42.3
Total Assets 31.12.2016 55,796.4 9,075.9 64,872.3
(in millions of Euro)
1.1 - 31.12.2015
Greece Other countries Total
Net interest income 1,605.9 291.6 1,897.5
Net fee and commission income 278.4 30.2 308.6
Other income 6.7 (1.8) 4.9
Total income 1,891.0 320.0 2,211.0
Total expenses* (1,000.4) (202.2) (1,202.6)
Impairment losses (2,666.6) (321.0) (2,987.6)
Provision for voluntary separation scheme (64.3) (64.3)
Profit/(losses) before income tax (1,840.3) (203.2) (2,043.5)
Income tax 806.8
Profit/(losses) after income tax from continuing operations (1,236.7)
Profit/losses from discontinued operations (134.8) (134.8)
Profit/(losses) after income tax (1,371.5)
Total Assets 31.12.2015 59,110.7 10,186.8 69,297.5
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* Excluding the cost/provision for separation schemes.
41. Risk Management
Alpha Group has established a thorough and prudent risk management framework which is being built on the best supervisory
practices and based on the common European legislation and banking system rules, principles and standards and is evolved
over time and implemented in a coherent and effective manner on the bank's conduct of the day-to-day business to strengthen
its sound corporate governance under a challenging macroeconomic and financial environment.
The Group's critical focus in 2016 was to maintain the highest operating standards, ensure compliance with regulatory risk
rules and retain confidence in the conduct of its business activities through sound and robust provision of financial
services.
41.1 Credit Risk Management
RISK MANAGEMENT ORGANIZATION
Board of Directors
The Board of Directors supervises the overall operations of the Risk Management Unit. Regarding Risk Management, the Board
of Directors is supported by the Risk Management Committee. The Risk Management Committee through monthly meetings reports
to the Board of Directors issues regarding the Group's risk-taking strategy and capital management. It is responsible for
the implementation and monitoring compliance with the risk management policies.
The Group re-assesses the effectiveness of the risk management framework on a regular basis in order to ensure compliance
with International best practices.
For a more comprehensive and effective identification and monitoring of all risk types, Management Committees have been
established (Assets and Liabilities Committee, Operational Risk Committee and Credit Risk Committee).
Risk Management Committee
The General Manager and Group Chief Risk Officer supervise the Risk Management Unit and report on a regular basis and ad
hoc to the Management Committees, the Risk Management Committee and to the Board of Directors. As far as credit risk is
concerned the reporting to the above mentioned committees covers the following areas:
● The portfolio risk profile by rating grade.
● The transition among rating grades (migration matrix).
● The estimation of the relevant risk parameters by rating grade, group of clients, etc.
● The trends of basic rating criteria.
● The changes in the rating process, the criteria or in each specific parameter.
● The concentration risk (by risk type, sector, country, collateral and portfolio etc.).
Organizational Structure of Risk Management Divisions
Under the supervision of the General Manager and Group Chief Risk Officer the following Risk Management Divisions operate
within the Group and have been assigned with the responsibility of implementing the risk management framework, according to
the directions of the Risk Management Committee.
● Market and Operational Risk Division
● Credit Risk Data and Analysis Division
- Credit Risk Data Management Division
- Credit Risk Analysis Division
● Credit Control Division
- Credit Risk Policy and Control Division
- Credit Risk Methodologies Division
● Wholesale Credit Division - Greece
● Wholesale Credit Division - International
● Retail Credit Division
For credit risk management purposes, facilities are separated into Wholesale and Retail.
WHOLESALE BANKING PORTFOLIO
Wholesale Banking credit facilities
Wholesale Banking credit facilities are included in each of the following categories subject to the characteristics of the
credit facility and the obligor, as shown in the table below:
Portfolio Characteristics
Obligors under the competence of Wholesale Banking Corporate Companies with turnover > Euro 75 millionIncludes financing in shipping companies, as well as, obligors under the management of the Investment Banking Division
SME Euro 2.5 million < Companies with turnover < Euro 75 million or companies with credit limit > Euro 1 million
1. Credit Risk Approval Process
The limits of the Wholesale Banking Credit Committees are determined in accordance to Total Credit Exposure, defined as the
sum of all credit facilities of the obligor (single company or group of associated companies) which can be approved by the
Group and include the following:
● Total credit requested exposure
● Working Capital limits
● Withdrawal limits from unclear deposits
● Letters of Credit/Letters of Guarantee limits
● Factoring limits
● Derivative transaction limits
● Corporate Cards limits
● Medium and long-term loans (current outstanding/exposure for facilities that have been fully drawn or limit amount of
undrawn facilities).
● Leasing Facilities (current outstanding/exposure for leasing facilities that have been fully drawn or limit amount for
undrawn/unused facilities).
● Special credit limits or loans, or any form of personal financing to the company's business owners (mortgage loans,
consumer loans, shares' purchase, credit cards etc.).
Credit Approval Limits Wholesale Banking Credit Committees
Credit Committees Structure:
● General Management Credit Committee
● Wholesale Banking Credit Committees
- Under the General Managers
- Under the Divisions Managers
- Under the Divisions Assistant Managers
- Commercial Centers Credit Committee
Credit Limit Expiry/Renewal date:
The credit limits' expiry/renewal date is determined by the relevant Wholesale Banking Credit Committees. The basic factor
for the determination of the credit limit expiry is the client's credit rating, which is not a standalone approval or
rejection criterion, but the basis for determining the minimum security/collateral required and the respective pricing. As
a rule, for obligors that have been rated in the Low, Medium and Acceptable credit risk zones, reviews are carried out on
an annual basis, for Watch List clients, on a semi-annual basis while obligors that have been rated in the High Risk zone
are reviewed on a quarterly basis. Deviations from the above rule are not allowed, except when the request by the
responsible Business Units is approved by the competent Credit Committees.
2. Credit Risk Measurement and Internal Ratings
The assessment of the borrowers' creditworthiness and their rating in credit risk scales is established through rating
systems.
The rating of the Group's borrowers with the use of credit risk rating systems constitutes a basic tool for:
● The decision-making process of Credit Committees for the approval/ renewal of credit limits and the implementation of
the appropriate pricing policy (interest rate spreads etc.).
● The estimation of the future behavior of borrowers which belong to a group with similar characteristics.
● The early recognition of potential troubled facilities (early alert mechanism) and the prompt, effective action for the
minimization of the expected loss for the Group.
● The assessment of the quality of the Group's loan portfolio and the credit risk undertaken.
The aim of the credit risk rating systems is the estimation of the probability that the borrowers will not meet their
contractual obligations to the Group.
The rating systems employed by the Group are the Alpha Bank Rating System (ABRS) and the Moody's Risk Advisor (MRA) which
incorporate different credit rating models.
All current and future clients of the Group are assessed based on the appropriate credit risk rating model and within
pre-specified time frames.
For the estimation of the probability of default of the obligors of the Group the credit risk rating models evaluate a
series of parameters, which can be grouped as follows:
● Obligor's Financial Ability (liquidity's ratios, debt to income, etc.)
● Peers' Analysis: Obligor's comparative position in the market in which it operates mostly compared to its peers.
● Behavioral status and history of the obligor with the Group and with third parties (debt in arrears, adverse transaction
records, etc).
● Obligor's qualitative characteristics (solid and healthy administration, management succession, appropriate
infrastructure and equipment etc.).
The credit rating models which are currently employed by the Group are differentiated according to:
● The turnover of the company.
● The level of the total credit risk exposure.
● The credit facility's specific characteristics.
● The available information for the obligor's assessment. Specifically, for the financial analysis the differentiation
relates to the type of the local accounting standards and the International Financial Reporting Standards.
For each of the credit rating models, different parameters may be used, each of which contributes in a specific manner to
the relevant assessment.
The statistical validation of the credit risk rating models is reviewed regularly in order to ensure the maximum predictive
ability according to the best international practices.
Obligors Rating Scale
Borrowers are rated in the following rating scales:
ÁÁ, Á+, Á, Á-, ÂÂ+, ÂÂ, ÂÂ-,B+, Â, Â-, CC+, CC, CC-, C, D, D0, D1, D2, Å
For presentation purposes of the table "Analysis of neither past due nor impaired Loans and Advances to customers", the
"strong" rating includes the rating scales AA, A+, A, A- and BB+, "satisfactory" rating includes the rating scales BB, BB-,
B+, B, B-, CC+ and CC and "under close monitoring" (higher risk) includes the rating scales CC- and lower than CC-.
Facility Rating Model
In the context of the alignment with the current Basel II supervisory requirements and the reinforcement of credit risk
management processes, the Bank has developed a risk rating model that incorporates the transaction characteristics
(facility rating), in case of a customer's default.
The model is complementary to the existing models of credit risk assessment, calibrating separately each credit facility
based on the collateral. The specific assessments of existing and proposed credit facilities are weighted, yielding the
final classification of the expected loss at the level of the overall credit risk exposure of the borrower.
The grading scales of the facility rating system consist of 6 grades for covered credit facilities plus 1 grade for the
uncovered credit facilities: 1, 2, 3, 4, 5, 6, 7.
3. Impairment Policy
The Group has defined as 'significant for individual assessment' customers loans that are managed by the Wholesale Banking
Unit.
The assessment for impairment is performed on a quarterly basis, as follows:
The Group assesses whether objective evidence for individual assessment for impairment exists. The process for identifying
loans for impairment and estimating their impairment allowance consists of the following steps:
1. Identification of loans which will be individually assessed and for which events exist which constitute objective
evidence that an impairment loss has occurred.
2. Impairment calculation on an individual basis for the loans identified in the previous step, as the difference between
the recoverable amount and the carrying amount of the loan.
3. In cases where the impairment allowance under individual assessment was zero, these loans will be assessed for
impairment on a collective basis, based on similar credit risk characteristics. For example, groups of loans are created
per collateral coverage, days in arrears, credit rating etc, where the corresponding impairment factor will be applied.
The individual assessment for impairment is performed by the Wholesale Banking Unit and is approved by the Wholesale Credit
Division.
Significant loans are assessed individually if one of the following conditions are met:
● Clients that are experiencing or about to experience difficulties in meeting their financial commitments and credit
obligations to the Group ("financial difficulty").
● Clients with credit risk rating D, D0,D1, D2 and E.
● Clients with credit risk rating CC- and C.
● Significant deterioration in the industry outlook in which the borrower operates taking into account the five sectors
that have had the worst deterioration on an annual basis, according to the high risk sectors' segmentation .
● Derogatory items including but not limited to :. payment orders, bounced cheques, auctions, bankruptcies, overdue
payments to the State, to Social Security Funds, or to employees.
● Occurrence of unexpected, extreme events such as natural disasters, fraud, etc.
● Interventions and actions by regulatory bodies/local authorities against the borrower (e.g. Athens Stock Exchange,
Hellenic Capital Market Commission).
● Breach of contractual terms and conditions.
● Adverse changes in the shareholders' structure or the management of the company or serious management issues/ problems.
● Significant adverse changes in cash flows potentially due to ceased cooperation with a key/major customer, significant
reduction in demand of a main product or service, ceased cooperation with a key/major supplier or suppliers cut credit,
etc.
● Significant deterioration of financial ratios of the obligor (Reduction of equity due to losses, debt ratio etc) and of
estimated future cash flows of the obligor.
Collective Assessment for Impairment
Collective assessment should be performed for exposures as follows:
a. Exposures that have been individually assessed and were found not to be impaired on an individual basis -the impairment
allowance estimated was zero- are subsequently assessed for impairment on a collective basis, after they are grouped in
pools based on common credit risk characteristics.
b. Exposures with no impairment triggers and therefore are assessed collectively in pools formed based on similar credit
risk characteristics.
The future cash flows of a group of exposures that are collectively evaluated for impairment are calculated based on the
estimated contractual cash flows, and historical loss experience for exposures with credit risk characteristics similar to
those in the group. The need for objective evidence in order for the loss to be recognized and effectively the impairment
loss to be identified on individual loans, may lead to a delay in the recognition of a loan's impairment, which has already
occurred. Within this context and in accordance with IAS 39, it is appropriate to recognize impairment losses for those
losses "which have been incurred but have not yet been reported» (Incurred But Not Reported - IBNR).
4. Credit Risk Concentration Management
Concentration Risk is a specific form of credit risk and arises due to the low degree of diversification between
counterparties, products or group of counterparties, sectors, geographic regions, or collaterals.
The Group monitors on a regular basis concentration risk through detail reporting which informs Senior management and the
Board of Directors. According to the supervisory framework, the Group complies with the regulatory directives regarding
large exposures, while the capital requirements for single name and sector concentration risks are estimated in the context
of Pillar 2 of Basel II.
5. Credit Control
The Alpha Bank Group has adopted a Credit Control mechanism so as to provide assurance that the credit policy and
forbearance frameworks are being consistently followed.
More, specifically, on site credit controls are conducted in Wholesale Banking Business Units of the Bank as well as
desktop controls that cover the adherence and the compliance to the Group's Credit Policy, the portfolio analysis and the
confirmation of the completeness and correctness of the data in the Bank's systems through sample checks.
RETAIL BANKING PORTFOLIO
Retail banking involves the lending facilities offered to borrowers covering traditional banking products and services such
as:
● Housing loans/Mortgages
● Consumer Loans and Credit Cards
● Small companies and small business (SB): Legal entities with turnover up to Euro 2.5million and credit limit up to Euro
1million.
1. Credit Risk Approval Process
The Group monitors customer Total Credit Risk Exposure (For Individuals and Small Businesses), which refers to the sum of
all revolving limits of an obligor, all the balances of long term facilities and for the case of legal entities the total
exposure of facilities given to stakeholders of customer companies. Additionally, facilities for which the customer is
guarantor or co-debtor are also taken into account.
The Group has developed and implemented a strict framework for the conduct of credit policy (legislative and supervisory /
regulatory) and has also formulated and put into effect an internal system of credit principles, procedures and rules
clearly applicable to the Group's lending business, in order to promote sound practices for managing credit risk.
Credit policies establish the framework for lending and guide the credit-granting activities of Retail Banking through:
● Sound lending management.
● Prudent client selection through in-depth assessment of both financial and qualitative data of the borrower
● Assessing the risk/reward relationship with a respective determination of pricing policy and collateral coverage after
taking into account the level of credit risk.
● Monitoring and management of the Total Credit Risk Exposure, which is defined as the sum of all credit risks arising
from all credit facilities provided by the Alpha Bank Group as a whole, to a single obligor.
The enforcement of the Credit Policy requires certain criteria to be met. These criteria play a significant role to the
achievement and maintenance of a healthy portfolio and to the Group's Capital allocation. More specifically:
Individuals
The approval process of credit to individuals is performed on the basis of the classification of borrowers into risk groups
(risk groups), which represent a certain level of undertaken risk. The level of risk undertaken by the Group is adjusted,
when deemed necessary, according to its credit policy.
The credit assessment for individuals is based upon the following pillars:
● Application fraud detection;
● Willingness to pay;
● Ability to pay;
● Collateral risk.
Small Businesses
Small Business are defined as following:
● Personal Companies with turnover up to E 2.5 million and a credit limit up to E 1 million
● Entrepreneurs with a credit limit up to E 1 million
● Legal entities with turnover up to E 2.5 million and a credit limit up to E 1 million.
The creditworthiness of Small Businesses in the Retail Banking sector is related to the creditworthiness of
agencies/competent of the company and vice versa. Therefore the evaluation of claims in this category is based on two
dimensions:
● The valuation of the creditworthiness of entities or business managers.
● The valuation of the creditworthiness of the company.
The valuation of the creditworthiness of a company is based on the specific pillars:
● willingness to pay.
● ability to pay.
Hence, the credit assessment for the small businesses is based on the following:
● Application fraud detection;
● Demographics;
● Financials;
● Behavior;
● Credit Bureau;
● Qualitative data; and
● Collateral risk.
2. Internal Ratings
The fundamental parameter in assessing Retail Banking Credit Risk is the Credit Scoring Models that are developed and
employed throughout the credit cycle at the Group level. The above models segments populations into homogenous risk groups
(pools) and are categorized as follows:
● Behavior Models, which assess the customer's performance and predict the probability of defaulting within the following
months;
● Application Credit Scoring Models, which assess application data-mainly demographic- that predict the probability of
defaulting within the following months; and
● Basel II Models, according to the regulatory framework,(e.g., IRB compliant models).
These models and the probabilities of default that derive from them, contribute a significant role in risk management and
decision making throughout Alpha Bank Group. Specifically, the models are used in the following segments:
● In decision making of credit assessment and credit limit assignment.
● In impairment tests
● In predicting future performance of customers belonging to the same pool of common characteristics.
● In tracing high risk accounts in time to schedule all necessary actions so as to reduce expected losses for the Bank.
● In assessing the Bank's portfolio quality and credit risk.
The parameters taken into account vary, according to the model's type and product category that it assesses. Indicatively,
some factors are:
● Personal/ demographic data: the customer's age, profession, marital status, or current address;
● Loan characteristics: product applied for, loan term, loan amount, or financing purpose;
● Behavioral data: payments during latest period of time, maximum delinquency, outstanding loan balance versus loan limit,
transaction type;
● Financial data: sales change, liabilities versus sales; and
● Qualitative data: experience, seat of business (company registry).
Models are reviewed, validated and updated on a yearly basis and are subject to quality control so as to ensure at their
predictive power at any point in time.
Furthermore, on a regular basis the Group conducts exercises simulating crisis situations (Stress Tests), which explore the
potential impact on the financial results of the Group due to unfavorable developments both in obligors' transactional
behavior as well as in the broader financial macroeconomic environment.
3. Impairment Policy
The process for determining the loans eligible for impairment and the estimation of their provision comprises the following
steps:
1. Identification of loans which will be individually assessed.
2. Impairment calculation on individual basis for the loans identified in the previous step.
3. Recognition of the loans to be assessed collectively, including cases where the impairment allowance under individual
assessment was zero
4. Collective provision calculation for the loans identified in the previous step (3).
For provision purposes, under collective assessment, loans are separated based on similar credit risk characteristics.
These characteristics are selected based on the future cash flows of the abovementioned Retail Banking loan categories
which depict customers' ability to repay their debts according to the contractual agreements.
Loss Rate is calculated based on credit risk characteristics of the segment and portfolio in which the facility or the
customer belongs to. The Loss Rate is determined with statistical methods.
Trigger Events for the Individual Assessed Exposures
For the Retail Banking portfolios, loans are assessed on an individual basis if one of the trigger events mentioned below
is met and if the following criteria are met:
● Consumer Loans: Customers with total exposures more than E 500 thousand;
● Housing Loans: Customers with total exposures more than E 2 million; and
● Small Business Loans: Customers with total exposures more than E 850 thousand.
The above limits differ from country to country according to size and characteristics of the portfolio.
3.1.1. Trigger Events for Individuals
1. Customers with loans past due over 90 days;
2. Customers with loans past due more than 30 days and less than 90 days;
3. Customers with restructured loans;
4. Unemployed Customers;
5. Deceased Customers;
6. Occurrence of unexpected, extreme events such as fraud, natural disasters, etc.;
7. Freelancers or Personal Company owners who ceased their business activity due to retirement;
8. Freelancers or Personal Company owners with significant adverse changes in cash flows potentially due to ceased
cooperation with a key/major customer, significant reduction in demand of a main product or service, ceased cooperation
with a key/major supplier or suppliers cut credit etc.;
9. Stakeholders of Companies have filled for inclusion in Article 99 (pre-bankruptcy law);
10. Stakeholders of Companies with loans past due more than 90 days (rating D, D0 or D1 or D2 or E) or with rating CC- or
C;
11. Stakeholders of Companies with detrimentals (e.g. payment orders, denounced checks, auctions, bankruptcies, overdue
amounts to the State, overdue amounts to Social Security or employees);
12. Stakeholders of Companies with interventions and actions of regulatory bodies/local authorities against their
companies (e.g. Athens Stock Exchange, Hellenic Capital Market Commission);
13. Stakeholders of Companies with significant adverse changes in cash flows potentially due to ceased cooperation with a
key/major customer, significant reduction in demand of a main product or service, ceased cooperation with a key/major
supplier or suppliers cut credit etc.;
14. Stakeholders of Companies which operate in industries with significant deterioration in their outlook (taking into
account the five sectors with the foremost deterioration annually, according to the risk classification of sectors of Risk
Analyst);
15. Customers with impairment amount in the previous impairment test for which none of the above criteria is met; and
16. Customers with detrimental (e.g. payment orders, denounced checks, auctions, bankruptcies, overdue amounts to the
State, overdue amounts Social Security or employees).
3.1.2 Trigger Events for Legal Entities
1. Customers with credit risk rating D, D0 or D1 or D2 or E or with overdue amount above 90 days;
2. Customers with loans past due more than 30 days and less than 90 days;
3. Customers with rating CC- or C;
4. Obligors which operate in industries with significant deterioration in their outlook (taking into account the five
higher risk sectors according to Risk Analyst classification);
5. Customers with impairment amount in the previous impairment test for which none of the above criteria is met.
6. Customers with detrimentals (e.g. payment orders, denounced checks, auctions, bankruptcies, overdue amounts to the
State, overdue amounts to Social Security or employees);
7. Occurrence of unexpected, extreme events such as fraud, natural disasters, etc.;
8. Interventions and actions of regulatory bodies/local authorities against their companies (e.g. Athens Stock Exchange,
Hellenic Capital Market Commission);
9. Breach of contract or credit terms and conditions;
10. Adverse changes in the shareholders' structure or the management of the company or serious management issues/
problems;
11. Significant adverse changes in cash flows potentially due to ceased cooperation with a key/major customer, significant
reduction in demand of a main product or service, ceased cooperation with a key/major supplier or suppliers cut credit
etc.;
3.2. Trigger Events for the Collective assessment per portfolio
The specific trigger events for the collective assessment for the Retail Banking portfolios are the following:
● Accounts up to 89 days past due with or without signs of unlikeliness to pay;
● Accounts more than 90 days past due;
● Forborne exposures; and
● Accounts with partial write off.
4. Credit Control
The Alpha Bank Group in order to ensure that all Credit Units fully comply with the Credit Policy, has adopted and
introduced a Credit Control mechanism on a monthly basis, so as to review and assess whether the credit policy framework is
being consistently followed. In addition Data Integrity Verification controls are conducted in credit requests elements of
Retail Banking Loans. Quality analysis of the credit approval process is also conducted.
INTERNATIONAL FINANCIAL REPORTING STANDARD 9 (IFRS9).
● Effective from 1.1.2018 the Alpha Bank Group is obliged to adopt the new IFRS9 standard which specifies the accounting
standards for the Classification & Measurement of Financial instruments, impairment methodology and hedge accounting.
● Following the issuance of IFRS 9 Financial Instruments, Alpha Bank Group has already designed their IFRS 9
Implementation Program which include a significant number of projects necessary for the timely alignment with new
requirements. The projects extend to the areas of Finance, Risk Management and IT system & data.
● Regarding credit risk, the IFRS9 standard completely redesigns the approach for impairment of financial assets. In
particular, new impairment rules present a fundamental redesign of the provisioning model, moving from the current incurred
loss model to an expected credit loss model. The expected credit loss model provides for lifetime expected credit loss in
cases of significant credit deterioration since initial recognition, resulting in earlier recognition of credit losses and
increased sensitivity to credit risk parameters and assumptions about future conditions.
CREDIT RISK MITIGATION
1. Collaterals
Collaterals are received both for Wholesale and Retail lending in order to mitigate credit risk that may arise from the
obligor's inability to fulfill his contractual obligations.
Collaterals include all kind of assets and rights which are made available to the Group either by their debtors or by third
parties, in order to be used as complementary liquidity sources of relative loans.
The mitigation tools applied by the Group include two broad categories: intangible and tangible collaterals.
2. Intangible Collaterals
Intangible collaterals form the framework of the obligations and rights that are typically included and described in
specific contractual documents that bind the Group and the borrowers during the lending process with specific commitments.
The commitments involve a third party who substitutes for the primary debtor in the event of the latter's default or the
primary debtor itself (natural or legal entities) to honor the contractual loan agreements and their prompt repayment to
the Group and on the other hand the Group has the right to claim them.
The main type of intangible collateral that the Group uses to protect the bank against the risk of losses due to debtor
insolvency is the Guarantee.
3. Tangible Collaterals
Tangible collaterals provide the Group with the rights over an asset (movable or immovable),owned by the obligor or the
guarantor, providing priority in the satisfaction of the creditor by the liquidation preceeds of the asset.
Tangible collaterals are distinguished between mortgages and prenotation on mortgages which are registered over immovable
properties and pledges on movable assets (e.g., commodities, checks, bills of exchange) or on claims and rights.
In order to better secure credit facilities granted, all mortgage and pledged assets are covered by an insurance contract,
with assignment of the relevant insurance contract to the Bank.
3.1. Mortgages - Prenotation on Mortgages
Mortgages are registered on real estate or immovable assets which can be liquidated as indicatively reported below:
● Residential Real Estate;
● Commercial Real Estate;
● Industrial Buildings;
● Land;
● Mines;
● Ships and aircrafts; and engines, whether or not mobile
● Machinery or other facilities (engineering, mechanical, electrical, etc.), if they are permanently and consistently
connected with the mortgaged estate
Periodic revaluation of mortgaged property
According to the Group's Credit Policy, the existence and the valuation of mortgaged property is closely monitored. The
frequency of the appraisal does not usually exceed one year.
Valuations are carried out by certified real estate appraisers either:
● Using statistical indicators (such as PropIndex), depending on the type of property; or
● By qualified engineers, after their visit to the property used as collateral or via desktop assessment.
3.2. Pledges
Pledges provide seniority rights over liquidation proceeds from a movable third party asset.
Pledges can be registered on movable assets or on rights that have not been excluded or banned from exchanges and are
liquid , including:
● Raw materials, products or commodities;
● Machinery (movable);
● Bill of Lading;
● Bill of exchange;
● Cheques;
● Securities;
● Deposit; and
● Any type of claim that can be pledged
Periodic revaluation of pledges
Depending on the right or the underlying asset on which a pledge is registered, the periodic revaluation varies from one
month to one year.
4. Acceptable Value
The Group calculates the value of the securities/collaterals received based on the potential proceeds that could arise if
and when these are liquidated. This calculation refers to the acceptable value/haircut of the securities/collaterals
provided to the Group by its obligors.
For the calculation of the forced-sale value, the following factors are involved in the consideration:
• The quality of the securities/assets;
• Their market value;
• The degree of ability to liquidate;
• The time required for their liquidation;
• Their liquidation cost;
• The current charges on the assets; and
• The privileged priority of third parties on the product of liquidation (e.g. Public Sector, employees, etc.)
The above have to be accounted for when determining the haircuts for each collateral/security. Haircuts, depending on their
nature are expressed as a percentage of their market value, their nominal value or their weighted average value.
ENVIRONMENTAL AND SOCIAL RISK
Within Credit Risk Management Framework and Credit Policy, it has been integrated the assessment of the strict compliance
of the principles of an environmentally and socially responsible financing towards legal enitites .
The main purpose is the management of potential risk arising from the operations of obligors that may be connected with a
damage to the environment or the society or with any direct threat of such a damage, having as a result a negative impact
on the business operations and financial results of the Group.
FORBEARANCE
Maintaining a healthy loan portfolio depends on the constant monitoring and assessment of the borrowers in order to allow
early detection of future liquidity problems, which could affect the normal repayment of their obligations to the Group.
The credit tools which are normally used by the Group for managing the liquidity problems that borrowers are facing for
repaying their obligations are the restructuring of debt through the renegotiation of the original terms and conditions of
the loan agreement they have entered into.
The Executive Committee "Act 42" as amended by the Executive Committee "Act 47" and the Executive Committee "Act 102" of
the Bank of Greece, has determined the supervisory framework for the management of loans in arrears and non-performing
loans, over and above the already applicable requirements of Law 4261/2014, the CRR, and delegated the decision authority
to the Bank of Greece.
Furthermore, in the context of the Commission Implementing Regulation (EU) 2015/227 of the European Commision dated January
9, 2015 and the executive technical standards of the European Banking Authority, the Group assumes the resulting regulatory
obligations for forborne exposures.
Forbearance measures should be applied on the basis of the risk, cooperativeness and viability of each debtor and consist
of concessions that are robust and sustainable, through the renegotiation of the initial terms and conditions of the debt
contract duly taking into account the causes of the debtor's financial difficulties.
Forbearance measures may be applied a) on the basis of a customer's request, b) in accordance with the Code of Conduct
under Law 4224/2013, as currently is in force, which is a State initiative under the supervision of the Bank of Greece.
Apart from the forbearance measures applied to existing Retail lending exposures, which are initiated by the Group in
accordance with the directives of the Executive Committee Acts of the Bank of Greece (No. 42 / 30.5.14 47/9.2.2015 &
102/30.8.2016) and Arrears Resolution Process (ARP) of the Code of Conduct under L.4224/2013 as currently is in force,
there are restructuring solutions according to the Legislative Framework.
The existence of more favorable terms for renegotiating and modifying the terms and conditions of the bilateral arrangement
between the Group and the debtor (concession), who is facing or is about to face difficulties in meeting his financial
commitments ("financial difficulty"), are defined with respect to:
● Difference in favour of the debtor between the modified and the previous terms of the contract; and
● Cases where a modified contract includes more favourable terms than other debtors with a similar risk profile could have
obtained.
MONITORING OF FORBORNE EXPOSURES
Following the Executive Committee Act 42 / 30.05.2014, ("Act 42") as subsequently amended by the Act 47 / 09.02.2015 ("Act
47") and by the Act 102/30.08.2016 ("Act 102") of the Bank of Greece, the Group has undertaken a series of actions to
ensure adherence to the supervisory obligations and requirements arising from the above Acts. These changes cover the
following distinct sections:
● Adaptation of Information Systems of the Group;
● Amendments of the existing processes, such as the customization of new types of forborne exposures according to what is
provided in Act 42, Act 47 and Act 102;
● Creation of data structures (Data Marts) aiming at:
- Automation of the processes related to the production of both internal (Risk Management) and external (Supervisory)
reports;
- Perform analyses on the portfolio of the Group; and
- Production of Management Information Reporting (MIS)
Additionally, the Bank has introduced independent operation management for the "Troubled Assets" (Troubled Asset
Committee). This is achieved by the representation of the Administrative Bodies in the Evaluation and Monitoring of
Denounced Customers Committee as well as in the Arrears Councils.
WRITE-OFFS AND WRITE-DOWNS OF BAD DEBTS
1. Write-offs
Write-offs are defined as the accounting reduction of a debt, which does not entail waiving the legal claim against the
debtors and, hence, the debt may be revived.
Proposals for writing-off a part or the whole of the debts may be submitted to the competent committee on condition that
the following have been carried out:
● The relevant agreements with the clients have been terminated,
● Payment Orders have been issued against all the liable parties and the procedure for the registration of compulsory
encumbrances has commenced;
● At least one real estate property has been auctioned, in order for the privileged claims (through the final creditors
priority list) and, as a result, for the possible losses of the Group to be finalized;
Amounts to be written off must be fully provided for from the previous quarter preceding the proposal.
2. Write downs
Write-downs are defined as the permanent accounting reduction of a debt, as a result of a legally binding decision or
agreement (court decision, contractual agreement etc.), which is no further claimable and, hence, is considered as
definitively non-revivable, whereas it also entails the fact that the Group definitively and irrevocably waives its right
to claim the written-down debt, unless (in case of settlement) it is ascertained that the terms set by virtue of the
aforementioned decision or agreement were violated.
According to the Agreement for Financial Support to be provided by the European Stability Mechanism, in the third quarter
of 2015 a comprehensive assessment ("CA") was conducted for the four Greek systemic financial institutions, by the Single
Supervisory Mechanism - SSM. The CA included the following steps (a) Asset Quality Review (AQR),( b) a stress test. In
particular the AQR was a regulatory exercise that was based upon a single standardized procedure applied by the ECB to
assess the quality of the loan portfolio in Greece as of 30.6.2015. The result of the AQR amounted to E 1.7 billion before
income tax.
According to the Group's assessment, the AQR results are not related to accounting errors nor did they lead to a change in
accounting policy regarding the recognition of impairment losses on loans and advances to customers as mentioned in note
1.13. The Group took into consideration the results from the AQR when calculating the allowance for impairment and
considers that AQR findings have been properly addressed.
DEFINITIONS:
The following definitions are provided as guidance to tables that follow:
Public Sector
The Public Sector includes:
● The Greek Central Government (all departments or Ministries and Public Administration);
● Local Authorities;
● Companies controlled and fully or partially owned by the State; and
Companies associated with the State
Past Due Exposures
Past due exposures are defined as exposures that are more than one (1) day past due.
Non-Performing Exposures
An exposure is considered as non-performing when one of the following criteria is satisfied:
● The exposure is more than 90 days past due;
● An exposure against which legal actions have been undertaken by the Group;
● The debtor is assessed as unlikely to pay its credit obligations in full;
● The exposure is classified as impaired (as defined below);
● The exposure is classified as forborne non-performing exposure, as defined in the Implementing Regulation (EU) 2015/227
Committee of 9 January 2015.
In particular:
● Exposures which were non-performing prior to the extension of forbearance
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