Credit risk

Credit risk relates primarily to a counterparty’s potential inability to meet its obligations towards Triodos Bank and the losses that might be incurred as a result. Credit risk concerns both payment arrears and negative changes due to a counterparty’s lower credit rating. Credit risk also includes concentration risk in the credit and investment portfolio, which is the risk Triodos Bank faces that large (connected) individual exposures and significant exposures to groups of counterparts whose likelihood of default is driven by common underlying factors, e.g. sector, economy, geographical location and instrument type fail to meet their obligations. Credit risk relates to all financial assets like loans, deposits with financial institutions and bonds.

Triodos Bank manages credit risk from two perspectives:

  • primary at the individual level focusing on the direct relation with the counterparty
  • globally at the portfolio level in order to manage the concentration of risks per sector, country or region;

Loans

Loans are provided to businesses and projects that contribute to achieving Triodos Bank’s mission. Given that this involves a small number of sectors, higher sector concentration is inherent to the loan portfolio. Concentration on the existing sectors is acceptable because Triodos Bank has considerable expertise in these sectors and actively invests in increasing knowledge within the organisation. Risk is also reduced by the spread of the loan portfolio in the different countries and the high quality of securities (collateral) against outstanding loans. Principal collateral are mortgage registrations for business or private properties, securities from public authorities, companies or private individuals, and rights of lien on movables, such as office equipment, inventories, receivables and/or contracts for projects.

Lending is primarily the responsibility of local branches, who maintain close relationships with their customers. Lending decisions are made by local credit committees in each of the branches. Each local credit committee is authorised to make decisions within agreed parameters and limits set by the Executive Board. Based on advice of the Executive Board Credit Committee, the Executive Board decides on loans that exceed these limits.

All business loans in the portfolio are periodically reviewed on an individual basis. The frequency depends on the debtor’s creditworthiness, the degree of market exposure and the market in which the debtor operates.

The credit committee of the branch concerned discusses and, if necessary, takes action with respect to overdue payments from debtors. If there is any doubt regarding the continuity of the debtor’s core operations and/or a debtor fails to settle agreed interest and repayment instalments for a prolonged period, this debtor falls under the category of doubtful debtors and will be managed intensively. Provisions for loan losses are taken for doubtful debtors based on the difference between the total amount of the debtor’s outstanding liability to Triodos Bank and the future expected cash flows discounted at the original effective interest rate of the contract. In 2011, the net additions to the provision for doubtful debts, as a percentage of the average loan portfolio, was 0.63% (2010: 0.52%). The total of provisions related to the outstanding credits is 1.3% (2010: 1.0%) as at the end of the year.

Loan risk is reported each month to the Executive Board Credit Committee, and quarterly to the Supervisory Board.

Governments and financial institutions

Monies not invested in loans to customers are invested for liquidity purposes in bonds or placed with other banks. Triodos Bank’s policy is to invest in the country were the money is raised. The Executive Board may deviate from this policy, after consultation with the Asset and Liability Committee. The bond portfolio of Triodos Bank is mainly comprised of government, and government guaranteed bonds. Triodos Bank also invests in a limited number of other types of high grade bonds issued by regional authorities, and financial institutions.

Banks are selected on the basis of their creditworthiness and screened on their sustainability performance by the Triodos Research department. Exceptions can occur, if the number of selected banks in a country is not sufficient to place Triodos Bank’s liquidities. In such cases, deposit notice periods will not exceed three months. All counterparty limits for banks are granted by the Executive Board after advice from the Executive Board Credit Committee. Triodos Bank uses Fitch and/or Moody’s credit rating to assess the counterparty risk related to bonds and financial institutions, if available.

Risk weighted value

An overview of the credit risk position within Triodos Bank, based on risk-weighted assets, off-balance sheet items and derivatives, is given in the following tables which are divided by the following criteria: exposure class, sector and country.

Risk-weighted value per exposure class (asset class)

  (XLS:) Download XLS

2011
Amounts in thousands of EUR

Net exposure
value

Credit risk
mitigation

Fully adjusted
exposure value

Risk-weighted
value

 

 

 

 

 

Exposure class:

 

 

 

 

 

 

 

 

 

Central governments and central banks

527,857

221,763

749,620

Regional governments and local authorities

246,879

40,171

287,050

95

Banks

786,344

–80,758

705,586

146,450

Corporates

2,292,452

–144,735

2,147,717

1,796,730

Retail exposures

94,696

–21,619

73,077

45,230

Secured by property

1,002,045

–4,741

997,304

721,764

Past due items

54,811

–10,081

44,730

59,037

Other items

65,433

65,433

65,433

 

 

 

 

 

 

 

 

 

 

Total

5,070,517

5,070,517

2,834,739

 

 

 

 

 

Whereof:

 

 

 

 

Assets

4,276,216

4,276,216

2,479,346

Off-balance sheet items

765,508

765,508

333,408

Derivatives

28,793

28,793

21,985

 

 

 

 

 

 

 

 

 

 

Total

5,070,517

5,070,517

2,834,739

 

 

 

 

 

  (XLS:) Download XLS

2010
Amounts in thousands of EUR

Net exposure
value

Credit risk
mitigation

Fully adjusted
exposure value

Risk-weighted
value

 

 

 

 

 

Exposure class:

 

 

 

 

 

 

 

 

 

Central governments and central banks

489,153

184,700

673,853

Regional governments and local authorities

151,060

18,341

169,401

2,438

Banks

739,319

–28,948

710,371

155,176

Corporates

1,897,790

–142,977

1,754,813

1,373,277

Retail exposures

82,081

–11,883

70,198

43,085

Secured by property

799,488

–5,613

793,875

592,399

Past due items

62,094

–13,620

48,474

62,538

Other items

60,597

60,597

60,597

 

 

 

 

 

 

 

 

 

 

Total

4,281,582

4,281,582

2,289,510

 

 

 

 

 

Whereof:

 

 

 

 

Assets

3,479,364

3,479,364

1,929,175

Off-balance sheet items

778,031

778,031

343,416

Derivatives

24,187

24,187

16,919

 

 

 

 

 

 

 

 

 

 

Total

4,281,582

4,281,582

2,289,510

 

 

 

 

 

The net exposure value is a sum of:

  • Assets excluding intangible assets, excluding discount of subordinated liabilities (included under prepayments and accrued income) and after deducting discount of bonds (included under accruals and deferred income);
  • Off-balance sheet items, consisting of contingent liabilities and irrevocable facilities;
  • Derivatives, valued at the credit risk equivalent, which is based on the additional costs or the lost revenues of a substitute transaction in the event that the counterparty does not fulfil its obligations.

Credit risk mitigation relates to received collaterals (guarantees and pledged funds entrusted). As a result, the credit risk shifts from the exposure class of the direct counterparty to the exposure class of the collateral provider. This results in the fully adjusted exposure value for each exposure class.

The risk-weighted value is calculated by multiplying the fully adjusted exposure value with the risk weight and the conversion factor. Basel II guidelines state the definition of the exposure classes, the risk weights and conversion factors.

Risk weights depend on the exposure class and the credit rating of the direct counterparty or the collateral provider. The risk weights per exposure class used by Triodos Bank are in line with Basel II rules:

  • Central governments and central banks: 0%;
  • Regional governments and local authorities: 0% for Dutch governments, 20% for foreign governments; the percentage depends on national legislation;
  • Public sector entities: 100%;
  • Banks: 0% for exposures secured by pledged funds entrusted of Triodos Bank; 20% or 50% for exposures of or guaranteed by other banks, depending on the original term to maturity of the exposure;
  • Corporates: 100%;
  • Retail exposures: 75% or 100%;
  • Secured by property: 35% for exposures secured by residential property, 50% or 100% for exposures secured by non residential property;
  • Past due items: 50% or 100% for exposures secured by residential property; 100% or 150% for other exposures; the percentage depends on the amount of bad debt provisions that have been formed;
  • Other items (participating interests, property and equipment and other assets without counterparties): 100%.

Conversion factors only apply to off-balance sheet items. The conversion factors used by Triodos Bank are:

  • Contingent liabilities: 0.5 or 1.0, depending on the nature of the issued guarantee;
  • Irrevocable facilities: 0.2 or 0.5, depending on the original term to maturity of the credit facility.

Risk weighted value per sector

Sector

2011

 

2010

 

Amounts in thousands of EUR

Risk-weighted value

%

Risk-weighted value

%

 

 

 

 

 

Banks and financial intermediation

247,372

9

206,125

9

Basic materials

18,419

1

13,222

1

Construction and infrastructure

667

708

Consumer products (non-food)

5,216

6,475

Retail

21,559

1

22,262

1

Services

317,095

11

272,616

12

Healthcare and social work

316,535

11

247,724

11

Agriculture and fishing

110,141

4

100,730

4

Media

5,175

5,593

Utilities

997,220

35

738,855

32

Private individuals

82,930

3

62,984

3

Leisure and tourism

81,307

3

80,413

4

Transport and logistics

9,464

10,254

Real estate

294,320

11

196,011

9

Insurance and pension funds

501

501

Food and beverages

62,014

2

52,842

2

Other sectors

264,804

9

272,195

12

 

 

 

 

 

 

 

 

 

 

Total

2,834,739

100

2,289,510

100

 

 

 

 

 

The sectors are defined in the Basel II guidelines. Risk-weighted value is attributed to the sector of the direct counterparty.

Risk weighted value per country

  (XLS:) Download XLS

Country

2011

 

2010

 

Amounts in thousands of EUR

Risk-weighted value

%

Risk-weighted value

%

 

 

 

 

 

Australia

808

Belgium

545,694

19

494,000

22

Denmark

5,829

6,253

France

101,794

4

56,280

2

Germany

173,746

6

85,645

4

Ireland

58,859

2

26,591

1

Italy

3,394

3,492

Luxembourg

5,798

4,420

The Netherlands

865,454

31

735,206

32

Norway

131

82

Spain

572,284

20

473,025

21

Sweden

50

United Kingdom

499,479

18

403,032

18

United States

1,419

1,484

 

 

 

 

 

 

 

 

 

 

Total

2,834,739

100

2,289,510

100

 

 

 

 

 

Risk-weighted value is attributed to the country of the direct counterparty.

Maturity per exposure class (asset class)

The following tables provide an overview of the remaining maturity of the assets per exposure class. The payable on demand and indefinite maturities include accrued interest and fees, doubtful debt provisions and balance sheet items with no or unknown maturity.

  (XLS:) Download XLS

2011
Amounts in thousands of EUR

Payable on
demand
and
indefinite

2 days or
more and
shorter than
3 months

More than
3 months
and shorter
than 1 year

More than
1 year and
shorter than
5 years

More than
5 years

Total
assets

 

 

 

 

 

 

 

Central governments and central banks

63,991

10,000

50,645

300,958

102,263

527,857

Regional goverments and local authorities

1,927

95,000

60,000

45,993

43,959

246,879

Banks

392,912

138,382

192,493

51,858

2,000

777,645

Corporates

77,594

51,291

119,884

460,268

896,119

1,605,156

Retail exposures

6,097

1,122

2,209

7,830

43,993

61,251

Secured by property

24,397

6,670

33,009

172,064

701,044

937,184

Past due items

30,837

535

1,604

10,936

10,899

54,811

Other items

65,433

65,433

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

663,188

303,000

459,844

1,049,907

1,800,277

4,276,216

 

 

 

 

 

 

 

  (XLS:) Download XLS

2010
Amounts in thousands of EUR

Payable on
demand
and
indefinite

2 days or
more and
shorter than
3 months

More than
3 months
and shorter
than 1 year

More than
1 year and
shorter than
5 years

More than
5 years

Total
assets

 

 

 

 

 

 

 

Central governments and central banks

56,922

15,020

38,302

230,733

148,002

488,979

Regional goverments and local authorities

1,073

75,000

50,987

24,000

151,060

Banks

376,799

227,923

34,222

88,963

2,000

729,907

Corporates

62,555

17,148

121,799

360,171

626,949

1,188,622

Retail exposures

6,138

287

2,212

8,194

31,903

48,734

Secured by property

19,637

10,312

28,590

136,362

554,470

749,371

Past due items

33,788

815

1,070

9,799

16,622

62,094

Other items

60,597

60,597

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

617,509

271,505

301,195

885,209

1,403,946

3,479,364

 

 

 

 

 

 

 

Bad debts and overdue receivables

The following tables provide an overview of the bad debts and overdue receivables per sector and country.

Bad debts are loans we expect will not be fully repaid in accordance with the original loan contract. Provisions for loan losses are taken for doubtful debtors based on the difference between the total amount of the debtor’s outstanding liability to Triodos Bank and the future expected cash flows discounted at the original effective interest rate of the contract. Overdue receivables are loans overdue for more than 90 days.

Bad debts and overdue receivables per sector

  (XLS:) Download XLS

2011
Amounts in thousands of EUR

Bad debts
at year end

Provision for Bad debts at year end

Value adjustments in the year

Overdue receivables
(excl. Bad debts) at year end

 

 

 

 

 

Basic materials

225

185

-895

Construction and infrastructure

87

74

52

51

Consumer products (non-food)

316

93

97

Retail

824

502

-28

48

Services

12,254

1,276

144

2,436

Healthcare and social work

11,571

1,561

1,045

15,591

Agriculture and fishing

22,921

6,417

2,474

7,251

Media

111

82

70

Utilities

29,764

16,171

6,973

1,566

Private individuals

105

Leisure and tourism

10,574

4,703

3,082

2,668

Transport & logistics

51

45

Real Estate

2,096

57

11

Food and beverages

1,912

859

442

4,225

Other sectors

11,348

4,558

2,404

1,467

 

 

 

 

 

 

 

 

 

 

Total

104,054

36,583

15,801

35,478

 

 

 

 

 

  (XLS:) Download XLS

2010
Amounts in thousands of EUR

Bad debts
at year end

Provision for Bad debts at year end

Value adjustments in the year

Overdue receivables
(excl. Bad debts) at year end

 

 

 

 

 

Basic materials

2,205

1,540

1,321

Construction and infrastructure

35

23

-6

56

Consumer products (non-food)

48

Retail

825

518

69

93

Services

2,256

1,227

377

3,348

Healthcare and social work

1,423

470

110

5,509

Agriculture and fishing

17,994

3,678

1,900

5,941

Media

111

82

46

41

Utilities

21,037

9,059

4,638

3,406

Private individuals

548

Leisure and tourism

9,569

1,493

680

7,065

Transport & logistics

56

45

Real Estate

1,845

46

47

7,502

Food and beverages

819

383

72

2,752

Other sectors

4,956

2,060

589

3,920

 

 

 

 

 

 

 

 

 

 

Total

63,131

20,624

9,843

40,229

 

 

 

 

 

Bad debts and overdue receivables per country

  (XLS:) Download XLS

2011
Amounts in thousands of EUR

Bad debts
at year end

Provision for Bad debts at year end

Value adjustments in the year

Overdue receivables
(excl. Bad debts) at year end

 

 

 

 

 

Belgium

20,888

13,424

5,798

1,066

France

1

Germany

5,951

1,248

775

11,681

Ireland

800

380

-18

1,455

The Netherlands

59,741

16,744

7,765

2,562

Spain

9,289

2,129

518

15,131

United Kingdom

7,385

2,658

963

3,582

 

 

 

 

 

 

 

 

 

 

Total

104,054

36,583

15,801

35,478

 

 

 

 

 

  (XLS:) Download XLS

2010
Amounts in thousands of EUR

Bad debts
at year end

Provision for Bad debts at year end

Value adjustments in the year

Overdue receivables
(excl. Bad debts) at year end

 

 

 

 

 

Belgium

11,488

6,834

4,789

3,384

France

81

Germany

2,947

400

5

12,295

Ireland

1,275

706

489

1,596

The Netherlands

35,710

8,953

2,966

5,824

Spain

6,235

2,118

1,339

13,938

United Kingdom

5,476

1,613

255

3,111

 

 

 

 

 

 

 

 

 

 

Total

63,131

20,624

9,843

40,229

 

 

 

 

 

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