40 / 94
P.
40
2018 Pillar 3 Disclosures
Credit and dilution risks
Cecabank requires compliance with the following requirements using any of the recognised
credit-risk mitigation techniques:
•
Ensuring there is always the option to legally enforce the settlement of guarantees.
•
Checking that there is never any significant positive correlation between the counterparty
and the value of collateral.
•
Requiring the proper documentation of guarantees.
•
Undertaking the regular monitoring and control of the mitigation techniques used.
Cecabank acknowledges the following credit-risk mitigation techniques:
1.- Contractual netting agreements
Contractual netting agreements (ISDA and CMOF Master Agreements) are employed as a
credit-risk mitigation technique. Furthermore, in order to reduce credit risk, CSA Annexes
are signed for ISDA contracts and Annex III for the CMOF agreement for the collateralisation
of the net outstanding risk in this type of operations.
The Global Master Repurchase Agreement (GMRA) is also used as a credit-risk mitigation
technique for repo-style operations, and securities lending agreements (EMA and GMSLA).
These agreements are specified in further detail in Annex I: Risk Management Policies and
Objectives Section 1: Credit Risk.
2.- Collateral
Collaterals are assets that remain subject to the guaranteed obligation.
At Cecabank collateral assets are basically cash in euros, and Spanish public debt securities.
In the case of collaterals that are financial assets, the potential volatility of the value of the
securities is taken into account, in line with provisions in current solvency regulations.
A particularly important case of financial collateral is the collateral (usually cash) linked
with OTC derivatives, repos, or sell/buy-backs, and securities lending subject to contractual
netting and financial guarantee contracts, mentioned in the previous section.
3.- Personal guarantees and credit derivatives
These types of guarantees correspond to a third party’s obligation to pay an amount in the
event of a borrower’s non-payment or when other specific events occur. An example of such
types of guarantees are bonds and warranties.
In terms of their capacity to mitigate credit risk, only those guarantees provided by third
parties that meet the minimum requirements established by the current solvency regulations
will be recognised.
Occasionally protection is purchased through credit derivatives, generally Credit Default Swaps
(CDS), taken out with first-rate financial institutions, or central counterparty clearing houses.
The following details indicate the distribution of credit-risk exposure on 31 December 2018,
disclosed in accordance with the application or otherwise of credit-risk mitigation techniques
and, where applicable, the mitigation technique applied (the exposure data refer to
exposures prior to application of the risk mitigation applied):
Credit-risk mitigation techniques
4 | 4.10