Credit risk

Credit risk is the risk of loss as a result of failure by a client or counterparty to meet its contractual obligations. It is an integral part of many of our business activities and is inherent in traditional banking products – loans, commitments to lend and contingent liabilities, such as letters of credit – and in "traded products" – derivative contracts such as forwards, swaps and options, repurchase agreements (repos and reverse repos), and securities borrowing and lending transactions.

All banking and traded products are governed by a comprehensive risk management and control framework, which includes detailed credit policies and procedures. The control processes applied to these products are the same, regardless of their accounting treatment which varies – they are carried at amortized cost or fair value, depending on the type of instrument and, in some cases, the nature of the exposure.

Global Wealth Management & Business Banking and the Investment Bank, which take material credit risk, have independent credit risk control units, headed by Chief Credit Officers (CCOs) reporting functionally to the Group CCO. The Business Group CCOs are responsible for counterparty ratings, credit risk assessment and the continuous monitoring of counterparty exposures and portfolio risks. Credit risk authority, including authority to establish allowances, provisions and valuation adjustments for impaired claims, is vested in the Chairman's Office and is further delegated to the GEB and ad personam to the Group CCO and credit officers in the Business Groups. The level of credit authority delegated to holders depends on their seniority and experience and varies according to the quality of the counterparty and any associated security.