Page 109 - CCB_Annual Report_2022

108 Notes to the Financial Statements 109

The fair values of all financial assets and financial liabilities by class, together with their carrying amounts, 28 Financial risk management Credit exposure
and fair value valuation level are as shown in the following table:
A key component of the Bank’s business is the The Bank’s maximum exposure to credit risk after
effective management of risk in order to ensure provisions for impairment is as follows:
2022 that the Bank maintains sufficient capital, liquidity
and controls at all times and acts in a reputable
Level 1 Level 2 Level 3 £’000 2022 2021
way, taking into account the interests of customers,
Carrying Fair Carrying Fair Carrying Fair Regulators and shareholders. The principal risks the Cash and balances
£’000 amount value amount value amount value Bank is exposed to include: at central banks 286,680 240,158
Financial Assets • Credit risk: Loans and advances
– Loans and advances to customers; to banks 13,931 12,293
Cash & balances – Loans and advances to banks and
at central banks 286,680 286,680 – – – – Debt securities 30,412 37,137
debt securities;
Loans and advances • Liquidity risk; Loans and advances
to banks – – 13,931 13,931 – – to customers* 1,054,638 992,600
• Market risk;
Debt securities 30,412 30,412 – – – –
• Operational risk; and
Loans and advances Commitments to lend** 1,385,661 1,282,188
to customers – – – – 1,037,710 1,019,412 • Capital adequacy.
102,839 111,513
Financial liabilities The Bank’s Enterprise Risk Management
Framework and Risk Appetite are set out in the Gross credit
Customers’ accounts – – – – 1,104,267 1,096,271 risk exposure 1,488,500 1,393,701
Risk Management section of the report.
Derivatives – – 1,010 1,010 – – Less allowance for
• Credit risk impairment losses (16,928) (14,766)
– Loans and advances to customers;
2021 Net credit risk exposure 1,471,572 1,378,935
Credit risk is the risk of financial loss to the Bank if a
Level 1 Level 2 Level 3 * Net of Effective Interest Rate liability of £4.1m (2021: £4.1m).
customer with a financial instrument fails to meet its ** Commitments to lend represent agreements entered into but not
Carrying Fair Carrying Fair Carrying Fair contractual obligations. advanced as at 31 December.
£’000 amount value amount value amount value
The credit risks associated with lending are
Financial Assets managed using detailed lending policies The above table represents the maximum credit
which outline the Bank’s approach to lending, risk exposure to the Bank at 31 December 2022,
Cash & balances underwriting criteria, credit mandates, and 2021, without taking account of any underlying
at central banks 240,158 240,158 – – – –
concentration limits and product terms. The Bank security. At 31 December 2022 the value of
Loans and advances seeks to mitigate credit risk by focusing on business securities held as collateral against drawn loans and
to banks – – 12,293 12,293 – – sectors where it has specific expertise, and through advances to customers is £1,916m (2021: £1,792m)
limiting concentrated exposures on larger loans, of which £1,802m (2021: £1,699m) is in the form of
Debt securities 37,137 37,137 – – – – certain sectors and other factors that can represent property, £113m (2021: £92m) in the form of assets
Loans and advances higher risk. The Bank also seeks to obtain security owned by the Bank and financed by customers
to customers – – – – 977,834 977,834 cover and where appropriate, personal guarantees using hire purchase and finance leases, and £1.4m
from borrowers. Credit risk is principally assessed (2021: £1.3m) is in the form of cash deposits.
Financial liabilities through the manual underwriting of all transactions.
Credit risk management
Customers’ accounts – – – – 1,025,773 1,025,091 The Board Risk & Compliance Committee has
Derivatives – – 254 254 – – oversight responsibility for credit risk. The Bank specialises in providing lending to Small
and Medium Enterprises (SMEs). Its lending is
secured on property. The Bank lends to owner
occupied businesses to invest in their own
• The Bank’s debit securities and derivatives commercial premises, as well as to experienced
are held and recorded at fair value. commercial and residential property investors.
The Bank also has a growing asset finance
The fair value of :the Bank’s debt securities business providing finance to SMEs for business-
(EIB and IBRD bonds) are based on quoted critical assets and Classic and Sports Vehicles
bid prices in active markets.
through hire purchase and finance lease facilities.
• Derivative assets and liabilities are determined At 31 December 2022, the Bank’s asset finance loan
using widely recognised valuation models portfolio totalled £111m (2021: £92m).
for determining the fair values of interest Credit risk is managed in accordance with
rate swaps.
lending policies, the Board’s risk appetite, and risk
There have been no transfers between levels management framework. Lending policies and
in 2022 or 2021. performance against risk appetite are reviewed
regularly. All applications are reviewed and assessed
by a team of experienced underwriters.