Investor Presentaiton

MORGAN STANLEY BANK ASIA LIMITED UNAUDITED SUPPLEMENTARY FINANCIAL INFORMATION Year ended 31 December 2020 H. PILLAR 3 DISCLOSURE (CONTINUED) Table CRA: General information about credit risk Overview Credit risk refers to the risk of loss arising when a borrower, counterparty or issuer does not meet its financial obligations to the Company. The Company incurs credit risk primarily from the Company's lending activities, in the form of securities margin loans issued to mainly clients of the Wealth Management business, and to a lesser extent by Treasury activities related to deposit placement, reverse repo transactions, investment portfolio and derivatives for hedging purpose. Credit Risk Management The Company's credit risk management policies and procedures establish the framework for identifying, measuring, monitoring and controlling credit risk while ensuring transparency of material credit risks, compliance with established limits and escalating risk concentrations to appropriate senior management and the Board of Directors. A Credit Limits Framework is utilised to manage credit risk levels across the Company. The Credit Limits Framework is calibrated within the Company's risk appetite and includes stress loss, single name, product, industry, collateral concentration, correlated collateral, as well as regulatory and internal limits on large exposures (to single counterparty or SCG) and connected parties exposures per regulatory definitions. The Company executes oversight of credit risk management through three lines of defense. The Company believes this structure creates clear delineation of responsibilities and facilitates effective implementation of the control framework. The three lines of defense is further detailed in Table OVA: Overview of risk management. Credit risk exposure is actively managed by business unit, CRM and senior management. A variety of credit risk reports are distributed daily to business unit and CRM, monthly to Credit and Market Risk Committee and Bank Risk Committee where membership includes senior management, and quarterly to Board Risk Committee and the Board of Directors. Details of the Financial Risk Managements are further detailed in note 24 to the audited financial statements, and Table OVA of the Unaudited Supplementary Financial Information. 24 94

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