Problem loans are classified into different risk categories for individual counterparties and arrears buckets for groups of aggregated counterparties in order to optimise monitoring and review of these loans. Problem loans with ratings 18, 19 and 20 according to the Fortis Master Scale have defaulted and are impaired. Other problem loans are still non-impaired. The accrued risk profile of problem loans makes it imperative that the Risk Management function is involved in handling these loans.

Past due credit exposure

A financial asset is past due if a counterparty has failed to make a payment when contractually due or if it has exceeded an advised limit or has been advised of a limit smaller than its current outstanding. Financial assets which have reached the 90-days past due trigger are automatically classified as impaired.

The table below provides information on the ageing of past due financial assets not classified as impaired (financial assets which have reached the 90-days past due trigger are therefore not included).

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					2007					2006
	Carrying		>30 days			Carrying		>30 days
	amount of		&			amount of		&
	assets (not	< = 30	< = 60	>60		assets (not	< = 30	< = 60	>60
	classified	days	days	days		classified	days	days	days
	as impaired)	past due	past due	past due	Total	as impaired)	past due	past due	past due	Total
Cash and cash equivalents	26,359	7			7	20,412	8			8
Interest bearing investments	154,483	7			7	181,306	10			10
Due from banks	119,028	1			1	90,121	22			22
Due from customers
Government and official institutions	5,761	10		125	135	5,766	12		88	100
Residential mortgage	97,988	1,066	106	31	1,203	92,060	921	133	98	1,152
Consumer loans	9,244	508	102	41	651	9,881	449	88	51	588
Commercial loans	134,749	4,117	416	606	5,139	107,942	3,194	439	999	4,632
Other	64,907	79	8	10	97	66,919	94	10	23	127
Total due from customers	312,649	5,780	632	813	7,225	282,568	4,670	670	1,259	6,599
Other receivables	9,499	323	59	82	464	9,105	257	80	120	457
Total	622,018	6,118	691	895	7,704	583,512	4,967	750	1,379	7,096

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			Collateral received
					Collateral and
					guarantees
	Carrying	Financial	Property, plant	Other collateral	in excess of	Unsecured
2007	amount	instruments	& equipment	and guarantees	credit exposure1)	exposure
1) 'Collateral and guarantees received in excess of credit exposure' equals the aggregated surplus of security received on an individual contract basis.
Cash and cash equivalents	7					7
Interest bearing investments	7					7
Due from banks	2					2
Due from customers
Government and official institutions	135			117	2	20
Residential mortgage	1,203	7	1,394	17	418	203
Consumer loans	651	16	302	21	245	557
Commercial loans	5,139	720	1,781	505	1,829	3,962
Other loans	97	290	23		262	46
Total due from customers	7,225	1,033	3,500	660	2,756	4,788
Other receivables	463			307	48	204
Total past due credit exposure	7,704	1,033	3,500	967	2,804	5,008
2006
Cash and cash equivalents	8					8
Interest bearing investments	10					10
Due from banks	22					22
Due from customers
Government and official institutions	101			5		96
Residential mortgage	1,151	4	1,155	3	217	206
Consumer loans	588	21	147	38	123	505
Commercial loans	4,633	452	922	177	850	3,932
Other loans	127	222	32	148	326	51
Total due from customers	6,600	699	2,256	371	1,516	4,790
Other receivables	457			335		122
Total past due credit exposure	7,097	699	2,256	706	1,516	4,952

Impaired credit exposure

A financial asset is classified as impaired if one or more loss events are identified which have a negative impact on the estimated future cash flows related to that financial asset.

Events considered to be loss events include situations where:

• the counterparty is unlikely to pay in full its credit obligations to Fortis, without recourse by Fortis to actions such as realising collateral
• the counterparty has a material credit obligation which is past due for more than 90 days (overdrafts will be considered as being overdue once the customer has exceeded an advised limit or been advised of a limit smaller than that currently outstanding).

In practice, Fortis classifies loans as impaired in response to a series of obligatory and judgement-based triggers. Obligatory triggers result in the counterparty being classified as impaired and include bankruptcy, financial restructuring and 90 days past due. Judgement-based triggers include, but are not limited to, elements such as negative equity, regular payment problems, improper use of credit lines and legal action by other creditors. They could – but do not necessarily – result in the counterparty being classified as impaired.

Loan or Debt Restructuring is the change of one or more terms of an existing loan or debt agreement for economic or legal reasons related to the debtor's financial difficulties. The change can imply, among other things, modification of the repayment schedule and/or interest rate or an addition of sureties or borrowers. In order to limit losses, the change can imply that the creditor grant a concession to the debtor that he would not otherwise consider, e.g. an absolute or contingent reduction of interest rate, debt amount or accrued interest or a combination of the three. A loan or debt restructuring process in itself does not constitute a trigger for changing a loan’s status from impaired to normal; restructured loans or debts therefore do not automatically elude their impaired status after restructuring. As a consequence, the performing loan portfolio (i.e. non-impaired) contains no material credit exposure with respect to such restructured loans or debts as at 31 December 2007.

Impairment for specific credit risk is established if there is objective evidence that Fortis will not be able to collect all amounts due in accordance with contractual terms. The amount of the impairment is the difference between the carrying amount and the recoverable amount, i.e. the present value of expected cash flows and the collateral value less selling costs, if the loan is secured.

The table below provides information on impairments and the impaired credit risk exposure as at 31 December.

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			2007			2006
		Impairments			Impairments
	Impaired	for specific	Coverage	Impaired	for specific	Coverage
	outstanding	credit risk	ratio	outstanding	credit risk	ratio
Interest bearing investments	6,438	(2,600)	40.4%	17	(12)	70.6%
Due from banks	31	(12)	38.7%	26	(17)	65.4%
Due from customers
Government and official institutions	18	(2)	11.1%	10	(6)	60.0%
Residential mortgages	1,364	(43)	3.2%	1,460	(49)	3.4%
Consumer loans	648	(317)	48.9%	604	(266)	44.0%
Commercial loans	3,101	(1,388)	44.8%	3,390	(1,522)	44.9%
Other	345	(65)	18.8%	473	(102)	21.6%
Total due from customers	5,476	(1,815)	33.1%	5,937	(1,945)	32.8%
Other receivables	275	(57)	20.7%	127	(78)	61.4%
Total on balance	12,220	(4,484)	36.7%	6,107	(2,052)	33.6%
Total off balance	610	(398)	65.2%	365	(150)	41.1%
Total impaired credit risk exposure	12,830	(4,882)	38.1%	6,472	(2,202)	34.0%

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	Collateral received
					Collateral and
					guarantees in
	Impaired	Financial	Property, plant	Other collateral	excess of impaired	Unsecured
	outstanding	instruments	& equipment	and guarantees	credit exposure1)	exposure
1) 'Collateral and guarantees received in excess of credit exposure' equals the aggregated surplus of security received on an individual contract basis.
2007
Interest bearing investments	6,438					6,438
Due from banks	31					31
Due from customers
Government and official institutions	18			2		16
Residential mortgage	1,364	9	1,612	51	442	134
Consumer loans	648	9	75	8	36	592
Commercial loans	3,100	287	1,376	315	1,128	2,250
Reverse repurchase agreements
Securities borrowing
Other loans	345	174	122	16	67	100
Total due from customers	5,475	479	3,185	392	1,673	3,092
Other receivables	276			61	47	262
Total on balance	12,220	479	3,185	453	1,720	9,823
Total off balance	610	42	290	66	318	530
Total impaired credit exposure	12,830	521	3,475	519	2,038	10,353
2006
Interest bearing investments	17					17
Due from banks	26					26
Due from customers
Government and official institutions	10			2		8
Residential mortgage	1,460	7	1,519	59	316	191
Consumer loans	604	14	53	7	13	543
Commercial loans	3,391	285	1,295	301	1,016	2,526
Reverse repurchase agreements
Securities borrowing
Other loans	472	154	73	50	67	262
Total due from customers	5,937	460	2,940	419	1,412	3,530
Other receivables	127			15		112
Total on balance	6,107	460	2,940	434	1,412	3,685
Total off balance	365	38	160	36	185	316
Total impaired credit exposure	6,472	498	3,100	470	1,597	4,001

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				2007				2006
		>1 year				>1 year
	<1 year	<5 years	>5 years		<1 year	<5 years	>5 years
	impaired	impaired	impaired	Total	impaired	impaired	impaired	Total
Cash and cash equivalents
Interest bearing investments	6,424		14	6,438			17	17
Due from banks	9		22	31		1	24	26
Due from customers
Government and official institutions	10	4	4	18	1	4	5	10
Residential mortgage	858	470	36	1,364	885	545	30	1,460
Consumer loans	376	256	16	648	268	283	53	604
Commercial loans	1,168	1,277	655	3,100	1,053	1,681	657	3,391
Other	200	97	48	345	289	174	9	472
Total due from customers	2,612	2,104	759	5,475	2,496	2,687	754	5,937
Other receivables	243	24	9	276	107	20		127
Total on balance	9,288	2,128	804	12,220	2,603	2,708	795	6,107
Total off balance	241	314	55	610	118	211	36	365
Total impaired credit exposure	9,529	2,442	859	12,830	2,721	2,919	831	6,472

Write-offs are based on Fortis’ latest estimate of its recovery and represent the loss that Fortis considers it will incur. Conditions for write-off may be that the obligor’s bankruptcy proceedings have been finalised and securities have been exhausted, the obligor and/or guarantors are insolvent, all normal recovery efforts have been exhausted, or the economic loss term (i.e. the term within which all expenses will exceed the amount of recovery) has been reached.

Incurred but not reported impairments

Incurred but not reported (IBNR) impairments on loans represents losses inherent in components of the performing loan portfolio that have not yet been specifically identified.

The scope of the calculation of the IBNR impairments covers all financial assets found not to be individually impaired from the categories Due from customers and Due from banks. All related off-balance items such as unused credit facilities and credit commitments are also included.

The IBNR calculation combines the Basel II concept of expected loss on a one-year time horizon with intrinsic elements such as incubation period, macroeconomic factors and expert views. In the context of IAS 39 and in view of recent developments which have lead to even more increased risk awareness, the Fortis IBNR calculation method has been fine tuned.

IBNR is calculated on the performing loan portfolio of the banking and insurance businesses. IBNR amounted to EUR 282 million at the end of 2007 compared to EUR 414 million at the end of the previous year. This decrease reflects the more stringent policy regarding credit renewals. Details relating to IBNR impairments are provided in the notes 15, 17, 18 and 53.