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RISK MANAGEMENT SYSTEM

RISK MANAGEMENT SYSTEM. ISTANBUL, OCTOBER 2011. CALIBRI BOLD 42 pt. AGENDA . RISK MANAGEMENT IN BRIEF FUNCTION ORGANIZATION RESPONSIBILITIES ACTIVITIES REPORTS WORKS Risk Management Policies CREDIT RISK MARKET RISK OPERATIONAL RISK. RISK MANAGEMENT SYSTEM. RISK MANAGEMENT IN BRIEF.

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RISK MANAGEMENT SYSTEM

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  1. RISK MANAGEMENT SYSTEM ISTANBUL, OCTOBER 2011

  2. CALIBRI BOLD 42 pt AGENDA RISK MANAGEMENT IN BRIEF FUNCTION ORGANIZATION RESPONSIBILITIES ACTIVITIES REPORTS WORKS Risk ManagementPolicies CREDIT RISK MARKET RISK OPERATIONAL RISK RISK MANAGEMENT SYSTEM

  3. RISK MANAGEMENT IN BRIEF BÖLÜM BAŞLIĞI CALIBRI BOLD 42 pt RISK MANAGEMENT SYSTEM

  4. CALIBRI BOLD 42 pt FUNCTION • Risk ManagementSystem (RMS) wasfounded on Kuveyt TurkaccordingtotheBankingLawand BRSA regulations in 1st of December2001. The Risk ManagementSystem is subjectedtothe “Regulation on the Risk ManagementSystemandWorkingProceduresandPrinciplesfor Risk Management,” a directiveissuedbythe Board of Directors on 30 January 2007 (Decision No. 576). • RMS functionsinclude; • defining, • monitoring, • measuring, • controlling, • reporting, and • managing • variousrisks, KT is exposedto. RISK MANAGEMENT SYSTEM

  5. CALIBRI BOLD 42 pt ORGANIZATION Detailed structure are given at the below organizational chart. RISK MANAGEMENT SYSTEM

  6. CALIBRI BOLD 42 pt ORGANIZATION – (Cont..d) Theultimateresponsibility of executingthisregulationrestswithour Board of Directors. However, the Board fulfilsthisresponsibilitythroughtheAudit & Risk Committee, delegatedunderthetitle, ResponsibleAuthorityforInternalSystems. TheAuditand Risk CommitteeperformsthistaskthroughChiefAuditand Risk Officer, whichassiststheCommittee in cooperationwithRMS. RMS consists of a Head, an Operational Risk Supervisor, a Credit Risk Supervisor, an IT Risk Supervisor, a Market Risk Specialist, andtwoTreasury Middle OfficeStaff. RISK MANAGEMENT SYSTEM

  7. CALIBRI BOLD 42 pt RESPONSIBILITIES • RMS has beenmanagingandmonitoring; • Market Risks, • CreditRisks, • OperationalRisks, • IT Risks, • OtherRisks (such as reputational risk etc.) • thatthe bank may be exposedtoand has beenreportingtheanalysistotheCommittee. • RMS alsoreportedIT Risk Assesments, theStressTestsResultsandScenarioAnalysisbased on variousassumptionstotherelatedCommittees. • RMS is responsibleforsoundness of BusinessContinuityProcess in KT. RISK MANAGEMENT SYSTEM

  8. CALIBRI BOLD 42 pt ACTIVITIES KuwaitTurkRMS Headand CARO attendtothemeetingsholdbyourmain partner, KuwaitFinanceHouse, withitsothersubsidiaries, KFH Bahrainand KFH Malaysia. As a result of thesemeetings, KFH Groupmembersshouldcooperateefficiently in ordertomanagerisks. Since KFH reportsConsolidated BASEL II/IFSB ReportsandStressTestingReportstoCentral Bank of Kuwait, Risk ManagementstudiesandpreparestemplateforperiodicalreportsandsubmittedtotheKuwaitFinanceHouse as consolidatedBasel II / IFSB reports. RISK MANAGEMENT & TREASURY MIDDLE OFFICE DEPARTMENT

  9. CALIBRI BOLD 42 pt REPORTS Risk ManagementReportalso has beensubmittedto KFH monthly. KuwaitTurk has continuedtowork on the CRD / BASEL-II transition since 2007. On August 2011 parallelreportingfor BASEL I and BASEL II based CAR calculationsstarts on TurkishBankingSectorforoneyear. After 2012 August, wewillreport BASEL II Pillar I CAR calculationsonly. BRSA wasinformedregularlyaboutsurveystaken, in thecontext of ouractivities. Alsoeconomicconditionsandthebanking market in Turkey has beenmonitoredcloselyandreportedto Board of Directors. RISK MANAGEMENT & TREASURY MIDDLE OFFICE DEPARTMENT

  10. CALIBRI BOLD 42 pt WORKS The Risk Apettite of KT werepreparedby RMS andIntheframework of Risk Apettite, theportfoliolimits forindustrialrisks, concentrationrisks, capital adequacy ratiotrigger, geographical risk, country riskand big loans risk were determined by the decision of Board of Directors. In the context of BASEL II, “The Internal Credit Scoring-Rating Project” was started in the 4th quarter of 2010, in order to develop an internal credit rating model with supervisory methods. Aftertheproject, KT willowninternallydevelopedcorporate rating modeland retail scoring model. RISK MANAGEMENT SYSTEM

  11. CALIBRI BOLD 42 pt WORKS – (Cont..d) In-house trainings about “Risk Awareness” is organized. The stress test study is arranged by KFH, Kuwait. TheKFH’sconsulting firm collects data andthisstudy. Risk ManagementHead is carrying out the function of Chairman of Risk Group of Participation Banks and attending to the Basel II Steering Committee recommended periodically by BRSA on behalf of the Participation Bank to participate. RISK MANAGEMENT SYSTEM

  12. CALIBRI BOLD 42 pt WORKS – (Cont..d) In the framework of operational risk studies, a database in which the historical in 08.03.2011records of losses recorded was set. From the beginning of 2009, the losses have been recorded by the departments. Moreover, the studies about setting an “Operational Loss Tracking System” were started. The aim of this project is to make the employees to record the losses properly. In the framework of operational risk, an operational risk management program called SWORD was put into use. With the help of this program the information including operational losses is shared with our main partner KFH. It is planning to speed up the RCSA studies in the upcoming period. Also, the bank wide studies about updating and modeling the processes were being started. The operational risk department takes an active role in these studies and supports to express the risks in the processes. RISK MANAGEMENT SYSTEM

  13. CALIBRI BOLD 42 pt WORKS – (Cont..d) • Studies aredone about the BBB, ECC, PI and D&O Policies among the Operational Risk Insurance and our operational risks areinsured. • In the context of market risk studies, currency risk reports with standard and supervisory methods (Monte Carlo Simulation, Historical simulation, etc.) arereporteddailybasis. Economical Environment and Bank’s market risk reports arranged monthly are submitted to KFH and BRSA respectively. BusinessContinuity Plans aremanagingwith RMS coordination. • RMS andBusinessContinuityManagementCommittee put KT’sBusiness Continuity Center into service in Ankara. IT Disaster Recovery Tests are performed twice a year. In the IT Risk Assesment Framework; the IT risksaredefined KT mayexposedtoandfollow-up activity is done about the findings and actions to be takenyearlybasis. Monitoringthe IT risksarecarriedon throughouttheyear. RISK MANAGEMENT SYSTEM

  14. Risk Management Policies BÖLÜM BAŞLIĞI CALIBRI BOLD 42 pt RISK MANAGEMENT SYSTEM

  15. CALIBRI BOLD 42 pt CREDIT Risk Management Policies The basic objectives of our credit risk management policy are to measure counterparty risks undertaken during credit transactions; to research new techniques and practices in monitoring, measuring and controlling risks, according to legislation and bank limitations; to follow up overdue receivables; to analyse reasons for such payment delays; and to take actions to prevent delays from recurring. RISK MANAGEMENT SYSTEM

  16. CALIBRI BOLD 42 pt CREDIT Risk Management Policies– (Cont..d) The fundamental principle lies in our top management’s administering and monitoring credit policies according to CRD/Basel II directives and based on BRSA recommendations. The Risk Management and Treasury Middle Office Department cooperates with our top management to determine these strategies. RISK MANAGEMENT SYSTEM

  17. CALIBRI BOLD 42 pt CREDIT Risk Management Policies– (Cont..d) The credit risk policy includes the guidance and explanatory information on enforcements and procedures regarding customer selection; the power to issue and provide loans; the transfer of power; the organisational structure of the credit committee; credit limits, returns, and guarantees; principles for allocating limits; risk monitoring, controlling, and improving; risk analysis of new products; key risk points; and actions to reduce the risks under those points. RISK MANAGEMENT SYSTEM

  18. CALIBRI BOLD 42 pt MARKET Risk Management Policies The primary objective of our market risk policy is aimed at materialising our bank’s profitability and growth targets: to minimize possible risks from trade transactions in foreign exchanges, gold, and securities and from possible structural interest risks during these transactions; and to preserve the bank’s capital adequacy ratio, accordingly. Our bank manages market risk by diversifying our portfolio, consulting with the Risk Management and Treasury Departments and the Assets-Liabilities Committees and staying abreast of both the long- and short-term market forecasts, constantly updated by prevailing market conditions and trends. As a guiding tool, our bank uses the transaction and portfolio limits determined by the Assets-Liabilities Committee and approved by top management. RISK MANAGEMENT SYSTEM

  19. CALIBRI BOLD 42 pt MARKET Risk Management Policies– (Cont..d) The acceptable risk level in treasury operations are determined by means of such guiding tools as customer limits, transaction limits, permissible transaction types, counter party and country limits, all of which are approved by management. Based on a policy of transparency, especially since our bank wants to present our assets on the balance sheet according to sale potential, we use the “current market evaluation” criteria, “Mark-to-Market” (MTM), outlined in the international accounting rules, meaning that assets on the balance sheet are “to be stated with regard to their market value.” In other words, our bank proposes to give its shareholders and participating customers the bank’s real financial outlook. To abstain from undertaking excessive market and liquidity risks, our bank also follows the liquidity position, along with the position and profitability of securities and foreign exchanges, the total daily profit-loss status, and the daily nostro accounts. RISK MANAGEMENT SYSTEM

  20. CALIBRI BOLD 42 pt MARKET Risk Management Policies– (Cont..d) • The weekly Interest Cost Analysis Report enables the Assets-Liabilities Committee to closely follow the bank’s interest cost risks. To protect against the probability of positions occurring that exceed the bank’s risk limits, the measures the unit of Treasury may enact at any given time ensures that the interest costs and position risks of our bank are reduced to reasonable levels within limits. • The informational reporting system our bank uses to manage market risks is based on these guiding principles: • Ensure that risk management concepts function sensibly; • Make certain all risk-taking activities are compatible with the bank’s risk capability and capacity; and • Ascertain that risk-taking levels are compatible with both the markets where risks are taken and with the risk-taking capacities of those departments taking the risks. RISK MANAGEMENT SYSTEM

  21. CALIBRI BOLD 42 pt OPERATIONAL Risk Management Policies To establish a management structure compatible with operational risk policies and practical procedures, our bank allocates all required and sufficient resources used in any category of business to risk management functions and to controlling procedures at the operational risk management level. The operational risk points are not only responsible for managing external functions, such as insurance, benefits and taking guarantees, procurement of external resources and services from third parties but also for ensuring effective communication with personnel managing credit, the markets, and other risks. RISK MANAGEMENT SYSTEM

  22. CALIBRI BOLD 42 pt OPERATIONAL Risk Management Policies– (Cont..d) Our bank’s operational risk framework reflects our current organisational structure in practice, this framework also contains all the structural flaws, deficiencies, and difficulties found in any category of business. For this reason, when forming our operational risk profile and practical procedures and supervisory infrastructure for risk management, we consider the level of all similar operational risks and their importance. Our operational risk management process is shaped by appropriate policies and processes providing guidance for defining and measuring operational risks and by effective tests and controls of our operations through a well-built internal control system. RISK MANAGEMENT SYSTEM

  23. CALIBRI BOLD 42 pt THANK YOU TAMER SELÇUK DURMAN HEAD RISK MANAGEMENT selcuk.durman@kuveytturk.com.tr

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