Risk Overview
Risk is defined as a potentially negative impact on a business that can arise due to current internal processes or future internal and external events. The concept of risk comprises both the likelihood that an event will occur and the impact it would have on the business.
Risk, to varying degrees, is present in all business activities, so effective Risk Management is fundamental to the success of the Bank. The primary goals of Risk Management are to ensure that the outcomes of risk-taking activities are predictable and consistent with the Bank’s objectives and risk tolerance, and that there is an appropriate balance between risk and reward in order to maximise shareholder returns. The risk environment requires continuous monitoring and assessment of these evolving risk issues in an integrated manner in order to evaluate the impacts and manage the complex bank-wide risk interactions. Our Integrated Risk Management Framework is designed and is being further developed to meet these challenges.
Managing Risk at Commercial Bank
Commercial Bank’s Risk Management policies are designed to identify and analyse all types of risk, set appropriate risk limits and controls and monitor
the risks and adherence to limits on a regular basis.
Our systems are structured to address both banking as well as
non-banking risks covering both on and off balance sheet exposures, with a view to protecting capital and enhancing shareholder value. These ensure that the Bank takes well calculated business risks while not unduly exposing the Bank’s capital, its financial resources and profitability. The management continues to oversee and update the systems, policies and procedures in all dimensions of operations within the broad guidelines and policies set by the Board. These policies and procedures are integrated into the day-to-day decision making and corporate governance processes.
To ensure the effectiveness of
the Bank’s Risk Management measures, strict audits are also conducted by
the Bank’s Inspection Department.
The independence of the Inspection and the Risk Management Departments is assured by the Bank’s organisation structure shown in page 47 of this
Annual Report.
Responsibilities for Risk
The Board of Directors:
- bears overall responsibility for the
maintenance of prudent Risk Management mechanisms in order to ensure the safety and soundness of the Bank.
- determines the structure for Risk Management within the Bank.
- identifies the principal risks faced by the Bank and ensures implementation of appropriate systems to manage these risks prudently.
- identifies and designates key management personnel to manage risks and defines their areas of responsibility.
- reviews risk strategy and significant risk policies of the Bank.
The Board exercises its responsibilities for risk through the Board Integrated Risk Management Committee.
Board Integrated Risk
Management Committee
A Board Integrated Risk Management Committee consisting of four Directors of which three are Independent and the Managing Director having overall bank-wide and group-wide Risk Management oversight and assists the Board in fulfilling its statutory, fiduciary and regulatory responsibilities. The Committee meets at least quarterly
and is responsible for:
- Reviewing and oversight of the risk profile and portfolio composition of
the Bank and its Subsidiaries within the context of the Board determined risk appetite.
- Making recommendations to the Board concerning risk appetite and particular risks or Risk Management practices of
concern to the Committee.
- Reviewing Management’s plans for mitigation of the material risks faced by the various business units of the Bank and Subsidiaries, including overseas branches.
- Oversight of the formal development of Risk Management policy encompassing all products and businesses, ensuring the development of policy manuals and procedures.
- Oversight of implementation and review of Risk Management, internal compliance and control systems throughout the Bank.
- Promotion of awareness of a risk based culture and the achievement of a balance between risk and reward for risks accepted.
- Reviewing the effectiveness of the Executive Credit Policy and Credit Risk Management Committee and the Executive Risk Management Assets and Liabilities Committee to address and manage specific risks.
- Holding the Managing Director and Corporate Management accountable for the Bank’s risks.
- Ensuring that the Board of Directors is continuously made aware of the Bank’s exposures, realised or
potential substantial losses and Key Risk Indicators.
The Committee may make recommendations to the Board as it sees fit.
Executive Credit Policy and Credit Risk Management Committee, chaired by Managing Director includes all members of the Corporate Management with credit, risk and inspection responsibilities.
Scope of Activities:
- Exercises the powers and authority of the Board with respect to the day to day management of credit risk and credit exposure of the Bank in accordance with the policies and directives determined by the Board.
- Analyses, manages and controls the credit portfolio of the Bank by reviewing exposure and risks at overall Bank, Single Borrower, Group, Industry, Geography and Lending type levels, considers the concentrations, scenarios and stresses and gives appropriate instructions.
- Issues lending guidelines and credit risk rating standards so that all Lending Officers drive the Bank’s lending portfolio in the direction of the Board approved appetite for credit risk.
- Approves credit policies, procedures and guidelines to analyse, manage and control the Bank’s credit portfolio and to ensure that the Bank’s credit risk profile evolves as planned.
- Advises Managing Director on delegated limits of authority for granting and reviewing credit.
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