Managing Risk at Commercial Bank
Risk optimisation as a strategy in increasing Shareholder Value
Assuming calculated risks, accurately pricing them and prudent management of risk portfolios are the key components which continuously add value to the stakeholders in the business of Banking. The Bank firmly believes that a robust risk management infrastructure is critical in managing its business activities to support a sustainable growth strategy.Risk management has traditionally been viewed as loss prevention or a controlling function that supports the organisation to minimise potential losses. However, we at Commercial Bank strive to use the risk management capabilities beyond these traditional boundaries. By employing risk management as a business tool, the Bank strategises to optimise its stakeholder value through proactive exposure management and determining the best trade-off between risk and reward in all key business decisions. On the other hand, a well-defined risk management framework supports identification and seizing market opportunities in an efficient manner.
With a view to preserving and enhancing stakeholder value, the Bank continues to increase its risk management capabilities through investing in people, processes and IT infrastructure. In achieving the objective of risk optimisation in its overall business strategy, the Bank’s decision-making process is reinforced by the following risk management framework.
Risk governance and policy framework constitute the foundations of the entire risk management function of the Bank. These are set into motion through utilisation of appropriate risk-related procedures, tools and techniques which support the entire risk management process to function in an effective manner.
All the key business decisions of the Bank are clearly filtered through several layers of risk assessment and the exposures are duly controlled by using predefined risk tolerance limits and risk appetite framework.
Having established a robust risk management framework through strengthening risk-related policies, procedures, processes control mechanisms and reporting during the last few years, during 2011, the Bank initiated acquiring software solutions to support risk based decision-making.
The Bank is also progressing towards implementation of Internal Capital Adequacy Assessment Process (ICAAP) and meeting Pillar - 3 disclosure requirements during 2012 to accomplish its aspirations to encompass a complete Integrated Risk Management framework which complies with the regulatory requirements and international best practices.
All the key business decisions of the Bank are clearly filtered through several layers of risk assessment and the exposures are duly controlled by using predefined risk tolerance limits and risk appetite framework.
Having established a robust risk management framework through strengthening risk-related policies, procedures, processes control mechanisms and reporting during the last few years, during 2011, the Bank initiated acquiring software solutions to support risk based decision-making.
The Bank is also progressing towards implementation of Internal Capital Adequacy Assessment Process (ICAAP) and meeting Pillar - 3 disclosure requirements during 2012 to accomplish its aspirations to encompass a complete Integrated Risk Management framework which complies with the regulatory requirements and international best practices.
Risk Organisation and Risk Governance Framework
The Bank’s overall risk management mechanism includes three components comprising of Business Lines, Integrated Risk Management and Audit/Compliance which are functioning under the supervision of the Board of Directors. These three functions operate as a filtering mechanism by providing proper controls over business processes/decision-making thus defending the Bank against unacceptable risk exposures.
risk-related policies/procedures including the risk appetite framework and tolerance level. Both business lines as well as Integrated Risk Management functions are subject to continuous scrutiny by the Audit and Compliance to ensure the integrity/appropriateness of the risk management mechanisms.
The above risk management organisational structure clearly segregates ‘risk assuming’ functions from ‘risk control and monitoring’ functions within the Bank. This principle has assisted the organisation to strengthen its robust risk management framework which reinforces the decision-making process from an independent risk perspective.
The above risk management organisational structure clearly segregates ‘risk assuming’ functions from ‘risk control and monitoring’ functions within the Bank. This principle has assisted the organisation to strengthen its robust risk management framework which reinforces the decision-making process from an independent risk perspective.
Risk-Related Committees
Within the Bank’s Integrated Risk Management framework, the Board of Directors is assisted by five risk related Committees in its decision-making.| Committee | Key Objectives |
| Board Integrated Risk Management Committee (BIRMC) |
To ensure that the Bank – wide risks are managed within the risk strategy and appetite established by the Board of Directors. |
| Executive Integrated Risk Management Committee (EIRMC) | To monitor and review all the risk exposures and risk-related policies/procedures affecting credit, market and operational areas in line with the directives from Board of Directors. |
| Assets and Liabilities (ALCO) | To optimise the Bank’s financial goals, while maintaining market and liquidity risks at desired levels. |
| Credit Policy Committee | To approve and review credit policies/procedures to ensure that all the credit portfolios are properly managed within the lending strategies of the Bank. |
| Executive Committee on Monitoring NPAs. | To review and monitor the Bank’s Non-Performing Advances (NPAs) above Rs. 10.0 Mn., classified within the preceding two-year period to initiate timely corrective actions to prevent/reduce credit losses. |
Integrated Risk Management Department (IRMD)
IRMD is functionally divided into three main areas namely, Credit, Market & Liquidity and Operational Risk and the organisational chart of IRMD is as follows:
IRMD is headed by the Chief Risk Officer (CRO) who directly reports to the Chairman of the Board Integrated Risk Management Committee (BIRMC). IRMD is responsible for the establishment and proper functioning of the Bank’s Risk Management framework to ensure that all the relevant risks are properly identified, assessed and mitigated on a continuous basis. IRMD therefore complements risk-based decision making of business line managers to optimise the risk-return trade off in their exposures by supporting them to seize market opportunities, at the correct price within the risk appetite of the Bank.
IRMD continues to monitor Bank-wide risk exposures through development and monitoring of a set of comprehensive Risk Indicators and reporting them to the EIRMC and BIRMC on a monthly basis to support proactive risk-based decision making.
In addition to the aforementioned regulatory measures, IRMD continues to enrich the organisational risk culture by sharing risk management knowledge and skills through training and development initiatives which will reap long term benefits for the Bank.
In addition to the aforementioned regulatory measures, IRMD continues to enrich the organisational risk culture by sharing risk management knowledge and skills through training and development initiatives which will reap long term benefits for the Bank.