Risk management at OJSC Bank Respublika is carried out in accordance with the relevant regulations of Central Bank and Financial Market Supervisory Authority, recommendations of the Basel Committee, as well as internal rules and procedures of the Bank.
The risk management system takes into account the relationships between all types of risks (credit risks, liquidity risks, currency risks,operational risks, environmental and social risks) aimed at reducing losses in the direction of achieving strategic objectives of the Bank and evaluates its impact on the Bank's operations.
Credit risks – Joint operation of various structural divisions of the Bank has provided for the purposes of mitigation of credit risks. According to the Bank's strategy, the Agro-Micro Loans Department has established to diversify credit policy.At the same time, the Internal Control Department has started operating to increase the effectiveness of the control mechanism. As a result of the joint activities of the mentioned structural divisions Risk management operations were divided into two stages based on analyses before (counteragent risks analysis) and after (loan portfolio control) issue of the loan.Currently, the Risk Management Department (RMD) makes the computation of provisions on a daily basis in accordance with the requirements of the Central Bank. At the same time, the establishment of the computation of the provisions under International Accounting Standards (IFRS 9) is on process.
The following methods are used to reduce and minimize credit risks:
- Limiting the lending process on certain factors (area, term, loan authority, branch limits, etc.);
- Diversification of loan portfolio;
- Loan portfolio analysis;
- Acceptable limits of the credit risk are measured before the new product is introduced;
- Implementing internal rating and scoring systems;
- Implementation of stress tests;
- Scenario analysis;
- Vintage analysis;
- Transition matrix.
Liquidity risks – Rational management of liquidity risk has a particular importance in order to ensure continued operation of the Bank. Along with the general liquidity position, the Bank's liquidity in manat and foreign currency is also monitored on a daily basis.
The following instruments are used to measure the liquidity risk in the Bank:
- Liquidity management on a daily basis;
- GAP analysis (both general and by currencies);
- Determination of the concentration of the Bank's sources of funding;
- Implementation of stress tests;
- Daily control of liquidity limits;
- Calculation of Instant Liquidity Ratio (regulation requirement);
- Calculating the Liquidity Coverage Ratio (LCR). At present, there is no regulatory requirement for this coefficient.
OJSC Bank Respublika has developed a "Liquidity Risk Management Plan" (Plan) describing the liquidity risk deterioration and, in these cases, the work to be done within the liquidity management framework. Plan includes the measures and strategies implemented to safeguard the Bank's financial sustainability. These measures include:
- Liquidity management;
- Loan portfolio optimization;
- Expansion of deposit portfolio;
- Access to additional funding.
Currency Risks– Management of currency risks in the Bank is carried out by the following measures and instruments:
- Analysis of the Bank's foreign currency assets and liabilities structure;
- Keeping the open currency within the limits set by the regulator on a daily basis (both general and in different currencies);
- Foreign currency liquidity GAP analysis;
- Implementing of hedging instruments (swap, options, forward);
- Restructuring of debt in foreign currency to manat;
- Various stress tests and their effects on the capital position of the Bank.
Operational risks–important activities performed for the purposes of minimization of operational risks include strengthening anti-money laundry through crime, suspicious transactions in the bank and anti-terrorism financing operations.The Bank has a Customer acceptance policy that meets Know Your Customer requirements and by means of this policy, the bank conducts an assessment of its customers above its average risk level. Prevention of money laundering as well as investigating suspicious transactions carried out by the Risk Block. To fulfill this task an Anti Money Laundering Officer has been appointed. The officer is responsible for the compliance with the internal control procedures and rules in the context of preventing money laundering from being carried out by all departments and branches in their current affairs.
Environmental and social risks –In order to minimize environmental and social risks, every project funded by the Bank is developed and implemented with constant consideration of the best interests of the environment and society. The Bank attaches importance to the protection of the natural, social and cultural environment in credit and investment activities and encourages its customers to create and maintain healthy development environment and, at the same time, to preserve the natural environment and to follow essential social principles. Every enterprise that is a customer of the Bank and uses the Bank’s financial resources accepts the preservation of the environment, the safe use of natural resources and the preservation of social equality as an important condition for future stability.