General information about risk management
General information about risk management of COMMERCIAL BANK “COMERTBANK” JOINT-STOCK COMPANY
Risk is a cost expression of certain events which may lead to loss. Risks result from digression of previously evaluated events from reality and unforeseen events in the future. Such digressions may be both negative and positive. Negative digressions may result in lost gain, and positive digressions may result in gaining profit. Profit is possible only in case if possible negative consequences of certain events are correctly foreseen and estimated. All of these impels Commercial Bank “COMERTBANK” Joint-Stock Company to give importance to economic risks while working out the policy of risk definition, classification, and management.
Risks result both from inner and outer activity of the Bank. The first category of risk includes representation risk, interest rate risk, maturity date risk, credit risk, currency risk, legislation risk, liquidity risk, transaction risk, concentration risk, risks related to automated system, etc. The second category of risks includes market risk, country risk, force majeure circumstances risk, etc. The risks of the second category do not characterize banking activity as such, yet affect it directly. The Bank should manage these risks in an active way, as the level of risk is proportionate to profitability.
The administration of the Bank is in charge of protecting Commercial Bank “COMERTBANK” Joint-Stock Company from risks. This responsibility consists in establishing the maximum amount of risk which may result from the activity of the Bank. An adequate supervision carried out by the Council of the Bank and its Executive Authority and the one carried out by Assets and Liabilities Management Committee and the interior Audit of Commercial Bank “COMERTBANK” Joint-Stock Company are established for effective risk management.
Risk management is carried out on the level of policy and procedures, evaluation and control of the risks described in inner standard acts approved by the Council of the Bank.
Representation risk is defined as the possibility of appearance of different publications concerning the activity of the Bank, which may arouse customer’s distrust to the Bank.
Transaction risk is defined as the risk of direct or indirect loss resulting from adequate or unsuccessful processes as well as from actions of third parties or events.
Legislation risk is a negative influence of legislative acts, laws, and other decisions or agreements impossible to fulfill and concerning the activity of the Bank.
Concentration risk is a risk having influence upon revealing concentration in the assets and liabilities of the Bank and determining limits for protecting the Bank’s susceptibility to this type of risk.
Managing the types of risk listed above is carried out in accordance with the program of Commercial Bank “COMERTBANK” Joint-Stock Company related to prevention and struggle against money-laundering.
Currency risk is subdivided into:
Currency exchange risk represents the risk of possible loss resulting from revaluation of financial instruments in foreign currency and currency assets and liabilities sensitive to currency exchange rates.
Currency calculation risk results from carrying out unsuccessful calculations, which may take place due to parties’ failure to fulfill their obligations, transaction problems, liquidity pressure at markets, and other factors.
Managing the risk related to investing monetary funds in nonresident banks presupposes procedures of collecting and evaluating information and protection against the risk related to investing monetary funds.
Managing these types of risk is carried out in accordance with Commercial Bank “COMERTBANK” Joint-Stock Company Currency Policy Related to Currency Risk Management, Currency Regulation Order of Commercial Bank “COMERTBANK” Joint-Stock Company, Open Currency Position Order of Commercial Bank “COMERTBANK” Joint-Stock Company, and Instruction of Accumulating Information for Evaluating Risks Related to Investing Monetary Funds of Commercial Bank “COMERTBANK” Joint-Stock Company in Nonresident Banks.
The tactics of the Bank related to credit risk management consists in diversification of credit portfolio, which includes giving credits to a large range of customers, and diversification of terms of crediting by means of giving credits with different maturity dates, in order to ensure the Bank’s possibility to maneuver financial resources.
Managing this type of risk is carried out in accordance with the General Crediting Policy of Commercial Bank “COMERTBANK” Joint-Stock Company.
Interest rate risk is the risk of possible loss the bank may suffer due to modification of interest rates. This risk arises in the situation when the assets of the Bank decrease or their new prices are set during the period of time different from the period of setting the price of liabilities. All sorts of activities of the Bank contain interest rate risk management policy and procedures, including concrete responsible directions and fulfilling decisions in view of managing this category of risk.
Maturity date risk results in the possibility of loss suffered by the Bank due to a discrepancy in maturity dates of assets and liabilities. The discrepancy in maturity dates of assets and liabilities may lead to additional loss apart from that resulting from interest rate risk.
Liquidity risk is the risk of loss the Bank is subject to due to lack of liquid assets.
Managing this type of risk is carried out in accordance with Commercial Bank “COMERTBANK” Joint-Stock Company Interest Rate Risk Management Policy, Order of Assets and Liabilities Management Committee of Commercial Bank “COMERTBANK” Joint-Stock Company, and Liquidity Management and Planning Order of Commercial Bank “COMERTBANK” Joint-Stock Company.
Information technology risk includes typical risks of electronic data processing environment: confidentiality of information risk, information integration risk, uninterrupted functioning of basis components risk, and safety of functioning environment risk.
Managing this type of risk is carried out in accordance with Information Security Policy of Commercial Bank “COMERTBANK” Joint-Stock Company.
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