5.16. Razones Financieras
5.16.4 Cronograma De Actividades
The Managing Board of Raiffeisen Zentralbank suggests risk and capital targets which are approved by the Supervisory Board of Raiffeisen Zentralbank. These targets defined in the risk strategy include risk appetite, limits for all material risks, and the demand on a minimum risk-adjusted return. Also limits on large exposures, product/sector/industry weights, regional concen- trations, and for market risks (e.g. structural open foreign exchange positions) are defined. The Managing Board of RZB is responsible for implementing these targets and for adequate monitoring and controlling of the resulting risks.
The Managing Board of Raiffeisen Zentralbank also ensures the proper organisation and ongoing development of risk man- agement. It decides which procedures are to be employed in identifying, measuring, and monitoring risks, and makes steering decisions according to the created risk reports and analyses. The Managing Board is supported by independent risk manage- ment units and specially appointed committees.
Basically, risk management functions are performed on different levels in the Group. Raiffeisen Zentralbank as the parent credit institution of the Group develops and implements risk management in close cooperation and coordination with its subsidiaries. The central risk management functions are responsible for the adequate and appropriate implementation of the Group’s risk management process. In particular, they establish common risk management principles and set business-specific standards, tools, and practices for all Group entities.
In addition, local risk management units are established in the different legal entities of RZB. They implement the risk policies for specific risk types and take active steering decisions within the approved risk budgets in order to achieve the targets set in the business policy. For this purpose, they monitor resulting risks using standardized measurement tools and communicate them to central risk management units via defined reporting interfaces.
The central Risk Controlling division assumes the independent risk controlling function required in banking law. Amongst others, this division is responsible for developing the Group wide framework for overall risk bank management (integrating all risk types) and preparing independent reports on the risk profile for the Managing Board and the heads of individual business segments. It also measures required risk coverage capital for different business units and calculates the utilization of the allo- cated limits for capital consumption in the internal capital adequacy framework.
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Organization of risk management
The Managing Board of Raiffeisen Zentralbank suggests risk and capital targets which are approved by the Supervisory Board of Raiffeisen Zentralbank. These targets defined in the risk strategy include risk appetite, limits for all material risks, and the demand on a minimum risk-adjusted return. Also limits on large exposures, product/sector/industry weights, regional concen- trations, and for market risks (e.g. structural open foreign exchange positions) are defined. The Managing Board of RZB is responsible for implementing these targets and for adequate monitoring and controlling of the resulting risks.
The Managing Board of Raiffeisen Zentralbank also ensures the proper organisation and ongoing development of risk man- agement. It decides which procedures are to be employed in identifying, measuring, and monitoring risks, and makes steering decisions according to the created risk reports and analyses. The Managing Board is supported by independent risk manage- ment units and specially appointed committees.
Basically, risk management functions are performed on different levels in the Group. Raiffeisen Zentralbank as the parent credit institution of the Group develops and implements risk management in close cooperation and coordination with its subsidiaries. The central risk management functions are responsible for the adequate and appropriate implementation of the Group’s risk management process. In particular, they establish common risk management principles and set business-specific standards, tools, and practices for all Group entities.
In addition, local risk management units are established in the different legal entities of RZB. They implement the risk policies for specific risk types and take active steering decisions within the approved risk budgets in order to achieve the targets set in the business policy. For this purpose, they monitor resulting risks using standardized measurement tools and communicate them to central risk management units via defined reporting interfaces.
The central Risk Controlling division assumes the independent risk controlling function required in banking law. Amongst others, this division is responsible for developing the Group wide framework for overall risk bank management (integrating all risk types) and preparing independent reports on the risk profile for the Managing Board and the heads of individual business segments. It also measures required risk coverage capital for different business units and calculates the utilization of the allo- cated limits for capital consumption in the internal capital adequacy framework.
Managed Portfolios Group functions Decision bodies/support *no seperat legal entity Central risk management
functions and committees
■for different risk types
■for all Group members
Local risk management functions and committees
■for different risk types
■for each legal entity
RZB Group
Group Risk Committee (GRC) Group Asset/Liability Committee (ALCO)
Market Risk Committee (MACO) Credit/Country Risk/Investment Committees
RZB AG
Credit Risk and Portfolio Management (Corp/FI/Sov/Retail/Country)
Market Risk Management Integrated Risk Management
Raiffeisen International
other Group units
Head Office and Branches Banks and Leasing in CEE
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Risk committees
The Group Risk Committee is responsible for ongoing development and implementation of methods and parameters for risk quantification models and for refining steering instruments. The committee also analyzes the current risk situation of the Group with respect to internal capital adequacy and the corresponding risk limits. It approves risk management and controlling activi- ties (like the allocation of risk capital) and advises the Managing Board in these matters.
The Market Risk Committee (MACO) controls market risks of trading and banking book transactions of RZB and establishes corresponding limits and processes. For controlling, in particular, company results, the amount of risks taken and the limit utiliza- tion, as well as the results from scenario analyses and stress tests are used.
The Credit Committee, which is staffed by front office and back office divisions, approves limit applications according to its credit approval authority (depending on rating and exposure size) and votes on all credit decisions that must be made by the Management Board.
The Asset Liability Management Committee (ALCO) assesses and manages balance sheet risks and liquidity risk. In this context it plays an important role for the Group’s long term funding planning and the hedging of structural risk positions.
During the reporting period, Credit Portfolio Committees have been newly introduced to define credit portfolio strategies for different customer segments. In these committees, representatives from business and risk management divisions discuss the risks and opportunities of different customer segments (e.g. industries, countries, retail products) and develop limits for steering the future credit portfolio.
Quality assurance and auditing
Quality assurance with respect to risk management refers to ensuring the integrity, soundness, and accuracy of processes, models, calculations, and data sources. It makes sure that the bank adheres to legal requirements and achieves the highest standards in risk management related operations.
Probably the two most important functions in assuring independent oversight are the internal auditing and compliance functions. Independent internal auditing is a legal requirement as well as a sound operational concept for prudential bank management. The independent Audit division periodically and objectively assesses the bank’s processes and contributes considerably to securing, improving and enhancing all business processes. It sends its reports directly to the Managing Board of RZB which discusses them in their board meetings.
The Compliance Office is responsible for all issues concerning compliance. It is supplementary to and at the same time an integral part of the internal control system. It is responsible for preventing and detecting shortcomings in daily operations. Moreover, an independent and objective audit free of potential conflicts is done during the audit of the annual financial state- ments by the auditing companies.
RISK
REPOR
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Internal capital adequacy
Maintaining an adequate level of capital is a core objective of risk management at RZB. Capital adequacy is monitored on a quarterly basis based on the actual risk level measured by internal models, taking into account the materiality of risks for choos- ing appropriate models. This capital adequacy framework incorporates both, capital requirements from a regulatory point of view (sustainability and going concern perspective) and from an economic point of view (target rating perspective).
This concept for overall bank risk management also satisfies the requirement for an internal capital adequacy assessment proc- ess (ICAAP) as required by Basel II (Pillar 2) regulations.
Target rating perspective
Risks in the target rating perspective are measured as economic capital presenting a comparable measure across all types of risks. It is calculated as the sum of unexpected losses stemming from different Group members and different risk categories (credit incl. country risk, market, participation, and operational risk). In addition, a separate buffer for other risks not explicitly quantified is held on overall Group level.
RZB uses a confidence level of 99.95 per cent for calculating unexpected losses for a 1 year hori- zon. This confidence level is based on the prob- ability of default implied by the target rating. The purpose of calculating economic capital is to determine the amount of capital that would be required for servicing the claims of customers and creditors even in the case of such an extremely rare event.
Objective Description of risk Measurement technique Confidence level Target rating
perspective Risk of not being able to satisfy claims of the Group’s senior debt holders
Unexpected losses on an annual basis (economic capital) must not exceed the present value of equity and subordinated liabilities
99.95 per cent as derived from the target rating
Going concern
perspective Risk of not meeting the regulatory capital requirement
Risk taking capacity (projected earnings plus capital exceeding regulatory requirements) must not fall below the annualized value-at-risk of the Group
99 per cent reflecting the owners’ willingness to inject additional own funds
Sustainability
perspective Risk examination of the core capital ratio Capital and loss projection for the three-year planning period based on a severe macroeconomic downturn scenario
70 - 90 per cent based on the management decision that the Group might be required to temporarily reduce risks or raise additional core capital