48. Risk identification and analysis
The main goal of identifying and analyzing risks is to form a complete picture of risks for decision makers that threaten the organization’s business, the life and health of its employees, the organization’s property interests, obligations arising in the process of the organization’s interaction with customers and partners, etc.
Risk identification is the process of identifying risks that can affect a project and documenting their characteristics. Risk identification activities may involve: project manager; project team members; risk management team (if any); customers; experts in certain areas who are not part of the project team; end users; other project managers; project stakeholders and risk management experts. Risk identification is an iterative process because as the project progresses within its life cycle new risks may be discovered or information about them may emerge. The frequency of iterations and the composition of the participants in each cycle varies depending on the situation. The format of risk descriptions should be consistent to allow comparison of the relative impact on the project of one risk occurrence with the corresponding impacts of other risks.
Risk analysis should adhere to the following criteria : 1. You can't risk more than your own capital can afford.2. We need to think about the consequences of the risk. 3. You can't risk a lot for a little. 4. A positive decision is made only when there is no doubt. 5. When in doubt, negative decisions are made. 6. You can't think that there is always only one solution.
Risk assessment is the process of determining, in a quantitative or qualitative way, the magnitude of a risk. A task qualitative analysis identify risk factors, identify potential risk areas, and then identify all possible risks. The methods include: - method of analysis of the appropriateness of costs; - method of analogy. Quantitative Analysis risk determines the size of individual risks and the risk of the project as a whole: - method of sensitivity analysis; - scenario analysis method; - Monte Carlo method; - statistical methods. Also, to assess the degree of risk acceptability, it is necessary to identify risk zones depending on the expected amount of losses.
The area in which losses are not expected, i.e., where the economic result of economic activity is "+", is called the risk-free zone. The acceptable risk zone is the area within which the amount of probable losses does not exceed the expected profit and comm. activity has an economy. expediency. The critical risk zone is the area of possible losses that exceed the amount of expected profit up to the value of the total estimated revenue. The catastrophic risk zone is the area of probable losses that exceed the critical level and can reach a value equal to the organization's SC.
40. Concepts in risk management
Risk refers to the uncertainty of the outcome, including both positive (new opportunities) and negative (threats) consequences of actions or events. It is a combination of the likelihood of outcomes occurring and their expected impact, including subjective perceptions of importance. Management of risks includes all processes associated with the identification, assessment and formation of a judgment about risks, taking measures to mitigate or anticipate the risk, as well as with the order of monitoring and analysis. To manage risks, the following should be in place: a procedure for monitoring risks; access to reliable and up-to-date risk information; the optimal level of state control for managing these risks and the procedure for making decisions based on risk analysis and assessment.
Office financial risks is based on the following interrelated main concepts:
one). Concept cash flow involves the identification of the cash flow, its duration and type of assessment of the factors that determine the value of the elements of the cash flow; selection of a discount factor that allows you to compare the elements of the flow generated at different points in time; assessment of the risk associated with this flow, and how to account for it
2). The concept of the time value of money resources. Time value is an objectively existing characteristic of monetary resources. It is determined by three main reasons: inflation, risk or failure to receive the expected amount, turnover
3). The concept of trade-off between risk and return. The meaning of the concept: getting any income in business is almost always associated with risk, and the relationship between them is directly proportional. At the same time, situations are possible when the maximization of income should be accompanied by the minimization of risk.
four). The concept of the cost of capital - the maintenance of one or another source of financing costs the company differently, therefore, the price of capital shows the minimum level of income necessary to cover the costs of maintaining each source and allowing not to be at a loss.
5). The concept of capital market efficiency - transactions in the financial market and their volume depends on how current prices correspond to the intrinsic value of securities.
6). The concept of information asymmetry The meaning of this concept is as follows: certain categories of persons may have information that is not available to other market participants.
7). The concept of agency relations. The bottom line is that within the organization, the manager and the owner may have different interests.
eight). Opportunity cost concept: any investment always has an alternative.
Risk identification – First stage a system of risk management measures, consisting in the systematic identification of risks specific to a particular type of activity, and the determination of their characteristics.
According to GOST R 51897-2002 “Risk management. Terms and definitions” risk identification refers to the process of finding, compiling a list and describing risk elements.
Risk identification determines which risks are likely to affect the project and documents the characteristics of those risks.
Risk identification is an iterative process. Initially, risk identification may be performed by a part of the project managers or by a group of risk analysts.
Further identification can be handled by a core group of project managers. To form an objective assessment, independent specialists may participate in the final stage of the process. Possible responses can be identified during the risk identification process.
The input data for identifying and describing risk characteristics can be taken from various sources:
1. First of all, this organization knowledge base. Information about the execution of previous projects may be available in the archives of previous projects. It should be remembered that the problems of completed and ongoing projects are, as a rule, risks in new projects.
2. Another source of project risk data can be a variety of information from open sources, scientific works, marketing analytics and others research work in this area.
Each project is conceived and developed based on a set of hypotheses, scenarios and assumptions. As a rule, the project scope statement lists the assumed assumptions - factors that, for planning purposes, are considered true, real, or certain without evidence. Uncertainty in project assumptions should also be considered as a potential source of project risk. Assumption analysis identifies project risks arising from inaccurate, inconsistent, or incomplete assumptions.
The main difficulties in identifying risk factors and uncertainties when conducting a pre-project investment feasibility study are:
Lack of dependence, in a general sense, between events that are unprofitable for the project as a whole and events that are unprofitable for a particular participant;
When identifying risk events, it is difficult to find a compromise between an excessive number of possible events and their incomplete list. In this case, the professionalism of experts becomes extremely important.
To eliminate these contradictions, it is advisable to carry out the initial identification of unprofitable events specifically for a particular participant, and then from among them - the most possible ones, taking into account the specifics of participation in the project.
Various approaches can be used to collect risk information. Among these approaches, the most common are: a survey of experts, brainstorming, the Delphi method, Crawford cards.
Modern risk management techniques are equipped with powerful tools for identifying risk events that characterize both the project as a whole and its individual aspects. Most effective method risk identification is project environment analysis. From the list of negative events, the most plausible from the point of view of an expert in this project are first determined (selection according to the possibility-probability of occurrence). Then the events determined using expert assessments are selected according to the unprofitability for the project.
When identifying risk events of a specific participant based on contract relationship models Three main groups of risk events (increase in investment costs, increase in production costs, fall in income) are proposed to be identified depending on which of the following factors they are caused by: force majeure, failure by other participants to fulfill their obligations, failure by the participant himself to fulfill his obligations.
The main advantage of the above classification of negative project events is that it is focused on the unprofitability of project events for an individual participant, which is not fully taken into account by modern expert methods. At the same time, special attention is paid to the possible aggravation of the relationship between project participants when identifying risk events.
The result of risk identification should be a list of risks with a description of their main characteristics: causes, conditions, consequences and damage.
The result of the risk identification process is the Risk Register containing:
List of identified risks;
List of potential response actions;
The main causes of the risk;
During the identification process, the list of risk categories can be updated with new categories, which can lead to an expansion of the hierarchical risk structure developed in the risk management planning process.
The risk register contains the following information:
1. Date of occurrence of the risk.
2. Date of risk registration.
3. The name of the risk.
4. Description of the risk.
5. Initiator.
6. Reasons for the risk.
7. Consequences.
8. Owner of risk.
9. End date of the risk.
Despite the fact that projects are risky ventures and there are always uncertainties that must be identified and controlled, it is a mistake to include every uncertain risk in the Risk Register.
All risks have common inherent characteristics:
1. They are in the future and have not happened yet.
2. These are uncertain events that may or may not happen.
3. They matter if they happen.
Instead of filling the Register with general risks that do not require a special response, other than the proper performance of work, attention should be paid to the discovery of real risks.
Risk identification and analysis is a key element of the risk management process. From their correct organization largely depends on how effective further decisions will be and, in the end, whether the company will be able to adequately protect itself from the risks that threaten it. Therefore, the study of the features of this area of risk management and their consideration in practical activities risk manager are an important step in understanding the entire risk management system.
The main goal of identifying and analyzing risks is to form a complete picture of risks for decision makers that threaten the company's business, the life and health of its employees, the property interests of owners / shareholders, obligations arising in the process of relationships with customers and others. contractors, rights of third parties, etc. In this case, not only the list of risks is important, but also the understanding by managers of how these risks can affect the company's activities and how serious the consequences can be. As a result of such a study, a risk management system will be properly organized, which will ensure acceptable level protect the firm from these risks.
Identification and analysis of risks involves a qualitative, and then a quantitative study of the risks faced by the company.
Qualitative analysis involves the discovery of risks, the study of their characteristics, the identification of the consequences of the implementation of relevant risks in the form of economic damage, the disclosure of information sources regarding each risk. At this stage, a detailed classification of the identified risks is carried out, the main criteria of which are discussed in topic 2. As a result, the risk manager has an understanding of the range of problems that will be encountered in the process of risk management.
Pre-Stage Step quantification risks is to obtain information about them. Such information should contain the following data necessary to assess the degree of risk predictability: the frequency (probability) of occurrence and the amount of losses, i.e. distribution of damage, as well as other characteristics that are required for further risk analysis. The correctness of all subsequent decisions will depend on whether it is possible to collect the necessary qualitative data in the required volume. Therefore, the determination of the degree of confidence in different sources information is an important aspect of this step.
The main step of the quantitative risk assessment stage is the processing of the collected data. It should serve the purposes of the subsequent risk management decision-making process. To identify risk factors and the degree of their impact, various methods of statistical data processing can be used, including correlation and variance analysis, time series analysis, factor analysis and other methods of multidimensional classification, as well as mathematical modeling, including simulation.
If necessary, statistical analysis can be used to confirm some of the conclusions of the previous stage, when qualitative analysis is not enough for this. For example, if there is not enough qualitative information to conduct a detailed classification of risks, then a multivariate classification procedure can be carried out.
It is possible to offer a set of criteria for allocation of stages of process of identification and the analysis of risks. The most common is the degree of detail of the risk study.
In accordance with it, the following stages can be distinguished:
Understanding risk, i.e. qualitative analysis, accompanied by a study of the structural characteristics of the risk (danger - exposure to risk - vulnerability). This is a very important stage, as it determines what the risk manager will face in the future, and thereby sets the boundaries for decision-making in the risk management process;
Analysis of the specific causes of adverse events and their negative consequences. This stage is a detailed study of individual risks (causal relationships between risk factors, the occurrence of adverse events and the damage caused by them). Such research provides a basis for decision-making within risk management;
Comprehensive risk analysis. This stage involves the study of the entire set of risks as a whole, which gives a whole, comprehensive picture of the risks faced by the company. This allows us to pursue a unified risk management policy. Such a study also includes the conduct of procedures such as a security audit, i.e. a comprehensive study of the firm's business, decision-making methods and technologies used in order to identify and analyze the risks to which they are exposed.
In some cases, not all of the listed stages are implemented in the risk management practice of specific firms, but the most complete and comprehensive version includes all three stages. Typically, this is typical for large firms involved in complex business.
The Group's integrated risk management system is determined by the Integrated Risk Management Policy of Sberbank of Russia, approved by the Resolution of the Bank's Management Board in February 2012. According to the provisions this document, Group risk management is a three-tier process:
- the first level of management (carried out by the Management Board of the Bank, the Group Risk Committee of Sberbank of Russia) is the management of the Group's total risk. The result of this process is, among other things, the formation of requirements and restrictions for the management processes of individual risk groups, for risk management processes in the Group member organizations, as well as the identification of specific collegial bodies and structural divisions of the Group member organizations responsible for managing the identified risk groups;
- the second level of management (carried out by the relevant Committees of the Bank) - management of individual risk groups of the Group within the limits and requirements established at the 1st level of management;
- the third level of management (carried out by collegiate bodies and structural subdivisions of organizations - members of the Group) - management of individual risk groups in organizations - members of the Group within the framework of the requirements and restrictions established at the 1st and 2nd levels of management.
The Group's integrated risk management process includes five main group stages:
- identification of the Group's risks and assessment of their materiality - the purpose of the stage is to identify all significant risks affecting the Group's activities;
- formation of significant risk management systems - the purpose of the stage is the distribution of functions or updating of such distribution for risk management of the Group among officials, divisions and collegiate bodies of the Bank and other members of the Group and the formation (or updating) of the methodological base governing the risk management of the Group;
- planning the level of exposure of the Group to risks - the purpose of the stage is to determine the target level of risks of the Group by taking into account risk metrics in the business plan of the Group and Group members;
- establishing the risk appetite of the Group and the Group members - the purpose of the stage is to be approved by the Bank and agreed with Supervisory Board the Bank of the maximum permissible level of risks that the Group is entitled to take on, as well as the formation of a system of limits and restrictions that make it possible to comply with the established risk appetite of the Group;
- managing the overall risk level of the Group - the purpose of this stage is to ensure that the risk level of the Group meets the target values.
As part of the implementation of the integrated risk management system in 2012, the following initiatives were implemented:
- the Group’s risks were identified, which resulted in the identification of significant risks grouped for management purposes into the following groups: credit risk, country risk, market and credit risks of operations on financial markets, interest and currency risks on non-trading positions, risk of losses due to changes in the value of property, operational risk, legal and regulatory risk, compliance risk, liquidity risk, reputational risk, strategic risk and business risk, model risk, tax risk ;
- by decision of the Group Risk Committee of Sberbank of Russia, the functions of managing significant risks are distributed among the collegial working bodies and structural divisions of the Bank;
- a methodological framework was developed that defines risk metrics that characterize the Group's total risk level, the procedure for their calculation and stress testing;
- as part of the Group's business planning process for 2013–2015, the Bank's business plan includes risk metrics that characterize the Bank's planned risk level;
- The decision of the Committee of OJSC Sberbank of Russia approved the Risk Appetite of the Bank.
In 2013, it is planned to extend the integrated risk management methodology and processes to the Group members.
The Group is constantly improving its risk management system, striving to comply with best practices and recommendations from regulatory authorities. Within the framework of these decisions, during 2013–2015, it is planned to consistently introduce and improve both risk management methods and processes at the integrated level and at the level of management systems for individual types of risks.
Credit risk
The Group takes on credit risk, which is the risk that a counterparty will not be able to pay debts, meet its financial obligations in full or in part when due. The Credit Risk Management Policy implemented by the Group is carried out within the framework of the integrated risk management system and is aimed at increasing competitive advantage The Group by expanding the range of counterparties and the list of loan products and financial market products provided, implementing a systematic approach to managing credit risks, including those ensuring the preservation or reduction of the level of realized credit risks, optimizing the industry, regional and product structure of loan portfolios.
The Group applies the following main methods of credit risk management:
- prevention of credit risk by identifying, analyzing and evaluating potential risks at the stage preceding the conduct of transactions subject to credit risk;
- planning the level of credit risk by assessing the level of expected losses;
- introduction of unified risk assessment and identification processes;
- limiting credit risk by setting limits and/or risk restrictions;
- structuring transactions;
- management of collateral for transactions in financial markets;
- monitoring and control of the level of credit risk;
- application of the decision-making authority system;
- creating reserves to compensate for losses.
Credit risk is assessed for the Group as a whole and for individual portfolios of assets subject to credit risk, as well as for individual credit risks of individual counterparties and groups of counterparties, countries, geographic regions, economic sectors/types of economic activity.
The Group operates a system of internal ratings based on economic and mathematical models for assessing the probability of default of counterparties and transactions. The assessment of individual credit risks of the Group's counterparties for transactions that carry credit risk is carried out depending on the types of counterparties:
- corporate clients, credit institutions, financial companies, individual entrepreneurs, countries, subjects Russian Federation, municipalities, insurance and leasing companies - based on the system credit ratings, as well as by building models of forecast cash flows or other important indicators;
- individuals- based on the assessment of the solvency of counterparties in accordance with internal normative documents Groups and express evaluation.
The credit rating system provides a differentiated assessment of the probability of non-performance / improper performance by counterparties of their obligations based on the analysis of quantitative (financial) and qualitative factors of credit risk, the degree of their influence on the ability of the counterparty to service and repay the obligations assumed.
The Group's internal regulations provide for an assessment of a combination of factors, the list of which is standardized depending on the types of counterparties.
At the same time, risk factors associated with financial condition counterparty and trends in its change, ownership structure, business reputation, credit history, cash flow and financial risk management system, information transparency, client’s position in the industry and region, availability of support from authorities state power and parent companies (if the counterparty enters the holding), as well as the so-called warning factors. Based on the analysis of these risk factors, the probability of defaults of counterparties/transactions is assessed with their subsequent classification by ratings.
The Group pays close attention to controlling the concentration of large credit risks and compliance with the prudential requirements of the Bank of Russia, as well as analyzing and forecasting the level of credit risks. When analyzing, controlling and managing the concentration of credit risk, the following methods are used:
- a distributed mechanism for identifying criteria for the legal and economic connection of borrowers with subsequent centralized maintenance of a single list of groups of related borrowers;
- control over the provision of large loans to individual borrowers or groups of related borrowers,
- allocation of groups of borrowers in the context of industry, country and geographic (intra-country) affiliation.
The system of control and monitoring of the level of credit risks of the Group is implemented on the basis of principles defined by the Group's internal regulatory documents that ensure preliminary, current and subsequent control of operations exposed to credit risk, compliance with established risk limits, and their timely updating.
The Group has developed a multi-level system of limits based on the limitation of credit risk for lending operations and operations in the financial markets.
When granting loans, the Group generally requires the provision of collateral. Several types of collateral can be accepted simultaneously to limit credit risk. In accordance with the Group's policy, collateral for loans to legal entities (the collateral value of property collateral and / or the amount of obligations (liability limit) under the guarantee agreement, and / or the amount of the guarantee) must cover the amount of the loan and interest accrued on it for at least three months.
As one of the approaches to hedging the risks of credit transactions, the Collateral Policy (as part of the credit policy) has been developed and applied, which determines the basic principles and elements of organizing work with collateral in lending.
The collateral policy is aimed at improving the quality of the loan portfolio in terms of collateral. The quality of collateral is determined by the probability of receiving funds in the amount of the estimated collateral value when foreclosing the subject of collateral or its sale. The quality of collateral is indirectly characterized by the list and materiality of risks associated with collateral and is determined by a number of factors (liquidity; reliability of valuation; risks of depreciation; exposure to risks of loss and damage; risks due to legal reasons, and others).
The value of the collateral is assessed based on the internal expert assessment of the Group’s specialists, the assessment of independent appraisers, or on the basis of the value of the subject of collateral in financial statements borrower at a discount. Use of surety of solvent legal entities as collateral requires the same risk assessment of the Guarantor as the Borrower.
In order to effectively manage credit risk in transactions with legal entities, the Group defines two main types of transactions:
- corporate lending operations;
- transactions in financial markets with clients and counterparties - legal entities (corporate clients and financial institutions) - hereinafter referred to as transactions in financial markets
In 2012, a group-wide credit risk management process for transactions in financial markets was developed and approved. The implementation of this process in the Group, as well as uniform principles for identifying, assessing and limiting credit risks of operations in financial markets, will be carried out in 2013 Also, a strategic IT program “Automation of the risk management system of the Corporate and Investment Block” was launched, within the framework of which the main management processes are automated risks in financial markets, including credit risk.
At the same time, the Group has a multi-dimensional authority system that allows determining the level of decision-making on each loan application. Each territorial subdivision is assigned a risk profile that determines the authority of this subdivision to make independent decisions depending on the risk category of the application. In turn, the risk category of the application depends on the total limit and risk category of the borrower/group of related borrowers, as well as on the category of the loan product. Thus, the current systems of limits and powers allow us to optimize the credit process and properly manage credit risk.
In 2012, the Group began replicating the credit risk management methods applied by the Bank to its subsidiary banks.
Nevertheless, the group is working to further improve the methodology for setting limits, including as part of the implementation of Basel II in the Bank.
In particular, in December 2012 the Bank developed and approved approaches to setting portfolio limits on consumed economic capital for industries, major borrowers and retail products in order to control concentration risk.
Taking into account the focus of the Bank and the Group on the use of modern methods and tools for managing credit risks, the Bank is in the process of building unified maximally standardized retail lending processes, taking into account customer segmentation by risk profile and minimizing the number of participants in the process through centralization and deep automation of processes. In particular, in 2012 the risk management system for retail clients based on the Credit Factory technology was further developed both at the level of the Bank and the Group.
According to the Credit Factory technology, the Bank provides the main types of credit products for individuals - consumer loans, car and housing loans, credit cards.
In 2012, the following changes were made within the framework of technology at the Bank level:
- for housing loans using the "Credit Factory" technology, a scoring assessment of the credit history of individual clients was introduced based on a statistical approach;
- the Risk-Based-Pricing technology used for consumer loans has been extended to new client segments;
- for all products, rating models for assessing the reliability of customers have been introduced;
- an integrated scoring model was introduced for car loans, housing loans and credit cards;
- for consumer loans, regional risk level scoring cards were introduced by taking into account regional specifics in the risk profile;
- a fraud monitoring system has been introduced into the pre-credit processing process, which will be further developed in 2013.
At the Group level, the introduction of the “Credit Factory” technology was continued in subsidiary banks - BPS-Sberbank OJSC (Belarus), Sberbank of Russia JSC (Ukraine) and SB Sberbank JSC (Kazakhstan).
In addition, in 2012, the process of transferring retail loan products to the Credit Factory technology was launched at subsidiaries of the Sberbank Europe group. Thus, in December 2012 consumer loans were launched in the Czech Republic, new projects were initiated in Slovakia, Serbia and the Czech Republic.
As part of the implementation of Basel II, the Bank developed a complete set of Basel behavioral models for all retail lending products, identified the indicators necessary for calculating economic capital (in total, 42 PD models, 21 LGD models and 18 EAD models were developed).
During 2010–2011, the Group carried out work on the introduction of an intra-bank automated system, thanks to which it was possible to achieve deep automation credit process. During 2012, work on optimizing and expanding the functionality of this system was continued. In particular, significant changes were taken into account in the methodology for accounting for credit risks, aimed at matching the methods with the recommendations of the Basel Committee on Banking Supervision.
In addition, in 2012 the Group carried out work on the implementation of integrated automated systems:
- a credit risk management system that makes it possible to assess the current state, the dynamics of changes and the forecast of credit risks;
- corporate credit limits management system, the introduction of which will provide a flexible mechanism for managing the structure of limits, including subject to further development of the methodology, optimize labor costs for the limits management function and the preparation of analytical materials.
The integration of existing and implemented automated systems, planned for 2013-2014, will ensure that the credit risk management process meets the requirements of the Basel Committee on Banking Supervision.
The Group, in accordance with the developed macroeconomic scenarios, conducts a sensitivity analysis of the level of credit risks at the level of individual counterparties and the loan portfolio as a whole, as a result of which macro-factors are identified that are most correlated with the probability of default by counterparties. For the purpose of stress testing, statistical information on abrupt changes in macro factors is used in modeling ratings in stressful situations.
The Group constantly monitors the collection of problem debts at all stages of collection. When problem areas / stages are identified in the process of debt collection, the level of collection efficiency decreases, the problem portfolio grows in certain regions, client or product segments, the lending / collection process is optimized.
In 2012, within this area, work was carried out to improve the efficiency of measures in terms of recovering overdue debts on loans to individuals. In particular, functional improvements were made to the Tallyman AS, on the basis of which the automation of the collection of overdue debts of individuals at an early stage was implemented, and an automatic outgoing call system (PDS) based on the AVAYA PROACTIVE CONTACT software package was introduced, which made it possible to significantly increase the number of overdue loans processed by a single operator.
Also in 2012, work was continued on the implementation of the program “Development and automation of the business process for collecting overdue debts of individuals at an early stage in the subsidiary banks of Sberbank of Russia OJSC, in particular in BPS-Sberbank OJSC (Belarus).
Country risk
The risk that a credit institution will incur losses as a result of default by sovereign counterparties of a certain country and other counterparties of this country for reasons other than standard risks (for reasons that depend not on the counterparty, but on the government of the country).
In order to minimize the risks in conducting transactions that give rise to liabilities to the Group for non-residents, as well as governments of foreign countries, country risk is assessed and country risk limits are set. Country risks are assessed based on ratings international ratings agencies (S&P, Moody’s, Fitch), the value of nominal GDP, the level of economic development of the country and the strategic importance of the country for the Group. For countries that do not have international ratings, the assessment is carried out in accordance with internal regulations, which involve an analysis of risk factors related to the solvency of countries, the conditions of current development, the effectiveness of external debt management, offshore status and international reputation, the state structure and the domestic political situation. In order to limit country risks, the Group conducts transactions with non-resident counterparties within the risk limits for the respective countries.
Market risk
The possibility of the Group incurring financial losses due to unfavorable changes in foreign exchange rates, quotations of equity securities, interest rates, prices for precious metals and other market indicators. The main goal of the Group's market risk management is to optimize the level of market risk within the Group, to ensure that the level of risks complies with the established limits, and to minimize losses in the event of unfavorable events.
The Group distinguishes the following categories of market risk:
- currency risk - the risk of losses or a decrease in profits associated with changes in foreign exchange rates;
- interest rate risk - the risk of loss or decrease in profit associated with changes in the level of interest rates.
- stock risk - the risk of loss or loss of profit associated with a change in the fair value of equity securities (for example, ordinary and preferred shares);
- commodity risk - the risk of losses or a decrease in profits associated with a change in the value of commodity assets (in particular, precious metals);
- volatility risk - the risk of loss or decrease in profit from operations with options, associated with a change in the implied volatility of the underlying assets of the options;
- liquidity risk - the risk of impossibility to open/close or change a sufficiently large position on the market, stock exchange or against a certain counterparty according to market quotations, as well as the impossibility to ensure the timely fulfillment of contractual obligations without incurring losses in amounts unacceptable for financial stability.
Market risk management includes portfolio management and control of open positions in currencies, interest rates and derivative financial instruments. To this end, the Assets and Liabilities Management Committee (hereinafter referred to as the “ALMC”) sets limits on securities portfolios, open positions, stop-loss limits and other restrictions. Authorized bodies and divisions determine methodologies for market risk management and set limits for specific types of transactions.
Market risk limits are set on the basis of value-at-risk analysis, scenario analysis, stress testing, as well as taking into account the restrictions established by the regulatory and administrative documents of the Bank of Russia and the recommendations of the Basel Committee on Banking Supervision. Calculation of the value of VaR for transactions in financial markets is carried out both in the context of individual components and in aggregate, as well as determining the effect of diversification.
The Group shares the principles of market risk management for the trading and banking book. The powers to manage market risks are divided between the ALMC and the Trading Risk Committee (hereinafter referred to as the “TRC”) by types of market risk by groups of transactions (trading and non-trading trading operations).
Market risk management is carried out in accordance with the "Policy for managing market and credit risks of operations in financial markets" and "Policy for managing interest and currency risks in the banking book".
Market risk on non-trading operations
Interest rate risk on non-trading balance sheet assets and liabilities. The Group takes on exposure to market interest rate risk related to the effect of fluctuations in market interest rates on cash flows. Interest rate risk on non-trading positions arises from unfavorable changes in interest rates and includes:
- interest rate risk arising from a mismatch in maturity (revision of interest rates) of assets and liabilities that are sensitive to changes in interest rates, with a parallel shift, change in the slope and shape of the yield curve;
- basis risk arising from a mismatch in the degree of change in interest rates on assets and liabilities that are sensitive to changes in interest rates, with a similar maturity (term of interest rate revision); and
- the risk of early repayment (revision of interest rates) of assets and liabilities that are sensitive to changes in interest rates.
In the event of an increase in interest rates, the value of the funds raised by the Group may increase faster and more significantly than the yield on placed funds, which will lead to a decrease in the financial result and interest margin, and, conversely, in the event of a decrease in rates, the profitability of operating assets may decrease faster and more significantly than the cost of borrowed funds. funds.
The goals of managing this type of market risk are to minimize potential losses due to the realization of interest and currency risks, stabilization of the bank's interest margin, regardless of market conditions. In order to manage interest rate risk, the ALCO sets the maximum interest rates for attracting funds from legal entities, as well as the minimum rates for placing resources in loans to legal entities, the minimum return on investments in securities, as well as restrictions on long-term active operations, i.e. transactions with the highest interest rate risk. The Board approves fixed interest rates on deposits for the Central Office of the Bank and regional banks, which are preliminarily approved by the ALMC. Interest rates on deposits depend on the term to maturity of the loan or deposit, its amount and customer category. Interest rates on loans to individuals are approved by the ALMC.
The ALMC of each territorial bank approves interest rates on transactions with legal entities, taking into account the regional situation and ensuring the efficiency of active-passive operations of the territorial bank, as well as taking into account the maximum rates for attracting / placing resources of legal entities approved by the ALMC of the Bank's Headquarters.
To assess interest rate risk, a standardized shock is used in accordance with the recommendations of the Basel Committee. Forecasting possible changes in interest rates is carried out separately for the ruble position and aggregated for the currency position. The interest rate shock is calculated as 1 and 99% of the quintile of the distribution of the change in the average annual interest rate, obtained using the method of historical simulations based on data for the last 5 years. The indicative rate on ruble interest rate swaps for a period of 1 year (RUB IRS 1Y), as well as LIBOR 3M for the currency position, is used as the base rate for assessing the interest rate shock in rubles.
The table below shows the impact on profit before tax of the rise and fall in interest rates as at 31 December 2012:
|
Change in profit before tax as of December 31, 2012 | |||
|
Interest rate cut by 302 basis points | |||
|
Interest rate increase by 583 basis points | |||
|
Interest rate cut by 20 basis points | |||
|
Interest rate increase by 85 basis points |
In calculating the impact on profit before tax of growth and fall in interest rates as of December 31, 2012, a new methodology was applied to calculate the amount of interest rate volatility in Russian rubles and foreign currencies:
- compared to the methodology used in the report as of December 31, 2011, the calculation of the interest rate scenario has changed. In the report as of December 31, 2011, the decrease and increase in the interest rate were calculated as 10% and 90% of the quintile of the distribution of changes in interest rates over a 1-year horizon, obtained by the method of historical simulations;
- as an indicative interest rate in Russian rubles as at 31 December
2011, the interest rate on three-month loans of the Moscow interbank market (MOSPRIME 3M) was used.
The table below shows the impact on profit before tax of the rise and fall in interest rates as at 31 December 2011:
|
Positions nominated in rubles |
Positions denominated in foreign currency | ||
|
Interest rate cut by 290 basis points | |||
|
Interest rate increase by 412 basis points | |||
|
Interest rate cut by 31 basis points | |||
|
Interest rate hike by 83 basis points |
To make comparatives consistent with the 2012 disclosures, below is the impact on earnings before tax of increases and decreases in interest rates as at 31 December 2011, calculated based on the volatility of interest rates in Russian rubles and foreign currencies according to the methodology adopted in 2012:
|
Change in profit before tax as of December 31, 2012 (in billions of Russian rubles) |
Positions nominated in rubles |
Positions denominated in foreign currency | |
|
Interest rate cut by 299 basis points | |||
|
Interest rate increase by 599 basis points | |||
|
Interest rate cut by 38 basis points | |||
|
Interest rate increase by 167 basis points |
The sensitivity analysis presented above shows the change in pre-tax earnings with a parallel shift in the yield curve for all positions that are sensitive to changes in interest rates, i.e. interest rates for all maturities vary by the same amount. Interest rate risk assessment does not take into account possible early repayment and demand for instruments.
From the beginning of 2012, the Group began to develop a system for managing interest rate risk on non-trading positions in accordance with the recommendations of the Basel Committee. As part of this project, new approaches to measuring, stress testing, limiting and hedging interest rate risk on non-trading positions are being developed. A methodology and models are being developed for assessing the sensitivity of products to interest rate risk, taking into account the behavior of clients, which can significantly improve the accuracy of measurement and the efficiency of managing interest rate and currency risk on non-trading positions. At the same time, a project is underway to introduce an ALM system that will cover all the tasks of managing the assets and liabilities of banks - members of the Group, including the tasks of managing interest rate risk on non-trading positions.
Currency risk on non-trading balance sheet assets and liabilities
Currency risk arises from changes in foreign exchange rates. The Group is exposed to foreign exchange risk due to open positions (mainly in US dollars and euros against the Russian rouble).
As part of currency risk management, the Group has established sublimits for open currency positions for territorial banks. In addition, there is a system of limits and restrictions on the conduct of conversion arbitrage transactions by the Treasury, which includes limits on open positions in foreign currency, limits on operations in the domestic and foreign markets, and limits on maximum losses (stop-loss).
The Bank's Treasury consolidates the Group's total open foreign exchange position on a daily basis and takes steps to keep the Group's open foreign exchange position at a minimum level. The Group uses swaps, forward contracts and US dollar futures contracts traded on the MICEX as the main instruments for managing currency risks.
Market risk on transactions in financial markets
The powers of the KRT include the management of market risk on trading operations, in terms of liquidity risk, the KRT is accountable to the ALCO.
The control over the market risk of transactions in the financial markets is carried out by divisions that are organizationally independent of the divisions concluding transactions in the financial markets. The risk monitoring process implies continuous monitoring of trading operations at all stages of the operational process.
For the purposes of managing market risks of operations in financial markets, trading operations are aggregated into portfolios that have a hierarchical structure determined in accordance with the types of risks taken and the distribution of responsibility for decision-making. Market risk management for transactions in the financial markets in the Group is carried out through the system authorized bodies decision-makers depending on the level of risk and the hierarchy of portfolios, such a system makes it possible to ensure the efficiency and flexibility of decisions made.
The Group distinguishes the following most significant types of market risk for trading operations in financial markets.
Interest rate risk on trading positions
The Group is exposed to interest rate risk in connection with trading in debt securities and derivative financial instruments.
In order to limit interest rate risk and manage it in accordance with the Market and Credit Risk Management Policy for Operations in Financial Markets, KRT, as well as persons authorized by it, establish the following types of limits and restrictions: investment limits, interest rate sensitivity limits (DV01), concentration limits, loss limits in trading operations, VaR limits, restrictions on direct and reverse repo transactions.
stock risk
The Group takes on equity risk arising from changes in the fair value of equity securities of corporate issuers, as well as derivative financial instruments on them, in which the Group has a position. In order to limit the equity risk, KRT, as well as persons authorized by it, set limits on the total position, limits on losses during trading operations, limits on the value of VaR, limits on sensitivity. Territorial banks do not carry out trading operations with shares.
Currency risk
In order to limit the currency risk of transactions in the financial markets, the KRT, as well as persons authorized by it, set limits on the open currency position for all portfolios of transactions that are sensitive to currency risk, as well as VaR limits.
Value at Risk (VaR)
The VaR method is one of the main methods for assessing the Group's market risk. VaR allows you to estimate the maximum amount of possible financial losses with a certain level of confidence over a certain period of time. The Group calculates VaR using historical modeling using parametric allowances. This method allows you to evaluate likely scenarios for future price changes based on past changes. This takes into account interdependencies between financial market indicators (for example, interest rates and exchange rates), as well as changes in the prices of individual instruments that are not due to changes in the market situation as a whole.
VaR is calculated based on the following assumptions:
- historical data on changes in financial market indicators are used for
2 years prior to the reporting date; - foreign exchange rates, prices for bonds, stocks and precious metals, as well as levels of interest rates are used as indicators of the financial market;
- VaR is calculated for a period of 10 business days during which, on average, it is possible to close (or hedge) the Group's positions exposed to market risk; and
- a 99% one-sided confidence level is used, which means that losses in excess of VaR are expected by the Group for one of 100 periods.
In order to assess the adequacy of the applicable VaR calculation model, the Group regularly conducts back-testing by comparing value at risk with actual losses.
Although VaR provides a risk assessment, the disadvantages of this method must also be taken into account, such as:
- the use of past price changes does not allow for a full assessment of possible price fluctuations in the future;
- calculation of financial market price indicators for a period of 10 days implies that it is possible to close (or hedge) all positions of the Group during this period of time. This estimate may not accurately reflect market risk during periods of reduced market liquidity, during which the term to close (or hedge) the Group's positions may increase;
- the use of a 99% one-sided confidence level does not allow estimating the amount of losses expected with a probability of less than 1%;
- VaR calculation is based on the Group's positions exposed to market risk at the end of the day and may not reflect the risk assumed by the Group during the day.
Taking into account the shortcomings of the VaR method, in order to obtain more complete information on the amount of market risk, the Group supplements the VaR calculation with market risk estimates using scenario analysis and stress testing methodology.
The results of interest rate, equity and currency risk calculations using the VaR method as of December 31, 2012 are shown in the table below:
|
(in billions of Russian rubles) |
2012 average |
Maximum value for 2012 |
Minimum value for 2012 |
Impact on net income |
||
|
stock risk | ||||||
|
Currency risk | ||||||
|
Diversification effect |
In 2012, a new calculation model was approved, which developed a more accurate approach to calculating VaR for a portfolio of debt instruments. The calculation takes into account the weighted average time to maturity of a bond (duration), which leads to a significant reduction in the amount of market risk for a portfolio of debt instruments. The new model more fully reflects stock risks on illiquid securities, which may lead to an increase in stock risk.
The results of calculations of interest rate, stock and currency risk using the VaR method as of December 31, 2011 are shown in the table below:
|
(in billions of Russian rubles) |
Average value for 2011 |
Impact on equity |
Impact on net income |
|||
|
Interest rate risk on debt securities | ||||||
|
stock risk | ||||||
|
Currency risk | ||||||
|
Market risk (taking into account diversification) | ||||||
|
Diversification effect |
To make comparatives consistent with 2012 disclosures, the results of interest rate, equity and currency risk calculations using the VaR method as at 31 December 2011 based on the methodology adopted in 2012 are presented below:
|
(in billions of Russian rubles) |
Average value for 2011 |
Maximum value for 2011 |
Minimum value for 2011 |
Impact on equity |
Impact on net income |
|
|
Interest rate risk on debt securities | ||||||
|
stock risk | ||||||
|
Currency risk | ||||||
|
Market risk (taking into account diversification) | ||||||
|
Diversification effect |
The data presented above are calculated on the basis of the Bank's internal management reporting based on financial statements prepared in accordance with the requirements of Russian legislation.
The table below provides an analysis of the Group's foreign exchange risk in relation to monetary assets and liabilities, as well as net positions in derivative financial instruments in currencies as at 31 December 2012. The currency risk on forwards and futures contracts is represented by nominal positions in the respective currencies. Foreign currency options are carried at an amount that reflects the theoretical sensitivity of their fair value to changes in foreign exchange rates.
|
(in billions of Russian rubles) |
U.S. dollars |
Turkish lira |
Other currencies |
|||
|
Funds in banks |
||||||
|
Loans and advances to customers |
||||||
|
Debt |
||||||
|
Total monetary assets |
||||||
|
Commitments |
||||||
|
Bank funds |
||||||
|
Funds of individuals |
||||||
|
Other borrowed funds |
||||||
|
Subordinated loans |
||||||
|
Total monetary liabilities |
||||||
|
Note 33) |
||||||
The table below provides an analysis of the Group's foreign exchange risk in relation to monetary assets and liabilities, as well as net positions in derivative financial instruments in currencies as at 31 December 2011:
|
(in billions of Russian rubles) |
U.S. dollars |
Other currencies |
|||
|
Cash and cash equivalents |
|||||
|
Required reserves in accounts with central banks |
|||||
|
Debt trading securities |
|||||
|
Debt |
|||||
|
Funds in other banks |
|||||
|
Loans and advances to customers |
|||||
|
Debt |
|||||
|
Debt |
|||||
|
Debt investment securities held to maturity |
|||||
|
Other financial assets (excluding fair value of derivative financial instruments) |
|||||
|
Total monetary assets |
|||||
|
Commitments |
|||||
|
Due to other banks |
|||||
|
Funds of individuals |
|||||
|
Funds of corporate clients |
|||||
|
Issued debt securities |
|||||
|
Other borrowed funds |
|||||
|
Other financial liabilities (excluding fair value of derivative financial instruments) |
|||||
|
Subordinated loans |
|||||
|
Total monetary liabilities |
|||||
|
Net monetary assets / (liabilities) |
|||||
|
Net foreign exchange derivatives |
|||||
|
(Note 33) |
|||||
The Group provides loans and advances to customers in foreign currencies. Changes in foreign exchange rates can have a negative impact on the ability of borrowers to repay loans, which in turn increases the likelihood of loan losses.
Liquidity risk
Liquidity risk is the risk that the maturities of claims on active operations will not match the maturities of liabilities. The Group is exposed to the risk of daily use of available cash to settle overnight interbank deposits, customer accounts, time deposits, loans, guarantee payments and cash-settled derivatives. The Group does not accumulate cash in case of a one-time fulfillment of obligations under all of the above requirements, since based on the accumulated historical data, it is possible to predict with a reasonable degree of certainty the necessary level of cash to fulfill these obligations. Liquidity risk management is the responsibility of the ALMC.
The purpose of liquidity risk management in the Group is to ensure timely and full performance of its obligations at minimal cost. To do this, the Group:
- maintains a stable and diversified structure of liabilities, which includes both resources attracted for a certain period of time and funds on demand;
- has the ability to raise funds in the financial markets in a short time; and
- makes investments in highly liquid assets, diversified by types of currencies and maturities, in order to quickly and efficiently cover unforeseen gaps in liquidity.
Policies and Procedures
The Treasury analyzes, forecasts and develops proposals for regulating the current, short-term, medium-term and long-term liquidity of the Bank and the Group. The organization of control over the state of liquidity and the execution of liquidity management decisions is within the competence of the ALCO. Liquidity risk assessment, management and control is carried out on the basis of the developed methodology and standards of the group in accordance with the Bank's Policy on Management and Control of Liquidity, as well as recommendations of the Bank of Russia / local regulators and the Basel Committee on Banking Supervision.
The provisions of the Policy are the basis for organizing work on liquidity management in territorial and subsidiary banks. The board of the territorial and subsidiary bank is responsible for effective management liquidity and control over its condition, as well as for compliance with the limits and restrictions established by the Group's internal regulations. Territorial and subsidiary banks, taking into account the established limits and restrictions, as well as requirements and policies, choose assessment methods and the required level of liquidity, develop and implement measures to ensure liquidity, taking into account the mandates of the bank. In the event of a liquidity shortage, the Treasury, in accordance with the established procedure, provides the territorial and subsidiary banks with resources or a mandate to attract resources of the required volume.
Liquidity risk management includes the following procedures:
- forecasting payment flows in the context of major types of currencies in order to determine the required amount of resources to cover the liquidity deficit;
- forecasting the structure of assets and liabilities based on scenario analysis in order to control the required level of liquid assets in the medium and long term;
- forecasting and monitoring of liquidity ratios for compliance mandatory requirements and domestic policy requirements;
- control of liquidity reserves in order to assess the maximum possibilities of the Group to attract resources from various sources in different currencies;
- diversification of sources of resources in different currencies (taking into account the maximum volumes, cost and terms of raising funds);
- stress testing, as well as planning actions to restore the required level of liquidity in the event of adverse conditions or during a crisis; and
- setting limits on risk metrics, including, but not exclusively, components of the risk appetite of the group.
The tables below show the distribution of the undiscounted contractual cash flows (including future interest payments) of the Group's liabilities by contractual maturity.
Below is an analysis of the Group's undiscounted cash flows, taking into account the contractual maturities of liabilities as at 31 December 2012:
|
(in billions of Russian rubles) |
1 to 6 |
6 to 12 |
From 1 year |
Over 3 years |
||
|
Commitments |
||||||
|
Bank funds |
||||||
|
Funds of individuals |
||||||
|
Funds of corporate clients |
||||||
|
Issued debt securities |
||||||
|
Other borrowed funds |
||||||
|
Subordinated loans |
||||||
|
Total liabilities |
||||||
|
Credit related commitments |
||||||
Below is an analysis of the Group's undiscounted cash flows, taking into account the contractual maturities of liabilities as at 31 December 2011:
|
(in billions of Russian rubles) |
On demand and less than 1 month |
1 to 6 months |
6 to 12 |
From 1 year |
Over 3 years |
|
|
Commitments |
||||||
|
Bank funds |
||||||
|
Funds of individuals |
||||||
|
Funds of corporate clients |
||||||
|
Issued debt securities |
||||||
|
Other borrowed funds |
||||||
|
Other financial liabilities (including fair value of derivative financial instruments) |
||||||
|
Subordinated loans |
||||||
|
Total liabilities |
||||||
|
Credit related commitments |
||||||
The principles on the basis of which the liquidity analysis is carried out, as well as the liquidity risk management of the Group, are based on the legislative initiatives of the Central Bank of the Russian Federation and on the methods developed by the Bank. These principles include the following:
- cash and cash equivalents are highly liquid assets and are classified in the On demand and less than 30 days category;
- trading securities, securities at fair value through profit or loss, securities pledged under repurchase agreements and the most liquid portion of securities available-for-sale are considered liquid assets because these securities may be easily converted into cash within a short period of time. Such financial instruments are presented in the liquidity gap analysis table in the category “Demand and less than 30 days”;
- available-for-sale investment securities that are less liquid are included in the liquidity analysis tables based on expected contractual maturities (for debt instruments) or in the Indefinite category (for equity instruments);
- investment securities held to maturity are included in the liquidity analysis tables based on expected contractual maturities;
- loans and advances to customers, due from other banks, other assets, debt securities in issue, due from other banks, other borrowed funds and other liabilities are included in the liquidity analysis tables based on expected contractual maturities;
- Individuals' funds are not classified as On Demand and Less than 30 Days, despite the possibility for individuals to withdraw funds from any accounts (including time deposits) before maturity, thereby forfeiting the right to accrued interest. The diversification of customer funds by the number and type of depositors, as well as the experience of the Group's management, indicate that such accounts and deposits are a long-term and stable source of funding. As a result, in the liquidity analysis table, these funds are distributed in accordance with the expected timing of the outflow of funds, which are determined based on the statistical information accumulated by the Group during previous periods, as well as assumptions about the minimum balances on current accounts of customers.
The liquidity level for assets and liabilities of the Group as at 31 December 2012 is presented below:
|
(in billions of Russian rubles) |
On demand and less than 1 month |
1 to 6 months |
6 to 12 |
From 1 year |
Over 3 years |
With an indefinite period |
|||||
|
Cash and cash equivalents |
|||||||||||
|
Required reserves in accounts with central banks |
|||||||||||
|
Trading securities |
|||||||||||
|
Securities at fair value through profit or loss |
|||||||||||
|
Funds in banks |
|||||||||||
|
Loans and advances to customers |
|||||||||||
|
Securities pledged under repurchase agreements |
|||||||||||
|
Investment securities available-for-sale |
|||||||||||
|
Investment securities held to maturity |
|||||||||||
|
Deferred tax asset |
|||||||||||
|
fixed assets |
|||||||||||
|
Other assets |
|||||||||||
|
Total assets |
|||||||||||
|
Commitments |
|||||||||||
|
Bank funds |
|||||||||||
|
Funds of individuals |
|||||||||||
|
Funds of corporate clients |
|||||||||||
|
Issued debt securities |
|||||||||||
|
Other borrowed funds |
|||||||||||
|
Other liabilities |
|||||||||||
|
Subordinated loans |
6 to |
From 1 year |
Over 3 years |
With an indefinite period |
|||||||
|
Cash and cash equivalents |
|||||||||||
|
Required reserves in accounts with central banks |
|||||||||||
|
Trading securities |
|||||||||||
|
Securities at fair value through profit or loss |
|||||||||||
|
Funds in other banks |
|||||||||||
|
Loans and advances to customers |
|||||||||||
|
Securities pledged under repurchase agreements |
|||||||||||
|
Investment securities available-for-sale |
|||||||||||
|
Investment securities held to maturity |
|||||||||||
|
Deferred tax asset |
|||||||||||
|
fixed assets |
|||||||||||
|
Other assets |
|||||||||||
|
Total assets |
|||||||||||
|
Commitments |
|||||||||||
|
Due to other banks |
|||||||||||
|
Funds of individuals |
|||||||||||
|
Funds of corporate clients |
|||||||||||
|
Issued debt securities |
|||||||||||
|
Other borrowed funds |
|||||||||||
|
Deferred tax liability |
|||||||||||
|
Other liabilities |
|||||||||||
|
Subordinated loans |
|||||||||||
|
Total liabilities |
|||||||||||
|
Net liquidity gap |
|||||||||||
Management believes that the matching and/or controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to successful management Group. In banks, as a rule, there is no complete match on the indicated positions, since transactions often have indefinite maturities, deviating from contractual terms. Mismatched maturities of assets and liabilities potentially increase returns, but may also increase the risk of losses. The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they fall due, are important factors in assessing the liquidity of the Group, as well as exposure to changes in interest rates and foreign exchange rates.
Operational risk
Operational risk management is carried out by the Group in accordance with the recommendations of the Bank of Russia and the Basel Committee on Banking Supervision and is determined by the Group's Operational Risk Management Policy aimed at preventing and/or reducing losses caused by imperfection of internal processes, failures and errors in the operation of information systems, and personnel actions as well as due to external factors.
In order to prevent and / or reduce losses arising from the implementation of operational risk events, the Group has developed and applies appropriate mechanisms and procedures, such as comprehensive regulation of business processes and procedures; separation of powers; internal compliance control established order transactions and transactions, limit discipline; a set of measures aimed at ensuring information security, business continuity; improvement of audit procedures and quality control of the functioning of automated systems and hardware complex; property and asset insurance; professional development of employees at all organizational levels, etc.
In this regard, in all structural divisions of the central office and offices of territorial banks, risk coordinators have been appointed in all VSPs who are responsible for interaction with operational risk divisions in matters of identification, assessment, monitoring and control of operational risk.
In 2012, the Bank continued to collect and systematize information on realized risk events, form an internal database on realized operational risks and incurred losses.
During the formation of the database on realized operational risks, the assessment, forecast and monitoring of the level of operational risk are carried out using the basic indicative approach recommended by the Basel Committee on Banking Supervision, based on income statement data and using expert assessments. The current level of operational risk in the Group is assessed as acceptable.
In cases where entrepreneurial activity carried out under conditions of risk, it is necessary to identify this risk, measure it, evaluate its possible consequences and control it. The process of identification, measurement and evaluation constitutes the content of risk analysis.
The logical process of risk analysis by the manager is presented in fig. 3.11:
Rice. 3.11.
Questions for risk analysis:
o Where are the main sources of risk located?
o What are the probabilities of causing certain losses associated with individual sources of risk?
o How big will the losses be if the worst-case scenario materializes?
o how do these losses compare with the costs of implementing a business project?
o What actions can be taken to reduce or avoid risk?
o could these actions generate new risks?
To work out the answers to these questions, an analysis of the main prerequisites and alternatives of actions to achieve the intended goals of the entrepreneurial project / plan and an analysis of possible threats to the achievement of the formulated strategic or tactical goals of the company is carried out.
Risk identification
Forecast and analysis of potential sources of risk in crisis management is carried out with the aim of identifying in the future those areas within and outside the scope of the organization of an entrepreneurial project (enterprise) that can lead to losses (possibly of a critical nature). This forecast should be directed both to the analysis of known, previously occurring events, and to areas that were not previously considered as potentially hazardous.
The approximate consequences of choosing an entrepreneurial project are assessed by means of a quantitative strategic analysis. The starting point for strategic analysis is the development of scenarios for the evolution of the external environment in which the entrepreneurial project will be implemented. These scenarios contain the most likely forecasts in the following areas:
o market growth forecasts for each type of business activity in all planning periods;
o market share forecasts for each product and for planning periods;
o sales forecasts in physical and value terms for each product and for the planned period;
o forecasts of direct costs (for certain sales volumes) for each product for planning periods;
o forecasts of fixed costs for planning periods.
When evaluating a project, it is assumed that within the framework of a quantitative strategic analysis, the forecast states of individual aggregated balance sheet items and financial results project by planned period.
A direct view of the events against which entrepreneurial activity takes place makes it possible to identify a set of situations, the occurrence of which will lead to deviations from the intended forecasts, and through this, to a change in the estimates of profitability and the level of economic security of the enterprise (entrepreneurial project).
These include:
o strengthening the activities of the main competitors in the market segment of interest to the entrepreneur;
o intrusion into the market of foreign manufacturers;
o the emergence of effective (unforeseen) substitute products;
o Significant price cuts by competitors;
o the crisis state of enterprises, the main suppliers of materials and components;
o insolvency wholesale buyers manufactured products;
o unforeseen export restrictions;
o changes in the financial market;
o changes in prices and / or terms of supply of consumed resources;
o an increase in the interest rate for a loan;
o unforeseen change in leadership and subsequent change in business objectives;
o changes in tax legislation;
o technological innovations;
o the emergence of unexpected lawsuits and claims that are fraught with significant financial losses.
The possible events and situations listed above are external sources of risk, the implementation of which affects the evaluation of an entrepreneurial project. As an internal source of risk, possible losses in the material sphere are distinguished, including: losses of machinery, equipment, buildings, structures, finished products, raw materials and materials, energy.
The final step in identifying risk sources is to assign them to one of three main categories:
1) those that occur frequently or "known" risks;
2) unforeseen risks;
3) foreseen risks.
known risks include those that are often encountered and can be implemented with a high degree, probabilities. Typical known risks are failure to complete work on schedule due to over-optimistic standards. Risks of receiving fines, loss of part material resources due to theft can also be classified in this category. Known risks can be identified in the process of analyzing statistical and financial statements. Foreseeable risks are those whose occurrence is dictated by experience. This category includes the risks of non-fulfillment of contracts for the supply of raw materials, materials and components before the completion of negotiations and the failure of contracts with consumers, the risk of a decrease in labor potential due to layoffs of employees, the risk of delays in the supply of components and other similar risks. These risks can be identified based on a survey of experts.
unforeseen risks include those potential threats of damage for which it is impossible to predict either the time of occurrence (appearance) or the likely extent of the consequences associated with their possible implementation. As a rule, unforeseen risks are associated with such events as changes in the political environment, changes in the positions of partners, depositors-shareholders, changes in banking policy (credit conditions, terms, interest rates, etc.).
Indicators that change over periods include:
o market equilibrium prices; the volume of the market and the possibility of selling on it the products of the enterprise produced within the framework of the project under consideration;
o cost of materials;
o salary;
o overhead costs and tax deductions.
Although the instability of these dimensions over time can be predicted with a high degree of certainty, but an accurate, unambiguous assessment of these changes is hardly possible for most investment projects. At the same time, it is clear that deviations in the values of the sizes of these indicators can lead to a significant change in the size of the cash flow, and thereby to an estimate of the net present value of the project.
