Risk Management

Corporate Segment Credit Risk Management

The management of credit risk of the corporate segment is grounded in actual credit policy revised at least once a year. In this framework, risk appetite entails an agreed set of indicators and limits on the credit portfolio with regard to its concentration, diversification, sectoral and product structure, collaterals, and the borrower’s quality (to be determined by customers’ ratings).
The process of approval of applications by the Credit Committee includes independent examination of the Corporate Credit Risk Department using modern approaches of the borrower’s business risk analysis, analysis of its financial model, and the possibilities to generate sufficient cash flow for credit service and repayment. All borrowers must undergo the procedure of rating and fixing a credit risk limit. The customer’s rating; collaterals, debt service quality, and information on the business environment determine a reserve rate in accordance with international standards. Collaterals are appraised and examined by the special risk management unit. 
Compliance with the credit policy, limits, and risk appetite parameters is controlled by the independent risk management unit (middle office) where reserve calculation is also made. The Bank’s risk management systematically carries out monitoring, analysis and stress testing of the portfolio for the purpose of determination of expected and unexpected losses. Monitoring of the life of credits includes periodic credit reviews of the borrower, review for compliance with covenants of agreement, review and reappraisal of collaterals within the established frequency. The Early Warning System (EWS) for credit risk events includes a reactive model of actions upon updating certain trigger events.

Retail Segment Credit Risk Management

Product credit policies, the integral part of which are formed by coordinated risk profiles and the application approval process itself, — are the basis for a successful model of retail lending at Alfa-Bank Ukraine. Competitive advantage in retail lending, especially unsecured lending is based on fast and high-quality decision making. For achieving these objects the Bank uses the best IT-solutions (Siebel, Experian), a centralized and flexible decision-making process depending on the credit risk level, and its own and actual decision-making tools (scoring cards, fraud management and verification, early warning systems). Retail risk management is directly involved in the process of creation and underwriting of retail products and the development of underwriting systems and tools. 
For managing the portfolio the unit uses statistical and mathematical models, continually conducts monitoring of performance of products and scoring models, stress testing, as well as implementing efficient customer verification techniques.
Reports on product performance indicators, based on which the system of triggers on all directions of retail lending credit risk management is controlled, are created and updated on a daily basis. Alfa-Bank Ukraine closely cooperates with all Ukrainian credit bureaus.

Market Risk Management

For the purpose of prevention of substantial losses in case of adverse change of the situation in markets Alfa-Bank Ukraine draws special attention to market risks. The Bank uses the following tools for market risk management:
•    assessment of the volatility of quotations (exchange rates, quotations of debt securities etc.);
•    calculation of VaR (value-at-risk) on open positions in debt securities, currencies and derivatives;
•    limitation of open currency positions;
•    limitation of amounts of certain transactions in case they are made on such terms on which the result depends on fluctuation of market prices, rates etc.);
•    limitation of open positions in debt securities, other financial instruments;
•    scenario modeling (stress testing) for each type of market risk.

Asset and Liability Risk Management

Assets and liabilities management, interest rate and exchange rate risk management is carried out by ALCO based on analytical data of the Treasury and the Market Risk Management Unit.
For the purpose of management of assets and liabilities the Bank applies and continually improves a dynamic liquidity model on the basis of which potential liquidity gaps during various periods are forecast, including a variety of forecasts on crisis in the interbank market, increase of overdue indebtedness under corporate loans, significant reduction of fixed-term deposits and demand funds. Such model is used on a daily basis. The Asset and Liability Management Committee set limits on the maximum liquidity gap for “crisis” forecasts.

Operational Risk Management

Alfa-Bank Ukraine conducts regular monitoring of its operational risks and the level of exposure to operational losses. The Operational Risk Management Unit carries out risk audit of activities of the Bank, assessment of operational risks and prepares recommendations for reduction of them. The Unit implemented a number of tools recommended by the Basel Committee on Banking Supervision. 
•    data collection and preparation of reports on internal operational losses;
•    determination of key risk indicators;
•    collection of data on external operational losses;
•    independent assessment by units of risk profile and risk control.

Risk Management Policy

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