At the heart of credit risk management the corporate segment lies relevant credit policy frequency of review at least once a year, risk appetite is a coherent set of indicators and limits for credit portfolio in terms of its concentration, diversification, industry and product structure, collateral coverage, the quality of the borrower (determined by customer ratings).
the Process of approval of the application by the Credit Committee includes an independent examination of corporate credit risk Department, which uses modern approaches to the risk analysis of the borrower's business, analysis of its financial model ability to generate sufficient cash flow to service and repay the loan. All borrowers are in the process of rating and establishing credit limit of risk. The rating of the customer, collateral coverage, quality of service, debt, information about the business environment — all this determines the level of redundancy according to international standards. Collateral is evaluated and verified by the special division of risk management.
Compliance with credit policies, limits, risk appetite is controlled by independent unit-risk management (middle office), where also the computation of the reserves. Risk management the Bank systematically monitors, analyses and stress testing of the portfolio to determine expected and unexpected losses. Monitoring the life of the loans includes periodic credit roar’Yu of the borrower, compliance with the covenants of the contract, inspection, and revaluation of collateral with the established frequency. Early warning system (EWS) in the event of credit risk includes a reactive model of action in the actualization of certain trigger events.
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.
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.
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.
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.