Page 55 - A&T BANK ANNUAL REPORT 2012

53 52 A&T BANK ANNUAL REPORT 2012 •
The Risk Management Department undertakes daily
analysis of the various risks that the Bank may be exposed
to, and calculates the profitability and costs related to the
management of these risks. The aim of risk analysis is
to determine the characteristics of these risks and their
possible effects on the Bank.
Market Risk
A&T Bank identifies market risk as possible general market
risk, specific risk, currency risk, commodity risk and clearing
risk. The Bank’s market risk management deals with risks
regarding interest rate, foreign exchange rate and liquidity, as
well as their relationships to, and effects on, other potential
risks.
The Bank aims to maximize its risk-adjusted return by
effectively managing market risk using suitable parameters
in compliance with the size of its operations.
The value-at-risk (VAR) model is also used for daily internal
measurements of market risk. Within the framework of
the internal risk limits approved by the Board of Directors,
the results of standard and VAR models are examined and
evaluated periodically. In addition to these, the following
studies are also carried out to effectively measure market
risks:
• Duration analyses,
• GAP analyses,
• Sensitivity analyses,
• Ratio analyses,
• Cost/Return analyses,
• Asset/Liability structure analyses,
• Income statement analyses.
Credit Risk
The Bank defines credit risk as the possibility of risk due to
the inability or unwillingness of a customer or counterparty
to meet their commitments in relation to lending, trading,
hedging, settlement, or other financial transactions.
In addition to the standard risk inherent in credit generating
activities, risks relating to economic conditions must also be
considered.
With regards to the portfolio, one of the key components of
credit risk management, the Bank sets in-bank risk limits
in order to manage its loan portfolio more effectively, and
has determined a maximum risk ceiling for both individual
and group customers, both for cash and non-cash loans.
Accordingly, when the volume of certain loans exceeds a set
level, Bank management is alerted, and takes the necessary
precautions to minimize risk.
The Bank also uses an internal rating system as one of
its most important tools for measuring the quality of the
companies in its loan portfolio. A well-structured internal
risk rating system is one of the best ways to rate different
credit risks to which the Bank may be exposed. This system
enables a more accurate determination of credit portfolio
characteristics, the concentration of credits, non-performing
loans and the adequacy of provisions.
As a natural outcome of discussions on the new Basel
Capital Accord, banks’ credit risk management has once
again come into focus. With the new accord in place,
methodology, measurement and portfolio management
attitudes have changed considerably, with the ratings of the
Bank’s counterparties having become increasingly important.
Consequently, the Bank’s 2012 studies on credit risk
management have mainly focused on working to develop
and improve the Bank’s infrastructure in compliance with the
new capital accord.
Operational Risk
The Bank defines operational risk as the risk of loss
resulting from either inadequate or failed internal processes,
personnel, or systems, or else from external events.
Clear strategies overseen by the Board of Directors and
senior management, a strong operational risk and internal
control culture (including, among others, clear lines of
responsibility and a definitive segregation of duties), and
effective internal reporting and contingency planning are all
crucial elements of an effective operational risk management
framework for the Bank. Contingent processing capabilities
are also used as a means of limiting the adverse effects of
operational risk. In this context, a comprehensive Business
Continuity Management Plan has been prepared.
RELATIONS WITH THE BANK’S RISK GROUP
All relevant transactions with entities in the Bank’s risk group
are conducted in accordance with Banking Law, and within
the framework of market conditions. Detailed explanations of
these transactions are included in Unconsolidated Financial
Statements, Explanations and Footnotes, and Footnote No.
VII in section five of the Independent Audit Report prepared
on December 31, 2012 for public disclosure.