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56 A&T BANK ANNUAL REPORT 2015
RISK MANAGEMENT POLICIES
RELATIONS WITH THE BANK’S RISK GROUP
Credit Risk
The Bank defines the credit risk
as the possibility of loss that it
might be exposed to if its credit
client breaches the terms of the
agreement signed and partially
or entirely fails to fulfill his/her
liabilities punctually.
In addition to the standard risk
inherent in credit generating
activities, risks relating to economic
conditions are also 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.
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 2015
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 the operational
risk as the risk of loss arising from
the following issues;
Faults and illegal practices that
occur due to the insufficiency
of the internal audit/control
systems,
Inappropriate behaviors of the
employees of the Bank staff and
management,
Faults of the Bank management,
Faults and failures in the
information technology systems,
Disasters like flood, fire and
earthquakes,
Terrorist attacks.
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.
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
Footnote VII in Section Five of
Publicly Announced Unconsolidated
Financial Statements and
Independent Auditor’s Report at 31
December 2015.