Risk Management Department
Risk management has become an essential part in banking today. The management of risk is getting complex day-by-day. Today, risk management has become the focus of the regulators scrutiny and has become the focal point for senior management decision making and strategy setting. Risk management within banks are evolving and integrated risk management is the heart of this evolution. Banks have recognized the need to change and confirmed that the integration of data, systems, and people across risk and finance was considered an absolute necessity. Risk Management, is a proactive approach, through which banks will be stronger and efficient and the senior management shall have better access to information and support in making their strategic decision making and effective planning. It is a continuous, proactive and systematic process to understand, manage and communicate risk from an organization-wide perspective. It is about making strategic decisions that contribute to the achievement of an organization’s overall corporate objectives. Risk management at is the identification, assessment, planning, monitoring, review, treatment and reporting. A good Risk Management involves a robust Management Information System with technical expertise and quality reporting. Risk management ultimately supports the Board of Directors and the management in capital planning. CCBL has taken measures to address the various forms of risk and at the same time perform stress tests to evaluate the adequacy of capital using internal models for the measurement of risk.
The objectives of Risk Management of CCBL:
- To ensure protection of shareholder value through the establishment of an integrated Risk Management framework for identifying, assessing, mitigating, monitoring, evaluating and reporting of all risks.
- To provide clear and strong basis for informed decision making at all levels of the bank
- To continually strive towards strengthening the Risk Management system through continuous learning and improvement.
The functions of Risk Management at CCBL are as follows:
- Risk is taken within a defined risk appetite
- Identifying current and emerging risks;
- Developing risk assessment and measurement systems;
- Establishing policies, practices and other control mechanisms to manage risks;
- Developing risk tolerance limits to Senior Management and Board approval;
- Monitoring positions against approved risk tolerance limits;
- Every risk taken needs to be approved within the risk manage
- Risk taken needs to be adequately compensated; and
- Risks should be continuously monitored and managed and reported to Senior Management and the Board.
Risk Approach and Risk Management Department Structure
CCBL’s approach to risk management is based on well-established governance process and relies both on individual responsibility and collectively also. Business heads are primarily responsible for managing risk in the bank and ensure that they are doing business in compliance with the policies of the bank, NRB guidelines and corporate governance. Risk Management Department ensures that the business units are functioning in line with the policies of the bank and provides measures for the risk mitigation in line with compliance. Risk Management at Century Bank has been segregated into the following three units with different Risk Unit Heads including the ISO finally reporting to the Chief Risk Officer:
- Credit Risk Management Department
- Operation Risk Management Department
- Market Risk Management Department
Another wing under the RMD is Compliance Department reporting to the CRO. The AML/CFT unit is also under the Compliance Department. All the proposals related to credit/ market/ operation risk of Head Office and Branches route through the Province office via Branch Management Department to the concerned Risk Unit.
The CRO reports to the Board Level Risk Management Committee directly. The Board Level Risk Management Committee of CCBL reviews overall risk factor of the Bank on quarterly basis or as and when required and forwards recommendations to the Board. At CCBL, we have started the practice of awareness to the employees that every employee of the bank should be a risk manager, though not primarily. The Board, alongwith the senior management, is very intense on promoting risk-focused culture and open communication across the organization. Risk related trainings have been given to all the officers of Risk Management Department and is on-going for other departments also. Board of Directors and Senior Management also has been given annual trainings related to Risk and Corporate Governance. Each staff has to sign the bank’s Code of Conduct and Ethics at the time of joining the bank. In view of the growing need of risk management in today’s context, Century Bank has established various levels of senior level committees for exhaustive analysis of the on- going activities and internal control of the bank.
The details of the management level committees are as follows:
- Management Committee
- Asset Liability Committee
- Management Risk Committee
- Management AML Committee
- Credit Risk Management Committee
- Operation Risk Management Committee
- Market Risk Management Committee
- Corporate Governance Unit
- IT Steering Committee
- Incident Reporting Team
Credit Risk Management Department
Credit Risk is the probability that a borrower or counterparty will fail to meet its obligation in accordance with agreed term. Credit risk Management is the practice of taking risk as per the banks Risk Appetite and Tolerance and mitigating losses by understanding the adequacy of a bank's capital and loan loss reserves at any given time. The major focus of the credit risk management strategy shall be portfolio management, target market and pricing strategy with robust management information system.
At CCBL, Credit Risk Management Department shall function as the department overviewing the entire credit risk related issues of borrowers who supports the business unit in accordance to the credit risk management guidelines and other related policies of the bank as well as compliance and regulatory issues. Credit risk is managed by various units at different levels (pre and post credit disbursal) in order to address and report perceived and anticipated credit risk at various levels.
Operation Risk Management Department
Operational Risk Management is a methodology for any organizations looking to put into place real oversight and strategy when it comes to managing risks. Every business faces circumstances or fundamental changes in their situation that can be seen as presenting varying levels of risk to that business, from minor inconveniences to potentially putting its very existence in threat. Operation Risk Management Department shall function as the department overviewing the entire operational issues and the risks related to it and review those risks according to the risk management guideline of the bank, operation related manuals/ policies/ guidelines of the bank and regulators. The department shall overview whether the front line units are functioning as per the internal policies of the bank and regulatory requirements.
Operational risk remains the most difficult risk category to quantify. In order to identify and assess the operational risk inherent in the Bank's products, activities, processes and systems, the Bank has circulars, guidelines and policies to address various risk areas that are reviewed or amended periodically. Periodic trainings of such guidelines and circulars are also being conducted at CCBL to communicate the processes and risks at all levels. Internal Fraud, External Fraud, Employment Practices and Workplace Safety, Clients, Products, and Business Practice, Damage to Physical Assets, Business Disruption and Systems Failures, Execution, Delivery, and Process Management shall be the major areas of focus but not limited to, for overviewing the operation risk management. Operation risk also focuses on the IT risk, Human resource Risk, Legal Risk and Reputational Risk.
Market Risk Management Department:
Market risk is the uncertainty in the future value of the bank’s on-balance sheet and off-balance sheet financial items resulting from interest rates, foreign currency, equity, and commodity risks. This is the risk of a change in the actual or effective market value or earnings of a portfolio of financial instruments caused by adverse movements in market variables such as equity, bond and commodity prices; currency exchange and interest rates; credit spreads; recovery rates and correlations; as well as implied volatilities in all of the above.
Market Risk Management Department (Treasury Middle Office) is responsible for identifying, measuring and managing risk related to Treasury Operations. It is responsible for ensuring efficient and controlled risk reporting and position monitoring of Treasury Transactions. It performs risk review activities of Treasury Department. shall overview the daily risk related to it in accordance to the market risk management guidelines and other related policies of the bank as well as compliance and regulators. However, the Asset Liability Management Committee (ALCO) serves as the primary oversight and decision making body that provides strategic directions for the bank’s management of market risk. The key elements in the market risk management framework are principles and policies, risk limits and risk measures. The prescribed approach for the computation of capital charge for market risk is very simple
and thus may not be directly aligned with the magnitude of risk. Likewise, the approach only incorporates risks arising out of adverse movements in exchange rates while ignoring other forms of risks like interest rate risk and equity risks.
The major functions of Market Risk Department at CCBL are:
- To monitor liquidity ratio like CRR, SLR, NLA and CCD to ensure that the ratios are maintained as per regulatory requirement.
- To prepare reports related to Treasury Operation on regular basis.
- To check all deals done by Treasury Front Office to ensure that all deal are done in line with limit set by ALCO/Management/Risk Management Committee.
- To check FCY net open position on daily basis.
- To monitor the foreign exchange risk, interest rate risk, liquidity risk.
Compliance is one of the major department of the bank handling entire compliance issues related to internal policies, NRB polices and directives and other related government related policies. The Compliance department is segregated into AML/ KYC unit, monitoring and screening of accounts. Compliance department monitors the banks own internal control system, ethical standards and banking standard practices. All new internal policies to be routed through the Compliance Department. The compliance department's ultimate goal is to ensure that a bank does not cross the lines drawn by legislators, regulators or its board of directors. Common tasks include monitoring the bank's activities and controls and identifying and analyzing risk areas. This may include assessing and testing the adequacy of the bank's policies and equipment, such as security and risk assessment tools. The compliance team may also design and implement solutions to address any identified risks, develop compliance programs for new regulations, and oversee employee training programs.
The major functions of Compliance Department at CCBL are:
- Educate Bank About Compliance
- Certify Compliance Education to Ensure Information Retention
- Periodically Remind Employees and Refresh Compliance Training
- Monitor and Update our Compliance Program as Necessary
- Regular reporting to NRB and FIU
- Submitting report on overall compliance status of the bank to Top Management & Board