The major risks associated with AK BARS Bank’s operations are credit, market, operational and liquidity. The Bank’s risk management program adheres to the highest international standards, including Basel agreement provisions and Bank of Russia requirements. The Bank also attempts to react as quickly as possible to economic changes. For example the crisis of 2008-2009 resulted in the accelerated implementation of risk assessment processes and amplified the significance of stress testing procedures for all types of risks. The Bank considers three main scenarios in stress testing: basic, moderately negative and highly negative.
Leading international consultants are actively involved in the Bank’s risk management implementation initiatives.
A system of internal ratings of counterparties is used at the Bank as the main instrument of credit risk management. The bank is adopting an IRB approach to managing credit risks. A credit rating system, based on an assessment of the financial performance and business risks of borrowers, allows a balanced approach to setting limits for counterparties and making decisions regarding credit extensions.
The Bank has a multi-level system of limits designed to reduce credit risk. Decisions on expanding credit limits and financing are made jointly by the Limit and Credit Committees. The Department of Internal and Compliance Control, the Risk Management Department and the Department of Safety execute the committees’ decisions within their respective mandates. The Bank works in close collaboration with independent consultants in order to optimize the credit risk management process and to maximize its role in the decision making process.
The Bank constantly monitors its counterparties’ creditworthiness and develops recommendations on changes to existing limits and transactions parameters. Every month, the Bank's management is provided with a report on the level of credit and other risks.
Market risk includes interest rate, equity and currency risks. A VaR method with confidence level of 99% is used to evaluate the level of stock and foreign exchange risk.
The Bank sets and controls limits on aggregate stock market risk, the value of open currency positions, position limits on the amount of investments in certain portfolios and financial instruments, and stop-loss and take-profit limits. The Bank and its subsidiaries operate under a single investment risk management program, which is based on the decisions of the Bank Limit Committee. Monitoring compliance with limits to equity risk is implemented in a single IT-system KGR (Misys) and is executed on a daily basis.
GAP-analysis method is used for assessing the level of exposure to interest rate risk. This approach enables the determination of discrepancies between assets and liabilities grouped by deadlines of possible interest rate revision. The Bank sets GAP deadlines.
Liquidity risk is managed by the Bank Treasury and the Asset and Liability committee to fall within the limits established in accordance with the Bank's limits policy. At the heart of these limits are mandatory standards set by the Bank of Russia. The GAP-analysis method is used for liquidity risk assessment.
To minimize operational risk and effectively execute management decisions, the Bank continuously monitors compliance with the law of the Russian Federation and its own discipline with regard to established limits. This helps ensure timely settlements on behalf of its contractors, provides Bank employees with training for professional development and reduces the financial impact of operational risks through insurance and other measures.
As a regular practice the Bank carries out analysis of operational risk factors that have an impact on its performance. The Bank is now implementing a system of operational risk management, based on the recommendations of Basel II and the Bank of Russia. The Bank maintains a database on internal events that may trigger operational risk and is in the process of developing a database on external events.
The main authority on operational risk lies with the Bank Internal Control and Compliance department. Its officers manage compliance risks and monitor procedures and actions taken to minimize operational risks on an ongoing basis.