Note 37. Financial risk management.
        Main purpose of the risk management system of JSC “Credit Optims Bank ” is mai...
10Diversifications of the credit indebtedness behind counterpartners, products and branches.
    National bank of Ukraine ...
3      The Control over liquidity of the currency market of Ukraine;
4      Estimation of cost under risk – potential size...
(thousands UAH)
                                               At the reporting date for the year    At reporting date the...
Averege currency
                                                        rate in the reporting              Averege curren...
and less
                                          than 1
                                         month.                 ...
Table 37 .5. Monitoring of interest rates on financial instruments.
                                                      ...
Table 37.6. Analysis of the geographical concentration of financial assets and liabilities for 2008
                      ...
Table 37.8. Analysis of financial liabilities by maturities for the reporting year
                                       ...
Table 37.10. Analysis of financial assets and liabilities of maturity based on the expected maturity of the current
fiscal...
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Note 37

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Transcript of "Note 37"

  1. 1. Note 37. Financial risk management. Main purpose of the risk management system of JSC “Credit Optims Bank ” is maintenance of stable conditions of its activity for which the Bank remains capable in time and full to carry out of all obligations. Such orientation of system of risk-management of Bank serves achievement of the purpose of protection of interests of its investors, creditors, counterpartners and shareholders. Process of Risk Management in JSC Credit Optima Bank is under control of the Supervisory Council and the Board of the Bank. For the operative control over risks of the Bank directors has created corresponding profile committees: the Loan Committee, the Committee of Assets and Liabilities Management, the Financial Committee. JSC “Credit Optima Bank” manage risks through identification, evaluation, control and monitoring of all types of risk that can significantly affect its activity. For itself the Bank has advanced such essential risks: the credit risk, liquidity risk, an interest risk, an exchange risk, market risk, operational-technological risk that risk of reputation. At an estimation of risks JSC “Credit Optima Bank” considers changes of external and internal bank operation environments, a consequence from introduction of new services and processes and operational plans of Bank for the future. On the basis of the made estimations JSC “Credit Optima Bank” limits risks with the help of: 1An establishment of limits on essential risky items of Bank - credit, currency, percentage, mon- etary, etc.; 2Diversifications of risk by its distribution between the counterparts, different areas and regions; 3Passings of risk to third persons through insurance.. The important role in a control system of risks of JSC “Credit Optima Bank” plays regular and careful check of observance of the established limits and procedures of the control over risks, adequacy of methods of valuation of risks by comparison of the estimated and reached risk levels. The credit risk. The credit risk - risk of default by the borrower (the counterpart of Bank) obligations behind credit transactions (i.e. risk of that payment by the borrower of percent and the basic debt for credit transactions will be conducted with deviations from conditions of business deal or it will not be conducted at all). Management of the credit risk is a process with which help Bank finds out risk, carries out its estimation and monitoring, supervises the credit items, and also considers interrelations of the credit risk with other risks. The bank operates the credit risk through such components: 1Internal normative acts (to the policy from management of the credit risk, position, procedures, techniques and other) from management of the credit risk which are approved to Boards;; 2Internal audit of lending procedures and management of the credit risk; 3Information base which saves and processes the data for the previous periods and ensures to bank of administration and monitoring of credit transactions; The bank supervises the credit risk: 4By division of functions of credit injection, a credit risk estimation, administration and returning of problem credits; 5Through system of authorities from decision-making concerning acceptance of operations which have the credit risk. . The bank uses such instruments of management of the credit risk:: 6An establishment and regular revision of limits; 7Acceptance of maintenance and regular check of its condition; 8Formation of reserves, sufficient potential loss for a cover from active operations 9Insurance of credit risks, in particular, maintenance;
  2. 2. 10Diversifications of the credit indebtedness behind counterpartners, products and branches. National bank of Ukraine the established economic specifications for the control of the credit risk of banks which have been observed by Bank throughout an accounting period: •R7 - the Specification of the maximum size of the credit risk on one counterpart •R9 - the Specification of the maximum size of credits, warranties and the guarantees granted one insider; •R10 – the Specification of the maximum cumulative size of credits, warranties and the guaran- tees granted to insider; •R11 – the investment Specification in securities separately behind each institution; •R12 – the Specification of a total sum of investment.. As on 01.01.2009 standards were: R7 = 20,69% of regulatory capital; R8 = 117,92% of regulatory capital; R9 = 3,67% of statutory capital; R10 = 3,84% of statutory capital; R11 = 0,00% of regulatory capital; R12 = 0,00% of regulatory capital. Market risk Market risk Market risk is a risk of that fair cost or the future cash flows from a derivative instrument will fluctuate owing to technical declines. Market risk covers risk of change of the interest rate, an exchange risk and other price risks which will be tested by bank. Among price risks that the bank recognises as essential in the activity, is: currency and percentage. The bank considers other price risks for itself insignificant in connec- tion with insignificant volumes of portfolios in bank assets. The bank has not changed approaches to an estimation of risks which he tested in 2008. The ba- sic method of valuation of market risk is method Value-at-Risk which is intended for account with the set fixed probability of the maximum size of possible change of cost of a portfolio of financial instruments (and-or the separate instrument) in the certain future and allows by means of one size to display the information on risk of a portfolio. Currency risk Currency is a risk of that fair cost or the future cash flows from a financial instrument will fluctuate owing to currency exchange alterations in rates. Financial circumstances of Bank and movement of funds come under influence of rate fluctuations of an exchange of leading world currencies. Management of an exchange risk in Bank is a process with which help bank finds out an ex- change risk, carries out its estimation and monitoring, supervises the open currency items and con- siders interrelations of an exchange risk with other risks. The bank operates an exchange risk through such components: 1 To the Politician from management of an exchange risk; 2 The Software for storage and data processing for the previous periods, in particular for fore- casting of exchange rates of currencies and bank metals, and also for an estimation of size of an ex- change risk under risk. For management of an exchange risk the Bank carries out such procedures: 1 Financial planning and drawing up of the budget of bank which advances the general (behind all currencies) an open currency item of bank on quarters; 2 The Analysis of terms of closing of currency ruptures;
  3. 3. 3 The Control over liquidity of the currency market of Ukraine; 4 Estimation of cost under risk – potential size of losses of the capital in connection with ad- verse changes of exchange rates of currencies and bank metals; 5 The Establishment and revision of limits on an open currency item; 6 Check of adequacy of models by comparison of look-ahead and actual levels of an exchange risk. Positions of JSC «Credit Optima Bank» for currency risks are presented in the table Table 37.1. Analysis of the exchange rate risk At reporting date the previ- At the reporting date for the year ous year derivat- Line Currency derivative mon monet- monet- ive fin- net monetary financial net po- etary ary li- ary as- ancial posi- liabilities instru- sition as- abilit- sets instru- tion ments sets ies ments 1 2 3 4 5 6 7 8 9 10 1 U.S. Dollars 39482 36824 0 2658 2 Euro 1486 1132 0 354 3 Pound 0 0 0 0 Other (Russian 4 1 0 0 1 Ruble) 5 Total 40969 37956 0 3013 In the reporting year long open currency position of the bank amounted to 3 013 thousands UAH. that is 4.51% of regulatory capital at 31.12.2008. Table 37.2. Changing the financial result and equity as a result of possible changes in exchange rates that are installed on the balance sheet date, provided that all other variables remain fixed characteristics
  4. 4. (thousands UAH) At the reporting date for the year At reporting date the previous year Line Name impact on impact on profit / impact on impact on profit / (loss) equity (loss) equity 1 2 3 4 5 6 Strengthening of the U.S. dollar 1 by 5 % 133 133 Weakening of the U.S. dollar by 2 5% (133) (133) Strengthening of the Euro by 5 3 18 18 % Weakening of the Euro by 5 4 (18) (18) % Strengthening of the Pound by 5 5 0 0 % Weakening of the Pound by 5 6 0 0 % Strengthening of other curren- 7 cies (Russian Ruble) 0 0 Weakening of other currencies 8 (Russian Ruble) 0 0 The calculation for the cash balances was held in currencies that differ from the functional cur- rency. Table 37.3. Changing the financial result and equity as a result of changes in exchange rate that is established as the average exchange rate, provided that all other variables remain fixed characteristics
  5. 5. Averege currency rate in the reporting Averege currency rate year in the previous year impact impact upon impact upon impact profit / upon own profit / upon own (loss) Capital (loss) Capital 1 2 3 4 5 6 Strengthening of the U.S. dollar by 5 % 1 91 91 0 0 Weakening of the U.S. dollar by 5 % 2 (91) (91) 0 0 Strengthening of the Euro by 5 % 3 13 13 0 0 Weakening of the Euro by 5 % 4 (13) (13) 0 0 Strengthening of the Pound by 5 % 5 0 0 0 0 Weakening of the Pound by 5 % 6 0 0 0 0 Interest risk Interest risk - a risk that the fair value or future cash flows of a financial instrument will fluctu- ate due to changes in market interest rates. Interest risk is inherent in the process of the Bank in the market and directly associated with the financial results of its work. Management interest risk in bank - is a process with which help the Bank reveals the risk, makes its assessment and monitoring, controls interest discontinuities, and also considers interdependence of percent risk with other risks. The Bank is administering interest risk through such components: 3Policy rate risk management, approved by the Board of the Bank; 4procedures and controls for percentage of risk, including interest discontinuities that review once a year to ensure their relevance; 5Information systems for storage and processing of data for previous periods for calculation of in- terest gaps; 6set of reporting on the percentage of risk, including reports of interest gaps. To manage the interest risk the Bank fulfills the following procedure: 7Financial Planning and Budgeting that defines expected levels net interest income on quarters; 8Interest gaps evaluation 9Control of volumes and prospects of cheap and stable financing sources use 10Putting price on Banking products. Table 37.4. General analysis of interest risk Line Name Upon 1 to 6 6 to 12 1 year Total request months. months and
  6. 6. and less than 1 month. more 1 2 3 4 5 6 7 8 Previous year 1 Total financial assets on which interests by fixed rates are charged (in thousands. 0 0 0 0 0 0 UAH) 2 Total financial Liabilities on which interests by fixed rates are charged (in thousands. 0 0 0 0 0 0 UAH) 3 Net gap according to interest rates end of December 31st of the previous year 0 0 0 0 0 0 Reporting year 4 Total financial assets on which interests by fixed rates are charged (in thousands. 60739 4155 21423 33699 0 120016 UAH) 5 Total financial Liabilities on which interests by fixed rates are charged (in thousands. 50204 144 1788 38 0 52174 UAH) 6 Net gap according to interest rates end of December 31st of the reporting year 10535 4011 19635 33661 0 67842
  7. 7. Table 37 .5. Monitoring of interest rates on financial instruments. (%) 2008 2007 Line Name Othe UAH USD Euro UAH USD Euro Other r 1 2 3 4 5 6 7 8 9 10 Assets 1 Funds to other banks 16,46 5,00 1,00 - - - - - 21,89 13,37 13,5 - - - - - 2 Credits and clients debts Commitment - - - - - 3 Bank funds 22,54 9,28 0,00 - - - - - 4 Funds of clients:: 16,89 12,70 10,50 - - - - - 4.1 Current accounts 16,65 13,00 0,00 - - - - - 4.2 Instant money 17,12 12,39 10,50 - - - - - 5 Subordinated debt - - - - - - - -
  8. 8. Table 37.6. Analysis of the geographical concentration of financial assets and liabilities for 2008 (thousands UAH) Other coun- Line Name Ukraine OECD Total tries 1 2 3 4 5 6 Assets 6098 6098 1 Cash and equivalents 2 Trading securities Other financial assets, which accounted at fair value 3 with recognition of the revaluation of financial results 4 Funds to other banks 54122 54122 5 Loans and debt clients 57198 57198 6 Securities in bank portfolios for sale 7 Securities portfolio to repay the bank 8 Other financial assets 2069 2069 9 Total financial assets 10 Nonfinancial assets 11 Total assets 119487 119487 Liabilities 12 Banks funds 36862 36862 13 Client Funds 15018 15018 14 Debt securities issued by the Bank 15 Other Fundraising 16 Other financial liabilities 622 622 17 Subordinated debt 18 Total financial liabilities 52502 52502 19 Nonfinancial liabilities 20 Total liabilities 52502 52502 21 Net assets position 66985 66985 22 Obligations of credit 398 398
  9. 9. Table 37.8. Analysis of financial liabilities by maturities for the reporting year (thousands UAH) Upon re- quest and 1 to 3 3 to 12 12 mon. More then Line Name Total less than 1 months. months to 5 years 5 years month. 1 2 3 4 5 6 7 8 1 Funds to other banks 36862 36862 2 Client Funds: 13048 116 1816 38 15018 2.1 Individuals 10985 116 1714 38 12853 2.2 Other 2063 102 2165 Debt securities issued by 3 the Bank 4 Other Fundraising 5 Subordinated debt 6 Other financial liabilities 493 2 127 622 Supply forward con- 7 tracts, total Supply forward con- 8 tracts, net 9 Financial guarantees 10 Other liabilities of credit Total potential future 11 payments for financial obligations
  10. 10. Table 37.10. Analysis of financial assets and liabilities of maturity based on the expected maturity of the current fiscal year as at 31 Dec, 2008 (thousands UAH) Upon request 1 to 3 3 to 12 12 months to More than 5 Line Name and less than months. months. 5 years years Total 1 month. 1 2 3 4 5 6 7 8 Assets 1 Cash and equivalents 6098 6098 2 Trading securities Other financial assets, which accounted at fair value with re- 3 cognition of the revaluation of financial results 4 Funds to other banks 54134 54134 5 Loans and debt clients 25 25554 28272 4035 57886 Securities in bank portfolios for 6 sale Securities portfolio to repay the 7 bank 8 Other financial assets 507 1391 1898 9 Total financial assets 60739 25 25554 29663 4035 120016 Liabilities 10 Funds to other banks 36862 36862 11 Client Funds 13048 116 1816 38 15018 Debt securities issued by the 12 Bank 13 Other Fundraising 14 Other financial liabilities 294 294 15 Subordinated debt 16 Total financial liabilities 50204 116 1816 38 52174 Net liquidity gap at the end of 17 10535 -91 23738 29625 4035 67842 the day on December 31st Cumulative liquidity gap at the 18 end of the day on December 10535 10444 34182 63807 67842 0 31st Executor V. Yaremenko, tel.: 569 05 14

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