ine) w 32        EFMA – Credit Risk & Debt Managementnes)        An Integrated Framework supporting credit risk based deci...
Risk Management Framework                                                                                                 ...
Risk Management Framework                                                                                                 ...
Risk Management Framework                                                                                                 ...
Credit Risk Methodologies                                                                                                 ...
Scenario & Stress Testing                                                                                                 ...
Scenario & Stress Testing                                                                                                 ...
Risk Management Framework                                                                                                 ...
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EFMA – Credit Risk & Debt Management

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EFMA – Credit Risk & Debt Management

  1. 1. ine) w 32 EFMA – Credit Risk & Debt Managementnes) An Integrated Framework supporting credit risk based decisions w 20 Alw Eric Hermann – CRO, Belfius lette subTitle Dr Dominique Bourrat – Managing Partner, Risk Dynamics w 14 ine) YYY w 18 Brussels, June 06th 2012 CONFIDENTIAL tent Do nmage on to on side
  2. 2. Risk Management Framework Alw lette sub RD Referential verb Risk Mission Internal Review Higrity Risk Appetite Independent Audit Review Risk Capacity Risk Taxonomy & Definitions Review & Strategy & Control Risk policies Policies Intr External Risk communication Organisational Structure Regulators (e.g. ICAAP, BIII) Roles and responsibilities Rating agencies Reporting Decision authorities (incl. Cttees) Investors KPI’s and Compensation Operations Risk Internal Communication (Processes) Governance Risk & finance planning Quarterly monitoring Global architecture Sep Risk processes Risk models Methodologies Risk mitigation & contingency plans Scenario & Stress Testing Training & Communcation Model management © Risk Dynamics 2010 Model risk Risk Infrastructure and systems Value assessment (incl. FTP) •  slide © Risk Dynamics - Confidential EFMA Conference 06/06/2012 2 •  Com
  3. 3. Risk Management Framework Alw lette sub Expected Benefits verb "   Ensure that the risk vision is well aligned with the corporate objectives Higrity "   Embed risk into strategy, planning and decision making (e.g. budgeting process, allocation of scarce resources based on risk / return profile) "   Better manage capital vis-à-vis risk and ensure the long term viability of Intr the Group "   Harmonise the risk practices across the Group through a consistent Risk Management Framework "   Institutionalise the way risk culture is fostered within the Group "   Empower Local Entities by improving the accountability and delegation Sep schemes, in line with their local specificities and their maturity level •  slide © Risk Dynamics - Confidential EFMA Conference 06/06/2012 3 •  Com
  4. 4. Risk Management Framework Alw lette sub The Balance between Risk Capacity and Profile verb Risk Capacity refers to the ability of the financial institution to Risk Profile refers to the level of risk taken by the financial manage and absorb the risks it is willing to take, the ‘risk institution in a prospective manner, the ‘risk demand’ Higrity supply’ Risk Profile combines a quantitative and a qualitative view of Risk Capacity is composed of financial and non financial current and future risks the financial institution is exposed to resources enabling the financial institution to face current and (most often at a 3 to 5 year horizon) future risks (most often at a 3 to 5 year horizon) Governance and Risk Culture How much can you afford to loose? Adequacy / Risk Appetite How much do you accept to loose? Intr Non Financial Resources Risk Capacity Financial Resources > Quantitative View Risk Profile Qualitative View Internal Control & Risk Management Financial resources Risk Exposure Stress & frameworks Expressed in terms of capital, Assessed in terms of capital, Scenario Risk Taxonomy & Assessment (Quality level assessed through earnings and liquidity earnings and liquidity Testing review, validation & audit) Risk Capacity Risk Profile Action Plans © Risk Dynamics 2010 Sep Non financial resources refer to all All risks currently and potentially faced by the financial institution should be components of the Internal Control and defined and categorised in an appropriate manner (Risk Taxonomy) Risk Management frameworks (people, These risks can then be qualitatively assessed to determine those that are processes & systems) that enable the material, their relative importance and how the institution can respond to institution to prevent and / or mitigate them (e.g. with more or less sophisticated control frameworks, continuity risks plans or extra capital buffers) •  slide © Risk Dynamics - Confidential EFMA Conference 06/06/2012 4 •  Com
  5. 5. Credit Risk Methodologies Alw lette sub Model Management & Governance Framework verb Independent Validation Origination Higrity Objectives Model Objectives Scope & Perimeter Model Scope & Perimeter Governance Background Process Origination Requirements & Constraints Methodology Stakeholders Organisation & Planning Intr Review Review Design Design Environment Independent Model Specifications Performance Validation Methodological Choices Operations Prototype Use Test Policies Documentation Documentation Operations Roll Out Sep Roll Out Operations Implementation Calibration Deployment Run Monitoring Shadow Run Documentation Reporting •  slide © Risk Dynamics - Confidential EFMA Conference 06/06/2012 5 •  Com
  6. 6. Scenario & Stress Testing Alw lette sub Proactive Management through Scenarios verb Implementation Trigger Stress Tests Process Higrity Origination Scenarios Impacts Actions Reporting Intr Sep •  slide © Risk Dynamics - Confidential EFMA Conference 06/06/2012 6 •  Com
  7. 7. Scenario & Stress Testing Alw lette sub Proactive Management through Scenarios verb Assets Scenario / Stress Liabilities Higrity parameters Banking Book Loans and receivables Id. trading on assets Trading book (Amortized cost / HtM) PD, EAD, Investment Book LGD* Market Funding cost Wholesale & retail Intr Bonds, Ratings parameters deposits Securitisations (AFS) (securitisations) Funding cost LT Debt ALM hedging MtM AFS Fair Value (Hedge accounting) Rev. reserve(**) T1 / T2 Macro-economic Capital Trading book EAD (CP risk), Adj. EL/impairments (MtM accounting) IRC, SVar scenario (translated into parameters Other tangible and where dotted) MtM trading intangible assets Retained Available Sep Rev. Reserve (**) Coupons paid/received Earnings capital Like RE, tax, sub’s Change in RWA, Change in Change in earnings and regulatory available capital capital ratios *TTC for RWA, PIT for Impairments •  slide © Risk Dynamics - Confidential RMF @ Belfius 07/03/2012 7 •  Com
  8. 8. Risk Management Framework Alw lette sub Conclusion: Risk as a Partner to Business verb "   Optimisation of the institution’s risk / return profile Higrity "   Internal allocation of scarce resources (capital, liquidity) "   Limits setting & management "   Risk-adjusted pricing Intr "   Performance measurement & compensation "   Active portfolio management "   Risk based strategic planning "   Risk based budgeting Sep "   Impact assessment of adverse events on B/S and P&L positions "   Forward looking provisioning process "   (…) •  slide © Risk Dynamics - Confidential EFMA Conference 06/06/2012 8 •  Com

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