Risk Management Policy

Credit Risk

Credit risk is the risk of losses resulting from non-fulfillment, improper fulfillment by the debtor of its financial obligations to the Bank in accordance with the terms and conditions of the Agreement.

Credit risk has the highest weight among the risks assumed by the Bank in the process of banking activities.

Credit risk in the Bank is managed as follows:

• Establishment of limits on operations in order to restrict credit risks;
• Establishment of indicative limits for credit risk concentration and for credit portfolio share not having pledge security; 
• Forming collateral for credit operations; 
• Price conditioning in accordance with  fees for the risks assumed;
• Permanent monitoring of the assumed risks level and preparation of the appropriate management reports addressed to the credit committee, Bank’s management ad interested divisions;
• Assessment of regulatory and economic capital, required for coverage or the risks assumed by the Bank under the conducted transactions, provision of adequacy thereof;
• Hedging operations; 
• Permanent internal control of how the Bank’s divisions ensure compliance with the regulatory documents governing the procedure of operations performance and risk assessment and risk management procedures from the part of independent division.

Management of the credit risk assumed by the Bank provides for the following: 

1. Use of systematic approach to risk management with respect to the Bank’s credit portfolio as whole, and individual operations with the particular borrowers/counteragents (group of related borrowers/counteragents);
2. Application in the Bank of the uniform and adequate (to the nature and scales of conducted undertakings) methodology for identification and quantity assessment of credit risk;
3. Weighted combination of the centralized and de-centralized decision-making for performance of the operations with the credit risk assumption.

The main tool for restriction and control of credit risks assumed by the Bank is the system of credit limits. The following typed of the credit risk limits are established:

• Limits on counteragents; 
• Limits restricting credit risk as per country/branch/regional feature.

Together with the internal credit risk limits the Bank shall comply with the compulsory norms determined according to FSA requirements with respect to the risk volume per borrower/group of related borrowers, large credit volumes.

Forming collateral for credit operations is the most important tool for minimization of the credit risk assumed by the Bank. The Bank’s Policy in this field is based on the principle of forming reliable and liquid collateral portfolio which would be sufficient to cover the credit risks assumed by the Bank. At the same time this does not eliminate the requirement on making comprehensive analysis of the borrower’s financial and economic activities and does not compensate insufficiency of the counteragent’s payment and credit capacity, as well as lack of the information concerning its activities.

Market Risk

Market Risk is the risk of losses incurred by the Bank as a result of unfavorable changes of market prices for financial assets (first of all securities), currency exchange and interest rates.

The market risks include: 

• Equity risk (risk of losses as a result of changes in the value of assets circulating in the stock market);
• Exchange rate risk (risk of losses as a result of currency changes in exchange rates);
• Interest rate risk (risk of losses as a result of changes in interest rates).

The Assets and Liabilities Management Committee determines the VTB Policy towards the market risks in order to restrict and decrease the amount of any potential losses arising as a result of negative changes in  currency exchange rates, interest rates and securities quotations (i.e. currency, interest and price risks, respectively). 
In the matters of the market risk management SO JSC VTB Bank (Kazakhstan) follows the requirements established by the FSA regulatory acts and uses the internal models conforming to the recommendations of the Basle Bank Supervision Committee.

Liquidity Risk

Liquidity risk is the risk that can affect the Bank’s ability to timely and fully fulfill its obligations, and arising from the misbalance in maturity of the Bank’s assets and liabilities.

Ensuring that the balance structure complies with all liquidity requirements and norms (internal and prudential), subject to permanent control of responsible divisions and collective bodies, allows VTB to timely and fully perform its obligations.

Operating Risk

Operating risk is the risk of losses resulting from violations and errors in the acts of employees, violation of normal operation of the Bank’s systems and it internal business processes, and as a result of external events being out of the Bank’s control (first of all of accidental nature).
In order to implement the intrabank strategy for operating risk management, VTB Bank regularly implements the procedures ensuring risks identification, assessment, control and restriction. In practical organization of the operating risk management VTB follows the principles provided for by FSA regulatory acts, including the Instruction on the requirements to risk management and internal control systems availability in the second-level banks (approved by the resolution of FSA Management Board №359 as of September 30, 2005), and the recommendations stated in the documents of the Basle Bank Supervision Committee.

In order to minimize the operating risks VTB Bank takes the following measures: 

• Regulation of the order for executing all main operations within the internal regulatory-methodological documents;
• Accounting and documentation of the conducted banking operations and transactions, regular verification of the source documents and accounts under transactions;
• Application of the principles of the employees’ functions, authorities and responsibility division and restriction, use of double control mechanisms, making collective decisions, determination of restrictions on the terms and volumes of operations;
• Implementation of the procedure of administrative and financial internal control (preliminary, current and follow-up) of the business processes arrangement, activities of the structural divisions and operations performance by individual employees, compliance by employees with the requirements of the legislation and internal regulatory documents, control of compliance with the established limits on conducted operations, procedure of access to the information and material assets of the Bank; 
• Automation of banking operations, use of internal banking information systems;
• Ensuring information security, access control, application of multi-level information protection;
• Ensuring physical safety of the premises and Bank’s values, access control; 
• Insurance of operating risks, providing coverage of losses in case of occurrence thereof at the expense of insurance indemnity;
• Creation of necessary organizational and technical conditions for provision of continued financial and economic activities upon performance of banking operations (in case of accidents, fires, acts of terrorism and other unexpected situations); 
• Decrease of the Bank’s operating risks connected with individual business processes due to performance thereof by the third-party organization (outsourcing);
• Reduction of personnel-related risks by establishment of criteria for selection thereof and conducting preliminary check, implementation of measures for personnel training and advance training.