Risk Management Policy

Credit risk

Credit risk is the risk of losses due to non-fulfillment, untimely or incomplete fulfillment by the debtor of financial obligations to the Bank in accordance with the terms of the agreement.

Credit risk has the greatest weight among the risks taken by the Bank in the process of carrying out banking activities.

• setting limits on transactions in order to limit credit risk;
• establishing indicative limits on the concentration of credit risk and on the share of the loan portfolio that does not have collateral;
• formation of collateral for credit transactions;
• establishing cost conditions for ongoing operations, taking into account fees for the risks taken on them;
• constant monitoring of the level of accepted risks and preparation of appropriate management reporting to the credit committee, management of the Bank and interested departments;
• assessing the regulatory and economic capital necessary to cover the risks taken on operations carried out by the Bank, ensuring its adequacy;
• carrying out hedging transactions;
• constant internal control over compliance by the Bank's divisions with regulatory documents regulating the procedure for conducting operations and procedures for assessing and managing risks by an independent division.

provides:

1. using a systematic approach to risk management both of the Bank’s loan portfolio as a whole and of individual transactions with specific borrowers/counterparties (a group of related borrowers/counterparties);
2. application in the Bank of a methodology for identification and quantitative assessment of credit risk that is uniform and adequate to the nature and scale of its operations;
3. a balanced combination of centralized and decentralized decision-making when performing operations related to taking credit risk.

The main tool for limiting and controlling the credit risk accepted by the Bank is the system of credit limits.

• limits on counterparties;
• limits limiting credit risk by country/industry/region.

Along with internal credit risk limits, the Bank complies with mandatory standards established in accordance with the requirements of the FSA regarding the amount of risk per borrower/group of related borrowers and the volume of large loans.

The most important tool for minimizing the credit risk accepted by the Bank is the creation of collateral for credit-related transactions.

Market risk

Market risk is the risk of the Bank incurring losses due to unfavorable changes in market prices for financial assets (primarily securities), exchange rates, and interest rates.

Market risks include:

• stock risk (the risk of loss as a result of changes in the value of assets traded on the stock market);
• currency risk (risk of loss as a result of changes in exchange rates);
• interest rate risk (risk of loss as a result of changes in interest rates).

The Asset and Liability Management Committee determines VTB's policy regarding market risks in order to limit and reduce the amount of possible losses as a result of negative changes in exchange rates, interest rates and securities quotations (that is, currency, interest and price risks, respectively).

When managing market risks, Subsidiary VTB Bank JSC (Kazakhstan) is guided by the requirements established by the regulations of the FSA, and also uses internal models that comply with the recommendations of the Basel Committee on Banking Supervision.

Liquidity risk

Liquidity risk is a risk that potentially affects the Bank’s ability to fulfill its obligations in a timely manner and in full, arising when the Bank’s assets and liabilities are unbalanced in terms of their maturities.

Maintaining compliance of the balance sheet structure with all liquidity requirements and standards (internal and prudential) with constant monitoring by responsible departments and collegial bodies allows VTB to fulfill its obligations in a timely manner and in full.

Operational risk

Operational risk is the risk of losses as a result of violations or errors in the actions of employees, violations of the normal functioning of the Bank’s systems and its internal business processes, as well as due to external events beyond the control of the Bank (primarily of a natural nature).

In order to implement the internal bank operational risk management strategy, VTB Bank carries out regular procedures to ensure risk identification, assessment, control and the adoption of measures to limit it.

The main measures taken at VTB Bank to minimize operational risk are:

• regulating the procedure for performing all basic operations within the framework of internal regulatory and methodological documents;
• accounting and documentation of banking transactions and transactions, regular reconciliations of primary documents and transaction accounts;
• applying the principles of separation and limitation of functions, powers and responsibilities of employees, using mechanisms of dual control, making collective decisions, establishing restrictions on the timing and volume of operations;
• implementation of procedures for administrative and financial internal control (preliminary, current and subsequent) over the organization of business processes, the activities of structural divisions and the performance of transactions by individual employees, compliance by employees with the requirements of legislation and internal regulations, control over compliance with established limits on transactions, the procedure for access to information and tangible assets of the Bank;
• automation of banking operations, use of intrabank information systems;
• ensuring information security, controlling access to information, applying multi-level information protection;
• ensuring physical security of the Bank’s premises and valuables and access control;
• operational risk insurance, providing coverage for losses if they occur through insurance compensation;
• creation of the necessary organizational and technical conditions to ensure the continuity of financial and economic activities when performing banking operations (in case of accidents, fires, terrorist attacks and other unforeseen situations);
• reducing the Bank’s operational risks associated with certain business processes through their implementation by third parties (outsourcing);
• reducing risks associated with personnel by establishing criteria for their selection and conducting preliminary checks, implementing measures to prepare and educate personnel, and improving their qualifications.