About risk managment

Credit risks - Probability of loss as a result of failure by the debtor to fulfill the obligations to the Bank under the terms of the contract, in timely or to comply fully. As well as, components of credit risk management, Supervisory Board, Management Board and control of top-level management on credit risks, organizational structure, systems and procedures, crediting, credit risk measurement, credit management, credit approval, credit risks monitoring and control, determination of limits, authorize, problem loans management. 

Market risk - Probability of losses as a result of unfavorable changes at the market prices of financial instruments and derivative financial instruments in trading portfolio of bank, as well as, in the rates of foreign currencies and precious metals. Elements of Market Risk management, Supervisory Board, Management Board and control of top-level management on market risks, organizational structure, assessment, risk measurement, measuring market risks in more simple ways, collection of risks, monitoring of risks, risk control, audit. 

Currency risk - Probability of losses as a result of unfavorable changes in the rates of foreign currencies and precious metals on the positions opened by Bank. The main purpose of risk management and control of currency is to minimize the loss of the bank's capital during the formation of assets and liabilities using foreign currencies. Currency risk management is carried out in stages: 

Risk identification - determination of open currency position and its crash risk;
Quantitative assessment of currency risk;
Determination of limits. 

Interest rate risk- Probability of losses as a result of unfavorable changes of the interest rates on the assets, liabilities and off-balance sheet instruments of the bank. All the assets and liabilities those are sensitive to changes in the Bank's interest rate tend to this risk. Cavity method for the analysis of interest rates is used for the determination of potential volume of the bank interest rate (GAP[1] analysis). During GAP analysis, unbalancing level of assets/liabilities those are sensitive to the changes of the interest rate is taken as a basis for the indicator of the interest rate risk. In addition, sensitivity tests for the assets and liabilities sensitive to the interest rate are applied, influence of 1% increase and decrease of interest rate to the bank's net profit are forecasted. Spread of interest rate margin on bank was determined as 8%. 

Operational risk - errors and mistakes related to the implementation of internal business processes, personnel actions, work of information systems and technologies, as well as, the probability of losses as a result of the influence of external events (As well operational risks). 

Liquidity risk- probability of losses as a result of failure to fulfill its financial obligations in full by the Bank; the risk of the lack of liquid assets that are necessary for the timely fulfillment of obligations. In accordance with the bank activity, two types of liquidity risks that could influence should be considered: 

Failure to maintain sufficient cash and securities in order to fulfill the requirements for the short-term;
Inability to obtain additional financing. 

Compliance risk - probability of losing profit or capital as a result of violation or failure to comply with legislation, rules, regulatory requirements, specified practices, internal policies and procedures, or ethical norms. This risk can make the Bank to not pay fines, payments for loss, to fulfill the contracts. Compliance risk can lead to the deterioration of reputation, decline in trust, restrictions on the implementation opportunities of business, reduction in development potential, and a decrease in customer base. The basis of compliance risk - reasons for not following the norms and rules is clash between the interests of financial market participants. 

Legal risk - probability of losses as a result of making legal mistakes (an error in the preparation of the documents, giving wrong legal advices), failure to comply with the requirements of contracts or normative-legal acts during the implementation of the activity by the bank and its counterparts, as well as, lack of a perfect legal system. 

Strategic risks - probability of losses as a result of non-satisfactory accounting of missed errors and possible threats that will affect the Bank’s activity during making decisions that determine the strategy and development of its activity, the lack of correct determinations of perspective directions of its activity that will get advantage against competitors of the Bank, the necessary resources for the achievement the strategic goals of the bank's activity and organizational measures. 

Country risk - (as well the risk of failure of transferring resources) – probability of losses as a result of economical, political and social changes, foreign counteragents’ (legal and natural persons) failure to fulfill obligations, as well because of features of monetary obligation expressed in the currency not being at the disposal of counteragent taken place in the legislation of the country (not depending on the financial position of the counteragent). 

Decision-making system on risk management in bank is divided as follow: 

  • Risk management committee - risk management in bank, risks on all types, global limits
  • Credit committee – credit, country, nonpayment, totality risk on credit portfolio
  • Management Board – on operational, legal risks
  • Supervisory Board – strategic and organizational risks
  • Treasury department - market, interest rate, liquidity and currency risks 

Structures implementing risk management and their competences: 

Supervisory Board - determines acceptable levels of all the risks that bank have faced with as a result of its activity and provides the creation of effective risk management systems that correctly determine, assess and control them. For this purpose Supervisory Board confirms the organization, structure that implements risk management and all the rules and procedures on risk management. If Supervisory Board is responsible for the risk management, in this case Management responsibility will belong to Management Board. 

Management Board - Management Board, approved by Supervisory Board and implementing risk management, creates an organizational structure and prepares all the rules and procedures on the risk management. 

Internal committees committee that can independently make decisions on the risk management in bank have been organized some members of Management Board that have the concrete responsibility on the risk management in bank and have detailed information about bank’s activity, as well senior officials of structural divisions of the bank. 

Credit Committee (CC) - provides confirmation of credits and credit controls 

Risk Management Committee (RMC) - manages other risks and coordinates the activities of internal committees to manage existing risks 

“Strategic planning group” - determines risk policy on the information technologies and implements the management of IT risks. 

Risk management department - Risk management department is the structural department that determines all the risk management that bank will face with during its activity and implements control to this field. Risk management department controls bank’s activity within the framework of risk limits approved by Supervisory Board. Risk management department, as a result of its activity provides the determination of all specific risks that it faces with, rules and procedures for their management, as well as, the preparation of job instructions in the field of risk management of each employee. Risk management department, also discusses all the risks that may arise and informs RMC on urgent measures to be taken. 

Policy on the reduction of risks and control processes of the effectiveness of the instruments: 

Control to the risk management in "Premium Bank" OJSC is carried out within the following hierarchy: 

  • Strategic level – Supervisory Board and Management Board defines recognition of risks, determination of bank’s risk limits, strategy and policy on the risk management and provides the total number of risks whether they are in acceptable level or not and formation of adequate system and control in order to ensure the compensation will be done for the taken risk. 
  • Macro level- reflects itself risk management on business fields and business lines and control. Risk management activities are implemented by specialists and structural divisions busy with the outline of risks on the relevant categories. 
  • Micro level – is implemented by the persons who take risks on the behalf of the bank, for example, front office and structural division giving credit. 

“GAAP (GAAP - Generally Accepted Accounting Principles) – analyses” – liquidity risk with the means of measurement for the deficits between assets and liabilities in relation to the time deficits that has been determined previously and instrument for the interest rate risk; quantitative evaluation of closing price of the liquidity deficit and impact of the changes in the interest rates on the bank’s net interest income (interest margin).

Hörmətli istifadəçi

Azərbaycan Respublikasında fiziki şəxslərin problemli kreditlərinin həlli ilə bağlı əlavə tədbirlər haqqında Azərbaycan Respublikası Prezidentinin Fərmanına uyğun olaraq, fiziki şəxslərin xarici valyutada əsas kredit borclarının devalvasiya ilə bağlı manatla artmış hissəsi ilə əlaqədar Maliyyə Bazarlarına Nəzarət Palatası tərəfindən hazırlanmış güzəşt kalkulyatoru

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