Organisation risk management
The Managing Board's CRO is responsible for, among others, all risk-related decision making. The RPC assists the Supervisory Board in monitoring NIBC's risk management framework, including procedures, rules and its acceptance policy.
NIBC's risk policy was reviewed to introduce a more detailed description of its risk appetite and the related internal procedures. Our risk appetite is determined by the Managing Board after being proposed by the CRO and then approved by the Supervisory Board. The bank's overall risk appetite is discussed by the Managing Board at least once per quarter and ad hoc, as necessary.
The CRO is supported by various risk committees - which are the Risk Management Committee (RMC), the Transaction Committee (TC), the Asset & Liability Committee (ALCO) and the Investment Committee (IC) - and the risk management organisation. The risk committees review, monitor and evaluate all new and existing risk exposures, operations and products in the light of existing risk management standards and risk appetite.
Operational Risk is monitored by the Operational Risk Manager, who reports to the CRO and who - inter alia - coordinates the process leading to the In Control Report and the Responsibility Statement of the Managing Board in the Annual Report.
Internal reporting on the bank's risk profile is the remit of the CRO, who forwards reports through the Risk Management department and the management of the various business units, in order to raise commercial risk profile awareness within the organisation. In addition, all stakeholders are informed through annual reports, interim reports and reports such as those relating to Pillar III (on capital adequacy and risk management). Every quarter, comprehensive reporting is made to the Supervisory Board's RPC on all risk aspects.
Embedding risk appetite in day-to-day risk management
NIBC's qualitative risk appetite is determined by the decisions made in the bank, varying from top-level strategic decisions to individual transaction approval. Decisions influencing or relating to risk appetite are embedded by risk management on a daily basis in, among others, the functioning and decision-making of committees, monitoring of portfolios, limit-setting on product, portfolio and country level, new transaction approvals, investments/reinvestments of matured exposures, budget and growth plans.
The following sections focus on a selected number of processes, measures and portfolios that demonstrate the translation of risk appetite into day-to-day risk management decision-making in the lending activity of the bank.
From the start of the credit crisis in 2007, NIBC's Risk Management took early action to de-risk the bank's balance sheet. The most striking change was the reduction of our Debt Investments portfolio from 25% of the balance sheet in 2006 to just 2% non-core debt investments in 2010. Additional developments in our operating environment include the following de-risking or risk-constraining actions:
i) Limits on corporate loans
The application of limits on a sector level is the most important feature of the way we manage and grow our corporate loan book. Nominal limits on the six corporate loan departments (commercial real estate, shipping, oil & gas services, infrastructure & renewables, corporate lending, leveraged finance) have existed since 2006. In recent years, the limit framework was further extended to the risk weighted asset and economic capital consumption of the corporate loan book.
ii) Country risk limits
Country risk is potentially an important cause of increased counterparty default risk since a large number of individual debtors could default at the same time (concentration risk) when a country goes into default. This may have major implications for the quality of the Corporate Loan portfolio. NIBC's country risk policy aims to report and manage country risk.
iii) Management of concentration risk
Concentration risk is managed on sub-portfolio level through the limit framework that is in place, as mentioned above, and on individual counterparty level by taking the one obligor exposure and related exposure into account. NIBC has already implemented the new regulatory requirements for the reporting of large exposures, as these are expressed through the one obligor exposure and related exposure measures.
iv) Other processes related to origination
A NPAP is in use for new products introduced by the bank.
New Product Approval Process
The NPAP was strengthened in 2010. In this process, potential new products are checked to determine:
- Whether they are in line with corporate strategy (mission/vision/strategic goals and core values) and business principles;
- The robustness, accuracy and completeness of the business case;
- Whether they are in line with current (national and international) laws and regulations;
- Whether they fulfil the applicable duty of care to the client;
- Whether they present unwanted operational or other risks to the bank or the customer; and
- Whether they are transparent.
During the approval process, all relevant parties are involved in the process, including commercial business units, Compliance, Risk Management, Finance, Legal and Operations. The NPAP has been introduced to the staff members involved in the respective business units.
Client focus is part of the NPAP assessment and decision-making process. Also as part of the NPAP, Compliance checks whether the new product is in line with regulatory requirements.
Each new product must go through the NPAP and the ultimate approval is granted by the RMC. The NPAP is laid down in a written assessment of all relevant features of the new product. The decision-making process rests with the RMC. In 2010, 22 new products were submitted to the NPAP.