Annual Report 2013

Risk Management System

The risk management system employed at the Bank meets the requirements of supervisory and regulatory authorities, international standards in risk management and best global practices.

The procedures applied to risk management concern monitoring and analysis of the external environment, risk assessment and measures to mitigate the risks, including proposals for the structure of limits set on risks, control over their enforcement, loan loss provisions for active operations, and updating the Bank’s management on the risks assumed to ensure timely and adequate managerial decision-making.

Credit risk management includes monitoring and analysis of the credit risk level both on a single borrower and groups of related borrowers), as well as a set of measures designed to mitigate risks assumed by the Bank.

To assess the level of the credit risks assumed, the Bank professionals produce expert opinions based on the analysis of the financial position and business record of borrowers and principals, collateral quality and other parameters of the given transactions.

The level of market risks (the interest rate, currency and stock ones) is monitored by the Bank on a daily basis, in particular, by using the Value-at-Risk (VaR) technique as the baseline for assessing the risk value.

Risk exposure computed based on the VaR methodology is augmented by the results of stress testing.

To reduce market risks, limits are set on the sizes and parameters of positions/portfolios. VaR is calculated both for individual instruments and for portfolios of certain types of instruments, as well as for the Bank’s overall portfolio of securities market instruments.

In terms of currency risks, the amount of an open position in each currency, as well as the total amount of the Bank’s open currency position is controlled.

Interest rate risk management carried out within the framework of the Bank’s asset/liability management program aims to maintain a balanced structure of assets and liabilities sensitive to interest rate fluctuations. In order to assess the risk of changes in the Bank’s net interest income, scenario modeling is carried out regularly.

In order to control liquidity risks, the Bank continuously monitors and analyzes maturity mismatches between the Bank’s assets and liabilities, as well as mismatches in terms of major currencies. On a monthly basis, the liquidity reserve and the amount of potential sources of market funding are monitored in order to identify funds available to cover unexpected liquidity gaps that could occur due to the unforeseen deterioration of market and credit factors. On a regular basis, stress testing of the Bank’s liquidity position is carried out using various scenarios of market and credit risks realization.

Given intensive growth of the VEB Group, introduction of integrated procedures for assessing liquidity of subsidiary banks and companies aiming to project the VEB Group’s needs in long-term funding was a major focus of the VEB Group’ risk management system.

Operational risk management is carried out through strict regulation of the Bank’s business processes, as well as through risk insurance. In 2013, Vnesheconombank concluded an agreement on complex insurance against fraud and liability insurance for 2014 that, among other things, includes computer crime insurance, as well as professional liability insurance.

In particular, apart from the integration of the liquidity risk management procedures mentioned, the year under review witnessed the VEB-Group Risk Management Policies having been approved.