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Modern risk management
Active risk management is a major priority for Raiffeisen-Landes-
bank Tirol AG to secure its long-term success. In compliance with
statutory requirements (BWG (Austrian Banking Act) and Basel
II), Raiffeisen-Landesbank Tirol AG has set itself the objective of
guaranteeing the security and profitability of the bank in the inter-
ests of its customers and owners, by using up-to-date methods
and appropriate risk management and controlling systems. Our
experience in 2010 has confirmed that the risk policy, risk man-
agement and their organisation are appropriate.
Principles of risk policy
The principles of risk policy are defined by the Board of Managing
Directors, and are regularly reviewed and modified as necessary:
• The Board of Managing Directors and all the employees feel
an obligation to comply with the principles of risk policy and
make their day-to-day decisions in line with these directives.
• If the risks are unclear or there are doubts about methodol-
ogy, the principle of prudence is employed.
• The introduction of new business areas or products is gener-
ally preceded by an appropriate analysis of the specific busi-
ness risks involved (product launch process).
Principles of risk management
Our risk management approach is based on the following
principles:
• The Board of Managing Directors bears overall responsibility
for risk management supervision within Raiffeisen-Landes-
bank Tirol AG, while the Supervisory Board reviews the bank's
risk policy at regular intervals.
• Loan, market, liquidity and operational risks are managed as
a coordinated process at all the relevant levels of the bank.
• The risk committee prepares and proposes the risk strategy,
the limitation of risk capital within the scope of risk-bearing
capacity as well as risk capital allocation.
Organisation of risk management
Risk management is organised in a manner that prevents conflicts
of interest on both a personal and organisational level (separa-
tion of front office/back office). The duties and organisational
procedures involved in the measurement, monitoring and report-
ing of risks are undertaken by the restructured Risk Management
organisational unit and are described on the Intranet and in the
relevant manuals.
Credit risk
The credit risk is calculated for counterparts (private and com-
mercial customers, banks, countries), investments and concen-
trations of positions.
The extension of loans, i.e. the specific acceptance of risk, is one
of the core business areas of Raiffeisen-Landesbank Tirol AG.
The risk presented by a borrower is considered along two dimen-
sions on an ongoing basis. This involves an ongoing assessment
of the business situation using an in-house rating system on the
one hand, and the evaluation of collateral to reduce risk on the
other. Different weightings are given to the risk content of loans in
the relevant calculations.
The Risk Management organisational unit supports the sales
units in checking, measuring and controlling the credit risk,
as well as managing distressed loans in conjunction with the
Receivables Management organisational unit. An established
component of reporting is a range of closing date reports and
forecasts of the risk profile, which are prepared in the course of
periodic risk committee meetings. This ensures a risk manage-
ment process that is active at every stage.
The tasks and organisational procedures related to credit risk, as
well as the credit risk strategy approved by the Board, are clearly
described on the Intranet and in the credit manual. They have
also been communicated to all personnel with executive functions
and are additionally available online. This ensures that in each
particular case, only risks that comply with the risk policy are
actually incurred. In addition, sufficient provisions are formed for
existing risks in line with the principle of commercial prudence.
On the basis of supervisory requirements and recommenda-
tions, and to provide business management benefits, Raiffeisen-
Landesbank Tirol AG has set itself the task of continually develop-
ing and improving the risk management process as well as risk
assessment and control methods.
Market risk
Market risk consists of the risks incurred through interest rate
changes, currencies and prices resulting from positions held in
securities, interest rates and foreign exchange. Market risk arises
both in trading and banking book transactions.
Raiffeisen-Landesbank Tirol AG uses a combination of various
risk parameters in order to control market risks and set appropri-
ate limits. Market risk is managed by the Treasury organisational
unit, where all interest rate, currency and price positions are
systematically compiled and appropriately controlled. In addition
to the lending business, the bank's own transactions are one of its
core business areas.
The Risk Management organisational unit supports the Treasury
organisational unit in the control of market risks. Measuring and
monitoring the market risks and regular reporting constitute the
principal areas of responsibility. Special attention is paid to the
systematic monitoring of strategy and hedge positions as part
of dynamic risk monitoring. Daily risk/performance analyses and
reports ensure that the Treasury organisational unit can apply the
appropriate control measures.
Liquidity risk
The refinancing of loans at matching maturities is highly important
at Raiffeisen-Landesbank Tirol AG. This strategy is supplemented
by a liquidity parameters system and the corresponding limits,
with a distinction made between short-term (operational) and
long-term (strategic) liquidity control.
The Risk Management organisational unit monitors compliance
with these limits. A sufficient supply of short-term and long-term
liquidity for possible bottlenecks is included in the bank's liquidity
plans and this topic is regularly discussed by the risk committee.
In order to strengthen its liquidity position, Raiffeisen-Landes-
bank Tirol AG places great emphasis on its issuing activities and
the portfolio of securities that can be refinanced, among other
measures. Additional control instruments are being developed in
the context of proactive liquidity control.
Operational risk
The management of operational risks is also performed in the risk
management organisational unit. All risks that could arise due to
errors in systems, processes, employee misconduct or external
events, are analysed, assessed and suitable counter-measures
are applied.
The equity requirement for operational risk is calculated using
the basic indicator method. Risks are presented and processed
using modern computer systems. Supplemented through regular
checks by Internal Audit and periodic reporting, appropriate risk
management of operational risks is assured.
Risk-bearing capacity
As part of overall risk control at the bank, the potential for cover-
ing risks is balanced against all major risks, which are determined
using the latest methods and appropriate systems.
The annual risk-bearing capacity figure represents the limit for
the total bank risk. Non-quantifiable risks are taken into account
by means of a "risk buffer" as well as the actual measured risks.
All risk-related information is included in the monthly risk-bearing
capacity analyses. They determine total bank risk in various sce-
narios in order to ensure that sufficient capital would be available
in difficult situations.
The key factors in Raiffeisen-Landesbank Tirol AG risk manage-
ment processes are credit and market risks, as the focus of bank
business is on retail and commercial customers and treasury
transactions. The credit risk is analysed using probabilities of
default, while the market risk resulting from trading books and
banking books is calculated using sensitivity parameters. As
well as market-related risks, operational risks are recorded and
calculated within the scope of overall bank management. On the
one hand the purpose is to describe all the risks, and to accom-
modate the developments relating to Basel II on the other.
The analysis of risk-bearing capacity is therefore the starting
point for limiting risk activities to an acceptable level, with the aim
of securing the continued viability of Raiffeisen-Landesbank Tirol
AG as a problem-free entity and appropriately utilising its income
potential.
Risk Report
Management Report |
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