Strategic Report Strategic Report Strategic Report Financial Additional Overview Strategy Performance Governance Statements Information Each of these departments is provided with policies and/ Specifically tailored risk reports are prepared and or manuals that are approved by the Bank’s Management distributed to all levels throughout the Bank in order to Board and/or the Supervisory Board (as required). The ensure that all business divisions have access to extensive, manuals and policies include comprehensive guidance relevant and up-to-date information. A daily briefing is for each stage of a transaction, including, but not limited given to the Bank’s Management Board and all other to, manuals outlining asset and liability management relevant employees of the Bank on the utilisation of policies, foreign exchange operations procedures, fixed market limits, proprietary investments and liquidity, income investment guidelines, Retail Banking operations as well as any other risk developments. procedures, the deposit policy and Credit Policies. Risk mitigation and excessive Risk measurement and reporting. The Bank measures risk concentration risk using a method which reflects both the expected loss As part of its overall risk management, the Bank uses likely to arise in normal circumstances and unexpected derivatives and other instruments to manage exposures losses, which are an estimate of the ultimate actual loss resulting from changes in interest rates, foreign currencies, based on different forecasting models. These models use credit risks, and exposures arising from forward probabilities derived from historical experience, adjusted transactions. While these derivatives are intended for from time to time to reflect the economic environment. hedging, they do not qualify for hedge accounting. The Bank also models scenarios simulating the impact of extreme events. The Bank actively uses collateral to reduce its credit risks. Monitoring and controlling of risks is primarily performed In order to avoid excessive concentrations of risks, based on limits established by the Bank. These limits the Bank focuses on maintaining a diversified portfolio. reflect the business strategy and market environment Identified concentrations of credit risks are controlled of the Bank, as well as the level of risk that it is willing to and managed accordingly. Concentrations arise when accept, with additional emphasis on selected industries. a number of counterparties, or related shareholders, The Bank also conducts ongoing monitoring and control, are engaged in similar business activities, or activities allowing efficient adjustments in case of any unexpected in the same geographic region, or have similar economic changes in the conditions on which the preliminary risk features that would cause their ability to meet contractual assessment was made. In addition, the Bank monitors obligations to be similarly affected by changes in and measures overall risk-bearing capacity in relation to economic, political or other conditions. Concentrations aggregate risk exposure across all risk types and activities. also involve combined, aggregate exposures of large and The Bank maintains a management reporting significant credits compared to the total outstanding system which requires the Credit Risk, Quantitative balance of the respective financial instrument(s). Risk Management and Risk Analytics, Portfolio Risk Concentrations indicate the relative sensitivity of the Management, Finance and Treasury departments to Bank’s performance to developments affecting a particular prepare certain reports on a daily and monthly basis. industry or geographical location. Identified concentrations On a daily basis, a statement of operations, balance of credit risks are controlled and managed accordingly. sheet and treasury report (which includes the Bank’s open foreign exchange positions, cash flows, limits and balances on correspondent accounts with other banks) Credit risk and confirmation that there has been compliance Definition: Credit risk is the risk that a borrower or with mandatory financial ratios must be provided by counterparty will be unable to pay amounts in full or in each department. On a monthly basis, a report on part when due. Credit risk arises mainly in the context the structural liquidity gap, a report on interest rate of the Bank’s lending activities. risk, and financial statements are produced, and these are summarised in a quarterly report to the Bank’s Mitigation: The general principles of the Bank’s credit Supervisory Board and to the Risk Committee containing policy are outlined in the Credit Policies. The Credit Policies analysis of the Bank’s performance against its budget. also outline credit risk control and monitoring procedures Information compiled from all the businesses is examined and the Bank’s credit risk management systems. The and processed in order to analyse, control and identify Credit Policies are reviewed annually or more frequently, emerging risks. This information is presented and explained if necessary. As a result of these reviews, new loan to the Management Board and the head of each business restructuring tools are introduced. The Bank also uses division. The report includes aggregate credit exposure, the NBG’s provisioning methodology in order to comply liquidity ratios and risk profile changes. The Bank’s with NBG requirements. Management Board assesses the appropriateness of the allowance for credit losses on a monthly basis. The Bank manages its credit risk by placing limits on The Management Board and the Supervisory Board the amount of risk accepted with respect to individual receive a comprehensive risk report once a quarter which corporate borrowers or groups of related borrowers, is designed to provide all the necessary information to liability of insurance companies, types of banking assess and draw conclusions on the Bank’s risk exposure. Annual Report 2018Bank of Georgia Group PLC 55