VKF_FRAE_2017

125 VakıfBank Annual Report 2017 RISK MANAGEMENT POLICIES APPLIED BY RISK TYPE Risk management activities continued also in 2017 in line with the Bank’s risk management policies that were prepared in parallel to national legislation and international practices and then approved by the Board of Directors of the Bank. Risk management practices are carried out through policies, action plans, practice procedures and limits determined, depending on the Bank’s risk-return structure, for controlling the quality and level of the Bank’s activities. Risk management practices include: identifying, measuring, and reporting incurred risks in unconsolidated and consolidated basis, and monitoring the total required capital and liquidity adequacy regarding the risk profiles. Policies and other documents prepared in line with the Banking Regulation and Supervision Agency (BRSA)’s “Regulation on Evaluation Process of Banks’ Internal Systems and Internal Capital Adequacy” and “Best Practice Guidelines” periodically reviewed, and updated if necessary. The process continued keeping track of the national and international regulations regarding the field of risk management and capital adequacy, as well as the developments in this field. In line with the economic developments and expectations, daily scenario analysis on the capital adequacy ratio and monitoring and analysis activities for the standard ratio of the interest rate risk arising from banking activities, and the liquidity coverage ratio were carried out also in 2017. The stress test reports issued at the end of each month covering all risk factors were regularly reported to the Bank’s top management. In line with the “Regulation on Evaluation Process of Banks’ Internal Systems and Internal Capital Adequacy” and the relevant “Best Practice Guidelines”; “Internal Capital Adequacy Evaluation Process (İSEDES) Report” was issued and submitted to the Banking Regulation and Supervision Agency in 2017. Studies to calculate the market risk over the “Value at Risk (VaR) model and to improve this model proceeded. Within the scope of operational risk management, activities of collecting and analyzing the operational were carried out on consolidated basis including the loss data received from the subsidiaries and affiliates. Furthermore, the “Impact Analysis” made on the business processes was also completed. »» MARKET RISK The market risk arising from trading transactions is measured and monitored using standard methods and internal models in parallel to national and international practices. The management of market risk is performed within the scope of the “Market Risk Management Policy Document”. The market risk measurement results are calculated monthly on unconsolidated and consolidated basis by using the standard method under the provisions of the “Regulation on Measurement and Assessment of Capital Adequacy of Banks” are reported to the Bank’s top management, Banking Regulation and Supervision Agency. The portfolio, which is used in the calculation, is determined under the Bank’s Trading Strategy, Policy and Implementation Procedures Document. Moreover, VaR (Value at Risk) calculations are made on a daily basis and reported accordingly. “Value at Risk” is calculated through a unilateral 99% confidence interval on daily basis using historical simulation and Monte Carlo simulation. Daily tests are made retrospectively (back testing) in order to test the reliability and performance of the results of the model. Furthermore, scenario analysis and stress tests that is supporting the standard method and internal models, are also performed. Monitored in line with the general limits of the Bank and the early warning signal limit; the limit practices based on the “Value at Risk”, are tracked on daily basis in order to limit the market risk. »» INTEREST RATE RISK Interest rate risk, which the Bank may be exposed due to maturity mismatch on its balance sheet, is managed to pursuant of the Interest Rate Risk Management Policy Document. The standard ratio of the interest rate risk arising from banking activities is calculated on a monthly basis and reported to the Banking Regulation and Supervision agency. Besides, calculations can be made on a weekly basis in order to keep track of the ratio and take prompt action. Furthermore, gap analysis is made based on the time left for repricing, and reports are issued on the interest rate risk while duration measuring and sensitivity analysis are periodically performed. The Bank has set up and out into practice its procedures for interest rate risk appetite. Interest rate risk limits were determined in line with the interest rate risk appetite. Relevant limits are periodically reported to Bank’s Top Management. »» LIQUIDITY RISK The Bank’s liquidity risk is managed in accordance with the Liquidity Risk Management Policy Document. The Bank’s approach for liquidity risk management is to monitor liquidity risk throughout the day on a continuous basis. To this end, cash inflows and outflows in both Turkish Lira and foreign exchange are tried to be kept under control at any moment, long-term cash flow tables are prepared, and scenario analysis and stress tests based on the experiences and expectations are performed in order to determine the Bank’s strength against sudden crises. The Bank’s liquidity risk appetite was determined. Within the framework of this appetite, liquidity risk limits are determined. Relevant limits are periodically reported to Bank’s Senior Management.