VKF_FRAE_2017

127 VakıfBank Annual Report 2017 The ultimate aim of the Bank is to use credit risk internal methods in line with Basel III and international best practices. Within this scope, “Internal Rating Based Approach” activities are carried out within the Bank. Within the scope of “Internal Rating Based Approach” activities, the Credit Risk Control Department and the Head of Assessment and Rating in coordination carry out activities of updating the existing credit rating models, and developing new models. Within the scope of “Internal Rating Based Approach” activities, policies and procedures are updated in a risk based approach. Moreover, due to the importance of using consistent credit rating models with high reliability level, the Credit Risk Control Department periodically analyzes the models’ outcomes, and reports them to the Bank’s top management. The Validation Department started its activities: I) to determine, by using accuracy, correctness and consistency measurements, how much the models used throughout the Bank represent the outcomes, II) to measure how strong the models and other components are, and III) primarily, to make qualitative and quantitative validation on the internal credit rating systems used by the Bank. Within this scope, validation reports issued about the models, are presented to the Bank’s top management. »» COUNTERPARTY CREDIT RISK Counterparty credit risk is the risk that a counterparty to a mutual transaction, that obligates both parties, will default before the date of final payment of such transaction is due. This risk type is managed pursuant to the “Counterparty Credit Risk Management Policy Document”. Within the framework of the provisions of the “Regulation on Measurement and Assessment of Capital Adequacy of Banks”, counterparty credit risk amounts calculated using the fair valuation method, are calculated based on the portfolios in the trading and banking accounts. These amounts are monthly reported on unconsolidated and consolidated basis within the scope of capital adequacy calculations, to the Bank’s top management and the BRSA. »» CONCENTRATION RISK Concentration risk arises due to a specific concentration of the Bank’s assets, liabilities, and business lines; this risk type is managed pursuant to the “Concentration Risk Management Policy Document”. Concentration risk limits were determined in a manner that will ensure the Bank to avoid larger risk concentration, monitor its risks within the scope of risk appetence, and carry out its activities even under stress. The Bank assembles concentration limits, which are closely monitored and reported to top management. Limits are controlled on a regular basis and revised if needed, in parallel with economic developments, expectations, and the Bank’s objectives and strategies.