VKF_FRAE_2018_uyg11

VakıfBank Annual Report 2018 117 to monitor liquidity risk throughout the day on a continuous basis. Accordingly, work is performed to keep cash inflows and outflows in both Turkish Lira and foreign currency always under control. Long-term cashflow tables are prepared, and scenario analysis and stress tests based on previous experiences and expectations performed in order to determine the Bank’s resilience against unexpected crises. The Bank’s liquidity risk appetite was determined and liquidity risk limits established accordingly. Relevant limits are periodically reported to Bank’s Senior Management. The Bank manages its liquidity risk as per the Liquidity Contingency Plan which is approved by the Board of Directors. The Bank monitors and manages liquidity requirements within the framework of the specified action plans, and by analyzing existing/potential liquidity gaps. Operational Risk Operational risk refers to the prospect of loss resulting from inadequate or failed procedures or systems, employee errors or external events that also cover Legal Risk. The management of operational risks is performed in accordance with the “Operational Risk Framework,” established for comprehensive determination and definition of all the significant risks faced by the Bank by categories to serve as a shared terminology containing examples of these risks, and the “Bank’s Operational Risk Management Policy Document.” Operational risks are audited by the Audit Board and the Internal Audit function. In managing operational risks, the Bank collects operational risk loss and potential risk data, which enables implementation of the standardized approach. The operational loss data is analyzed in order to identify the risk factors and the findings are presented to the Bank’s internal systems functions and Bank’s executive management. Operational risk data is examined on consolidated basis, and within this scope, loss data is regularly collected from the Bank’s affiliates and saved in the database. Performed with the aim of analyzing business processes, identifying inadequate controls and taking necessary measures, the 2018 “Impact Analysis” that covered the business departments within the Head Office was completed. Symptom monitoring efforts and assessment of updated and newly- established processes as part of the “Impact Analysis” are ongoing. Risk assessments on new products are carried out within the scope of the “New Product Development Regulation.” Moreover, risk assessments regarding procurement of support services are performed in accordance with the “Support Services Procurement Procedures and the Risk Management Program.” Operational risk measurement results calculated annually on unconsolidated and consolidated bases using the key indicator approach are reported to the Bank’s top management and the BRSA, pursuant to the “Regulation on Measurement and Assessment of Capital Adequacy of Banks.” In accordance with the “Guide About Reputation Risk Management “ issued by the Banking Regulation and Supervision Agency; the “Reputation Risk Management Policy” was approved by the Board of Directors and entered into force in 2018 to establish policies regarding identification, assessment, control, monitoring, reporting and management of reputation risks that may arise from the Bank’s activities, practices, shareholders and employees. Credit Risk Credit risk arises from the partial or complete failure of a counterparty to fulfill its obligations provided for in contractual requirements. The Bank’s definition of credit risk covers credit risk in all products and activities, based on the definition of credit in the Banking Law. Credit risk is managed within the scope of the “Credit Risk Management Policy Document.” Furthermore, VakıfBank manages sovereign risk within the scope of the “Country Risk Management Policy Document,” and has defined indirect sovereign risk, central management risk, contagion risk, macroeconomic risk, indirect foreign exchange risk, and transfer risk as the main components of the sovereign risk. The findings obtained from analyses on the composition and concentration of the Bank’s loan portfolio (type of loan, currency, maturity, sector, geographical region, segment, borrower, holding, group, subsidiaries), on the portfolio quality (standard loans, non-performing loans, deferred loans, loans under close scrutiny, rating distribution of the portfolio) and on sovereign risks, as well as data derived from scenario analyses and studies on NPL ratios, are reported to the Bank’s senior management in the form of individual and monthly reports. Taking the Bank’s loan policy and economic changes into consideration; sectoral, geographical and retail segment loan concentration limits were updated in 2018 in order to identify loan concentration risks and create a balanced loan portfolio. Additional tables were included in the Credit Risk Reports that are submitted monthly to Senior Management, such as: TL/foreign currency realization of commercial loans, first 10 customers who have been removed from non-performing loan accounts and assigned a payment schedule, and distribution of expected loss provisions according to geographical regions and segments.