VKF_FRAE_2018_uyg11

118 Part III: Financial Highlights and Assessment of Risk Management RISK MANAGEMENT POLICIES APPLIED BY RISK TYPE Credit risk in fair value, measured as per the provisions of the “Regulation on Measurement and Assessment of Capital Adequacy of Banks,” is reported to the Bank’s senior management and the BRSA on unconsolidated and consolidated bases quarterly. The Capital Adequacy Standard Ratio is closely monitored within the Bank, calculated on a daily basis and reported to the senior management after the scenario analysis/stress testing is performed. 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” (IRB) activities are carried out within the Bank. As part of IRB activities, the Credit Risk Control Department and the Head Office for Assessment and Rating work in coordination to carry out activities for updating the existing credit rating models and developing new models. Policies and procedures are updated by following a risk-based approach during IRB efforts. Furthermore, as it is important to use consistent credit rating models with a high reliability level, the Credit Risk Control Department periodically analyzes the models’ outcomes, and reports them to the Bank’s senior management. The Validation Department carries out activities i) to determine, by using accuracy, correctness and consistency measurements, the extent to which the models used within the Bank represent the outcomes; ii) to measure how sound the models and other components are and; iii) to make qualitative and quantitative validation on the internal credit rating systems used by the Bank. Validation reports regarding the models are presented to the Bank’s senior management. Counterparty Credit Risk Counterparty credit risk is the risk arising from the possibility that the counterparty may default on amounts owed before the last payment for a transaction that obligates both parties. It is managed pursuant to the “Counterparty Credit Risk Management Policy Document.” In accordance with the provisions of the “Regulation on Measurement and Assessment of Capital Adequacy of Banks,” counterparty credit risk amounts calculated using the fair value, are calculated based on the portfolios in the trading and banking accounts. These amounts are monthly reported on unconsolidated and consolidated bases within the scope of capital adequacy calculations, to the Bank’s senior management and the BRSA. Concentration Risk Concentration risk arises from the fact that the Bank’s has a specific concentration on assets, liabilities, and fields of activity, and is managed pursuant to the “Concentration Risk Management Policy Document.” Concentration risk limits were determined in a manner that will enable the Bank to avoid large risk concentrations, monitor its risks within the scope of its risk appetite, and carry out its activities even under stress conditions. The Bank establishes limits in managing concentration risks which are monitored and reported to the senior management. Limits are controlled on a regular basis and revised as necessary, in parallel with economic developments, expectations, and the Bank’s objectives and strategies.