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VAKIFBANK ANNUAL REPORT 2013
91
rısk Management Policies Applied BY Risk Type
Market Risk:
The Bank is exposed to market
risk depending on potential changes in foreign
exchange rates, interest rates and the market
price of stocks resulting from fluctuations
in financial markets. The market risk arising
from the Bank’s trading activities is measured
and monitored using the standard method
and internal models in line with local and
international banking practices. Market risk
management is carried out pursuant to the
“Market Risk Management Policy Document.”
The market risk measurement results are
calculated at the end of each month on an
unconsolidated basis and in quarterly periods
on a consolidated basis. The calculation uses
the standard method under the provisions
of the “Regulation on the Measurement and
Evaluation of the Banks’ Capital Adequacy.”
The results are reported to the Bank’s senior
management and to the 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. VaR is calculated on a daily basis
via historical simulation and the Monte Carlo
simulation using a one-sided 99% confidence
interval. The VaR calculated for one day is
scaled to 10 business days on the basis of
the square-root-of-time rule. The historical
observation period used for VaR calculation is
one year.
The Bank performs daily back testing analyses
in order to test the reliability and performance
of the model results. Furthermore, scenario
analyses and stress tests are performed to
support the standard method and internal
models. With the aim to restrict the market
risks, the overall bank limit and VaR-based
limit practices are applied and monitored on a
daily basis.
Structural Interest Rate Risk:
Interest rate
risk, which the Bank may be exposed to due
to maturity mismatch on its balance sheet, is
managed pursuant to the “Structural Interest
Rate Risk Management Policy Document.”
The standard ratio of the interest rate risk on
the banking book is calculated on a monthly
basis and reported to the BRSA; in order to
monitor the ratio, which must be below 20%,
and to take the required precautions, these
calculations can be performed on a weekly
basis. In addition, liquidity-gap analysis and
duration results are analyzed. All analyses
are reported to the Board of Directors, the
Audit Committee and the Bank’s senior
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 also complies with
liquidity-related regulations as established by
regulatory authorities.
Operational Risk:
Operational risk refers to
the likelihood of damage, including legal risk,
which may arise from inadequate or failed
internal processes, people and systems or
from external events.
The management of operational risks
is performed in accordance with the
“Operational Risk Framework,” which was
created for the determination and definition
of all the significant risks faced by the Bank
in comprehensive categories and which is a
common dictionary containing examples of
these risks, and the Bank’s “Operational Risk
Management Policy and Implementation
Guidelines” document.
The evaluation of the operational risks is
carried out by Audit Board and Internal Control
Departments.
In the management of operational risk,
the Bank collects operational risk loss
and potential risk data, which also enable
the implementation of the advanced
measurement approaches. The Bank analyzed
operational loss data in order to identify the
risk factors; the findings were presented to
the Bank’s senior management.
The Risk Management Department continued
to conduct “Impact Analysis” studies,
which cover the Head Office departments.
These studies seek to take operational risks
under control by identifying inefficient and
inadequate controls and taking necessary
measures through the analysis of the business
In 2013, risk management efforts continued
in parallel to the Bank’s risk management
policies approved by the Board of Directors
and in accordance with the legal legislations
and international practices. Within the scope
of the “Basel II” legislation which became
official with the regulations published by
the Banking Regulation and Supervision
Agency (“BRSA”), together with documents
regarding the risk management policy and
its implementation procedures, the “Risk
Management Strategy Document” and the
“Capital Requirement Internal Evaluation
Process Document” were prepared also by
getting the opinions of the related units
and after being approved by the Board of
Directors, they were announced within the
Bank and submitted to the BRSA.
In accordance with the “Principles for the
implementation of the II.Structural Block in
2013” issued by BRSA, the “Internal Capital
Adequacy Assessment Process” (“ICAAP”)
report was prepared according to the 2012
data and submitted to the BRSA.
The Bank followed the draft regulations
–referred to as “Basel III” – of the Basel
Committee and made study regarding the
possible impacts of the aforementioned
regulations on the Bank’s capital adequacy
standard ratio and performed quantitative
impact study (C-QIS) as requested by the
BRSA.
Furthermore, in this period, the Bank
continued to make scenario analysis regarding
the impacts of the economic developments
and expectations on the capital adequacy ratio
and continued to make studies for the weekly
follow-up of the Interest Rate Risk Standard
Ratio arising from the Banking Book.
Bank completed studies on the VaR (Value
at Risk) model which was formed by taking
into account the improvements in the Bank’s
portfolio and the modifications in the national
and international arrangements.
In 2013, within the scope of the operational
risk management, the Bank continued to
collect and analyze the operational loss data
and to make impact analysis on the business
processes.
Studies are ongoing to ensure compliance
with Basel Committee and European Union
Capital Adequacy Regulations and to develop
risk management applications in accordance
with international best practices.