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VAKIFBANK
ANNUAL REPORT 2014
The Operational Risk Management Policy and Principles, New Product Development Directive and Support Service Procurement Procedures and the Risk
Management Program were updated in 2014 within the scope of the recent developments and needs.
“Amount Subject to Operational Risk” is calculated on a solo and consolidated basis. In keeping with the “Regulation on Measurement and Assessment of
Capital Adequacy of Banks” issued by the BRSA, the Bank calculates “Value at Operational Risk” using the Basic Indicator Approach on an unconsolidated and
consolidated basis; this information is reported to the Bank’s senior management and the Banking Regulation and Supervision Agency annually. The Bank’s
ultimate goal is to use of an advanced measurement approach in measuring operational risk.
Credit Risk:
Credit risk arises from the failure of a counterparty to fulfil its obligations, partially or completely, in accordance with contractual requirements.
The credit risk definition of the Bank takes the credit risk definition of the Banking Law as a base and comprises the credit risks involved in all products and
activities.
Credit risk is managed pursuant to the “Credit Risk-Credit Risk Reduction-Residual Risk-Country Risk Management Policy Document.”
The findings are obtained from analyses of the composition and concentration of the Bank’s loan portfolio (type of loan, currency, maturity, sector, geographic
region, borrower, holding, group, subsidiaries); from the portfolio quality (standard loans, non-performing loans, deferred loans, analysis of the data obtained
from the credit rating system); from the portfolio analysis (duration, average maturity, interest rate sensitivity); from country risk and scenario analyses; and
from the studies on possible events of default. These findings are reported to the Board of Directors, the Audit Committee and the Bank’s senior management
as individual and monthly reports.
The Bank uses rating and scoring models for the assessment of the debtor’s credit quality. For the mentioned models, validation studies are made at regular
intervals. Sector concentration limits and country risk limits are fixed with an aim to define the risks resulting from credit concentrations and to create a well-
balanced credit portfolio. These limits are updated taking into consideration the Bank’s credit policy and macroeconomic developments.
Credit risk in fair value, measured within the scope of the provisions of the “Regulation on Measurement and Evaluation of Capital Adequacy of Banks,” is
reported to the Bank’s senior management and the BRSA in unconsolidated and consolidated basis quarterly. Capital Adequacy Standard Ratio is closely
monitored in the Bank, calculated on a daily basis and reported to the senior management after the scenario analysis/stress testing is performed.
The Bank’s ultimate goal is to use credit risk internal methods in accordance with Basel III, the European Union Capital Adequacy Regulations and international
best practices. BRSA regulations published about the issue in 2014 were closely tracked.
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.”
Counterparty credit risk exposures are calculated on the basis of the banking book and the trading book portfolios, in accordance with the “Regulation
on Measurement and Assessment of Capital Adequacy of Banks” and using the fair value valuation method. Within the context of the capital adequacy
calculations, the exposure values are reported to BRSA and the Bank’s senior management monthly on an unconsolidated and a consolidated basis.
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.” The Bank establishes concentration limits, which are closely monitored and reported to
senior 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.