In carrying out its business activities related to raising funds, providing loans and providing other banking services, the Bank cannot be separated from various risks. The implementation of these business activities may result in negative impacts on the business continuity of the Bank if it is not managed properly.
Risk management receives special attention from the Bank as an effort to balance the increasingly complex products and activities faced. In achieving these objectives, the Bank has a Risk Management Committee and a Risk Management Work Unit in charge of setting policies including risk management strategies and contingency plans to deal with emerging risks as well as improving and perfecting the implementation of risk management.
The implementation of risk management is carried out through the active supervision of the Board of Commissioners and the Board of Directors, the adequacy of risk management policies, procedures and limits, the adequacy of the risk identification, measurement, monitoring and control processes, as well as the implementation of a comprehensive risk management information system and internal control system.
- Credit Risk
Credit risk is the risk that occurs due to the failure of the counterparty to fulfill its obligations arising from the Bank's functional activities such as credit, treasury, investment and trade finance.
Credit risk is measured by the probability of a default occurring in the future. The calculation of the probability of default will then be used as the basis for calculating the reserve for capital at risk, pricing, capital allocation, and portfolio management.
Credit risk management focuses on good asset quality management, selection of debtors by referring to the Risk Acceptance Criteria (RAC), then conducting strict, scalable and continuous monitoring and inspection on loans that have been disbursed, providing advice - suggestions for improvement, so that losses that may occur can be minimized; four eyes principles as one of the credit risk controls in the credit granting process has been implemented by work units; and the Early Warning System (EWS) as a monitoring tool by detecting debtors with the potential to default. The system can support the overall loan monitoring process, identify corrective actions, and improve follow-up effectively. The granting of credit also does not ignore the concept of the Total Debtor Relationship (one obligor concept), monitoring of Credit Concentration, compliance with the Provisions for the Maximum Lending Limit ("BMPK"), as well as determining the Limit of Authority in the credit termination process which is carried out in stages.
Maximum Exposure to Credit Risk
For financial assets recognized in the statement of financial position, the maximum exposure to credit risk is equal to the carrying amount. For unused credit facilities and issued bank guarantees, the maximum exposure to credit risk is the amount that must be paid by the Bank if the liability for unused credit facilities and issued bank guarantees occurs.
The Bank determines the type and the value of the collateral guaranteed according to the credit scheme. The types of collateral consist of:- Main Collateral consists of:
- Cash Collateral, among others, consists of time deposits, savings, demand deposits, cash collateral deposits (margin deposits) and the like issued and deposited by the Bank.
- The main non-cash collateral are as follows:
- Land and buildings (including apartments) located in a marketable and growing area.
- Vacant land that is marketable and growing.
- Motorized vehicles with a maximum age of 3 (three) years at the time of credit application.
- Production machines, heavy equipment (heavy equipment) that can be registered on a fiduciary basis.
- Ships (min 20 M3) that can be installed Mortgages.
- In addition to the main collateral that can be received by the Bank, there is also secondary collateral in the loan process, but it is not taken into account in calculating the coverage ratio.
- Liquidity Risk
Liquidity risk is the risk that the Bank is unable to fulfill its obligations to customers and counterparties within the promised time. Liquidity risk measurement is carried out by examining all cash inflows and outflows from the Bank, then identifying any possible shortages of funds in the future including commitment and contingency requirements. optimal for meeting obligations that mature at any time, as well as managing interest rate risk arising from each transaction listed on the statement of financial position and administrative accounts.
Incompatibility between the timeframe for raising funds from third parties which are generally shorter than the loan disbursement period, will cause liquidity problems that affect the Bank's ability to meet its obligations to customers. This can affect the level of public confidence which in turn can affect the continuity of the Bank's business.
The Bank's liquidity management is emphasized on adjusting the inflow and outflow of funds. Fund flow gaps are anticipated through the maintenance of liquid and adequate earning assets in line with cash flow forecasts and the existing liability structure. Maintenance of liquid earning assets consists of maintaining reserve requirements as determined by Bank Indonesia and maintaining highly liquid short-term securities such as Bank Indonesia Certificates. The Bank also maintains reserves for other liquid productive assets, consisting of short-term fund placements in other banks as well as liquid long-term securities such as government bonds. Liquidity management is also carried out through managing the structure of the source of funds by applying depositor concentration limits and trying to reduce their dependence on expensive funds such as deposits and replace it with cheap sources of funds such as current accounts and savings. In addition, the Bank always maintains the ability to access the money market, by always maintaining relationships with correspondent banks. The Bank periodically reviews all of the above conditions while taking action to diversify the funding method.
Liquidity analysis is to measure the cumulative difference between cash inflows and cash outflows. Liquidity risk arises if the maturity of assets is significantly different from the maturity of liabilities.
Along with the intense competition in the collection of third party funds, it will affect the interest rate on deposits given, especially time deposits, the Bank has conducted a study that adequate for the provision of interest rates to several customers that exceed the interest rates of the Deposit Insurance Corporation (LPS). Risk mitigation measures on the Bank's liquidity capacity to meet its obligations for deposits that are not included in the LPS guarantee scheme are carried out by managing adequate secondary reserves in addition to the Bank's capital structure which is still quite strong. The management policy setting mechanism is carried out periodically in Assets and Liability Committee meetings to monitor and determine anticipatory steps that need to be taken to minimize risks that may arise.
The following maturity table provides information on the estimated maturity date. the maturity of the contracted assets and liabilities into cash inflows or outflows.
- Market Risk
Market risk is the risk that arises due to the movement of market variables from the portfolio owned by the Bank which can harm the Bank (adverse movement).
Measurement of market risk is carried out through an interest rate sensitivity analysis approach for interest rate risk and Bonds risk. Market risk is controlled by applying limits, particularly limit trading transactions. These limits include sensitivity limits and position limits.
- Interest Rate Risk
Interest rate risk is the risk that the net interest income and market value of the asset portfolio may decrease due to changes in interest rates in the money market. Because assets and liabilities such as current accounts with other banks, investments in securities, loans, demand deposits, savings deposits, deposits and certificates of deposit, loans received and other money market liabilities have various interest rates and terms, changes
During the nine-month period ended September 30, 2015 and the year ended December 31, 2014, the Bank has provided sufficient liquid assets to anticipate long-term liabilities. In short, net cash flow can be managed well, good enough and easy enough to get access to money market sources of funds.
In the face of possible asset and liability imbalances, the Bank's management, through the monthly ALCO meeting mechanism, always conduct a review of several things that are very strategic in nature, including:- Funding management with unequal maturities
- Accurate management of assets and liabilities that are sensitive to changes in interest rates
- Analysis of third party funds that illustrates the trend of various third party fund products located in regions throughout Indonesia
- Placement of funds in a portfolio of securities
- Existing and new credit progress reports
- Pricing strategy according to current market conditions
- Comparison of targets with realization of third party funds
- Currency Risk
Banks are exposed to currency risk due to transactions in foreign currencies. The management of the Bank's foreign exchange position can be grouped into two activities, namely the trading book, which is managed to generate foreign exchange gains, and the banking book, which is managed to control the overall Net Open Position (“NOP”) of the Bank.
- Operational Risk
Operational risk is the risk caused by inadequate and/or malfunctioning internal processes, human error, system failure, or external events affecting the Bank's operations.
Policies and procedures related to operational risk management are continuously developed, reviewed and refined to ensure the adequacy of control mechanisms in all policies and procedures. The Bank actively conducts training and socialization to build risk awareness and improve control quality in order to mitigate operational risk.
The preparation of the Operational Risk Profile Report and other risks is carried out on a quarterly basis based on the new risk parameters and indicators, in accordance with the provisions Bank Indonesia in order to obtain an overview of the level of potential risk for the Bank as a whole.
The Bank has also calculated the capital adequacy for operational risk in accordance with PBI No. 10/15/PBI/2008 dated 24 September 2008 concerning Minimum Capital Adequacy Requirements for Commercial Banks and SE-BI No. 11/3/DPNP dated 27 January 2009 concerning Calculation of Risk Weighted Assets (“RWA”) for Operational Risk Using the Basic Indicator Approach (“PID”). Calculation of the Bank's operational risk capital expense is using the PID method.
- Legal Risk
Legal risk is the risk caused by a weakness in the juridical aspect, which among others is due to lawsuits, the absence of supporting legislation, or the weakness of the engagement. br/>
Regarding legal risks, the Bank has a Legal Division in charge of monitoring or reducing legal risks that may arise through the proper and adequate administration of legal documentation. Legal risk management is also instilled in all levels of the organization through the application of a code of ethics to all employees.
Banks also always pay attention to the completeness and validity of documentation related to law and pay attention to applicable regulations/stipulations, especially banking regulations.
- Strategic Risk
Strategic risk is the risk caused by the establishment and implementation of the Bank's strategy that is not appropriate, making inappropriate business decisions or the Bank's lack of responsiveness to external changes.
Strategic risk managed by the Bank, among others, by making a Bank Business Plan (RBB) with a period of three years and is always reviewed every year or revised in the middle of the year. This RBB is adjusted to the vision and mission as well as the Bank's strategy. Furthermore, the RBB that has been determined by the Bank is communicated to officials and employees at every level of the Organization. In a certain period (quarterly) the Bank monitors the progress achieved so that the results can be used as an evaluation of the Bank's performance.
- Reputation Risk
Reputation risk is the risk caused by negative publications related to the Company's business activities or negative perceptions of the Bank.
To control this reputational risk, the Bank continuously improve the quality of customer service in line with applicable regulations, namely regarding customer protection, including implementing an effective media use strategy to anticipate the possibility of negative news appearing.
In addition to ensuring that any customer complaints can be easily conveyed and handled properly and appropriately, the Bank has established a Call Center which is supported by experienced officers. The Bank also carries out mystery shoppers which is carried out regularly to ensure service to customers remains excellent from time to time. Monitoring and management of reputation risk is pursued by optimizing the function of the Corporate Secretary.
- Compliance Risk
Compliance risk is the risk caused by the Bank not complying with or not implementing the prevailing laws and regulations and other provisions. The Bank's inability to follow and comply with all laws and regulations related to its business activities can have a negative impact on the Bank's business continuity.
In managing Compliance Risk Management, efforts to continuously improve the Compliance Culture are carried out through programs including: other:- Conduct a review of the draft new policies, provisions, systems and internal procedures
- Socialization/training through regulation updates and in-class training related to the implementation of Anti-Money Laundering and Prevention of the Financing of Terrorism (AML/CFT) as well as other new provisions.
- Conduct a review (review) of new products/activities.
- Monitor the implementation of compliance with the submission of reports that must be submitted to Bank Indonesia in accordance with applicable regulations.
- Updating and administering the database of applicable regulations/stipulations.
- Preparation of Compliance Reports to Bank Indonesia as well as to internal parties.
- Monitoring of fines or sanctions received from regulators/external parties
