A Bank believes that risk management is crucial in ensuring the stability of a bank in the 21st century and the bank’s management team ensures that proper risk management mechanisms are in place. A Bank has implemented risk management mechanisms as per the Central Bank of Myanmar (CBM) guidelines as sound risk management mechanisms are the lifeblood of a bank for sustainability and success. A Bank’s risk management mechanisms cover financial risks as well as non-financial risks.
Sustainability Governance Structure
Risk Governance Framework
Risk governance, which is part of the corporate governance framework, is A bank’s approach to risk management. Risk governance applies the principles of sound corporate governance to the identification, measurement, monitoring, and controlling of risks. Risk governance helps ensure that risk-taking activities are in line with A bank’s strategy and risk appetite. Key components of risk governance include the risk culture, the risk appetite, and A bank’s risk management system.
A risk governance framework, as shown in the following figure, is an essential component in effectively managing the bank’s enterprise-wide risks. The framework is the means by which the board and management, in their respective roles,
– establish and reinforce the bank’s risk culture.
– articulate and monitor adherence to the risk appetite.
– establish a risk management system with three lines of defense to identify, measure, monitor, and control risks.
The framework covers all risk categories applicable to A bank—credit, interest rate, liquidity, price, operational, compliance, strategic, and reputation. As per “Risk Management Framework”, A bank implements and establishes the Risk Strategy jointly together with Kasikorn Thai Bank Public Company Limited to comply with both Domestic (Local contents, as per CBM guidelines) and International Basel Accord.
Risk Management System
A bank’s risk management system comprises its policies, processes, personnel, and control systems. A bank’s risk management system, involves three lines of defense:
- frontline units, business units, or functions that create risk;
- IRM, loan review, compliance officer, and chief credit officer to assess risk independent of the units that create risk; and
- internal audit, which provides independent assurance.
After the Credit Committee evaluates the loan customers according to the 5 Cs framework, A Bank closely monitors the customers’ exposure and review the collateral and creditworthiness. A Bank minimizes the credit risk by establishing the loan collection and supervision team. The team receives regular supervision from the Credit Committee and is tasked with reporting the requirements to the Credit Committee during the committee meetings.
The changes in the market factors have significant impacts on the collateral that the bank has, currency exchange, trade financing. A Bank ensures that proper mechanisms are in place to be able to overcome the challenges if the market risk arises. These mechanisms include close monitoring of business dealing with market price and evaluating Value-at-Risk (VAR) by holding ALCO Committee meetings.
Liquidity is a very important factor that relevant departments must watch very closely on a daily basis as it could directly impact the bank’s image. A Bank has implemented the guidelines and frameworks issued by the CBM. Additionally, the balances of each branch are monitored in real-time to ensure that customers could withdraw without any difficulties. Loans are also disbursed to ensure that there are profit margins. A Bank ensures that the liquidity ratio does not reach below 20%. The Assets & Liability Management Committee (ALCO) and the Operation Team collaborate to ensure that there is no mismatch in the uses of funding and sources of funding.
Operational risk is a non-financial risk and includes cybersecurity risks, internal fraud, external fraud, business disruption, and system failures. Risk Management Committee and Legal & Compliance Department closely coordinate with relevant departments to reduce the risks. Training is conducted to educate bank employees on the code of conduct, rules, and regulations issued by the bank and the regulator. If operational risks are detected, precautionary measures and coordination are taken and individual employees are informed to minimize the risks.
ompliance functions are put in place as part of the ML/FT risk management framework. The compliance functions shall be in proportionate with the size, nature, and depth of the bank’s business workflow and operations. Compliance functions are part of everyday tasks and the tasks related to the compliance functions should be properly recorded and kept separately. Compliance functions shall continuously monitor the bank’s ability to comply with the guidelines, responsibilities, restrictions, procedures, and policies arising from rules, regulations, and manuals. The effectiveness of the compliance functions is fully dependent on the effectiveness of timely reporting from the MIS related to the ML/FT risk management functionalities.