TlB Annual Report 2009 - Triodos Bank

The Bank’s interest rate risk remained within the
internally determined risk appetite through out
2009.
LIQUIDITY RISK
Liquidity risk refers to the risk that the Bank
may be unable to release sufficient funds to
fulfil its obligations to its customers at a
particular point in time. Funds entrusted are
attracted for the Bank’s lending operations. The
surplus is invested at other financial institutions
on short term deposits or government (and
governmental guaranteed) bonds. Triodos
Bank’s policy is to have sufficient funds
avail able so it can meet its obligations at all
times. Triodos Bank is characterised by a high
degree of liquidity, and is funded entirely by
saving deposits from private and corporate
customers and equity. As a result, the Bank
does not need to rely on funding from the
interbank money markets, and was not affected
by the challenge these markets faced during the
recent financial crisis (for its funding). The
Bank nevertheless prepared a Liquidity Contingency
Plan. The plan outlines the actions that
can be taken to increase our liquidity positions
in the case of a liquidity crisis. The Bank’s
liquidity risk remained within the internally
agreed policy norms throughout 2009.
STRATEGIC AND REPUTATION RISK
Triodos Bank has a clearly defined mission derived
from its articles of association and works
according to the values that are described in its
business principles. Within the organisation,
there is a lot of investment in co-workers’
training, awareness raising and involvement
with the topics and principles that are most
important to the Bank. The Bank’s reputation is
a strategic pillar, as confidence in Triodos Bank
is vital to its provision of services. The Bank’s
reputation is very important, so any risks to it
are managed very carefully. This includes
training of co-workers, reporting all related
activities as transparently as possible, and carefully
choosing partners for collaboration. In
times of crisis, Triodos Bank’s aim is to provide
timely and accurate information and to actively
communicate on any issues.
BASEL II
Triodos Bank implemented the Basel ii capital
framework of the Basel Committee on Banking
Supervision on 1 January 2008 and since this
date reports according to the requirements
stipulated by Basel ii. Basel ii has different
approaches to the implementation of requirements
regarding credit, market and operational
risks. In view of its size and stage of development,
Triodos Bank has currently opted to
implement the less advanced methods under
Pillar i of Basel ii. The Standard Approach for
assigning capital is used to calculate credit risks
and market risk. The Basic Indicator Approach
is used to calculate the capital requirements for
operational risks. The options chosen by Triodos
will not diminish its efforts to continue to
improve and fine-tune its internal risk management
system. The revised framework supports
future developments of more advanced capital
calculation methodologies. As part of Pillar ii
of Basel ii, Triodos Bank also implemented the
Internal Capital Adequacy Assessment Process
(icaap). The icaap is used for the supervisory
review as part of Pillar ii requirements. This
capital policy was discussed with the Dutch
Central Bank (dnb), which made a number of
recommendations that were followed up within
the organisation. Pillar iii concerns the disclosure
of solvency risks. The purpose is to make
data on solvency and the connected risk profile
of the organisation available to stakeholders.
In line with regulations, this data is published
where desirable or necessary.
CAPITAL MANAGEMENT
The aim of capital management is to guarantee
that sufficient capital is available to meet Triodos
Bank’s capital needs, given its underlying
business strategy. The Asset and Liability
Committee manages the capital within the Bank.
The strategic objectives determine Triodos
Bank’s Risk Appetite, or its willingness to take
risks. Risk appetite indicates the maximum risk
that Triodos Bank considers acceptable to
implement its business strategy in order to
protect itself against events that could have an
adverse effect on profitability, liability capital
and the depository receipt price. Capital serves
as the buffer to absorb the impact of losses that
are inherent to the business. Risk is an important
element of the capital framework. One of
the yardsticks for expressing and quantifying
58 TRIODOS BANK - ANNUAL REPORT 2009