ANNUAL REPORT 2010

Treasury is responsible for liquidity risk, which follows the liquidity policy parameters for
organizations outlined by the Board of Directors, through the Board of Directors Risk
Committee, the Global Risk Committee and the Assets and Liabilities Committee. An
organization’s global liquidity risk environment is monitored periodically and is the outcome
of the liquidity management process exercised by the Treasury in each of the financial vehicles
in which it participates.
The Assets and Liabilities Committee meets monthly and must make decisions on the liquidity
and structure of the financial balance sheet by presenting the evolution and trends of the
main factors that affect liquidity, measured by a series of tools and reports for optimizing the
management of assets and liabilities (analysis of liquid assets, short, medium and long-term
liquidity gap, liquidity indicators; balance sheet structure (evolution of balance sheet items),
among others.
These analyses and methodologies are complemented with reports known as Contingency
Funding Plans. These are used to evaluate an institution’s ability to meet extreme deposit
withdrawals which are modeled using liquidity studies of the institution and the market, to
establish primary and secondary reserve requirements and other sources of liquidity to meet
potential withdrawals.
Operational Risk
Mercantil sees Operational Risk management as fundamental in attaining its objectives and
continues to use an integrated approach to include the qualitative and quantitative aspects that
have characterized it.
In view of today’s dynamic financial environment and the different internal and external factors
behind this type of risk, the Institution’s capacity to meet stakeholders’ expectations and comply
with the demands of the regulators is constantly put to the test. Hence the identification and
preventive analysis of risks have strengthened the comprehensive approach through corrective
action taken to mitigate the weaknesses detected.
During the year the Organization continued to identify and assess risks detected in its critical
processes and provide the information necessary for decision-making, with emphasis on the
need to follow up action plans for major risk events to minimize their occurrence.
The comparative study of the behavior of operational risk events in time is an example of how this
risk is managed on an ongoing basis. Using information gathered on events around the world,
risks are quantified and scenarios analysed to help calculate economic capital, set objectives,
and control expected losses.
To help mitigate high-impact risks according to the needs of the environment, the Insurance
Policy Program was updated and strengthened and the technological aspect of the Business
Continuity Program was reinforced.
All the companies in the financial group continued to strengthen the management side of its
operational risk culture.
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