(Thai) Annual Report 2005 - United Overseas Bank

Risk Factors and Risk Management
to the approving authority, credit analysts under this unit
address the degree of risks and concerns in each risk aspect
of the borrower in order to evaluate whether the assessed
risks lie within acceptable range of the Bank. The credit
advice may also cover suggestion for the restructuring or
adjustment of the credit facilities, collateral and other
facility terms and conditions to best represent the risk
profiles of the borrower.
(3) Financial Restructuring and Recovery Division
This unit focuses on loan restructuring and recovery of
the larger non performing commercial loans with the aim
of minimizing damages and losses to the Bank. Non
performing loans are transferred to this unit for intensive
follow up and negotiation with the borrower from the
early stages of loan default. Depending on the level of
co-operation from the borrower, legal proceedings may
be commenced against the borrower for loan repayment
as well as collateral enforcement. All restructured loans
continue to be closely monitored by this unit until they
have demonstrated good payment record.
(4) Collection Division
This division monitors and follows up on all delinquent
consumer loans as well as the small retail and SME loans.
Through the collection system, details of delinquent
accounts are auto-routed to the collectors for immediate
actions the moment borrowers go into default. Debt
restructuring and legal actions may also be employed in
order to maximize recovery to the Bank.
(5) Litigation Department
The Litigation Department, a unit within the Collections
Division, undertakes and oversees all legal actions and
related activities of the Bank. Besides undertaking legal
actions against defaulted borrowers on behalf of the
Bank, this unit is also in charge of putting up a legal
defence against all legal suits filed against the Bank.
• Liquidity Risk
Liquidity risk is defined as the potential loss arising from
the Bank‘s inability to meet its contractual obligations
when due. Liquidity risk arises in the general funding of
the Bank‘s activities and in the management of its
assets. The Bank maintains sufficient liquidity to fund its
day to day operations, meet customer deposit withdrawals,
meet customers‘ demand for new loans and repay
borrowings as they mature.
The management of liquidity risk is carried out throughout
the year by a combination of cash flow management,
maintenance of high quality liquid assets and other short
term investments that can be readily converted to cash,
diversification of the funding sources and proactive
management of the core deposit base. Liquidity
contingency funding plan is drawn up to ensure that
alternative funding sources are in place to minimize
liquidity risk under any given liquidity crisis scenario.
The Asset and Liability Committee ( ALCO ) formulates
key strategies and policies on liquidity risk management,
sets up control limits and reviews the Bank‘s asset
liability structure on a regular basis. The Asset Liability
Management Division under Treasury Management Group
undertakes the day to day management of the Bank‘s
liquidity cash flows while the Market & Liquidity Risk
Management Division independently monitors and reports
liquidity risk exposures to the ALCO on a regular basis.
• Balance Sheet Risk
Balance sheet risk is defined as the potential change in
earnings arising from the effect of movements in interest
rates and foreign exchange rates on the structural banking
book of the Bank that is not of a trading nature.
The ALCO establishes policies and strategies to manage
and control the balance sheet interest rate risk exposure
which may include adjusting lending and deposit rates
and the structure and proportion of assets and liabilities.
Exposure to currency risk is managed actively by setting
limits for both overnight and intra-day position.
The Market & Liquidity Risk Management Division monitors
and reviews balance sheet interest rate risk exposures by
116 United Overseas Bank (Thai) Public Company Limited