Annual Report 2010 (PDF) - USB Bank

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Notes to the Financial Statements as at 31 December 2010 30. Risk management (continued) Operational risk Operational risk is the risk of loss arising from system failure, human error, fraud or external events. The Bank manages operational risk through procedures and controls. Controls include segregation of duties, controllable access, reconciliation of accounts and balances. In addition, the Bank’s General Inspection Unit, performs periodic reviews and evaluates the efficiency of these controls and procedures. Additionally, an insurance coverage exists in order to cover unanticipated operating losses. Equity securities price risk The risk of the price of equity shares arises when there is an unfavourable change in the price of investments in equity securities held by the Bank. The Bank is not subject to significant risk from such changes. Regulatory risk The Bank’s operations are supervised by the Central Bank of Cyprus. In carrying out is regulatory duties, the Central Bank of Cyprus follows, inter alia by the European Union’s underlying legal framework, as well as the regulatory framework of Central Bank of Cyprus. Future changes in the legal or regulatory duties as a result of arrangements either by European Union or Central Bank of Cyprus, may have impact on the Bank’s operations. The most recent proposed revision of Basel framework (Basel III) aims to promote a more resilient banking sector. These proposals focus on capital, liquidity and provisions and are expected to increase their defences and reduce the pro-cyclical leverage in the sector. Basel III is in the process of adoption by the EU and it will then need to be transposed into national legislation in Cyprus. Intensity of competition The operational environment of the Bank is highly competitive. Competition arises from commercial banks, cooperative credit institutions, and international banking units. Any intensification of competition as a result of more competitive interest rates being offered on deposits and advances compared to those offered by the Bank, may create pressure on the Bank’s profitability.. Litigation risk The Bank may, from time to time, become involved in legal or arbitration proceedings which may affect its operations and results. Litigation risk arises from pending or potential legal proceedings against the Bank and in the event that legal issues are not properly dealt with by the Bank, resulting in the cancellation of contracts with customers thus exposing the Bank to legal actions against it. 31. Capital management The adequacy of the Bank’s capital is monitored on a continuous basis in order to ensure compliance with the requirements of supervisory authorities, to maintain a base for support and growth of its activities and to protect the shareholder’s interests. For compliance purposes with the Central Bank of Cyprus (CBC) requirements for the computation of capital adequacy, the Bank has implemented and has fully complied with the provisions of the CBC’s Directive “Computation of Capital Requirements” (“Basel II”) throughout the year, on the basis of which it is required by every financial institution to maintain a minimum capital adequacy ratio of 8% (2009: 8%). 72 Αnnual Report 2010
Notes to the Financial Statements as at 31 December 2010 31. Capital management (continued) During the years 2010 and 2009, the Bank complied fully with all regulatory capital adequacy requirements: 2010 2009 €000 €000 Original own funds 21.548 27.890 Additional own funds 12.539 11.356 Total own funds 34.087 39.246 Risk weighted assets - credit risk 334.935 301.894 Risk weighted assets - operational risk 28.513 32.712 Total risk weighted assets 363.448 334.606 Capital Adequacy Ratio 9,38% 11,73% The total own funds of the Bank comprise of original own funds and additional own funds: (i) Original own funds which mainly include share capital, share premium reserve, retained earnings minus proposed dividends and hybrid capital (up to 15% of total equity), after regulatory adjustments related to fair value reserves. The book value of goodwill and other intangible assets are deducted from original own funds. (ii) Additional own funds mainly include subordinated debt, general provisions and revaluation reserves arising from the revaluation of properties and financial instruments. (iii) The Risk-weighted assets for credit and market risk are calculated using the standardised approach. For operational risk the capital requirements are calculated in accordance with the Basic Indicator approach. Annual Report 2010 73
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ANNUAL REPORT 2010
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Contents Notice of Annual General M
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CHAIRMAN’S STATEMENT Dear Shareho
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Report on Corporate Governance Boar
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Report on corporate governance Base
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Report on corporate governance Biog
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Report on corporate governance Biog
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Report on corporate governance Audi
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Report on corporate governance Remu
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Report on corporate governance Risk
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Page 25 and 26: Statement by the Members of the Boa
Page 27 and 28: Directors’ Report Board of Direct
Page 29: Directors’ Report Shareholders ho
Page 32 and 33: Income Statement for the year ended
Page 34 and 35: Statement of financial position for
Page 36 and 37: Statement of Cash Flows for the yea
Page 38 and 39: Summary of Significant Accounting P
Page 50 and 51: Notes to the Financial Statements a
Page 80 and 81: Independent Auditor’s Report to t
Page 82 and 83: Main Offices, Services and Banking
Page 84: www.usbbank.com.cy
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Annual Report 2010 (PDF) - USB Bank

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