Annual Report - Ahli United Bank

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Annual Report - Ahli United Bank

CREDIT RISKCredit risk is the risk of potential financial loss due to the failure of a counter party to perform according to agreed terms. It arises principallyfrom lending, trade finance and treasury activities. The credit process is consistent for all forms of credit risk to a single obligor. Overallexposure is evaluated on an ongoing basis to ensure a broad diversification of credit risk. Potential concentrations by country, product,industry, and risk grade are regularly reviewed to avoid excessive exposure and ensure a broad diversification.Credit risk within the Group is actively managed by a rigorous process from initiation to approval to disbursement. All day-to-daymanagement is in accordance with well-defined credit policies and procedures (CP&P) that details all credit approval requirements andare designed to identify at an early stage exposures which require more detailed review and closer monitoring. If an asset is consideredunrecoverable, a mandatory write-off takes place. This is conducted by a risk management process which is completely independent inreporting terms from the asset generating departments.The CP&P includes a robust risk rating system that apportions the credit portfolio by level of risk in order to monitor credit quality; enableassessment of pricing and assist in the prompt identification of problem exposures. Management of material problem exposures is vestedwith Special Exposure Groups in the respective Group operating entities, all of which report to the Group Risk Management area. Allexposures are subject to quarterly and, in certain cases, monthly reviews.In addition to the Group Risk Management function, credit risk is overseen by the Group Risk Committee (GRC) which is charged with theoverall day-to-day responsibility for all matters relating to group credit risk. GRC’s responsibilities include the following:• formulating and implementation of credit policies and monitoring compliance,• acting as a credit approval body for credits within its delegated authority,• recommending to the Executive Committee all policy issue changes related to credit risk as well as credits falling outside itsdiscretion,• determining appropriate pricing and security guidelines for all risk asset products,• reviewing the ongoing risk profile of the Group as a whole and by individual business sectors and countries,• ensuring the adequacy of specific and collective impairment provisions and making appropriate recommendations to theExecutive Committee.MARKET RISKMarket risk is the risk that adverse movements in market risk factors, including foreign exchange rates, interest rates, credit spreads,commodity prices and equity prices, will reduce the Bank’s income or the value of its portfolios.Given the Group’s ongoing low risk strategy, aggregate market risk levels are low relative to the size of the Bank’s balance sheet. The Grouputilizes Value-at-Risk (VaR) models to assist in estimating potential losses that may arise from adverse market movements in addition toother quantitative and non-quantitative risk management techniques.The Group calculates VaR using a one-day holding period at a confidence level of 95%, which takes into account the actual correlationsobserved historically between different markets and rates.AUB Annual Report 200937

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