Annual Financial Statements 2010 of Bank Austria

Consolidated Financial Statements in accordance with IFRSs
E – Risk report (CoNTINuED)
E.1 – overall risk management including Basel 2
UniCredit Bank Austria AG identifies, measures, monitors and manages all risks of the Bank Austria Group. In performing these tasks, Bank Austria
works closely with the risk control and risk management units of UniCredit. In this context, UniCredit Bank Austria AG supports UniCredit’s ongoing
projects which are aimed at establishing uniform group-wide risk controlling procedures.
UniCredit Bank Austria AG divides the monitoring and controlling processes associated with risk management into the following categories: market risk,
liquidity risk, counterparty risk, credit risk, operational risk, business risk, financial investment risk and real estate risk.
The Management Board determines the risk policy and approves the principles of risk management, the establishment of limits for all relevant risks,
and the risk control procedures.
In performing these tasks, the Management Board is supported by specific committees and independent risk management units. All risk management
activities of UniCredit Bank Austria AG are combined within a management function at Management Board level directed by the Chief Risk Officer
(CRO); secondary lending decisions for corporate customers are made in the CIB Credit Operations, CEE Credit Operations and Market Risk departments,
and for private customers and business customers in the Risk Management Family & SME Banking (+PB) department. The Special Credit Austria and
CEE Credit Operations departments deal with problem loans. These organisational units are supported by the Strategic Risk Management & Control
department. Credit risk control of the CEE business units is performed by the CEE Risk Control and CEE Credit Operations departments. The unit for
active credit portfolio management (Credit Treasury) reports directly to the Chief Financial Officer (CFO).
Cross-divisional control
The Asset/Liability Committee (ALCO) is responsible for the management of balance-sheet structure positions, it controls liquidity risk, deals with
cross-divisional risk management issues arising between sales units and overall bank management, and provides an overview of credit portfolio model
results while also preparing reports on economic capital (Pillar II). Moreover, a committee which meets once a week was set up in 2008 to deal with
the following liquidity-related topics: operational aspects of liquidity management including market monitoring; and compliance with the liquidity policy,
with CEE banking subsidiaries also being covered in this context – Bank Austria acts as a regional liquidity centre of UniCredit Group. Control of market
risk is ensured by the Market Risk Committee (MACO), which meets once a week. MACO deals with short-term business management issues relating
to the presentation and discussion of the risk/earnings position of Markets & Investment Banking and with limit adjustments, product approvals and
positioning decisions. In addition, the general framework and limits for banking subsidiaries are defined by MACO. Credit risk is assessed by the Credit
Committee. The Operational Risk Committee (OpRiCo) meets on a quarterly basis to deal with operational risk issues.
Counterparty risk arising from derivative transactions is managed by the Derivative Committee (DECO). DECO deals with classic credit risk issues and
aspects of reputational risk in customer business.
The Management Board of UniCredit Bank Austria AG sets risk limits for market risk activities of the entire Bank Austria Group at least once a year, in
coordination with UniCredit Group. MACO, which holds a meeting every week, makes limit decisions at the operational level and analyses the risk and
earnings positions of the bank’s Markets & Investment Banking units. ALCO performs analyses and makes decisions with regard to business activities
closely connected with customer business (in particular, balance sheet structure, liquidity, and risk management issues arising between sales units and
overall bank management). The decisions and results of these committees are reported directly to the bank’s full Management Board. Risk Management,
which is separate from the business divisions up to Management Board level, is in charge of preparing analyses and monitoring compliance with
limits. In 2010, the requirements which the Austrian supervisory authority specified in respect of the counterparty risk model when it approved the
model were met. The relevant report on compliance with the requirements was sent to the Austrian Financial Market Authority (FMA) at the beginning
of the fourth quarter of 2010; from UniCredit Bank Austria AG’s perspective, the approval process was thereby successfully completed. In addition to
compliance with the requirements, further CEE countries were included in the model with a focus on risk management and not yet on regulatory
approval. The bank took account of the growing importance of counterparty risk by creating a separate unit for this purpose within the Market Risk
department at the beginning of 2010.
The Bank Austria Group applies the principle of value-based management.
Beyond compliance with the regulatory capital rules pursuant to Section 39 of the Austrian Banking Act, economic capital (Pillar II) is intended to reflect
the bank’s specific risk profile in a comprehensive and more consistent way. These unexpected losses over a period of one year are calculated with a
confidence level of 99.97%.
Value-at-risk methodologies are used in the Bank Austria Group for calculating or planning economic capital for all specified types of risk (credit risk,
market risk, operational risk, business risk, financial investment risk and real estate risk). The Bank Austria Group is included in the risk monitoring and
risk management system of the entire UniCredit Group. This ensures overall risk management across the Group.
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