2011 Annual Report - BDO

NOTES TOFINANCIAL STATEMENTSTo manage the financial risk for holding financial assets and liabilities, the Bank operatesan integrated risk management system to address the risks it faces in its banking activities,including liquidity, interest rate, credit and market risks. The Bank’s risk managementobjective is to adequately and consistently evaluate, manage, control, and monitor the riskprofile of the Bank’s statements of financial position to optimize the risk-reward balance andmaximize return on the Bank’s capital. The Bank’s Risk Management Committee has overallresponsibility for the Bank’s risk management systems and sets risks management policiesacross the full range of risks to which the Bank is exposed. The Bank’s Risk ManagementCommittee places trading limits on the level of exposure that can be taken in relation toboth overnight and intra-day market positions. With the exception of specific hedgingarrangements, foreign exchange and interest rate exposures associated with these derivativesare normally offset by entering into counterbalancing positions, thereby controlling thevariability in the net cash amounts required to liquidate market positions.Within the Bank’s overall risk management system, the Assets and Liabilities Committee(ALCO) is responsible for managing the Bank’s statements of financial position, including theBank’s liquidity, interest rate and foreign exchange related risks. In addition, ALCO formulatesinvestment and financial policies by determining the asset allocation and funding mix strategiesthat are likely to yield the targeted statement of financial position results.Separately, the Risk Management Unit is mandated to adequately and consistently evaluate,manage, control and monitor the over-all risk profile of the Bank’s activities across thedifferent risk areas (i.e. credit, market, liquidity, and operational) to optimize the risk-rewardbalance and maximize return on capital. The Risk Management Unit has responsibility for thesetting of risk policies across the full range of risks to which the Bank is exposed.In the performance of its function, Risk Management Unit has the following responsibilities:• It is responsible for policy formulation in coordination with the relevant businesses/functions and ensures that proper approval for the manuals/policies is obtained from theappropriate body.• It then disseminates down the approved policies to the relevant businesses/functions afterwhich, pertinent authorities are delegated down to the businesses/functions to guide themin the conduct of their businesses/functions. Risk Management Unit then performscompliance monitoring and review to ensure approved policies are adhered to.• It is responsible for clarifying interpretations of risk policies/guidelines raised by theBusiness Heads/Units.• When adverse trends are observed in the account/portfolio, Risk Management Unit isresponsible for flagging these trends and ensuring relevant policies for problem accounts/portfolio management are properly applied.