Annual Report 2012 - National Savings Bank

105ASSESSING AND MANAGING OUR RISK FACTORSRISK MANAGEMENTRisk Identification,Measurement, Mitigation,Monitoring and ReportingThe Bank, with the approval of theBoard of Directors has established basicrisk identication and measurementtechniques; such as Key PerformanceIndicators (KPIs), Key Risk Indicators(KRIs), Stress Tests, ManagementInformation System (MIS), Riskreview, Competitor Analysis, ControlExamination, improvement ofStructures etc during the period underreview. The ndings were used asyard sticks for risk measurement andmitigating measures.The Board approved stress test policywas reviewed during the year to representregulatory and market risk. The policyties over ten stress test conditionscovering protability (interest incomeand expenditure), credit (Adverseshifts of Non Performing Loans (NPL)categories, transfer of Performing Loans(PL) into NPL, impact of increasingprovisions etc), interest and liquidity(change of interest rates of governmentsecurities, deposit and lending rates,change of maturity prole of assets andliabilities etc) and adverse impacts onchange of overheads.KPIs cover protability, performanceefciency, and asset quality. KRIshighlights possible risk areas includingimpact on interest rate risk, margin,assets and liability structure, marketpositioning, overheads etc. The ndingsare reported to the respective operationalcommittee (i.e. ALCO, ERMC, IRMC)and to the Board on a quarterly basis.An MIS is being developed as a tool forrisk identication, monitoring processand feedback process at the operationallevel and results are discussed withinthe representative managementcommittees. The Bank is also takingactions to formulate a comprehensiveretail credit policy and the draft is beingreviewed by the Senior Management.STRATEGIC RISKStrategic Risk is dened as the possibilityof losses arising from adverse businessdecisions, lack of responsiveness toindustry changes, negative impact oncurrent and/or prospective earningsor capital, lack of concentration onstrategic direction and critical factorswhich may arise due to a weak strategicplanning process.The Bank identies Strategic Riskthrough environmental scanning by theBoard and the Corporate Managementteam in achieving the Strategic Goalsand Objectives. The guidelines of theBoard approved Policies, Charters, RiskReview Reports, Risk Tolerance Limitsetc, are used to identify strategic risk byusing tools such as Scenario Analysisand Stress Testing.Board approved Integrated RiskManagement Policy (IRM Policy),Treasury and Asset and LiabilityManagement Policy, Investment Policy,HR Policy, Code of Conduct forDealers, Training Policy, OutsourcingPolicy and Charters for All OperationalLevel Committees are in place in orderto minimise strategic risk.Note: All the fi gures, data tables and graphs inthe risk management report are based on the SriLanka Accounting Standards (SLAS) unlessotherwise mentioned specifi cally.NATIONAL SAVINGS BANK . ANNUAL REPORT 2012