Notes to the financial statements continued48. Contingent liabilities, commitments and other contingencies continuedNAMAThe Group may be required to indemnify NAMA in respect of various matters, including NAMA’s potential liability arising fromany error, omission or misstatement on the part of the Group in the in<strong>for</strong>mation provided to NAMA. Any claim by NAMA inrespect of those indemnities, depending on its nature, scale and factual context, could have a material adverse effect on theGroup.49. Statement of cash flowsThe GroupThe <strong>Bank</strong><strong>2011</strong> 2010 <strong>2011</strong> 2010Other non-cash items €m €m €m €mLoans and advances written-off net of recoveries 6 (381) 6 (380)Depreciation and amortisation 23 26 14 15Net interest on subordinated liabilities and othercapital instruments (5) 25 1 20Net increase in prepayments and accrued income (6) (11) (7) (9)Net (decrease)/increase in accruals and deferredincome (49) 33 (44) 33Share of results of associates and joint ventures (15) 104 - -Net losses on disposal of available-<strong>for</strong>-salefinancial assets 2 110 2 145(44) (94) (28) (176)<strong>2011</strong> 2010 <strong>2011</strong> 2010Cash and cash equivalents €m €m €m €mCash and balances with central banks 100 181 100 181Loans and advances to banks (with a maturityof less than three months) 323 1,388 3,607 762At end of year 423 1,569 3,707 943Loans and advances to banks (with a maturity of less than three months) excludes cash collateral placed with derivativecounterparties in relation to net derivative liability positions (note 22).102
<strong>Irish</strong> <strong>Bank</strong> <strong>Resolution</strong> <strong>Corporation</strong> LimitedAnnual Report & Accounts <strong>2011</strong>50. Risk managementSince the <strong>Bank</strong> was taken into State ownership in 2009, the new management team has focussed on the stabilisation and deriskingof the <strong>Bank</strong>, while maximising the recovery of outstanding loans. As set out in the Restructuring Plan, the <strong>Bank</strong>'s primarystrategic objective is the working out of its assets in an orderly process over time, while minimising the loss to the <strong>Irish</strong>taxpayer. A Monitoring Trustee was approved by the EC on 8 December <strong>2011</strong> to <strong>report</strong> on a quarterly basis <strong>for</strong> a period ofthree years on the Group's adherence to the commitments included in the Restructuring Plan. In this regard, the balance sheetcontinues to be reduced. Total assets at 31 December <strong>2011</strong> amount to €55.5bn, which represents a decrease of €17.4bn or24% on a constant currency basis from the position at 31 December 2010. This sizeable reduction in total assets demonstratesthe <strong>Bank</strong>’s commitment to deleverage the balance sheet in line with the objective of an orderly resolution over a period of upto ten years. The reduction in the <strong>Bank</strong>’s total exposures also means a reduction in total borrowing requirements.Overall, the deleveraging process leads to a reduction in risk exposures. However, the complex resolution process must becarefully managed and controlled in order to minimise the cost to the <strong>Bank</strong> and the Shareholder. The reduction in totalexposures in the year primarily results from the transfer of NAMA senior bonds to AIB pursuant to the AIB Transfer Order andthe ongoing deleveraging of the Group’s loan portfolios, including the sale of US assets with a carrying value of €5.1bn.Against this, €7.4bn of assets and €6.7bn of liabilities were transferred to the <strong>Bank</strong> on 1 July <strong>2011</strong> under the INBS TransferOrder. At 31 December <strong>2011</strong> net customer lending of €18.0bn and the Government promissory notes of €29.9bn, which pay afixed rate of interest, represent 86% of total assets.The <strong>Bank</strong> is not active in new lending or deposit markets and continues to operate independently as a regulated entity with itsown Board, governance functions and group management team. The objective of this model is to minimise the risk of furtherlosses and to concentrate expertise in managing the work-out of loans over a period of years. The merged entity is bound bythe Capital Requirements Directive and thus is subject to a minimum 8% regulatory capital requirement.Following the INBS Transfer Order, the <strong>Bank</strong> has integrated the INBS business into the Group’s combined risk managementframework. The transferred INBS loan portfolio consisted of commercial and residential books comprising total gross loans of€1.0bn and €1.9bn respectively. Monitoring of the INBS commercial book has been incorporated into the <strong>Bank</strong>’s existing creditcommittee and loan review processes, whereas the residential book is managed and monitored separately. Managementoversight and monitoring of the residential mortgage portfolio is the responsibility of the Credit and Collections Forum (‘CCF’),which is chaired by the Group Chief Risk Officer ('CRO').The Group is subject to a variety of risks and uncertainties as set out on pages 18 to 22.The principal risks and uncertainties identified by the Group include general macro-economic conditions, as well as specificrisks. The material risks identified and managed by the Group in its day-to-day business are credit risk, liquidity and funding risk,market risk, operational risk, reputational risk, legal risk, conduct risk, governance risk and compliance and regulatory risk. Inorder to effectively minimise the impact of these risks, the Board of Directors ('the Board') has established a risk managementframework covering accountability, measurement, <strong>report</strong>ing and management of risk throughout the Group. In accordancewith the direction of the Shareholder, a key objective over the coming years is to reduce the risk profile of the business.Management recognises the importance of the support functions of Group Risk, Group Compliance and Operational Risk, andGroup Finance within the <strong>Bank</strong> in assisting with this process.This note describes the risk management and control framework in place in the <strong>Bank</strong> and sets out the key risks which couldimpact the <strong>Bank</strong>’s future results and financial position. The risks discussed below should not be regarded as a complete andcomprehensive statement of all potential risks and uncertainties as there may be risks and uncertainties of which the <strong>Bank</strong> isnot aware or which the <strong>Bank</strong> does not currently consider significant but which may become significant in the future.Risk oversight and corporate governanceIntroductionThe <strong>Bank</strong> is cognisant of industry best practice in respect of risk management and internal controls, which at a minimumrequires that:▪ <strong>Bank</strong>s should have an effective internal controls system and a risk management function (including a Chief Risk Officer orequivalent) with sufficient authority, stature, independence, resources and access to the Board;▪ Risks should be identified and monitored on an ongoing firm-wide and individual entity basis, and the sophistication of the<strong>Bank</strong>'s risk management and internal control infrastructures should keep pace with any changes to the <strong>Bank</strong>'s risk profile(including its growth) and to the external risk landscape;▪ Effective risk management requires robust internal communication within the <strong>Bank</strong> about risk, both across theorganisation and through <strong>report</strong>ing to the Board and senior management; and▪ The Board and senior management should effectively utilise the work conducted by the internal audit function,external auditor, and internal control functions.103
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