Development of the Risk Management Policy at Bank Resona Perdania is always based on the guidelines stipulated in the Bank Indonesia Regulation concerning the implementation of risk management and in accordance with the requirements set forth in the Basel II Accord. The Bank understands and realizes that good risk management is an integral part of the Company’s business operations and activities to achieve optimum results. Therefore, the Bank continuously develops and improves its risk management policy based on the Bank’s risk characteristics so that it can identify, monitor, control, and manage risks appropriately and efficiently.
Risk management at Bank Resona Perdania covers all existing business activities, based on the need to balance between the functions of business operations and their risk management. Through proper risk management policy, then risk management will become a strategic partner for business units in obtaining optimum results from the company’s operations.
In order to develop a risk management system in accordance with international banking standards, Bank Resona Perdania is continuously developing and improving the framework of risk management systems and internal control structure. These are done so that these processes are integrated, comprehensive, and able to provide information on potential risks as early as possible, and to take adequate steps to mitigate the impact of these risks.
This risk management framework is outlined in policies, procedures, transaction limits, authority, and other provisions as well as various applicable risk management tools across the scope of business activities. To ensure that policies and procedures are in accordance with current business developments, periodic evaluation is conducted in accordance with the changing risk parameters. In addition to reviewing the Risk Management Policy and other relevant policies, the Risk Management Division is tasked to effectively monitor the implementation of risk management strategies that have been established and provide consultation and recommendations to the section/ division/ branch on matters relating to the implementation of risk management.
Continuous evaluation on the risk management model accuracy, data validity and development tools are undertaken to support the risk measurement process to become a focus in maintaining the effectiveness of risk management. Every new product/ activity is always examined from the standpoint of risk management to ensure the existence of risk mitigation and management that should be implemented before the new product/ activity is implemented and marketed.
Development of risk management is done through risk management training for all staff in the sections/ divisions/ branches to create an understanding of risk management practices. The Bank has consistently held a Risk Management Forum in an effort to develop a risk culture within the organization so that the Bank’s oversight of the risks contained in each bank activity can be detected early. In addition, management information systems development is done in the framework of an integrated risk measurement and calculation process to support a more advanced approach.
On a strategic level, Bank Resona Perdania always take attention to comply with Bank Indonesia direction, including on the calculation for capital adequacy in anticipating credit, market, and operational risks.
Credit Risk
Credit risk is managed by improving the quality of productive assets and loan portfolio ensuring that loans are channeled to a wide array of industry sectors and markets.
Settlement of non performing loans including collateral takeover, periodic monitoring of delayed payments and debtors under special classification are intended to mitigate the risk of default as well as to anticipate early signs of changes in ratings.
Anticipating the possibilities of risk arising from the debtors’ businesses, since 2009, Bank Resona Perdania implemented a standard method for credit risk assessment based on the Basel II Accord. Currently, the Bank is waiting for a more improved version in accordance with a proposed Bank Indonesia Regulation due in the beginning of 2011.
Since March 2010, the Bank has also implemented an internal credit rating system to measure the level of credit worthiness and to calculate the Probability of Default (PD) for every debtor. This system takes into account a number of aspects such as management, shareholders, industry analysis, financial performance, business performance, and collateral.
Credit Risk Management is also implemented by improving the systems for Credit Application, Internal Credit Rating, and parameter validation. Stress testing is also conducted on the Bank’s capital as a result of Non Performing Loans (NPL) to improve credit quality and evaluate the loan portfolio based on volume, quality, composition, and probability level.
Market Risk
Management of market risk utilizes an internal model based on Basel II principles and the Bank’s unique characteristics. Among the methods used is the Value at Risk (VaR) method through Variance-Covariance.Or calculation of capital charge and Bank Indonesia reporting requirements, the standard method is still used.
The framework for Market Risk enables the Bank to correctly measure and manage risks arising from market factors such as interest rates, exchange rates and other items. These include instruments on the trading book as well as interest rate differentials on the balance sheet. The Bank also adjusts its net foreign exchange position every 30 minutes. This net position must not exceed 20% of the Bank’s capital. Therefore, limits are placed for each currency and for the total forex exposure.
The Bank consistently maintains an open position by implements hedging technique. Monitoring on treasury transactions is conducted independently and almost in real-time using a Trade Order Management System on a Bloomberg terminal, enabling effective and efficient limits monitoring process.
To manage interest rate risk on the banking book, a repricing gap analysis is used as a more efficient method for managing interest rates.
Improvements on the current internal model are conducted based on the principle of prudence, using periodical stress testing analysis and carefully developed assumptions to assess the condition of the portfolio, as well as a daily back testing utilizing historical series data or parameters and assumptions that pertain to Bank Indonesia Regulations.
Liquidity Risk
Liquidity Risk management is intended to ensure the Bank’s ability to fulfill its due obligations. This is done by using different approaches such as monitoring of funding based on liquidity guidelines, determining secondary minimum reserve and managing maturity gaps. Other indicators are the Loan to Deposit Ratio, Gap Analysis, Liquidity Structured Trend, and Funding Trend that are routinely prepared in ALCO (Asset and Liability Committee) meetings.
The Bank conducts an analysis by using liquidity stress testing on the strength of the Bank’s liquidity through various scenario assumptions that may potentially interfere with the Bank’s liquidity and various other issues such as an increasing minimum reserve requirement. An analysis that is also used, includes restrictions on bank transactions with eligible counterparty and limiting gap concentrations in accordance with the time gap limit.
In addition, Bank Resona Perdania also sets a soft limit to mitigate liquidity risk caused by the concentration of funding. Monitoring of compliance to this soft limit is done by the Risk Management Division, and if there are excesses over the limit, then the parties concerned will conduct joint meeting to find solutions to these problems.
To strengthen funding capabilities, especially in emergency situations, Bank Resona Perdania has signed agreements with selected banks for a committed line facility that can be used as a liquidity buffer and contingency funding.
Operational Risk
A culture of risk awareness continues to be developed at Bank Resona Perdania, through one of which is to continue to socialize the Standard Operating Procedure (SOP) for employees to raise awareness of the importance of a risk culture and the formation of a Special Task Force to review the weaknesses of the process in every activity in the Bank.
Operational risk is managed by identifying risks related to administration systems, developing a Disaster Recovery Plan (DRP) procedure, reevaluating the information security, system risk management as well as outsourcing management policies.
Risk identification is implemented by developing methods that can help manage and control risks in a comprehensive manner such as:
Loss Event Database (LED), this is a medium used to administer data on loss and operational risk events in connection with operational activities. The database enables the Bank to analyze the source of the problems and devise mitigating or additional controls to prevent similar situations from arising in the future.
The Control Self Assessment (CSA) is a method that is used as a means to identify and measure the level of control over potential risks of the activities and functions in their respective division/ section. It is important to ascertain whether existing controls are operating effectively, so that gaps that arise can be identified. Mapping of risk in each division/ section is conducted by setting the Control Self Assessment into the Key Risk Indicator as a guide to better risk management. CSA parameters are continuously updated in accordance with the guidelines and instructions from the Resona Bank, Japan.
The Key Risk Indicator (KRI) is a method used to monitor the risks in each division/ section which is done by mapping the results of the Control Self Assessment (CSA) to obtain and monitor the main risk indicators. This is intended as an early warning signal and it is expected that risk events can be detected early or settled when the problems are still small.
By continuously improving the existing database, the Bank is able to analyze sources of problems better and devise the best solutions and proper preemptive measures in order to prevent similar or bigger risks in the future.
In addition, the provision of appropriate and continuous training to all employees is also a top priority in mitigating operational risk.
Compliance Risk
The implementation of compliance risk has been carried out continuously by Bank Resona Perdania, where every section and division has a compliance officer. The level of compliance for various external and internal regulations are also monitored by the Compliance Unit under the supervision of the Director of Compliance.
The implementation of compliance risk has been carried out continuously by Bank Resona Perdania, where every section and division has a compliance officer. The level of compliance for various external and internal regulations are also monitored by the Compliance Unit under the supervision of the Director of Compliance.
Legal Risk
Legal risk assessment conducted at Bank Resona Perdania has been working well. Legal risks are monitored by the Legal Officers of the Bank to ensure all agreements and contracts protect the interests of the Bank, including monitoring ongoing litigation processes as well as potential legal risks for the future. To that end, Bank Resona Perdania conducts periodic reviews of legal documents, agreements and contracts with third parties, and evaluate weaknesses of agreements which could cause legal risks for the Bank.
In addition, Bank Resona Perdania also actively assesses legal risks reflected from potential lawsuits and incoming cases, and establishes policies and procedures for the management of legal risk.
Strategic Risk
Strategic risk is measured to determine the extent to which business decisions can affect the future performance of the Bank. Bank Resona Perdania constantly measures and reviews the achievement of work plans every month and disseminates this information to all employees. This is intended as an effort to increase awareness of the importance of transparency and the achievement of business targets in an organization without ignoring the risks that may arise. The same was also done at the subsidiaries to ensure that strategies that have been defined can be implemented properly.
Reputation Risk
The Planning Division carries out Reputation Risk monitoring for negative publicity and customer complaints consistently. Managing these two problems are expected to help in mitigating reputation risk. Aside from that, Bank Resona Perdania also establishes parameters for Reputation Risk and mitigation of this risk as well as establishing policies and procedures for managing reputation risk.
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